Saturday, November 24, 2018

Corporatism And The American Future Part 2

     As I mentioned in the previous segment, the largest 3000 corporations in the United States employ approximately half of all working Americans. It’s possible that some Gentle Readers (not you, of course!) failed to grasp the import of that fact: both what a departure it is from earlier times and what it implies for the power corporations have over the lives of Americans.

     The corporation concept is about three centuries old. It emerged from the old “joint-stock companies” of imperial England. It acquired its American form in the Nineteenth Century, as enterprises were formed that required amounts of capital and labor larger than what a family or clan could provide. Before embarking, the organizers of such a venture had to have a means by which to apportion its benefits to its investors and its workers. The essential features of corporate life and operation arose from that need.

     Thus, we can view the corporation as a kind of technology that applies to organization for a commercial purpose. As such, it’s morally and ethically neutral. That doesn’t mean it can’t be exploited for good or bad ends.

     It has been observed many times that those who crave power over others will seek to destroy, neutralize, or invalidate alternate sources of authority. Religion, family, customs, traditions, and community life are all non-governmental sources of authority, though the particular kinds vary. Those sources have many thousands of years of history. The corporation, which is far younger, competes with both those older sources and with governments.

     The American workforce’s trek from the farms to the fleshpots became significant after the Civil War. The migration was propelled by the emergence of power technology – the steam engine – that made many new things possible. The critical development was probably the growth of the railroad network. Before that, an enterprise that produced its wares in large quantities would have had no way to market them to a sufficiently large customer space. With the railroads in place, goods could be moved at relatively high speeds and low costs from one coast to the other. It changed the outlook for American entrepreneurs as radically as the development of the ocean-going sailing ship did for our English forebears.

     Corporations could become large. Their workforces swelled, as did the populations of the zones where conditions were suitable for their operation. The cities perched upon the major railroad networks and navigable waters grew great.

     They who sought power over other Americans were watching.

     Persons ambitious for political elevation gravitated toward the cities just as did the American workforce. Urban population densities militated toward the centralization of many essential services: water, sewer services, schools, some transportation methods, street construction and maintenance, firefighting, garbage collection and disposal, eventually electrical power. Centralization begets monopoly. Monopoly begets municipalization: government takeover. New ways of exerting power over Americans and their enterprises had emerged.

     For the power-hungry, this was not enough. Nothing ever is.

     The corporation, as I observed earlier, could provide a source of authority that competes with other sources. In family-run commercial enterprises this effect is missing, owing to the primacy of family relations and the traditional allocation of authority to the family’s older members. But the corporation has no such prior structure. Its only motive is commercial success. Within the constraints of the law, its authority will be exerted toward that end.

     For a while, ambitious politicians saw the corporations as competitors. It was not until the last decades of the Nineteenth Century that they discovered how to subordinate the corporations to their aims. The key discovery was a phrase with ominous undertones: “regulation in the public interest.”

     The earliest thrust was against “trusts.” That term, originally of very narrow meaning, was expanded to include many commercial agreements and arrangements. The eerie phrase “combinations in restraint of trade,” made famous by the Sherman Anti-Trust Act, gave governments essentially unlimited power to harass corporations for perfectly ordinary behavior that harmed no one. Quoth Isabel Paterson in The God of the Machine, “As freak legislation, the antitrust laws stand alone. Nobody knows what it is they forbid.” Consider also this observation from “John Galt’s” Dreams Come Due:

     For corporations that do not have twenty years and $20 million to fight an antitrust action, here are some guidelines for product pricing:
  1. High prices are considered to be monopolistic price gouging that exploit the public (who voluntarily choose to pay the prices).
  2. Low prices (which benefit consumers) are considered to be cutthroat and predatory because they attempt to destroy your competition.
  3. Prices that are the same as those of other competitors (because production costs are basically the same) are obviously collusive and indicative of a ploy to fix prices.

     Good Luck!

     The politicians used the antitrust laws, and later, the emergence of non-legislative “regulatory authority,” to bend the corporations to their will.

     Note that when enterprise was family-founded, notions such as “combinations in restraint of trade” and “regulation in the public interest” were ludicrous. They could not be sensibly applied to businesses confined within such limits. Also, families would successfully resist such intrusions, at least in earlier times. Only with the rise of large corporations that lacked familial bases did it become possible for politicians to cultivate the notion that such entities could behave immorally or irresponsibly, and therefore that they should be subject to political control.

     The politicians had another method for gaining ascendancy over the corporations: the lure of corruption. “Access,” then as now, amounted to a way to bias legislation and regulation toward favored clients. A large corporation with access could use it to press for laws and regulations that would hobble its competitors. This began at the city level but swiftly spread to the states and Washington.

     Indeed, when Congress began to act on more localized corruption, the overall effect was to centralize it: to pull the authority upward, into the federal government, regardless of what the Constitution might say on the matter. The overwhelmingly greater part of federal regulation pertains to corporate activities, even those parts that don’t explicitly mention the corporate form. That immense mass of regulations acts as a barrier to entry to most existing industries and many emergent ones. A competitor larger than a few dozen persons must be able to support a Legal department, an Accounting department, and a Human Resources department simply to cope with federal regulations.

     As the legal and regulatory tangles grew, so did the costs of compliance. Smaller corporations foundered under the weight. The ultimate effect was to concentrate commerce in a shrinking group of corporations.

     If I may quote one of my fictional characters:

     “Now, we know from historical data that predators of all sorts will concentrate where the prey is fattest. The State, which is merely an organized band of predators with a veneer of legitimacy derived either from tradition or from a manufactured appearance of the consent of its subjects, took a huge fraction of its subjects’ annual production from them in taxes. A typical State would increase its exactions on its subjects faster than those subjects could increase their own fortunes. That compelled wage earners to strive ever harder just to run in place, with obvious consequences for production and marketing.” [From Which Art In Hope.]

     In any collusion, when one partner has the money and the other has the guns, sooner or later the one with the guns will have all the money. The existence of a predatory hierarchy makes this automatic. Predators compete ruthlessly for supremacy. Competition improves and refines skills. Thus, ever more effective predators will emerge over time. Only the collapse of the predators’ habitat can prevent it.

     Our governmental predators rule us largely through the shackles they’ve placed upon our sources of income. For at least half of us, that source is a Fortune 3000 corporation. As the exactions of the Leviathan State increase, so will the effects upon those who work for them. Even worse, the squeeze placed upon smaller firms will thin their ranks further, which will further concentrate the American workforce into a smaller group of employers.

     Every industry has been affected. New ones will be targeted as they arise.

     More anon.


pc-not said...

You hit the trifecta, Fran. History, economics, and political science all rolled into one. As to your conclusion concerning the origins and results of government regulation, I heartily agree.

I have a cousin whom started a specialized air freight business almost forty years ago. As the company grew and prospered, so did government intrusion. About 25 years ago, they reached to 50 employee mark. That's when his job became almost exclusively focused on compliance. He no longer enjoyed building a dream, it had turned him into a slave trying to survive a nightmare.

As retirement neared, he had to stay on another five years, because no one able to understand and cope with the myriad of laws and regulations could be found. The Obama years were the worst. Various alphabet agencies, primarily Customs and Homeland Security would send their goons out to play games and harass the employees and sometimes destroy property. While visiting him several years ago, I personally witnessed this.

Another cousin of mine is in the medical supply business. Same scenario. Still mostly family run with about 25 employees, regulations and political corruption allowing favored treatment to his competitors has really hurt him. My close friend and neighbor in the nursing home business, ditto.

Stacey said...

God, I love your essays.