“Economic Freedom”: Capitalism By Any Other Name
I’ve been thinking about the term “capitalism” since Frank Luntz, the renowned pollster, told Republicans to quit saying it. The Occupy Wall Street movement has turned “capitalism” into a dirty word, he said. If Republicans want to win in 2012, they’d better stop worrying and learn to love “economic freedom” instead.
It’s a stunning turning of the tide. No matter the kind of conservative—Southern, evangelical, libertarian, Tea Party, or old-school Rockefeller patrician—conservatives have never hidden their allegiance to the moneyed class and power elite. I have never in my lifetime seen a conservative counsel against expressing one of the major tenets of conservative ideology. You might as well advise the GOP to stop trying to repeal the New Deal and start defending labor rights.
I’ve been thinking about this rhetorical shift while riding the bus in New Haven every day. The passengers are typically at the bottom of the 99 percent. Some are destitute; some are unemployable. Most are working poor, people with full-time minimum-wage jobs who cannot rise above poverty. I wonder what they’d think of John Mackey’s definition of “economic freedom.” The CEO of Whole Foods wrote in The Wall Street Journal in November that the phrase means “property rights, freedom to trade internationally, minimal governmental regulation … sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.” My guess is they’d think very little of it.
Mackey’s definition is meaningful only if you already have money. Real money. Money you don’t have to spend right away, money that can sit around for a while. But when you don’t have real money, it has nothing to do with “economic freedom.” If Mackey were defining “capitalism,” that would be one thing. The working person might have nothing to say to that. The abstract nature of “economic freedom,” though, invites interpretation, and, for the working person, it has everything to do with making a living.
Though “economic freedom” is now synonymous with capital, it used to be synonymous with labor. It makes sense. Government isn’t the largest force in our lives. Corporations are. They dictate when to work, where and how. Or none of the above if you’ve been laid off. They don’t want to pay for full-time work, health care, or pensions. During their golden age, unions were seen as a step toward greater security, which was a step toward greater freedom. If you, as an individual, didn’t have to worry about bargaining for wages, retirement, or life insurance (because your labor posed actual physical risk), you were freed of that burden. In other words, economic freedom wasn’t freedom from the rule of government; it was freedom from the rule of corporations.
More profoundly, labor’s “economic freedom” is in keeping with the grandest narratives of American history, with colonists fighting the British colonizers, slaves fleeing their masters, women struggling for the right to vote, African Americans appealing for their inalienable rights. In each of these, a David battles a Goliath—and the underdog wins. Only in America. Where is the moral thrust of capital’s “economic freedom” narrative? Making more money? Nah.
Some have warned that Luntz is setting a trap. The temptation among progressives has been to talk even more about capitalism since Luntz is “frightened to death” by the Occupy movement. If they do, critics say, Republicans will be able to portray progressives as socialists. No doubt they will, but not because the Occupiers are focused on capitalism. Conservatives are willing to cry socialist anytime something irritates business. It doesn’t take raising a country’s collective consciousness to the dangers of corrupt capitalism to draw rhetorical fire like that.
Talking about capitalism in America is somewhat like talking about class. As a social reality, it’s so familiar as to be invisible, which is convenient for those, like the moneyed class and power elite, who don’t want to talk about it. But once you start talking about an invisible force that can affect anyone, you start wondering why it doesn’t benefit everyone. That, to me, is what the Occupy movement needs to keep doing: pointing out what should be obvious to all of us.
An enormous propaganda machine paid for by capital has made it necessary for thousands of people to march in the streets and camp in public parks to make what should be truly unremarkable observations: Rich people don’t always deserve their riches, and people who work hard often can’t make ends meet. This is about capitalism, because this is about the nature of work—and the enormous constraints faced by Americans employed or not. So, no matter what kind of rhetorical hocus-pocus Republicans come up with next year, no matter what they call capitalism, the elephant is still in the room. There’s no replacing plainspoken truths.
By: John Stoehr, The American Prospect, December 16, 2011
Soaring Inequality: “It’s Time To Take The Crony Out Of Capitalism”
Whenever I write about Occupy Wall Street, some readers ask me if the protesters really are half-naked Communists aiming to bring down the American economic system when they’re not doing drugs or having sex in public.
The answer is no. That alarmist view of the movement is a credit to the (prurient) imagination of its critics, and voyeurs of Occupy Wall Street will be disappointed. More important, while alarmists seem to think that the movement is a “mob” trying to overthrow capitalism, one can make a case that, on the contrary, it highlights the need to restore basic capitalist principles like accountability.
To put it another way, this is a chance to save capitalism from crony capitalists.
I’m as passionate a believer in capitalism as anyone. My Krzysztofowicz cousins (who didn’t shorten the family name) lived in Poland, and their experience with Communism taught me that the way to raise living standards is capitalism.
But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.
When I lived in Asia and covered the financial crisis there in the late 1990s, American government officials spoke scathingly about “crony capitalism” in the region. As Lawrence Summers, then a deputy Treasury secretary, put it in a speech in August 1998: “In Asia, the problems related to ‘crony capitalism’ are at the heart of this crisis, and that is why structural reforms must be a major part” of the International Monetary Fund’s solution.
The American critique of the Asian crisis was correct. The countries involved were nominally capitalist but needed major reforms to create accountability and competitive markets.
Something similar is true today of the United States.
So I’d like to invite the finance ministers of Thailand, South Korea and Indonesia — whom I and other Americans deemed emblems of crony capitalism in the 1990s — to stand up and denounce American crony capitalism today.
Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.
The upshot is that financial institutions boost leverage in search of supersize profits and bonuses. Banks pretend that risk is eliminated because it’s securitized. Rating agencies accept money to issue an imprimatur that turns out to be meaningless. The system teeters, and then the taxpayer rushes in to bail bankers out. Where’s the accountability?
It’s not just rabble-rousers at Occupy Wall Street who are seeking to put America’s capitalists on a more capitalist footing. “Structural change is necessary,” Paul Volcker, the former chairman of the Federal Reserve, said in an important speech last month that discussed many of these themes. He called for more curbs on big banks, possibly including trimming their size, and he warned that otherwise we’re on a path of “increasingly frequent, complex and dangerous financial breakdowns.”
Likewise, Mohamed El-Erian, another pillar of the financial world who is the chief executive of Pimco, one of the world’s largest money managers, is sympathetic to aspects of the Occupy movement. He told me that the economic system needs to move toward “inclusive capitalism” and embrace broad-based job creation while curbing excessive inequality.
“You cannot be a good house in a rapidly deteriorating neighborhood,” he told me. “The credibility and the fair functioning of the neighborhood matter a great deal. Without that, the integrity of the capitalist system will weaken further.”
Lawrence Katz, a Harvard economist, adds that some inequality is necessary to create incentives in a capitalist economy but that “too much inequality can harm the efficient operation of the economy.” In particular, he says, excessive inequality can have two perverse consequences: first, the very wealthy lobby for favors, contracts and bailouts that distort markets; and, second, growing inequality undermines the ability of the poorest to invest in their own education.
“These factors mean that high inequality can generate further high inequality and eventually poor economic growth,” Professor Katz said.
Does that ring a bell?
So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.
It’s time to take the crony out of capitalism, right here at home.
By: Nicholas D. Kristof, Op-Ed Columnist, The New York Times, October 26, 2011
Mitt Romney: The Corporate ‘Person’ And The One Percent
For Mitt Romney, the fundamental argument underpinning his presidential candidacy is his experience as a top executive at Bain Capital, the huge Boston-based private equity firm. That is especially true now because he must disown his most important achievement as Massachusetts governor — health care reform — in order to assuage the Tea Party extremists in his own party. But what does his business career tell us about the economic policies that might be pursued by the Republican front-runner — and about his worldview? Much could have been gleaned from the career history of George W. Bush, if only voters had paid closer attention to the unflattering reports of his experience as oilman and baseball team owner that accumulated in 1999 and 2000.
As the stories behind Romney’s success unfold in the coming campaign, the answer is likely to be that Bain Capital has prospered during the past quarter-century promoting a harsher brand of enterprise — one that ruins communities, impoverishes workers, and exports American jobs, all in the name of shareholder “value.”
In the current issue of New York Magazine, reporter Benjamin Wallace-Wells begins the process of unpacking what Romney and his colleagues in management consulting and private equity have wrought upon the U.S. economy. Wallace-Wells opens his narrative with a telling recent anecdote from the campaign trail in Iowa, where Romney lectured a disbelieving crowd on the issue of corporate personhood. When a heckler urged raising taxes on corporations, Romney replied with condescension: “Corporations are people too, my friend….”
Of course in the strictest sense he was right: The management, shareholders, and workers of every corporation are indeed human beings, and it is to those human beings that the money earned by corporations, after taxes, is paid. But as Wallace-Wells discovers, Romney and company have done much to change how those earnings are apportioned, encouraging massive increases in the amount appropriated by management and huge reductions in wages and benefits paid to workers. Creating incentives for managers to maximize stock prices — which would explode their own compensation — simultaneously undermined old-fashioned corporate responsibility toward employees, communities, and the nation as a whole. The deepest implication of the consultant creed that Romney represents is an ugly Darwinism — or so Wallace-Wells suggests.
But as consultants, there was only so much that Romney and the Bain crowd could do to change any corporation. Wanting to put their theories into practice, and sensing that big profits could ensue, they formed Bain Capital, whose record in corporate takeovers and turnarounds became the envy of the industry — and the ruin of thousands of workers and their families unlucky enough to become collateral damage.
The improved efficiency and productivity of private enterprise over the past two decades certainly were not without benefit to society, in lower prices, better technology and even, for a while, higher employment. But the perfect “alignment” of incentives between corporate managers and shareholders, without any regulatory brakes, led to worsening economic inequality, executive recklessness, stock manipulation, and a laser-like focus on the short term — in short, all of the ills that underlie American economic decline. Those same incentives have been trained on the political system to ensure decisions that benefit those same overpaid, seemingly sociopathic bankers and investors — now known as the “one percent.” They could scarcely hope for a more sympathetic candidate than the man from Bain.
By: Joe Conason, The National Memo, October 25, 2011
Illegal Immigrants Not To Blame For Unemployment
Memo to Alabama: George W. Bush was right.
The former president, making a too-late push for what could have been a game-changing, bipartisan immigration reform law, noted that immigrants now here illegally make an important contribution to the economy. They do the jobs Americans can’t or won’t do.
Opponents disagreed, arguing that the undocumented workers were stealing jobs that should go to Americans—jobs like picking fruit for low wages in the hot sun. That was a questionable claim when the economy was better, but as Alabama farmers are now learning, Bush’s statement is correct even now, when Americans are working for far less pay in jobs for which they are way over-qualified, just to have a job.
In June Alabama passed a draconian immigration law—most of which is still in place, even while courts decide its constitutionality—that has driven many immigrants from the state. The result has not been a wave of grateful unemployed teachers and skilled workers, eager to be underpaid for difficult manual labor. Instead, at the San Francisco Chronicle reports:
The agriculture industry suffered the most immediate impact. Farmers said they will have to downsize or let crops die in the fields. As the season’s harvest winds down, many are worried about next year.
In south Georgia, Connie Horner has heard just about every reason unemployed Americans don’t want to work on her blueberry farm. It’s hot, the hours are long, the pay isn’t enough, and it’s just plain hard.
“You can’t find legal workers,” Horner said. “Basically, they last a day or two, literally.”
There are a number of lessons here. One is that there are surely elected officials and people in the business community who are using the recession to roll back all kinds of hard-fought rights for workers, cutting pay, eliminating job security, and drastically reducing or zeroing out benefits. Another is that while Americans don’t want to do farm work for low wages, they also don’t want to pay higher prices for food harvested by workers paid a decent salary. That’s not an argument for abusing undocumented workers, but it’s also not an argument for scaring foreigners out of the state so locals can have their bad jobs.
What’s remarkable is that some of the same people who scream about illegal immigrants taking American jobs here in the United States are quieter when it comes to foreigners abroad taking what could be American jobs here. Outsourcing of manufacturing jobs increases corporate profits, but adds to the unemployment rate domestically. Those are jobs American will do. If that anti-immigrant worker crowd is genuinely concerned about retaining U.S. jobs, they should focus on bringing back the outsourced jobs—not evacuating the foreign workers.
By: Susan Milligan, U. S. News and World Report, October 24, 2011
State Loan Program That Rick Perry Touted Had To Be Bailed Out
Gov. Rick Perry has anchored his presidential campaign to his claims of creating jobs.
With no business record of his own, Perry must contrast his ability to create jobs with public money against the records of two front-runners, Mitt Romney and Herman Cain, who tout credentials as private employers.
His GOP opponents already have sniped at his gubernatorial record, saying Perry inflates his job-creation numbers and takes credit for a business climate he inherited. Perry’s efforts to create jobs and spur agribusinesses as the state’s agriculture commissioner during the 1990s might provide even more fodder for the opposition.
Over his eight years as Texas’ farmer-in-chief, Perry oversaw a loan guarantee program with so many defaults that the state had to stop guaranteeing bank loans to startups in agribusiness and eventually bailed out the program with taxpayer money.
The state auditor panned Perry’s claims of creating jobs and criticized Perry and his fellow board members at the Texas Agricultural Finance Authority for not following their own lending guidelines.
In some instances, the auditor said, Perry and the authority guaranteed loans to applicants with a negative net worth or too much debt. Citing growing debts, the auditor finally suggested that state officials consider dismantling the program.
Even as the first alarms were sounded, Perry defended the program, saying no taxpayer money was at risk, blaming others and claiming he had fixed it.
It only got worse.
By 2002, Perry’s successor, Agriculture Commissioner Susan Combs, a Republican, stopped making loans as the percentage of bad loans neared 30 percent.
By 2009, her successor, Agriculture Commissioner Todd Staples, also a Republican, asked the Legislature to pay off the loan guarantees with a $14.7 million appropriation. The finance authority could no longer afford the $541,000 to cover the annual interest on the bad debts, almost all of which dated back to Perry’s tenure.
“It’s bad,” Staples told the American-Statesman at the time. “Unfortunately, taxpayers are on the hook for something that happened as long ago as 1987.”
In effect, Perry, as governor, signed his own government bailout when he approved the 2009 appropriations bill.
The Perry campaign did not respond to questions about whether Perry, as president, would use public money in economic development programs and what lessons he learned from his experience guaranteeing risky business loans with public money.
Mired in partisan politics
When the Legislature created the Texas Agricultural Finance Authority in 1987, the intent was to boost the state’s agricultural economy by selling state-backed bonds to guarantee bank loans to entrepreneurs who could not get commercial loans. The goal was to create small businesses and jobs by processing — rather than simply growing — Texas agricultural products.
The program immediately got mired in partisan politics, with Agriculture Commissioner Jim Hightower, a Democrat, on one side, and the Republican members of the finance authority appointed by Gov. Bill Clements on the other.
The impasse ensured that no loans were made during Hightower’s term.
In 1990, Perry campaigned on a promise to create jobs and expand the rural economy by making loans to agribusiness startups that would process the state’s agricultural products.
Clements’ appointees to the finance authority board gave Perry, a board member, sole authority to guarantee loans before newly elected Gov. Ann Richards, a Democrat, could replace them.
Under the program, the state would guarantee 90 percent of a lender’s loan — up to a maximum of $5 million — to an applicant.
Entrepreneurs lined up for money to spin cotton into yarn, process meats, develop cotton insulation, market canna bulbs to wholesale nurseries and sell pinto beans as a ready-to-eat frozen meal, to name a few.
‘This has not cost Texans money’
Perry had made four loan guarantees for $5.8 million by the time the attorney general ruled that he had to share that authority with his fellow board members. Even then, Perry and his staff drove the decisions.
Mary Webb, a Richards appointee who joined the finance authority as chairwoman in 1992, said the part-time board members had to rely on Perry’s staff at the agriculture department when screening loan applications.
“They did the legwork,” she said. “We looked at the deals to see if they fit with the legislation: Would they create jobs and help the agriculture community?”
By the time Webb left the board in 1995, she said she knew a couple of loans were in trouble. She said she learned only later the scope of the problems with other loans.
The first loan guarantees were financed by selling $25 million in bonds.
Twice, in 1993 and 1995, Perry campaigned for voters to approve more bonding authority.
Perry claimed the first two years of the program had created 4,100 jobs and pumped $390 million into the economy by guaranteeing loans to 47 companies. He predicted more than 40,000 jobs could be created with the additional bonding authority.
He didn’t mention troubled loans as he touted the program’s virtues at a 1993 Capitol press conference: “We think that this Texas Ag Finance Authority is, without a doubt, one of the finest programs that the Texas Legislature, that the citizens of Texas have ever gone forward with.”
At another stop, Perry said, “We can truly say it has not cost the taxpayers of Texas any money.”
Voters turned him down in 1993, but Perry finally won an extra $200 million in bonding authority two years later.
“This is one of the few government programs that truly has worked,” Perry said. “This has not cost Texans money.”
In January 1997, State Auditor Lawrence Alwin first alerted state officials, saying Perry and the board had violated their own lending guidelines.
He said 10 of the 48 companies had defaulted, and six more were in trouble. The first bad loans were written off as uncollectible in 1995, according to records.
Alwin also debunked a $40,000 report by a state-paid consultant claiming the program had created or retained more than 5,000 jobs at a cost of $412 per job as well as contributing $600 million to the economy.
The consultant’s data, which Perry submitted to the Legislature, were “unverifiable, incomplete, untimely, and inconsistent” and based on unrealistic assumptions about job creation, Alwin concluded.
A year later, Alwin warned that the situation had gotten worse. The program was $5.7 million in the red because of bad loans.
The issue hit the newspapers.
Perry and his lieutenants defended the program.
Deputy Agriculture Commissioner Larry Soward told The Dallas Morning News that the audit reflected a number of bad loans made early in the program to farmers and ranchers trying their first business ventures.
“The business acumen of the people behind them might not have been as strong as possible,” Soward said.
But he insisted the program would rebound: “The fact that there is a negative balance does not mean the program is in trouble.”
Perry echoed a similar refrain in a guest column in the Amarillo Daily News.
“By their very nature, TAFA loans are considered higher risk. Because of this, some defaults were inevitable and a negative balance was expected in the early years of the program,” he wrote.
He blamed the problems on “some unfortunate decisions made by the previous TAFA board early in the program.”
Perry promised the problem was fixed. “Today, TAFA is on solid footing with a positive balance projected by 2010,” he wrote.
He reminded readers that the loans were funded by debt — commercial paper: “No taxpayer money has ever been used to make TAFA loans.”
In 1998, Perry was elected lieutenant governor, and Combs succeeded him as agriculture commissioner.
She talked of expanding the loan guarantee program to other borrowers beyond food and fiber processors. But she asked Alwin to do a follow-up audit.
His warning was prescient. He said a program that guaranteed loans to people who typically couldn’t qualify for commercial loans would have a hard time finding enough good loans to generate the income to offset the losses from the bad ones.
In 2002, Combs and the agricultural finance authority bowed to that reality, suspending any new loans.
Twenty-nine of 102 guaranteed loans defaulted, almost all of them during Perry’s tenure, according to the records provided this month by the agriculture department.
While the majority of the loans were in good standing, the majority of the original $25 million — $14.7 million — was bad debt. Just as the auditor warned, the income from the good loans could not generate enough cash to make the program self-sustaining.
“We hit a brick wall,” Staples said in 2009.
By: Laylan Copelin, American-Statesman Staff, Statesman.com, October 22, 2011
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