Tuesday, June 26, 2007

Freedomnomics Chapter 2

Reputations

Lott says on page 50 that “the vast majority of American politicians and businessmen do not end up being frog-marched out of their offices before a gaggle of news cameras with their heads held low in shame.”

True, but not because they don’t deserve to be. Remember, class – The Market has already determined that politicians and transnational businessmen are slimeballs. (See footnote commentary at the end of chapter one.) And the quote above presumes a level playing field where investigations and prosecutions are concerned – which is certainly not the case. The high rollers have plenty of immunity to prosecution in the form of threatened “economic disruption” and the more then high probability that if they go down, they can take some colleagues (both other businessmen and/or their political associates) with them. In that environment, of course only a few are going to be thrown to the dogs, and only when they have become too much of a liability to their peers but not enough of a liability to threaten their peers.

But Lott says, “What incentives do politicians have not to break their promises?” (pg 50) If he means campaign promises to ordinary voters, every incentive – which is obvious since so few actually do what they promised during their campaigns (and again state and national elected leaders are far removed from this sort of scrutiny. Only in local elections does this dynamic get any real airtime. In state and national elections, the candidate can simply say the rest of the legislature wasn’t cooperative to his supposed goals and everything’s forgiven – whether this is true or not.)

“What keeps businesses from flooding the market with low-quality or unreliable products?” Ummm, nothing, in case you haven’t noticed the quality of your junk from China lately. Lott says, “…there is a powerful incentive toward honest behavior that is built into our democratic political system and free market economy – that of maintaining a good reputation.”

Oh, please. This, again, is only an issue at the local level and has nothing whatsoever to do with transnational corporations. Let’s take a well-known company like GE and see if this statement holds water.

An in-depth analysis by William Greider called “Citizen GE” shows that transnational corporations in general and GE in particular – certainly a company that should, theoretically, be concerned about its reputation and quality of their products, are anything but. For example:

One of [Philip A.] Lacovara’s first projects at GE was to try and head off the new corporate sentencing guidelines being prepared for the federal courts – guidelines intended to stiffen the consequences for corporations that break the law. GE has more than a theoretical interest in this policy question, since the company itself has been convicted of a series of crimes in recent years, including defrauding the federal government.

Isn’t that nice?

Greider continues: …There are no longer a distinct boundary lines between law, politics, and corporate management. In the modern milieu of governing, they are the same subject.

They’re all in bed together, in other words.

GE is a conglomerate that in addition to its productive, profit-making activities also functions as a ubiquitous political organization. …GE also tries to act like a mediating institution, speaking on behalf of others. Like many other companies, GE claims to represent various groups of other citizens in politics: workers, consumers, shareholders, even other businesses and the well-being of Americans at large. GE has the resources to develop and promote new political ideas and to organize “public” opinion around its political agenda. It has the capacity to advise and intervene and sometimes veto. It has the power to punish political opponents.

GE also fosters a positive political image directly through its own advertising – soft focused television spots that portray GE as an admirable citizen. …The increased self-promotion also coincided, however, with GE’s embarrassing criminal indictment for cheating the govt. on defense contracts. What difference does all this propaganda make in terms of political action? …While corporate propaganda may not do so much to reduce the public’s collective distrust of business generally, individual companies can dilute the hostility directed at them.


Notice, class, that they are not motivated to stop their lucrative criminal activities – they are only motivated to not get caught and to ameliorate the consequences if they do get caught.

..The potential span of political interests that a corporation presumes to represent can be made to look much larger than the company itself. GE’s political voice multiplies itself and intersects with millions of others – people who may or may not actually agree with its political objectives. GE mobilizes allies and its local cadres – workers, managers, customers, suppliers – when they do agree. If they don’t, [GE] simply dismisses their input and merely invokes their names. …When GE speaks for its shareholders interest in maximized profits, its approach necessarily becomes more oblique, since politicians are not likely to be terribly excited by the narrow goal of boosting stock values. The company’s profit objective is, therefore, reformulated as a question of broad national economic policy. …According to GE, this can be achieved by cutting its [GE’s] taxes. As it turned out GE was possible the single biggest winner in the …celebrated tax cuts. GE’s windfall did not, however, create any new jobs for US workers. On the contrary, at the same time the company was drastically shrinking its US workforce…the tax windfall, however, did help GE finance its aggressive campaign of corporate acquisitions.


So GE is apparently not only not afraid of anyone being offended that they have manipulated politicians to serve themselves while screwing American workers in the process, they are actually greatly rewarded for it by their political friends. And this is not just true of GE:

The same pattern was pervasive in US business. [After wheedling tax cuts in the US], capital investment by US corporations accelerated, but NOT in the United States. The new investments were primarily made in foreign countries. US taxpayers, in other words, were unwittingly subsidizing the globalization of their own industrial structure.

Isn’t it so much nicer when you can get the people you’re laying off to pay for their own jobs to be shipped to underpaid third world workers who get no benefits and whose environment can be trashed by the corporation with no consequences?

GE wants maximum freedom to do as it chooses…shifting production and jobs wherever it seems most profitable…[but] minimal responsibility for the economic consequences that follow for the US workforce. The company’s social concern [their philanthropic contributions and support for programs that supposedly “helps” children in Head Start, etc., to be come “skilled workers” in the economy] is, thus, quite shallow. It…accepts no responsibility for the effects their economic dislocations have on adult workers and their communities. …Labor economists from the Economic Policy Institute examined the corporate claim of an impending “skills shortage” and declared it a hoax. The corporate political objective, they concluded, is to divert attention from the real labor problems – the proliferation of low-wage jobs and the declining value of industrial wages generally.

And we all know it, which is why The Market has decided these companies are dishonest and untrustworthy. Greider’s article goes on to give specific examples of GE being a bad citizen, but you get the point. These companies couldn’t care less about the effects of their policies on ordinary people or the opinion of ordinary people about their “reputation.”

Lott goes on to give a lengthy and unconvincing argument that politicians somehow need to be honest (“uncaught” is closer to the mark) and aren’t underhandedly taking advantage of us. One obviously incorrect statement was, on page 53, that people can’t simply transfer their own reputation to others whenever its convenient to do so. If that were the case, people wouldn’t vote for this or that candidate based on lists published by special interest groups, which many people do. Most of the apathetic voting public has neither the time nor the inclination to research every single candidate for every single race in each election. Most people rely on the opinions of their church, their favorite special interest group, or their party – without serious question.

On page 57 Lott says: The main evidence for the view of political donations as an exercise in vote-buying is that politicians tend to vote in line with the wishes of their donors. Very few people would deny this is true. But an analysis of donation and voting patterns revels that donors support politicians for the same reason voters do: politicians intrinsically value policies, and donors give to candidates who share their values. Vote-buying is not occurring because individual politicians are not altering their votes based on donations.

While it is true that this represents a sort of chicken-and-egg thing that is hard to unravel, and is basically a circular argument, we have already established through empirical evidence that GE and other companies simply pressure the parties to never field candidates who oppose their agendas, and so politicians who oppose transnational corporate irresponsibility have no real chance of ever receiving their party’s endorsement. Their platform will never, from the start, include any policies that interfere with big business or endanger corporate profits, no matter how much such actions would benefit the public at large. There are numerous examples of this that have even been in the news recently. For example, why do European workers get at least six weeks of vacation on average? A year of maternal leave for newborns? Guaranteed access to health care and pensions? Why have our politicians not done the things that the politicians of every other industrialized and civilized nation of the world has done to insure quality of life for their citizens? The answer is clear, from the GE example, that the politicians are attached at the hip to the transnational corporations and policy is being made by and for CEOs, not for ordinary people. Even outgoing politicians have to tow the party line, or risk having the skeletons in their closet exposed. Not only that, but anyone who rocks the boat is now at a greater risk of having the opposing political party sic the justice department on them – neither party is afraid to use the judiciary to serve their own purposes. This may not have been prevalent in the past (“may” being the operative word there), but from Hoover on there is a clear connection between justice and political support, or lack thereof.

The Market is always right.

And I loved Lott’s statement on page 59: Politicians do care strongly about policy outcomes.

If that were true, maybe they should try reading the bills first before voting on them.

Campaign finance is an ugly mess, to say the least. I would say, here, that it is probably more an issue of parties not wanting to endorse newbies who might rock the boat, unless there is a clear offsetting advantage for doing so. That is why more incumbents win. The parties could throw their weight behind any candidate, new or not, but they choose carefully based on their own agendas and insecurities.

One thing I would like to say, though, about individual campaign contributions, is that yes, it is a rich man’s world, regardless of how much they work to make it look like it isn’t. There are only 300 million or so people, probably 2/3 of which are adults in this country. Yet campaigns each raise multiple millions of dollars, all supposedly from individual contributors…

…the majority of which [60-some percent] then decide not to vote? After donating?

How much sense does that make? Clearly, corporations are the ones doing the biggest part of the contributing, either indirectly or directly.

And name recognition is not all it’s cracked up to be, either.

By Lott’s argument, Hillary Clinton shouldn’t need to raise a single dime in campaign contributions, because everybody on the planet knows who she is. Yet clearly that is not the case. So why do influential individuals and companies give her money “for her campaign”? Want to make a bet it has little to do with her “campaign” and a whole lot to do with what she does or doesn’t do after being elected? I would, and so does The Market.

Lott says on page 67 that: Today, with the federal government spending about 20% of GDP, much more is at stake when we select who will control the purse strings. Again, corporations have far more to lose than average people – who have already basically lost all hope of maintaining a standard of living on par with our European counterparts.

On page 68 Lott says: But instead of going directly to political parties and individual candidates, the [contributed] money is now being funneled through the less efficient auspices of non-party organizations. Well, if by “less efficient” he means “focused on issues” instead of popularity contests, then yes, I guess they’re less efficient. Nonetheless, it appears from Hillary and Barak’s latest figures, among others, that they’re getting plenty of direct donations.

On page 70 we read: We must expect a lot of people will spend large amounts of cash to influence the selection of the people who control such huge amounts of money. Well, yes, but since the vast majority of citizens don’t bother to vote, we must ask ourselves who it is that is spending the money to buy the power to control the ones controlling the money. Answer: Wealthy influential people and corporations. Not your average Joe. So it is true what Lott says on page 64: One of the reasons people don’t vote is they think the big-moneyed interests run everything anyway, so what’s the point? Indeed, The Market has spoken.

I had to laugh when reading page 73, where Lott says …rich criminals face disproportionately high penalties. Two words: Paris Hilton. Enough said.

As for other rich persons, those whom Lott claims are terribly afraid of losing their reputations, I have two more words: Bill Gates. Half the world hates Bill Gates and Windows is widely acknowledged to have holes big enough to drive a truck through that spring open as soon as the old ones are closed. It’s a Piece of Junk Par Excellence, and yet the world is Bill’s captive audience. Quality? Ha! Bill and his ilk have sufficient off-shore accounts to not care if the world hates them. They do just enough to stay out of serious trouble. As Lott says on page 75: …the overwhelming majority of America’s 11,000+ publicly traded firms are not run into the ground by their own corporate officers. Of course not. Only a stupid parasite kills its host, and most CEO’s are not stupid. (Natural Selection at work.) The parasite only has to keep the host from rising up against it, that’s all.

Lott talks some about the effects of being prosecuted, ala Ken Lay, but I would counter that these high rollers only get thrown to the dogs when it suits their political and corporate foes/allies for this to happen. The average well-connected transnational CEO has no fear of prosecution as long as he doesn’t rock the boat. Ken got in over his head.

Christopher C. Horner, Senior Fellow at the Competitive Enterprise Institute, has this to say about Ken Lay and Enron:

Enron, like many of the very biggest businesses in America, say Kyoto [environmental accords] - and still see global warming laws and regulations - as the best price fixing and subsidy creating deal in history. ...Strangely, however, Enron's scheming to artificially restrict energy sources through government rationing of emissions found almost no place in the extensive media coverage of its manipulative business practices. ...At all levels [Enron] would lobby and connive with green groups and like-minded Big Business to put America on an energy diet...meanwhile the company steadily bought up businesses to provide these...energy sources that Kyoto would force-feed on the population of the developed world. ...The revelations from internal Enron memoranda and other sources, though still largely ignored in the political debates, remain breathtaking even to the fairly cynical. ...All of this is by way of illustrating that the debate is NOT greens vs. business, but quite often greens and business vs. consumers and the economy...

In other words, Ken Lay found himself on the wrong side of Big Oil, and lost.

And it’s particularly salient that Ken and others say at their trial, as Lott quotes on page 79, that “Everybody else was doing it.” Lott says that there’s no “evidence” of this, but the simple fact that these high-rollers say so is sufficient evidence. They are industry insiders and are in a position to know. But Lott is wrong when he says, also on page 79, that: Popular belief in rampant corporate fraud has real consequences in that it creates pressure for changes in government policy. Hundreds of thousands of well-paying industrial jobs have left these shores in order to avoid said government policy that they can’t get rid of easily. And if “popular belief” had any sway with politicians in the first place, there would be serious sanctions against transnational corporations for shipping US manufacturing jobs overseas, because all of the people who are now stuck working at Wal-Mart in jobs that don’t pay a living wage and have no benefits are certainly a large constituency. Yet nothing is done to stem the flow of blood, because the corporations have paid to keep it that way.

Lott claims on page 80 that: When convicted of fraud, companies face collateral penalties related to their loss of reputation. …When firms defraud their customers or don’t deliver what they promise, customers will stop buying their products or will insist on lower prices… In contrast, aside from a small minority of activists, most customers will not reject a company’s products because it was convicted of an environmental or similar crime that does not directly affect the customer’s purchases.

GE? Microsoft? Has Lott bought anything, anywhere lately for that matter? It’s all cheap junk not intended to last, and nobody even tries to hide that fact anymore. And, type the word “boycott” into your Google browser and see how many major famous companies have a boycott against them for cruddy products or service. Does it make any difference at all? Of course not. Most people live paycheck to paycheck or nearly so – they have to by what’s cheapest, even knowing it won’t last.

In fact, the only subsection of The Market that has really acted on such a belief is, in fact, directly related to environmentalism – the organic food segment is the fastest growing segment of the food market, behind kosher. I, for example, will absolutely not buy any factory farmed, hormone injected, antibiotic and chemically polluted meat or dairy products. Not all vegetables are available in organic form except for their natural growing seasons, usually, but even then you can get what you can and carefully wash and peel conventionally grown fruits and veggies from the produce section – not canned or processed.

Con Agra and Monsanto, et al., know this, which is why they’re working night and day to get the USDA definitions of “organic” modified so that they can slip in their genetically modified processed crap and call it “organic.” The Market is rejecting their cruddy products, and their response is to try and fake out the buyers, not to improve their products. Does anyone deny this?

No. And they don’t care how loudly the real organic growers protest, or how much the public protests, or how much special interest groups protest – they want the money going to that fastest-growing market segment and they’re willing to lie, cheat, and bribe their way to it. And it appears likely that they have enough bought-and-paid-for politicians in their pocket to do it, too. They are fighting tooth and nail in Europe just to get their junk on the shelves, because Europe has strict regulations on genetically modified foods, and doesn’t allow dairy products from milk produced by hormone-injected cows, etc., etc. But no fear of that in America – no sirreee. Every farm bill and every FDA ruling makes sure their products are freely sold without warning labels in the US.

And so on and so on, company after company, industry after industry. The bottom line is, these huge multi-national corporations are far and away above and beyond any of the natural mechanics of local small business economics observed by Adam Smith and others. That paradigm simply doesn’t apply. And we need to protect ourselves from the paradigm that is applying – and soon.

2 comments:

John Lott said...

"But Lott says, “What incentives do politicians have not to break their promises?” (pg 50) If he means campaign promises to ordinary voters, every incentive – which is obvious since so few actually do what they promised during their campaigns"

-- Well, I guess that this is an empirical question and in the book I point out how extremely consistently politicians vote over time.

Ahavah bat Sarah said...

Of course they vote consistently over time - their party/donors told them what the acceptable views were and they had a choice - either play the party line or find themselves abandoned and outcast and in danger of having their skeletons exposed. As I said above, the candidates are all pre-screened by the big party donors - the CEO's and wealthy influential individuals, and no "dangerous" views gain entry.

And more to the point, the fact that they "vote consistently" doesn't mean they're voting the way they told the "little people" they would - and voting consistently cannot be equated with "voting for the benefit of the average Joe" by any stretch of the imagination.