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Chapter Thirty-five: Business versus Government: A World-Historical Perspective

 

Epic events in world history often focus upon conflicts between representatives of different civilizations. A power struggle takes place between institutions that embody different functions within society. In western Europe a thousand years ago, the struggle was between government and religion. Royal governments demanded the right to invest (appoint) local clergy. The church fought back by excommunicating monarchs who opposed its will. That meant that the monarchs would be denied Christian sacraments and therefore entrance to Heaven. A poignant moment occurred in 1076 A.D. when the Holy Roman Emperor, Henry IV, stood barefoot in the snow for three days before Pope Gregory VII granted him absolution from excommunication. In those days, business was not yet a fully organized sector of activity within society. Religion and government were the only two power centers then.

Business emerged as an activity focusing on the market place. As merchants bought and sold various merchandise, wealth accumulated throughout the realm. Parliaments were first organized to help the monarch collect taxes. Its members testified to the tax-producing capacity of an area they represented. This branch of government grew in power. The Puritan revolution of the mid 17th century, and the American and French revolutions of the late 18th century, overthrew the king in favor of parliamentary government. Where the king had derived his authority from God, the authority of parliament rested upon popular elections. In a sense, this form of government, which we call democracy, embodies principles of the marketplace. The outcome - election to a position in government - is the result of a contest between competing candidates who are supported by voters exercising their individual judgment. In like manner, free markets allow individuals to set prices and quantities of goods and services produced by their separate decisions to buy or sell. Money and votes are the media through which such decisions are made.

In the United States, the politics of the new democratic republic took the form of a struggle between rich merchants, traders, and bankers on the east coast and farmers and workers of more modest means who were settling the western territories. President Andrew Jackson’s decision not to recharter the national bank brought this politics into sharp focus. During this period of “Jacksonian democracy”, labor unions began to flourish as they organized working people around the struggle for a shorter working day. In the 1880s, labor’s campaign for the 8-hour day gave rise to the international holiday known as May Day. Labor unions were organized at the level of the business firm to bargain with employers. Also, a labor-friendly political movement appeared in the form of international socialism (or communism).

Socialist politics represented an extreme form of political aggression directed against business. Government used its monopoly of force to expropriate private property and put it into collective ownership. Essentially, government took over the ownership and management of business often without compensating the previous owners. Worse yet, the communists used physical violence against these people as when, for instance, Stalin liquidated the kulaks, or rich farmers, of Russia and the Ukraine. In the power struggle between private businesses and government, socialism tilted the balance completely in favor of government.
As we know, the socialist regime known as the Soviet Union became a deadly rival to nations, including the United States, which had capitalistic economies and a democratic form of government. In such nations, some balance was maintained between business and government.

The Soviet bloc engaged in a costly arms race with the western democracies which eventually led to the downfall of the Soviet Union. President Reagan shrewdly pushed that nation into bankruptcy by its need to respond to his “Star Wars” initiative. But communism was also showing internal strains, both economic and moral. The totalitarian government which resulted from destruction of the rival commercial and religious power centers practiced brutal acts against its own people. Today this form of government is largely discredited, especially in the United States.

With the fall of the Soviet Union and other communist governments in the late 1980s, the United States became the world’s only military superpower. Our nation dominated the world politically, culturally, and economically. In the power struggle between business and government, the pendulum now swung the other way. The communist menace was defeated. Organized labor, the traditional adversary of business, lost focus as it abandoned the struggle to reduce work hours. This had been its chief mission in an earlier time when the unions were built. Those battles won, union members saw overtime as an opportunity to earn more money rather than as a deterrent to scheduling long hours of work. Also, labor hopped aboard the Civil Rights movement, the women’s movement, and the immigrant-rights movement, casting a blind eye on the weakening of the solidarity principle upon which its strength had been based. A defining moment occurred when President Reagan, himself a former union president, fired the striking air-traffic controllers.

At the same time, business began to squeeze government for favors. Changes in election law allowed business to form political-action committees, undoing a previous rule that corporations could not contribute to political candidates. Business lobbyists (along with those from other interest groups) swarmed Washington and the fifty state capitols seeking an advantage for their clients. Public office was exchanged with this type of influence-peddling job in a revolving door. Business influence increased with the increasing amounts of money donated to political candidates and the thicker presence of lobbyists. Elected officials were themselves forced to solicit campaign contributions to keep up with the escalating cost of elections. They were, in effect, begging for someone to buy them. And buyers were not hard to find if the public officeholders were willing to sell out the interests of the community at large to deliver something of greater monetary value to these people.

It used to be that the news media would communicate information about government activities free of charge as part of their news coverage. As personalized news has replaced hard news and as journalists have inserted themselves as gatekeepers into the news process, political candidates have been forced to communicate with their constituents through paid advertising. The high cost of television commercials is the single greatest reason why political campaigns have become so expensive and why, in reaction to that expense, moneyed interests have gained such influence over government. The irony is that the television broadcasters are using a public resource free of charge. The private companies which control the broadcasting industry have, in effect, exercised “squatters’ rights” to monopolize certain broadcast frequencies. And, using the public airwaves, they are now making political candidates pay to communicate with the voters in election campaigns.

Yet, elected officials are afraid to challenge this arrangement for fear of offending the powerful broadcast industry. Newspaper reporters increasingly cover political campaigns from the standpoint of how much money is raised or what television commercials have been run, implying that only the best-financed candidates can win elections and therefore interest their readers. So, this corrupting relationship between journalism and moneyed interests feeds on itself. Business, which has the most money to spend, necessarily gains the upper hand in political affairs.

Organized labor, the political counterweight to business, has an entrenched interest in business firms where it has become established. Over the years, the union members have gained in wages and benefits to the point that labor costs in these firms may be out of line with costs elsewhere. Meanwhile, business has steadily applied labor-saving technologies that allow its operations to be handled by a smaller complement of workers. Proportionately fewer workers are employed in the more highly paid union shops. As a result, the labor movement is no longer seen as a “noble cause” to upgrade the condition of working people generally. Instead, the public increasingly regards unions as a selfish enterprise designed to allow a shrinking group of overpaid workers to retain their privilege. The political influence of labor has declined accordingly.

Business managers are, of course, eager to cut costs and remain competitive. Because top managers might risk losing their jobs if they resisted union demands and a costly strike ensued, they look for alternative ways to accomplish the same thing more smoothly. One way is to make investments in capital equipment by which a smaller number of employees can handle the production. Another is to work the well-paid employees for longer hours. A third way is to close down operations where unions have become entrenched and outsource production to facilities where labor costs are lower. They could be non-union shops in another part of the country where organized labor is weaker. Alternatively, they could be plants in low-wage countries abroad.

The ideology and practice of “free trade” took hold during the Reagan administration. A free-trade pact was first concluded with Canada. Then, under the first President Bush, it was extended to Mexico as well as Canada. President Clinton arm-twisted the Congress to approve the North American Free-Trade Agreement (NAFTA). Where the U.S.-Canada pact had given Canadian businesses access to lower-cost production in the United States, NAFTA gave U.S. and Canadian business access to cheap Mexican labor. The free-trade principle has since been extended to commercial relations with other countries. Essentially, national governments have agreed to reduce tariffs and non-tariff trade barriers to the lowest possible level in their trade with each other. Actually, the term “trade” is a misnomer. The gist of it is to let multinational businesses shift production to low-wage countries and then export the production with minimal tariffs or restrictions back to the high-wage countries where it will be sold. It’s a device to bypass high-priced union labor.

The doctrine of free trade, enjoying strong bipartisan support, has organized labor on the run. American consumers appreciate the low-cost imported goods that they can buy at Wal-Mart. “Buy American” has less appeal if it means supporting those angry people who strike while making more money than the average consumer. On the other hand, as production outsourcing is applied to more functions in the economy, people are starting to realize that their jobs, too, could be eliminated. It has been a shock to learn that well-educated but poorly paid Indians, who speak perfect English, are assuming many of clerical, technical, and professional jobs once handled by Americans. No job is safe from outsourcing.

Where is the “American dream” for today’s young people who spend large sums of money up front to attend college in order to qualify for these high-paying jobs if U.S. employers will simply purchase low-cost labor from abroad? They are fast becoming a generation of suckers. The Wall Street Journal reports that the average college graduate has a $28,000 student loan needing to be paid after graduation. The way things are going, America will no longer be a “land of opportunity” but, instead, a temporary consumer market to be drained. And, short-term business interests dictate that development.

Wall Street fund managers and stock analysts are relentlessly demanding higher profit margins from business firms. Hungry CEO’s need to be paid. It’s the people down the corporate ladder who will pay for this, either in reduced pay and benefits, increased work pressures, or loss of a job. Wages are flat or declining. A smaller percentage of private companies offer paid vacations, health insurance, or pensions. Work hours are increasing. Job security is nonexistent. The provision of “affordable housing” for working Americans has become an issue not because, in today’s housing-construction boom, there are not enough homes but because people cannot afford them on their current salaries. Government will be forced to subsidize rent or mortgage payments for many people because employment income will not suffice.

What we have here, then, is a kind of business totalitarianism, milder perhaps than the political totalitarianism of the 1930s but still a menace to our people. Any extreme swing of the pendulum creates a dangerous situation. Only a reasonable balance of power between business, government, and other institutions within the society will provide safe conditions for people. That is why government must become stronger in relation to business. Organized labor must also become stronger. Such things are possible if a new political consensus can be formed which is based in a vision of a better society rather than in arrangements to benefit special interests. With such a consensus, government can bring its superior power to bear upon the problems created by business overreaching; for government has the power of the gun.

The preferred strategy, however, is to use this power sparingly. Build flexibility into government regulation. Use taxation policy and financial penalties to encourage certain behavior without requiring it. The overtime-penalty provision of the Fair Labor Standards Act provides a model. Hours worked beyond the weekly standard are not forbidden but financially discouraged. Likewise, tariffs on imported goods financially burden production outside the country but do not forbid it. Business has the power to make decisions about where to locate its facilities and the jobs that go with them. This power has often been used to wrest tax and other concessions from government. Government has the power, however, to penalize or restrict access to markets within its jurisdiction. National governments should use that power to control the multinational corporations which ignore social and environmental needs to increase profits in a free-trade environment. In that kind of power struggle, the long-term interests of business are served. No one needs stand barefoot in the snow.

I would suggest that the politically conservative maxim, “that government governs best which governs least”, should now be applied to the monetary and fiscal policies of government. The federal government needs to cut its subsidies to the bone. It needs to purchase fewer goods and and services. It needs to stay out of wars. In this regard, I favor reversing U.S. economic policies set in the 1930s under the influence of Lord Keynes. Government should forgo direct spending and return to basic regulation. Its regulations should be disinterested and uniform. Politicians who are in a position to do special favors for contractors, taxpayers, or anyone else should work themselves out of a job. Let our laws, once set, go on automatic pilot. Shrink the discretionary powers invested in public office.

In the years ahead, the federal government’s huge debts and the immense actuarial deficits of its trust funds will force government operations to contract. Also, the earth’s finite natural resources dictate that present modes of economic activity will not be sustained. No longer able to grow our way out of economic problems, we will need to develop a political strategy for dealing with that situation.

What is the positive scenario or “better society “ which can be imagined under those circumstances? If past history is any indication, our society will be one where economic activities, after a self-destructive phase, shrink down to a stable arrangement. Other kinds of activity, requiring fewer material resources, will set the pace of creative change. A society of more general leisure represents my best estimate of how humanity can prosper in the years ahead. Given sufficient (but not abundant) material resources, individuals would have the freedom to create their own lives. This new vision of personal opportunity should extend to everyone in the world.

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