Localized small business capitalism can be, in theory, a workable system that provides a decent living standard for those living in small communities. But even in such a system there is no such thing as a truly “free” market; all markets will be managed by someone, whether by the public as represented by government or by the most powerful business in the marketplace. The government is expected in its management to serve the public interest and can be held accountable by people; businesses by their very nature serve their own interests. If those businesses are incorporated, they are required by law to serve the interests of their shareholders; unless unions or countervailing laws enforced by regulators force them to do so, they have no requirement to serve the interests of other stakeholders such as workers, consumers, or community residents. If a single business is allowed effectively to regulate the market with no government intervention, it can eventually become a monopoly and stifle competition--with the result that it can ignore public safety, abuse workers, and raise prices to whatever level it wishes.
So regulation, particularly to protect the public and to maximize competition is essential even in small, local economies. Such regulation is particularly important in the case of “natural” monopolies, such as electric utilities, water systems, and waste management systems where two or more separate businesses providing the same service would be prohibitively wasteful. Since they have no competition to hold down prices and insure high quality services, “natural” monopolies must either be publically owned or aggressively regulated. Capitalism in local communities with competing businesses and appropriate regulation can in theory provide a good life for residents. Though some wages and profits are spent on goods and services brought in from other communities (imports), these can be balanced by exported goods and services while most wages and profits are spent and circulated within the community, contributing to growth.
Unfortunately, our economic system bears little resemblance to this classic capitalism. We have what is more appropriately described as corporate plutocracy, a system based on social Darwinism. Orthodox neoliberal economists are fond of saying that government regulation necessarily distorts an otherwise balanced system. Actually, government distorts our system not because the government regulates too much, but because over the past 30+ years, it has regulated far too little. The distortions in our system derive not from government regulation, but from the dominance of absentee corporations, monopoly power, and corporate welfare.
What I call absentee corporations are large, often multi-national corporations whose local operations in our towns and cities send much of their income to faraway corporate headquarters. Unlike local businesses, most of whose earnings are spent in the local economy, the profits of large corporations go out of the community to increase faraway executive’s salaries, to pay dividends and interest to shareholders, and to be reinvested, often in debt-creating financial instruments. Among the legions of examples are big box stores like Wal-mart, grocery chains like Kroger and Safeway, pharmaceutical companies and their pharmacy outlets, and food producers like Tyson, Swift, Nestle, and Nabisco. Most of us, though we might prefer to buy from local businesses, often buy goods and services produced or sold by far-removed corporations that siphon local dollars out of state. In a reversal of classic capitalism where businesses, not municipalities and states, compete with each other, our towns, cities, and states, desperate for the jobs corporations provide, have bid against each other for corporate plants and outlets, offering various perks such as tax write offs, tax diversions, and free infrastructure such as access roads paid for by bonds the local people must repay (for more detail, see below on corporate welfare).
Thirty years ago under President Reagan, we stopped regulating monopolies and enforcing the antitrust laws; today both major parties and the mainstream (corporate-dominated) media support this failure to regulate. As a result, as Barry C. Lynn shows in Cornered: The New Monopoly Capitalism And the Economics of Destruction (John Wiley and Sons, 2010), virtually every sector of our economy is dominated by monopolies or near monopolies. We are all familiar with the monopoly power exercised by cable and cell phone companies. AT&T and Verizon together control 60% of the US telephone market (David Cay Johnston, The Fine Print: How Big Companies Use “Plain English” to Rob You Blind, Portfolio/Penguin, 2012: 53). Wal-Mart, as most of us are aware, monopolizes retail markets in thousands of communities, squeezing its suppliers into cutting prices and driving small, local stores out of business (Lynn, 160-61, 171). Among the thousands of additional examples, I’ll cite just a few.
Tyson and Purdue dominate the poultry industry. Strictly avoiding any local competition with each other, they have each been able to carve out large sections of the country where they hold a monopoly (Lynn, 21). As the only processors available to many poultry farmers, they have lowered prices paid to farmers, reducing the farmers’ profits and putting many of them out of business. To make processing easier and less costly, they have standardized sizes and types of poultry they will buy, in turn forcing farmers to standardize their production (Lynn, 172). Similarly, seed companies like Monsanto have bought up supplies of open-pollinated seed, hybridized it, patented the hybrid seed, and taken much of the open-pollinated seed off the market, thereby forcing farmers to buy from them at ever-increasing. http://pricesractices not only squeeze many farmers out of business, but reduce genetic diversity, thereby threatening our food supply (Lynn, 172-73)
The endless pursuit of monopoly profits affects not only our food but our water. Our carelessness in allowing inadequately regulated corporations to dictate land and water use policies threatens both our national and global water supplies. From oil and gas drilling and mining, which use and pollute vast quantities of water, to our government support of enormous, water-intensive monocultural farms, to pipelines that could potentially threaten entire multi-state aquifers, we have failed disastrously in our oversight of this most precious resource. Keystone XL, for example, is not only a potential contributor to climate change; it could threaten much of the vast Ogallala aquifer that provides water for the Great Plains from the Dakotas to Texas. Evidence is mounting that fracking, too, poisons water supplies. And mountain top removal to mine coal has destroyed entire watersheds in Appalachia. It as if we value oil, gas, and coal more than life-sustaining water.
Not content simply to poison our water supply, corporations are now trying to buy up water supplies, cornering the market on them so that now they can clean it up and sell it back to us at a profit. A headline in Food and Water Watch reads, “The next big thing in industry—water profiteering.” At a 2011 Global Water Summit in Berlin, water industry spokesmen boasted of their plan to sell water at a profit to 1.4 billion of the world’s most desperately poor people.
A year later, multi-national banks and billionaires were aggressively buying up water.
Meanwhile, 780 million people worldwide lack access to safe drinking water while 2.5 billion people, roughly 35% of the world’s population, lack even rudimentary sanitary facilities.
Ever-increasing corporate welfare at all levels of government further distorts our economy and contributes to the growth of the thousands of monopolies that dominate it. Good Jobs First has catalogued literally thousands of such subsidies.
Their thoroughly researched document estimates total state and local subsidies at more than $110 billion.
The New York Times found that state and local subsidies to large corporations amount to $80.4 billion per year
while blogger Paul Buchheit, considering a variety of subsidies and incentives at all levels of government, estimates such payments cost the average family $6000 per year.. Most often such subsidies take the form of tax write offs, tax diversions, and free infrastructure such as access roads, stadiums, and buildings paid for by bonds the local people must repay.
The movie industry is one beneficiary of such subsidies. The state of Wisconsin awarded the makers of the film Public Enemies $4.6 million in subsidies in order to “create a twenty-first century economy by helping establish a film industry in Wisconsin” (Johnston, 220). But almost $2.7 million, or 60%, went to workers living outside Wisconsin. According to the Wisconsin Commerce Department, the in-state jobs created by the filming cost Wisconsin taxpayers 20 times as much per job as “other jobs the state created through more traditional uses of tax money” (Johnston, 221). All but ten of the fifty states grant similar subsidies to the film industry (Johnston, 222).
We are all aware of the competition among cities to lure sports teams. Teams will often threaten to move unless cities promise gifts of land and new stadiums worth hundreds of millions of dollars. Though the taxpayers pay for the stadiums, the owners keep the revenue not only from ticket sales, but also from selling corporations the right to have their names prominently displayed. Baseball fans are familiar with phrases such as the “Verizon call to the pullpen.” Such naming rights earn team owners millions every year. Moreover, a new stadium enhances the value of a team so that the owner may soon decide to sell it at a profit. Though owners argue that sports teams bring increased business to surrounding communities, but there is little evidence of that. Most studies have in fact suggested the opposite, that stadiums reduce business in nearby neighborhoods (David Cay Johnston, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill), Portfolio/Penguin, 2007, 62-70).
Big stores such as Wal-Mart, Bass Pro, and particularly Cabelas also receive substantial subsidies often in the form of land grants, waiver of property taxes, and the privilege of retaining for their own use and profit sales taxes charged to their customers. But probably the most outrageous subsidy of all is diversion of taxes. Nineteen states have provisions whereby certain large corporations can collect income taxes from their employees, but keep the taxes rather than paying them to the state (Johnston, The Fine Print, 233-39). This, of course, means that other taxpayers, small businesses, and consumers, must pay more in taxes to retain the same level of services, thus subsidizing the large corporations.
But these giveaways to corporations, substantial as they are, pale in comparison to the corporate welfare the Pentagon bestows on military contractors, mostly with the blessing of our elected representatives from both parties.
Lockheed, the country’s largest military contractor is a case in point. Called by Vanity Fair “the most expensive weapons system ever developed,” Lockheed’s F-35 Joint Strike Fighter is seven years behind schedule and has suffered from a variety of serious flaws, making it potentially unsafe to fly. The original program called for the Pentagon to pay $233 billion for 2852 planes, but the current cost is far more, $400 billion for 2443 planes. The total cost over the useful lives of those planes, including costly maintenance, has been estimated at $1.5 trillion. Yet the Pentagon so far has no plans to end the program, tolerating failure after failure like a parent coddling a spoiled child.
Part of the reason for such waste is the Pentagon’s dismally ineffective financial management. Though all federal departments have been required since 1992 to undergo annual audits, the Defense Department has not been ready for or undergone an audit in at least a decade because its procurement records are in a state of chaos. Cost control is simply absent. Corporations are awarded cost plus contracts, often without bidding. Huge cost overruns are routine.
At least one well known reason the military does not control procurement costs more effectively is the revolving door into cushy post-retirement sinecures that defense contractors offer military procurement officers. Worse yet, so many officers knowledgeable about procurement have left the Pentagon for the private sector that the Pentagon has now begun to hire the contractors themselves to oversee procurement!
Such is capitalism. To maintain an illusion that the system works, our government seems compelled essentially to sustain a corporation incapable of producing a working product, or of coming close to meeting a schedule, or of coming even remotely close to maintaining a budget. And it does so through an agency too inept or irresponsible to keep track of its own grossly swollen expenditures. While conservatives decry assistance payments to the poor as fostering dependency, they fail to mention the thousands of corporations that are dependent on government for their survival. Clearly, “free market” capitalism is dead—a dismal failure. Why then are governments at all levels racing like lemmings to privatize important public functions like water systems, the post office, and even national security. Do our leaders really believe the nonsensical myths that private enterprise is cheaper, more effective, and more efficient than public agencies and that corporations are the true job creators?
Corporations (the real “persons,” according to SCOTUS) have run amok and threaten to consume the earth and everything in it. Clearly, as Pope Francis has suggested, our economic system is antithetical to the gospel of Jesus Christ. This unworkable economic system is not the result of some natural law of economics as many politicians would have us believe. It is the result of deliberate policy choices (including choices on trade policy, tax policy, and monetary policy) made at all levels of government over the last thirty years to put profit ahead of people. As the recent IPCC reports make abundantly clear, capitalism as currently practiced is incompatible with human survival; left unchecked, it will destroy us all.