In between's blog

 This is what we are up against:

We can't stimulate the economy for several reasons.

1. Banking and too much housing. 

2. Jobs are gone and there are no jobs to go to.

3. You cannot create jobs if jobs are going overseas.

4. 2 billion cheap laborers will put pressure on the middle class and jobs. 

5. The tax cuts was for the here and now and is spent money. The tax cuts do not have the stimulative effect that it had before.

6. We have had low interest rates for a long time, and the interest rates do not have the stimulative effect that it had before.

7. Supporting small business does not work in my town with factories closed down. You need traffic and employed people provided that traffic.

8. Putting tax cut money into the hands of the consumer does not have the effect that it once did, because half the products are made overseas.

9. What widgets can be built in America and not in China or some other country. 

10. The 50 year old generation will have a tough time to retrain as companies replaced them with automation.

11. We have not invested in our country, in our people, and in the future. 

12. We have seen ideology used by political parties to run the country and that is a failure. Again, you have to do what I said on number 11.

13. The politicians are controlled by interest groups and lobbyists and that leaves out the little guy.

14. Tons of mistakes through the years and the ignorance of what globalization/free trade is doing to our country.

15. There is no upward movement for the middle class, as we lost the jobs and the jobs that do exist pay lower wages and it is just one competitor against the other. There is no new industries to go to.

16. Companies have learned to have less employees through automation and lean management and lean principles. (one person doing the job of two or three people)

And here is what the country has to do:

1. Fix the antitrust laws that Reagan relaxed. Monopolies and consolidations destroyed jobs.

Who Broke America’s Jobs Machine? | NewAmerica.net

2. Invest in your country: That is energy independence for security and jobs. Also a new air traffic control system that will save 12% on fuel. The savings to the airlines can go to build new aircraft. A high speed internet system. Perhaps high speed rail.

3. Invest in your people: That is mandatory vocational training. We live in a globalized world and you can no longer rely on factories. We have to be an educated society.

Hudson Institute > Promoting U.S. Worker Competitiveness in a Globalized Economy

4. Invest in the future: Federal research grants to be given to universities and business to bring out new technologies. Today there are no new jobs to go to for those unemployed. You need new areas of growth. No playing games with embryonic stem cell research. 

Is America Losing Its Mojo? | Print Article | Newsweek.com

5. Consider an "American job elimination tax" on companies that move out of the country. These companies do not pay middle class wages, healthcare, pensions, social security, or city and state taxes.

6. Get away from failed ideology. We saw it for 8 years. Tax cuts was used as an ideology. It did not prevent recessions. And did not create prosperity. You still have to solve problems. Ideology does not solve problems.

7. Supporting small business sounds nice and it is heard in Washington, but it does not work in my community as the big business left. That means you cannot have small business as people lost their jobs. Besides, small business will never pay what big business paid in wages.

8. We are losing the middle class. We cannot compete with 2 billion cheap laborers in the world that want our jobs. There are not enough jobs to go around. Competition is good, but it can be harmful also. All we are doing in this country is build the same business environment so that we can knock the other guy out. A person loses his job and has no place to go to. And the reason is that we did not invest in our country, in our people, and in the future. 

9. Have commissions to cut government spending. It seems to be the only approach to doing this. Obviously, one side or the other will complain, but something has to be done now.

10. Government appointed jobs and organizations need to be slimmed down. Every 50 to 60 years we need to go through this. There are too many secretaries, deputy-secretaries, under-secretaries, and under-under-secretaries. Information gets loss through the process and government becomes ineffective. The last time this was done was with the Hoover Commission in the late 40’s.

11. Pour money into new drugs and preliminary medical science. Drugs are becoming less resistant to diseases. And potential super bugs are coming. 

12. Fix the infrastructure. It is the reflection of our country and to the rest of the world.

Home | Report Card for America's Infrastructure

13. And if we have not kept up with it, every school should have physical education. Also wash your hands when you come home to prevent viruses and less trips to the doctor. And as we see so often, stop throwing pop cans, etc. outside the car.

14. We need to slow down urban sprawl. Inner cities are being abandoned. As people leave there is no money left to support the inner city. This maybe controversial to some, but at some point we will have to deal with the problem. Sprawl also takes away from farms and spreads cities out too far in a time when you have empty buildings. We cannot have cities in decay. And cities in decay cannot create jobs and small business.

PBS - STORE WARS: Sprawl

YouTube - Rocky Mountain PBS: What is Denver Living Streets?

15. And finally, I don’t think our electoral political system works anymore. Every candidate is bought off and it takes huge amounts of money to run a campaign. I would suggest a management team or a turn around specialist to be a president for a couple of years. And there would be a board of directors who he answers to and for the middle class. The parties are riddled with failed ideologies. We can do better that what we have. 

 Arby's is planning to build a restaurant in a nearby town. Alright, so far so good, but the state is going to give $221,000 to hire employees. We have seen for decades incentives given to companies by the cities and states to stay or move in their localities. It is looking more and more an economy built on a house of cards. We want real employment and not trumped up by incentives. A government supported incentive to keep businesses and employees is going down the wrong path.

Our real concern should be globalization. I have talked many times on this. And of course, I have emphasized investing in our country, in our people, and in the future. And if you do that, then the restaurants and other businesses will follow. Taking jobs from one state to another makes no sense in a day of globalization. And supporting jobs through tax incentives makes no sense. It has to be real jobs, with real business, with future growth. In other words, the federal government must make the environment the best for business, but what business does in hiring is their problem and not the governments. 

The problems for business maybe the tax structure. And it maybe that cheap labor is undercutting the profits of business. And of course businesses shut down or they cut wages. It maybe that the federal government and the political parties do not have an updated model to work with, and it is up to the cities and states to find the incentives. 

We have seen the government support on housing. And we know it is wrong. And I am afraid they are doing that for jobs. Jobs will come about, just like housing, if you create real growth. 

 As each day passes, and having seen all the ups and downs of politics for the past 60 years of my life, I have come to the conclusion that not one political party has a foothold on how to run our country. We all have the fear of big government from the left and what that presents. But what fears hold true from the right? And maybe I can bring that out.

I have talked many times on globalization. What it will do is put pressure on workers and industry to cut costs. And if companies cannot compete in this country, they will either fold up or move out of the country. Employees feel the pressure and companies cut their wages. So this falls in the category of big business and more or less the loss of the middle class.

I watched a PBS program last night (POV-Point of View) and the title of the program was Food Inc.POV - Acclaimed Point-of-View Documentary Films | PBS  This documentary shows the mega chicken and beef farms. It shows how chickens are fattened up and the beef we eat is mostly corn. 

I got to thinking that today, our government is talking about controlling sugar, fat, and salt content in our products. But yet, it is our government that supports these mega farms from Tyson, Smithfield, and Monsanto. They control some 75% of the market. And they are aiming at 100% of the market. The possible dangers of this is that they drive out the farmer, our beef is raised on corn which creates the possibilities of bacteria, the hamburger comes from several cows instead of just one cow, contaminated beef, and you have soil and water ruined, so we could possibly have an eco-disaster. 

I was not aware of what our government was doing with the housing industry in the past decade. I live in a community that is small and is manufacturing. I saw our manufacturing and community destroyed. I say this as a lot of us do not know what is going on in other parts of our economy. The housing crisis hit California, Arizona, Nevada, and Florida. But what we have seen from Washington is that they will target a specific area (housing and low interest rates) and think that this will drive our economy and ignore the real problems. And I have always gone to the fact that we only need to invest in our country, in our people, and in the future in a pragmatic way. Republicans take a laissez-faire approach of just tax cuts. But they did support the housing buildup.

Putting all this together, what we are witnessing from the right is that it is a party of big business and our ecology could be ruined. Our middle class is being destroyed as republicans do not recognize problems of globalization, as if tax cuts solves all problems. We also see the dangers of religion in government and the right has no problem with this potential danger. We also see the Military Industrial Complex and its power. 

So while the right fears the lefts big government, we are seeing signs of the right of big business, the trashing of the middle class and unions, religion in government, big military, and the use of ideologies of just tax cuts, the constitution, and free market principles-which totally ignores our day to day problems. 

We have 535 congressmen and senators, interest groups, lobbyists, and corruption. It is too many bosses to run this country. Someone always says, "if we can just vote this guy in and everything will change" but it doesn't change. The system is too big and uncontrollable. Everyone is in bed with everyone. 

My only conclusion is that we cannot have political parties go to far to the right or the left. And that is what we have today and that the middle class is losing. I think the only way to run this country is to have a Donald Trump or an Alan Mulally come in with a management team and fix this country.

All it takes is one president to say that we have to cut costs at all levels, but in return our country will do its best in investing in our country so that it does not destroy the middle class. We want our country to work and not by some failed ideologies. 

 Barry Lynn for the think tank New America Foundation, was on C-span Washington Journal yesterday. He gives another reason on the lost of jobs. We used to have regulation to protect the little guy in America. This all changed under Reagan and it explains why we are losing the jobs. 

This goes across every industry in our country. Anheuser-Busch controls 80% of the beer. Wal Mart and Amazon controls most of the books and is willing to sell books at 10 dollars and take the loss, just to drive out others that can't sell books at that price. 

It seems to explain why my cousin cannot have animals on the farm as Smithfield and Tyson controls the market.

This is an interesting take on laissez-faire and "free markets" and how we lost the jobs and small business.

Who Broke America’s Jobs Machine? - Barry C. Lynn and Phillip Longman

 This is on trade and economic growth, education, healthcare, and public infrastructure.

http://www.horizonproject.us/images/FE/chain206siteType8/site175/horizon_final_0123.pdf

Grand Theft: The Conglomeratization of Media and the Degradation of Culture

by Ben Bagdikian

For 25 years, a handful of large corporations that specialize in every mass medium of any consequence has dominated what the majority of people in the United States see about the world beyond their personal experience. These giant media firms, unlike any in the past, thanks to the hands-off attitude of the Federal Communications Commission (FCC) majority, are unhampered by laws and regulation. In the process, they have been major agents of change in the social values and politics of the United States.

They have, in my opinion, damaged our democracy. Given that the majority of Americans say they get their news, commentary and daily entertainment from this handful of conglomerates, the conglomerates fail the needs of democracy every day.

Our modern democracy depends not just on laws and the Constitution, but a vision of the real nature of the United States and its people. It is only humane philosophy that holds together the country’s extraordinary diversity of ethnicity, race, vastly varied geography and a wide range of cultures. There are imperfections within every individual and community. But underneath it, we expect the generality of our population to retain a basic sense of decency and kindness in real life.

We also depend on our voters to approach each election with some knowledge of the variety of ideas and proposals at stake. This variety and richness of issues and ideas were once reflected by competing newspapers whose news and editorial principles covered the entire political spectrum. Every city of any size was exposed to the early Hearst and E. W. Scripps newspapers that were the champions of working people and critics of the rich who exploited workers and used their power to evade taxes. There were middle-of-the-road papers, and a sizeable number of pro-business papers (like the old New York Sun). They were, of course, a mixed bag. Not a few tabloids screamed daily headlines of blood and guts.

With all of that, the major papers represented the needs and demands of the mass of ordinary people and kept badgering politicians who ignored them.

Today, there is no such broad political spectrum and little or no competition among media. There is only a handful of exceptions to the rule of one daily paper per city. On radio and television, Americans see limited ideas and the largest media groups spreading ever-more extreme right-wing politics, and nightly use of violence and sex that tell parents and their children that they live in a cruel country. They have made sex a crude commodity as an inexpensive attention getter. They have made sex, of all things, boring.

Instead of newsboys earlier in the nineteenth century hawking a variety of papers to the people leaving their downtown factories and offices for home, we have cars commuting between suburbs with radio turned to news of traffic and crime. At home, TV is the major home appliance. What it displays day and night is controlled by a handful of giant media conglomerates, heavily tilted to the political right. And all of them have substantial control of every medium — newspapers, magazines, books, radio, television and movies.

The giant conglomerates with this kind of control are Time Warner, the largest media company in the world; Rupert Murdoch’s News Corporation, which owns the Fox networks, a steady source of conservative commentary; Viacom, the old CBS with similarly heavy holdings in all the other important media; Bertelsmann, the German company with masses of U.S. publications, book houses, and partnerships with the other giant media companies; Disney, which has come a long way from concentrating on Mickey Mouse and now, in the pattern of its fellow giants, owns 164 separate media properties from radio and TV stations to magazines and a multitude of other outlets in print and motion picture companies; and General Electric, owner of NBC and its multiple subsidiaries.

One radio firm, ClearChannel, the sponsor of Rush Limbaugh and other exclusively right-wing commentators, owns 2,400 stations, dwarfing all other radio outlets in size and audience.

In their control of most of our newspapers, the great majority of our radio and television, of our most widely distributed books, magazines and motion pictures, these conglomerates have cheapened what once was a civilized mix of programming.

We have large cadres of talented screen writers who periodically complain that they have exciting and touching material that the networks reject in favor of repetitious junk. These writers do it for the money and could quit, as some of them have. But they once got paid for writing original dramas like those of Paddy Chayevsky and other playwrights whose work was heard in earlier days of television.

Programs appealing to the variety of our national tastes and variations in politics are so rare they approach extinction. The choices for the majority of Americans are the prime-time network shows that range from the relatively harmless petty jokes and dating games typified by “Seinfeld” to the unrelieved sex and violence of Murdoch’s Fox network and “reality” shows in which “real people” — that is, non-professional amateurs — are willingly subjected to contests in sexual seduction, deceit and violation of friendships. Most TV drama is an avalanche of violence.

This is not an appeal for broadcasting devoted solely to the nostalgia of “Andy Hardy” and “Little House on the Prairie.” Nor is this an appeal for solely serious classics designed for elite audiences (though surely more of such programs would be good). It is an appeal for a richer variety to meet the range of tastes, regional interests, ethnic documentaries and dramas for the millions of Americans who embrace memories of “the old country,” as well as other appeals, like of soap operas, popular music and classical music, lectures.

Here and there, at later hours of the evening, there are occasional book-and-author, actors-and-producers interviews, as well as talented performers of the contemporary pop forms. But they are rare gems glimpsed through the masses of stereotyped nightly trash.

A basic root of the problem is two-fold. One is the domination of our broadcasting by a handful of giant media conglomerates whose performance is measured not just by Nielsen or Arbitron ratings, but what these create on the stock market, whose major investors’ standards are, “I don’t care how you do it, but if your program doesn’t raise your stock market prices, your president and CEO will be out of their jobs.”

The other is a Federal Communications Commission which, for the last 30 years, has forgotten its mandated task of making certain that broadcasters serve “the public interest.” Instead, the present majority members believe that, contrary to broadcast law, the free market of maximized profits is what constitutes the standard for what is in “the public interest.”

More than 40 years ago, a Commission member, Newt Minow, electrified the industry and most of the listening and viewing public by describing television programming as a “vast wasteland.” It was a measure of the standards of that day. It is a measure of today’s standard that this would be ignored as the whining of a crank; and defense of today’s far more bleak “wasteland” lets the broadcast industry sneer all the way to the bank.

The media giants argue that they are only giving people what they want. But that lost much of its democratic gloss when the two Democratic minority members of the FCC at the start of the decade held hearings in major cities across the country to hear what citizens felt about current broadcasting. The hearings were packed with people who testified with seriously documented complaints that they are not getting what they want, and that more concentration would only make the problem worse.

Behind these country-wide complaints is the bitter knowledge that, in effect, “The media giants have stolen our property.”

It is Grand Theft.

“Stolen our property” is not just a figure of speech. Communications law established that the American people are the owners of the radio and television frequencies, not the commercial broadcasters.

The theft is not just of the electromagnetic frequencies on which the giants broadcast. The theft is also of the inherent and varied needs and wants of the country’s real families and individuals, citizens in the real country.

That loss tells us that we are in danger of losing some part of what we call “America.”

Ben Bagdikian is the author of The New Media Monopoly and other books on the media.

Monster Banks: The Political and Economic Costs of Banking and Financial Consolidation

by Jake Lewis

Commercial banks in the United States have been on a wild ride over the last 25 years. They have seen record profits, vastly expanded powers and a new post-Depression record for bank failures. Today the industry is still in the midst of a massive concentration of financial resources.

As President Reagan’s first term came to a end in 1984, there were 15,084 commercial banks and thrift institutions in the 50 states. By the end of 2003, the number had dropped to 7,842 — almost a 50 percent reduction. The majority of the decline from 1984 to 2003 was among banks of $1 billion or less in assets, many them swallowed up in mergers and acquisitions by the mega institutions.

But the decline was also the result of the massive failures among both banks and thrifts in the mid 1980s and early 1990s. Between 1984 and 2003, 2,700 banks and thrifts failed. Nearly three-fourths of the failures came in a five-year period, 1987 to 1991.

As a result, the deposit insurance fund for savings and loan institutions collapsed and ultimately required a half trillion dollars of tax funds to cover the losses and restore deposit insurance. The bank deposit insurance fund itself dipped into the red in 1991, requiring Congress to vote a $30 billion contingency fund to back up the insurance.

While the number of financial institutions continued to decline in the 1984-2003 period, banking assets were increasing. During this period, banking industry assets more than doubled — totaling $9.1 trillion at the beginning of 2004. And the rapidly increasing level of concentration began to show dramatically.

The share of assets in institutions with more than $10 billion rose from 42 percent in 1984 to 73 percent by 2003. Meanwhile, the share of industry assets in community banks — defined as institutions of less than a billion dollars — plunged from 28 percent to 14 percent in the same period. The truly small banks with 8 percent of the nation’s assets in 1984 saw their share drop to only 2 percent by 2003.

Measuring concentration by deposits produces equally stark evidence of a banking industry already controlled by a relatively small handful of dominant players. The top four bank holding companies — Bank of America-Fleet, Citigroup, J. P. Morgan-Bank One and Wells Fargo — control nearly one fourth of all domestic deposits, and the top 25 banking institutions have nearly half of all U.S. deposits. In fact, Bank of America, after its merger with Fleet, is now bucking up against a 1994 law which prohibits any one institution from controlling more than 10 percent of domestic deposits. So Bank of America may have to shed some of its deposits or seek a liberalization of the statute — certainly not an impossibility for an institution with its economic and political clout.

Banking marries finance

But just becoming big wasn’t enough. The mega institutions wanted a broader financial role by moving into insurance and securities. That meant repeal of the Glass-Steagall Act, passed in the wake of the stock market crash of 1929 — a measure designed to firmly separate banking from securities activities. For years, these and other efforts to expand the economic role of banks was blocked by Representative Wright Patman, the Texas populist who served as chair of the House of Representatives Banking Committee.

After Patman’s death, the legislative calendar was dotted with a variety of proposals to deregulate the banks and let them roam across the financial landscape. Often these proposals failed because of intramural fights involving banking, insurance and securities industries — each jealously guarding their special niches.

The collapse of the savings and loan industry at a cost of $500 billion to the taxpayers in the 1980s and early 1990s — plus a post-Depression record number of commercial bank failures — scared the Congress and temporarily cooled the more radical deregulation proposals. Nonetheless, in 1994, Congress passed the Interstate Banking and Branching Act, which allowed banks to branch nationwide. As a result, institutions like Bank of America today stretch from coast to coast.

But the big prize of deregulation — expanded powers — was still out of reach. Major deregulation legislation was introduced in 1982, 1988, 1991, 1995 and 1998. It was like a never ending series of summer television reruns. The legislation was designed to allow the formation of giant financial conglomerates composed of banks, insurance companies.

In 1999, the deregulatory stars were in alignment. By this time, the legislation had a new and deceptive name, “Financial Modernization.” Senator Phil Gramm, R-Texas, the truest of true believers in deregulation, was chair of the Senate Banking Committee. In the House, the Financial Services Committee was headed by Republican Representative Jim Leach of Iowa, who had only one big concern — that deregulation not go so far as to allow financial institutions and non-financial companies to combine — the long-standing issue of banking and commerce. Once that was settled, Leach was on board. The House Commerce Committee shared jurisdiction with the financial services committee, and its chair, Tom Bliley, R-Virginia, was a cheerleader for deregulation.

The Clinton administration had no problems with pushing for deregulation. Its Secretary of the Treasury, Robert Rubin, who had been a major player on Wall Street, enthusiastically promoted the legislation. At times, the Clinton administration even toyed with the idea of allowing a total blurring of the lines between banking and commerce, but was forced to back away from this radical move after fire from former Federal Reserve Chair Paul Volcker, Leach and the ranking Democratic member of the Senate Banking Committee, Paul Sarbanes of Maryland.

The banking, securities and insurance corporations — the big ones at least — were beginning to see mutual advantages and new roads to big bucks in the deregulation scheme. And they saw little to be gained by a prolonged fight over banking and commerce and everything to be gained by passage of financial modernization.

In 1998, the end of Clinton’s second term as President was on the horizon and financial lobbyists were anxious that the bill get to the President’s desk before the national political campaign was in full swing. But the bill was floundering. Predictions of still another in a long tale of failures were beginning to appear.

The upturn in the fortunes of the legislation can be traced to many reasons and many personalities. At the forefront were John Reed of Citicorp, Sanford Weill of Travelers Insurance Group (who later was to succeed Reed at Citigroup, after Citi and Travelers merged) and David Komansky of Merrill Lynch. They became familiar figures in the halls of the Senate and House office buildings.

Big banks, securities firms and insurance companies spent lavishly in support of the legislation in the late 1990s.

During the 1997-1998 Congress, the three industries spent $58 million in the form of campaign contributions, along with $87 million in soft money contributions to the Democratic and Republican parties and an estimated $163 million in various lobbying efforts.

While the money certainly helped grease the wheels of the legislative bulldozer, two individuals — Senator Phil Gramm, the Senate Banking Chair and Federal Reserve Chair Alan Greenspan — were the key to the ultimate passage of “financial modernization.” Greenspan, a conservative anti-regulation Republican, had no philosophical problems with wiping out statutory safeguards. More important, he saw an opportunity to strengthen his and the Federal Reserve’s role as the major overseer of the financial industry. He wanted the role of the Office of the Comptroller of the Currency — which regulated national banks — diminished and the Federal Reserve firmly installed as the dominant regulator.

To accomplish the goal, Greenspan became a one-man cheerleader for Senator Gramm’s legislation. When the legislation became snagged on controversial provisions, Greenspan would invariably draft a letter or present testimony supporting Gramm’s position on the volatile points. It was a classic back-scratching deal that satisfied both players — Greenspan got the dominant regulatory role and Gramm used Greenspan’s wise words of support to mute opposition and to help assure a friendly press would grease passage. Deregulation became law in 1999.

Consumers be damned

Proponents of financial modernization had the chutzpah to attempt to sell the legislation as a boon to consumers. Press releases and testimony were filled with claims that consumers who were supposedly clamoring for large conglomerates which would be “one stop” financial centers where customers could dabble in a variety of expensive and esoteric financial transactions. Through the years of hearings, no one ever produced the consumers who were supposedly yearning for one-stop money shops.

The legislation did nothing to build on the consumer protections which started coming on the scene in the late 1960s. These efforts produced laws like Truth in Lending — which require that consumers be fully informed of the costs when they borrow money — along with the Community Reinvestment Act, Home Mortgage Disclosure Act, Equal Credit Opportunity Act, Fair Housing Act, Fair Credit Reporting Act, Truth in Savings and more recently legislation to protect the privacy of consumers’ bank records.

The titles of the various consumer protection statutes are impressive. In the real world, the protections have been diminished by a financial regulatory system which traditionally has been focused on the “care and feeding” of banks, not on enforcement of protections for bank customers. The saving grace, in some cases, has been the willingness of the Federal Trade Commission (FTC) to enforce consumer protections while the bank regulatory agencies looked the other way.

The 1977 Community Reinvestment Act, which requires banks to help meet the credit needs in all areas of its communities, was weakened as part of the modernization scheme. Small banks under $250 million will be subject to CRA examinations only every four to five years.

That provision has now prompted regulators to propose limiting full CRA examinations to institutions of $1 billion or more in assets. This means only 428 out of 7,263 banks will be subject to complete exams.

CRA requirements for public hearings of merger applications have given community organizations opportunity to reveal and protest poor lending performance by banks and gain future commitments. The requirements for hearings are sharply reduced under financial modernization. The legislation provided no improvement in the ratings of bank CRA performance, leaving in place a system under which 98 percent of all banks receive satisfactory or outstanding ratings. Presumably if these ratings were accurate, housing and community development needs would be met fully. Any survey of inner city housing and depressed rural areas would establish the inflated CRA ratings as gross frauds.

The financial conglomerates created under financial modernization have access to a marketing gold mine in the information gathered and shared by banks, securities firms and insurance companies. Consumer groups and privacy advocates fought to ensure that personal records, including medical data, would not become open secrets.

But, in the end, privacy was the loser. All that was left as a protection was a weak “opt out” provision which gave the conglomerates the right to use and misuse personal data unless consumers took affirmative steps to “opt out” of the scheme.

In notifying consumers of their rights to opt out of the information sharing, the financial firms set a new record for obfuscation. Mandatory notices of consumer rights to opt out were often buried among a welter of other enclosures in billing envelopes and obscured by legal verbiage that only served to confuse.

Regulatory impotence

Even more absurd is the fact that the deregulatory bill was titled “Financial Modernization,” when the financial regulatory system was left as a disjointed, fragmented and overlapping creature — anything but modern. Four federal banking agencies and 50 state regulators have jurisdiction over banks. And now the securities powers of the banks also involve the Securities and Exchange Commission (SEC). As part of this jumbled system, the nation’s monetary policy machinery is housed in the Federal Reserve, which also serves as a bank regulator.

A study by the Federal Deposit Insurance Corporation (FDIC) pointed to the growing international trend toward a coordinated regulatory system with monetary policy and bank regulation clearly separated:

“At a time when questions are increasingly being raised in the United States about our fragmented piecemeal system of financial regulation, in many other countries functional regulation has given way to consolidated supervision by a single regulator. Although many countries continue to regulate and supervise their financial institutions through multiple entities, in nation after nation, serious study and thought have been given to devising regulatory arrangements to deal with a new, more integrated financial world. The trend has been to bring together in one agency financial supervision and regulation of the major types of financial institutions (banks, securities firms and insurance companies). ... Many nations are achieving this consolidation by moving the regulatory and supervisory functions outside the central bank.”

But under the rubric of financial modernization, the United States took another step backward into the morass of overlapping agencies. Instead of moving bank regulation out of the central bank, the Congress anointed the Fed as the “umbrella” regulator.

The problems created by the regulatory gaps under the present system are not academic. They are illustrated by the celebrated shenanigans engineered by banks like Citicorp, J. P, Morgan Chase and Merrill Lynch. In the Enron scandal and in other cases, these banks engaged in various kinds of fraudulent activity in one part of their financial empires in order to generate profit in another. The breach of the wall between banking, investment banking and insurance led directly to these abuses.

Senator Carl Levin, D-Michigan, then-chair of the Senate Permanent Subcommittee on Investigations, in 2002 described the banks’ role this way:

“The evidence shows that Citigroup and Chase actively aided Enron in these transactions, despite knowing they employed deceptive accounting or tax strategies and were being used by Enron to manipulate its financial statements or deceptively reduce its tax obligations. Citigroup and Chase received substantial fees for their actions or favorable considerations in other business dealings.”

Both banks loaned billions of dollars to finance Enron’s deals. And, as Senator Levin bluntly remarked, Merrill Lynch “assisted Enron in cooking the books.”

All three corporations were major lobbyists for the financial modernization legislation.

At the conclusion of the hearing, Senator Levin stated the obvious:

“There is a regulatory gap right now.”

Yet only three years earlier, Congress and the national media had proclaimed financial regulation” modernized.”

Jake Lewis, a former professional staff member of the Banking, Finance and Urban Affiars Committee of the U.S. House of Representatives is on staff at the Center for the Study of Responsive Law.

 

Wal-Mart: Rise of the Goliath

by Liza Featherstone

Back in 1980, when Multinational Monitor was founded, Wal-Mart operated in only 11 states, with fewer than 300 stores and just over 21,000 employees. The company had no stores overseas. Its annual sales were $1 billion.

Today, Wal-Mart is a Goliath of previously unimaginable girth. Its sales totaled $256.3 billion in the fiscal year ending in January 2004. There are more than 3,600 Wal-Mart stores in the United States, including general merchandise stores, Supercenters, and a membership warehouse chain called Sam’s Club, named after company founder Sam Walton. With more than 1.3 million workers in the United States, Wal-Mart is the nation’s largest private employer. Wal-Mart has stores in every state in the union, and by March 2004, nearly 2,600 U.S. towns and cities had at least one Wal-Mart or Sam’s Club.

Topping the Fortune 500 for the past three years, Wal-Mart is the world’s largest corporation. More than twice the size of its largest U.S. competitor, Home Depot, it dominates the retail sector overwhelmingly. Wal-Mart is also the most profitable company in the world, announcing a profit of $27 billion in mid-2004.

From having almost no presence in Washington, D.C. in the 1980s, Wal-Mart is now a formidable corporate lobbyist and a top corporate contributor to political campaigns.

Most of the company’s current growth is in Supercenters, which are open 24 hours, and offer a full line of groceries. (In the United States, 48 Supercenters opened in October 2004 alone.) The Supercenters are like super-sized supermarkets: some taking up as much as 260,000 feet of store space, and employing as many as 550 workers. (The company has also developed smaller stores called Neighborhood Markets, which are just one-fourth the size of Supercenters.) Overseas, Wal-Mart operates more than 1,570 stores, in Mexico, Puerto Rico, the United Kingdom, Canada, Argentina, Brazil, China, South Korea and Germany. Every week, around the world, more than 138 million people shop at Wal-Mart.

Wal-Mart has completely transformed the retail industry with a single-minded focus on giving the customer the lowest possible price. It has many imitators: Circuit City, Dollar General, K-Mart, Toys R Us, Staples, Blockbuster, Rite-Aid, Target, Home Depot and numerous others. Wal-Mart is important not only because of its own success, and because it drives down competitors and suppliers’ prices. Journalist Bob Ortega, author of In Sam We Trust, observed in 2000 that Wal-Mart’s “way of thinking has become the norm, not just in retail, but in all businesses.”

Always low wages

Keeping prices low entails keeping wages down. The average sales clerk at Wal-Mart makes just $8.50 an hour; even working full-time, that wage would, if the worker was the sole breadwinner, leave a family of three $1,000 below the federal poverty line. Workers at Wal-Mart must also pay more than a third of their own health insurance premium — as a result, many choose to go without. Many depend, too, on publicly funded health care plans, as well as food stamps and other forms of welfare.

Last year, in California, Democratic Assembly Member Sally Leiber announced that her staff had uncovered documents that Wal-Mart had given to its employees explicitly telling them how to apply for public assistance. Wal-Mart has denied this, but the documents speak for themselves.

Welfare is quite clearly a part of the company’s business model (especially jarring considering that the company gives more than 80 percent of its corporate campaign contributions to Republicans, who would love to do away with the social safety net altogether). According to a recent University of California-Berkeley study, Wal-Mart costs California taxpayers about $86 million a year in public assistance to employees. A Georgia study found that one in four Wal-Mart workers in that state had a child enrolled in Peachcare, the state’s healthcare program for impoverished kids. When we stand in the checkout line at Wal-Mart, we may notice how much money we’re saving, but we rarely consider that we may be paying, quite literally, in other ways. The public costs don’t show up on the receipt.

Wal-Mart’s success has had a devastating impact on competitors — driving countless small businesses to close their doors, pushing large chains like K-Mart and Toys R Us into bankruptcy and forcing down wages and employee benefits throughout the retail sector. It depresses employee compensation not only because other retailers face competitive pressure from Wal-Mart, but because it provides a model of business success. As former Wal-Mart worker Linda Gruen — now an organizer with the UFCW — puts it, other companies “see what Wal-Mart gets away with.” Observing how profitable Wal-Mart is, they of course seek to do the same.

Wal-Mart’s economic impact, however, reaches far beyond the retail industry. The company also drives down wages in other sectors worldwide, by ruthlessly demanding the lowest possible price from suppliers.

According to several experts interviewed for a recent PBS “Frontline” special, Wal-Mart is one of the key forces driving the outsourcing of U.S. jobs to Asia — as only countries with the lowest-cost labor can meet the low prices the company demands.

In fact, if Wal-Mart were a country, it would be China's fifth largest export market. Wal-Mart sells 10 percent of all goods imported to the United States from China, where independent trade unions are illegal and it is notoriously difficult to monitor factory conditions. (In March 2004, the company announced that it would, for the first time, hold its board of directors meeting in China, where the company operates 35 stores, with 18,000 employees.) But Wal-Mart makes the conditions much worse than they need to be, pressuring factory bosses to cut their prices, so those bosses have no choice but to make employees work longer hours for lower pay.

To keep compensation so low, and supply chains so “flexible,” Wal-Mart has had to keep unions out of its stores, something it has done quite effectively. The story of unions’ struggle to organize Wal-Mart takes place in a context of organized labor’s declining numbers and diminishing political power, especially in the private sector, where only 8 percent of workers are now unionized. Unions rightly view organizing Wal-Mart as a struggle for their survival: the success of such a deeply anti-labor company is a powerful symbol of their own powerlessness. To unionize it would completely transform organized labor’s currently dismal position in the United States.

“Wal-Mart is the juggernaut,” says one organizer. So far, however, the attempt to organize Wal-Mart has, in the United States, been a total failure.

That’s one thing that hasn’t changed since Multinational Monitor’s founding. At that time, the Teamsters were trying to organize the company’s distribution centers, an effort that lost momentum due in part to company founder Sam Walton’s zealous willingness to break the law in order to defeat the union, even firing pro-union workers, as Wal-Mart has been doing ever since.

Beginning in the late 1980s, the United Food and Commercial Workers (UFCW) began to realize that Wal-Mart’s rapid growth and competitiveness posed an urgent threat to its members’ jobs. The first Supercenter opened in 1988, in Washington, Missouri.

Wal-Mart had historically been concentrated in “right-to-work” states in the South, but as it grew, it encroached upon more traditionally unionized western and Northeastern regions. Despite the obvious threat, the union effort was half-hearted until the late 1990s, when supermarkets began losing market share to Wal-Mart and it became painfully obvious that Wal-Mart threatened the UFCW’s very survival.

Even then, the union has been unable to fight Wal-Mart on its own. Devoting insubstantial resources to the organizing campaign (only 2 percent of its national budget), the UFCW is constantly stymied by Wal-Mart’s limitless resources to hire union-busters and, equally significantly, fight court challenges to its violations of organizing rights.

In the United States, only one group of Wal-Mart employees has successfully organized. In February 2000, 10 meat cutters in a Jacksonville, Texas Wal-Mart voted 7 to 3 to unionize their tiny bargaining unit. Two weeks later, Wal-Mart abruptly eliminated the butchers’ jobs by switching to prepackaged meat and assigning the butchers to other departments, effectively abolishing the only union shop on its North American premises. After more than three years, in June 2003, a federal labor judge ruled this move illegal, and ordered Wal-Mart to restore the department and recognize the butchers’ bargaining unit. Wal-Mart has appealed that decision, but of course, most of the original butchers have left the company, so whatever the outcome, Wal-Mart wins. That incident typifies the way in which for Wal-Mart going to court for violating labor laws is simply part of the cost of doing business (and not a very big one).

In early 2004, after striking for months, grocery workers in California were forced to accept a vastly reduced health plan, as supermarkets, anticipating competition from new Wal-Mart Supercenters throughout the state, began refusing to compromise with the union. They’re not alone. Supermarkets all over the country have been lowering wages and decimating workers’ health plans.

Says Russ Davis of Massachusetts Jobs With Justice, who has worked closely with grocery workers in the Northeast who are struggling to maintain their standard of living, “It’s all about Wal-Mart.”

Susan Phillips, vice president of the UFCW and head of its Working Women’s department, agrees. For any private-sector union in the United States today, she says, “anytime you go into negotiations, its like there’s this invisible 800-pound gorilla sitting in the room at the bargaining table.”

As long as Wal-Mart workers remain unorganized, that gorilla will continue to set the agenda.

Taking on Wal-Mart

Labor may be waking up. The AFL-CIO has recently announced a campaign to fight Wal-Mart and the “Wal-Martization” of U.S. jobs, and Andy Stern of the Service Employees International Union (SEIU) has proposed financing it by allocating $25 million of the AFL-CIO’s royalties from purchases on its Union Plus credit card — appropriately enough, since at least 30 percent of purchases on that credit card are made at Wal-Mart. It’s unclear still what this campaign will look like, and what institutional forms it will take, but at least the labor movement — and not just the UFCW — is finally having a conversation about what to do about the Wal-Mart problem.

Communities — often working closely with unions — have had far more success fighting Wal-Mart than labor has had in organizing it, preventing at least 13 Wal-Mart Supercenters from opening in 2004. Labor and community groups in Chicago prevented Wal-Mart from opening a store on the city’s South Side. Wal-Mart does plan to open a store on the city’s West side, but may yet be thwarted by an ordinance that would force the retailer to pay Chicago workers a living wage. Citizens in Inglewood, California defeated a Wal-Mart Supercenter in a voter referendum. In Hartford, Connecticut, labor and community advocates just won passage of an ordinance protecting their free speech rights on the grounds of the new Wal-Mart Supercenter, which is being built on city property. Similar battles are raging nationwide. The company’s growth has been slowing down slightly, and Wal-Mart CEO H. Lee Scott blames some of that slowdown on organized community opposition.

Wal-Mart’s critics have also been able to attract more media attention recently — stories in which Wal-Mart appears in a negative light now appear in the papers almost every day. It’s essential — and not easy — to figure out how this growing anti-Wal-Mart sentiment in our culture can be strategically deployed to benefit workers and communities. Should the goal be to block Wal-Mart from opening new stores wherever possible, or to force the company to win back the public trust by making more ethical use of its enormous power?

Perhaps, for example, we should demand that since Wal-Mart doesn’t want to pay for employees’ health insurance, Wal-Mart’s highly paid Washington lobbyists should push for national healthcare, which would benefit everybody.

Destroying — or changing — Wal-Mart will require many more local mobilizations, and more coordination between community and labor groups fighting the company. It will also probably require a progressive movement serious about taking power and reining in corporate criminals like Wal-Mart — a movement that is emerging, but still lacks the institutions and structures — including political parties — to wield much national clout. Over the next quarter-century, for such a movement, Multinational Monitor will be an invaluable resource. But let’s hope that when we celebrate MM’sfiftieth anniversary, Wal-Mart — and its many imitators — will be a mere footnote.

Every Nook and Cranny: The Dangerous Spread of Commercialized Culture

by Gary Ruskin and Juliet Schor

In December, many people in Washington, D.C. paused to absorb the meaning in the lighting of the National Christmas Tree, at the White House Ellipse. At that event, President George W. Bush reflected that the “love and gifts” of Christmas were “signs and symbols of even a greater love and gift that came on a holy night.”

But these signs weren’t the only ones on display. Perhaps it was not surprising that the illumination was sponsored by MCI, which, as MCI WorldCom, committed one of the largest corporate frauds in history. Such public displays of commercialism have become commonplace in the United States.

The rise of commercialism is an artifact of the growth of corporate power. It began as part of a political and ideological response by corporations to wage pressures, rising social expenditures, and the successes of the environmental and consumer movements in the late 1960s and early 1970s. Corporations fostered the anti-tax movement and support for corporate welfare, which helped create funding crises in state and local governments and schools, and made them more willing to carry commercial advertising. They promoted “free market” ideology, privatization and consumerism, while denigrating the public sphere. In the late 1970s, Mobil Oil began its decades-long advertising on the New York Times op-ed page, one example of a larger corporate effort to reverse a precipitous decline in public approval of corporations. They also became adept at manipulating the campaign finance system, and weaknesses in the federal bribery statute, to procure influence in governments at all levels.

Perhaps most importantly, the commercialization of government and culture and the growing importance of material acquisition and consumer lifestyles was hastened by the co-optation of potentially countervailing institutions, such as churches (papal visits have been sponsored by Pepsi, Federal Express and Mercedes-Benz), governments, schools, universities and nongovernmental organizations.

While advertising has long been an element in the circus of U.S. life, not until recently has it been recognized as having political or social merit. For nearly two centuries, advertising (lawyers call it commercial speech) was not protected by the U.S. Constitution. The U.S. Supreme Court ruled in 1942 that states could regulate commercial speech at will. But in 1976, the Court granted constitutional protection to commercial speech. Corporations have used this new right of speech to proliferate advertising into nearly every nook and cranny of life.

Entering the schoolhouse

During most of the twentieth century, there was little advertising in schools. That changed in 1989, when Chris Whittle’s Channel One enticed schools to accept advertising, by offering to loan TV sets to classrooms. Each school day, Channel One features at least two minutes of ads, and 10 minutes of news, fluff, banter and quizzes. The program is shown to about 8 million children in 12,000 schools.

Soda, candy and fast food companies soon learned Channel One’s lesson of using financial incentives to gain access to schoolchildren. By 2000, 94 percent of high schools allowed the sale of soda, and 72 percent allowed sale of chocolate candy. Energy, candy, personal care products, even automobile manufacturers have entered the classroom with “sponsored educational materials” — that is, ads in the guise of free “curricula.”

Until recently, corporate incursion in schools has mainly gone under the radar. However, the rise of childhood obesity has engendered stiff political opposition to junk food marketing, and in the last three years, coalitions of progressives, conservatives and public health groups have made headway. The State of California has banned the sale of soda in elementary, middle and junior high schools. In Maine, soda and candy suppliers have removed their products from vending machines in all schools. Arkansas banned candy and soda vending machines in elementary schools. Los Angeles, Chicago and New York have city-wide bans on the sale of soda in schools. Channel One was expelled from the Nashville public schools in the 2002-3 school year, and will be removed from Seattle in early 2005. Thanks to activist pressure, a company called ZapMe!, which placed computers in thousands of schools to advertise and extract data from students, was removed from all schools across the country.

Ad creep and spam culture

Advertisers have long relied on 30-second TV spots to deliver messages to mass audiences. During the 1990s, the impact of these ads began to drop off, in part because viewers simply clicked to different programs during ads. In response, many advertisers began to place ads elsewhere, leading to “ad creep” — the spread of ads throughout social space and cultural institutions. Whole new marketing sub-specialties developed, such as “place-based” advertising, which coerces captive viewers to watch video ads. Examples include ads before movies, ads on buses and trains in cities (Chicago, Milwaukee and Orlando), and CNN’s Airport channel. Video ads are also now common on ATMs, gas pumps, in convenience stores and doctors’ offices.

Another form of ad creep is “product placement,” in which advertisers pay to have their product included in movies, TV shows, museum exhibits, or other forms of media and culture. Product placement is thought to be more effective than the traditional 30-second ad because it sneaks by the viewer’s critical faculties. Product placement has recently occurred in novels, and children’s books. Some U.S. TV programs (American Idol, The Restaurant, The Apprentice) and movies (Minority Report, Cellular) are so full of product placement that they resemble infomercials. By contrast, many European nations, such as Austria, Germany, Norway and the United Kingdom, ban or sharply restrict product placement on television.

Commercial use of the Internet was forbidden as recently as the early 1990s, and the first spam wasn’t sent until 1994. But the marketing industry quickly penetrated this sphere as well, and now 70 percent of all e-mail is spam, according to the spam filter firm Postini Inc. Pop-ups, pop-unders and ad-ware have become major annoyances for Internet users. Telemarketing became so unpopular that the corporate-friendly Federal Trade Commission established a National Do Not Call Registry, which has brought relief from telemarketing calls to 64 million households.

Even major cultural institutions have been harnessed by the advertising industry. During 2001-2002, the Smithsonian Institution, perhaps the most important U.S. cultural institution, established the General Motors Hall of Transportation and the Lockheed Martin Imax Theater. Following public opposition and Congressional action, the commercialization of the Smithsonian has largely been halted. In 2000, the Library of Congress hosted a giant celebration for Coca-Cola, essentially converting the nation’s most important library into a prop to sell soda pop.

Targeting kids

For a time, institutions of childhood were relatively uncommercialized, as adults subscribed to the notion of childhood innocence, and the need to keep children from the “profane” commercial world. But what was once a trickle of advertising to children has become a flood. Corporations spend about $15 billion marketing to children in the United States each year, and by the mid-1990s, the average child was exposed to 40,000 TV ads annually.

Children have few legal protections from corporate marketers in the United States.

This contrasts strongly to the European Union, which has enacted restrictions. Norway and Sweden have banned television advertising to children under 12 years of age; in Italy, advertising during TV cartoons is illegal, and toy advertising is illegal in Greece between 7 AM and 11 PM. Advertising before and after children’s programs is banned in Austria.

Government brought to you by...

As fiscal crises have descended upon local governments, they have turned to advertisers as a revenue source. This trend began inauspiciously in Buffalo, New York in 1995 when Pratt & Lambert, a local paint company, purchased the right to call itself the city’s official paint. The next year the company was bought by Sherwin-Williams, which closed the local factory and eliminated its 200 jobs.

In 1997, Ocean City, Maryland signed an exclusive marketing deal to make Coca-Cola the city’s official drink, and other cities have followed with similar deals with Coke or Pepsi. Even mighty New York City has succumbed, signing a $166 million exclusive marketing deal with Snapple, after which some critics dubbed it the “Big Snapple.”

At the United Nations, UNICEF made a stir in 2002 when it announced that it would “team up” with McDonald’s, the world’s largest fast food company, to promote “McDonald’s World Children’s Day” in celebration of the anniversary of the United Nations adoption of the Convention on the Rights of the Child. Public health and children’s advocates across the globe protested, prompting UNICEF to decline participation in later years.

Another victory for the anti-commercialism forces, perhaps the most significant, came in 2004, when the World Health Organization’s Framework Convention on Tobacco Control became legally binding. The treaty commits nations to prohibit tobacco advertising to the extent their constitutions allow it.

Impacts

Because the phenomenon of commercialism has become so ubiquitous, it is not surprising that its effects are as well. Perhaps most alarming has been the epidemic of marketing-related diseases afflicting people in the United States, and especially children, such as obesity, type 2 diabetes and smoking-related illnesses. Each day, about 2,000 U.S. children begin to smoke, and about one-third of them will die from tobacco-related illnesses. Children are inundated with advertising for high calorie junk food and fast food, and, predictably, 15 percent of U.S. children aged 6 to 19 are now overweight.

Excessive commercialism is also creating a more materialistic populace. In 2003, the annual UCLA survey of incoming college freshmen found that the number of students who said it was a very important or essential life goal to “develop a meaningful philosophy of life” fell to an all-time low of 39 percent, while succeeding financially has increased to a 13-year high, at 74 percent. High involvement in consumer culture has been show (by Schor) to be a significant cause of depression, anxiety, low self-esteem and psychosomatic complaints in children, findings which parallel similar studies of materialism among teens and adults. Other impacts are more intangible. A 2004 poll by Yankelovich Partners, found that 61 percent of the U.S. public “feel that the amount of marketing and advertising is out of control,” and 65 percent “feel constantly bombarded with too much advertising and marketing.” Is advertising diminishing our sense of general well-being? Perhaps.

The purpose of most commercial advertising is to increase demand for a product. As John Kenneth Galbraith noted 40 years ago, the macro effect of advertising is to artificially boost the demand for private goods, thereby reducing the “demand” or support for unadvertised, public goods. The predictable result has been the backlash to taxes, and reduced provision of public goods and services.

This imbalance also affects the natural environment. The additional consumption created by the estimated $265 billion that the advertising industry will spend in 2004 will also yield more pollution, natural resource destruction, carbon dioxide emissions and global warming.

Finally, advertising has also contributed to a narrowing of the public discourse, as advertising-driven media grow ever more timid. Sometimes it seems as if we live in an echo chamber, a place where corporations speak and everyone else listens.

Governments at all levels have failed to address these impacts. That may be because the most insidious effect of commercialism is to undermine government integrity. As governments adopt commercial values, and are integrated into corporate marketing, they develop conflicts of interest that make them less likely to take stands against commercialism.

Disgust among yourselves

As corporations consolidate their control over governments and culture, we don’t expect an outright reversal of commercialization in the near future.

That’s true despite considerable public sentiment for more limits and regulations on advertising and marketing. However, as commercialism grows more intrusive, public distaste for it will likely increase, as will political support for restricting it. In the long run, we believe this hopeful trend will gather strength.

In the not-too-distant future, the significance of the lighting of the National Christmas Tree may no longer be overshadowed by public relations efforts to create goodwill for corporate wrongdoers.

Wall Street Ascendant

by Doug Henwood

This magazine was born during the early battles of the Shareholder Revolution, which would transform the financial markets from being the playground of professionals and a handful of amateurs into the center of modern economic life. Now it all seems so normal that it’s easy to forget that the Wall Street ascendancy has a history.

In the United States, the modern large corporation emerged as the nineteenth century was turning into the twentieth. The scale of production had greatly outstripped an ownership structure dominated by individual owners and small partnerships; they couldn’t survive the intense competition of a developing national market. Sharp operators on Wall Street took advantage of the situation, assembling the small, failing firms into large corporations, making themselves very rich in the process. Shares in the new combinations were sold to public investors, giving birth to the modern stock market.

It is important to note that the modern corporation and the stock market grew up beside each other; they’d be companions from then on, though closer at some times than others. And, at the same time, the running of those corporations was turned over to a new class of professional managers, who were essentially the shareholders’ hired hands.

Unlike line workers, those hired hands have often proved very difficult to supervise. Legally speaking, the shareholders own corporations, and are entitled to the profits remaining after firms pay their business expenses, taxes and interest. But that leaves managers with a great deal of wiggle room: they can always shirk and swindle, and shareholders are often in a weak position from which to scrutinize them. In the jargon of financial economics, shareholders are the principals and managers, their agents. In good times, the principals and agents can get along well; in bad times, there’s rich potential for conflict.

What the Shareholder Revolution wrought was greater discipline over corporate executives by shareholders. But it is a strange discipline, one that actually rewards CEOs and the managerial class — so long as they are sufficiently ruthless in dealing with workers and externalizing costs on to society.

Shareholder lament

Let’s step back and review the history of elite thinking about how corporations should be governed. An important milestone in that evolution was the 1932 publication of Adolph Berle and Gardiner Means’s classic book, The Modern Corporation and Private Property. Berle and Means described a world in which shareholders had been fleeced by managers — an understandable position, after all the scandals of the 1920s (which were remarkably like the scandals of the 1990s). But shareholders were largely powerless to respond — there were too many of them, spread too far and wide, to rein in the managers. The principals were principals in name only; the agents really had the upper hand.

Berle and Means listed several avenues of managerial abuse of the tragically disenfranchised owners: “out of professional pride,” managers could “maintain labor standards above those required by competitive conditions,” or “improve quality above the point” that is likely to be maximally profitable to shareholders. This held the potential for “a new form of absolutism, relegating ‘owners’ to the position of those who supply the means whereby the new princes may exercise their power.

In his preface to the 1967 reissue of the book, Berle described the new system as one of “collective capitalism,” an affair that yokes together thousands of corporations, and millions of employees, owners and customers — too many people to be considered private enterprise in the classic sense. And since the state was now so deeply involved, no redefinition of “private” could ever be broad enough to apply. Research was no longer carried out by lone inventors, but in teams, and no longer within a single enterprise, but in cooperation with university and government researchers — and subsidies as well. To the 1967 Berle, these changes had moved us “toward a new phase fundamentally more alien to the tradition of profit even than that forecast” in the first edition of their book.

The same year that Berle updated his classic, John Kenneth Galbraith published another, The New Industrial State. Galbraith’s stockholders were almost vestigial, a “purely pecuniary association” divorced from management, too numerous and dispersed to have any influence. When displeased with “their” corporation, they would sell the stock rather than pick a fight with management. Stockholder rebellion among large corporations was “so rare that it can be ignored.” Galbraith’s corporation was run by a “technostructure” of suits and geeks largely insulated from financial pressures.

Profit maximization had been rendered obsolete. To Galbraith, higher profits could only come with an unwelcome increase in risk, and would have to be passed along to shareholders anyway. Executive pay was relatively modest and unconnected to the stock price. Secure mediocrity was the goal. Galbraith’s corporation had become subservient to the larger society and the state, with the state providing economic stabilization and an educated workforce.

That all seems pretty quaint now, but it was 1960s orthodoxy. This nice world came apart in the 1970s. Stocks had their worst decade since the 1930s. To the ruling classes, things were wildly out of whack, with U.S. workers acting insolent and the Third World in rebellion. Subduing the Third World was left to Reagan and the contras, but Wall Street declared war on the workers’ insolence — and in this case, corporate managers were a special kind of worker that also needed to be subdued.

“Subduing” the executives

To accomplish that subduing, Wall Street has deployed several strategies over the last two decades. First was the wave of hostile takeovers and leveraged buyouts that dominated the financial landscape of the 1980s. Underperforming companies — those generating profits insufficient to satisfy shareholders — were taken over, either by allegedly more competent rivals or by corporate raiders, or they were taken private by a management team in partnership with outside investors using lots of borrowed money. Regardless of the financial maneuver, the operational strategy was similar: shut or sell weak divisions, lay off workers, cut wages, break unions (where they existed), speed up the line, get profits up. The moral philosophy of this period was nicely summed up by Oliver Stone’s Gordon Gekko in the movie Wall Street: “Greed is good.”

Unfortunately, these maneuvers usually involved lots of debt, and the debt load proved crippling by decade’s end. So there was a shift of strategy toward shareholder activism. Led by large pension funds, particularly the California Public Employees Retirement System (Calpers), institutional investors drew up hit lists of saggy companies, and pressed their managers to shape up or ship out.

At the same time, executives’ pay was shifted from straight salaries towards stock options. The idea was to make managers think not like pampered employees, but like stockholders, whose income was directly tied to the stock price. The operational strategy was similar to that of the 1980s, however — downsizing, outsourcing and speedup — whatever was necessary to get profits up, and with them, stock prices.

Actually, it’s surprisingly hard to prove that corporations that go through “restructuring” actually improve their profit performance. (But it’s hell on the workers being restructured; a Finnish study shows that employees who survive a typical restructuring enjoy a doubling of the risk of death from cardiovascular disease.) At the macro level, however, it’s a different story. Two decades of ceaseless mass layoff announcements have induced a climate of fear and deference, the inclination to do whatever the boss asks. In congressional testimony, Federal Reserve chair Alan Greenspan cited survey evidence showing workers feeling far more anxious than the actual unemployment rate would suggest.

Tying managerial pay to stock performance hasn’t turned out quite as planned. The strategy was supposed to solve at least two problems. Aligning managers’ incentives with those of shareholders was supposed to end the owner-manager conflict that Berle and Means and others whined about. And since financial theory assured that the stock market’s judgments of corporate performance were as good as you could get, managers were thereby held to an objective and pitiless discipline. If the stock was up, the CEO must be doing something right; if it’s down, something’s wrong.

Reality has disappointed these schemes. Managers good and bad profited from the bull market of the 1990s, which drove most share prices relentlessly higher with little distinction. Business Week’s annual surveys of executive pay prove year after year that there’s no relation at all between compensation and corporate performance. And in seriously troubled companies, like Enron, where profits were invented by the accountants, there was no incentive to blow the whistle. Instead, the incentive was the opposite, to experiment more aggressively with creative accounting and keep quiet.

Executives have thrived under the new order. Unlike Galbraith’s day, CEOs are now paid like moguls, not high-end functionaries. When Business Week started doing its annual compensation survey in 1950, the highest-paid CEO was GM’s Charles Wilson, who took home 229 times as much as the average worker. In 2001, the peak of the boom, the pay champ was Oracle’s Larry Ellison, who exercised some long-held options and pulled in 28,193 times as much as the average worker. Those are extreme cases compared over the very long term, but even nonextreme comparisons are stunning: the average CEO pulled down more than 400 times as much as the average hourly worker in 2001, up from a mere 42 times in 1980. With the post-bubble “moderation” in executive pay, that ratio fell back a bit, to 300 times as much as the average worker in 2003.

Many of the unpleasant features of modern U.S. economic life — polarization between rich and poor, a poverty rate higher than 1973’s record low even though real GDP has more than doubled, rising insecurity and stress, stagnant wages and shrinking benefits — are blamed on abstract forces like technology and globalization. Both words describe what corporations have been doing — automating, surveilling, outsourcing — in response to Wall Street pressures to goose up profitability. It’s worked pretty well for them.

Doug Henwood is editor of Left Business Observer, host of a weekly show on WBAI (New York), and is the author most recently of After the New Economy (coming this spring in paper from the New Press.