Tag Archives: corporatism

Money Over Sanity

Before the presidency of Donald Trump and the rise of the MAGA/QAnon crazies, I would sometimes need to search for a good example of bad public policy to discuss in my classes. Indiana supplied many of those, but if even the Hoosier state lacked an appropriate case of WTF, I could always depend on Texas.

An article from the New York Times I read a while back suggests that it isn’t only the Texas governor and legislature, or Texas’ outsized influence on textbook selection. The state evidently supplies all manner of nefarious actors seeking to shape federal policies in ways favorable to their bottom lines. The organization profiled by the Times operates beneath the radar, in a far too successful effort to protect fossil fuel companies from those silly laws intended to save the planet.

The Texas Public Policy Foundation is an Austin-based nonprofit organization backed by–and serving the interests of– “oil and gas companies and Republican donors.

With influence campaigns, legal action and model legislation, the group is promoting fossil fuels and trying to stall the American economy’s transition toward renewable energy. It is upfront about its opposition to Vineyard Wind and other renewable energy projects, making no apologies for its advocacy work.

Even after Democrats in Congress passed the biggest climate law in United States history this summer, the organization is undaunted, and its continued efforts highlight the myriad forces working to keep oil, gas and coal companies in business.

In Arizona, the Texas Public Policy Foundation campaigned to keep open one of the biggest coal-fired power plants in the West. In Colorado, it called for looser restrictions on hydraulic fracturing, or fracking. And in Texas, the group crafted the first so-called “energy boycott” law to punish financial institutions that want to scale back their investments in fossil fuel projects, legislation adopted by four other states.

The article also notes that the organization spreads misinformation about climate science, producing  YouTube videos, sponsoring pundits to appear on Fox and Friends, and social media campaigns. The message–aimed at lawmakers and the public–is that a transition away from oil, gas and coal would harm Americans.

They have frequently seized on current events to promote dubious narratives, pinning high gasoline prices on President Biden’s climate policies (economists say that’s not the driver) or claiming the 2021 winter blackout in Texas was the result of unreliable wind energy (it wasn’t).

Foundation personnel travel widely in order to encourage lawmakers in various state to punish companies trying to reduce their carbon emissions. It sponsors an initiative called Life:Powered, that makes what the organization calls “the moral case for fossil fuels.” The basic argument–which doesn’t seem all that moral–is that “American prosperity is rooted in an economy based on oil, gas and coal.

The article quoted the chief executive of an Austin-based trade group for renewable energy companies, who pointed out that the Foundation, whose members spent decades advocating for offshore oil drilling, oppose offshore windfarms. It opposes subsidies for renewables. (Last time I looked, the government continues to subsidize fossil fuel industries to the tune of 20 billion dollars annually.)

They’re for looser restrictions on fracking and drilling, but greater restrictions for solar and wind. This organization exists to defend fossil fuels from any threat to their market share.”

On Thanksgiving, Jason Isaac, an executive at the group, tweeted “Today, I’m thankful to live a high-carbon lifestyle and wish the rest of the world could too. Energy poverty = poverty. #decarbonization is dangerous and deadly.”

The article goes on to describe the various ways the amply-funded Foundation influences policy and protects the financial interests of fossil fuel industries.It’s a textbook example of the way monied interests drive American policy.

There are several issues here, the most obvious of which is how these people can sleep at night. An overwhelming scientific consensus warns that continued reliance on fossil fuels threatens the Earth. Perhaps they don’t care about other people, but presumably many of them have children and grandchildren…

Less obvious, perhaps, but equally confounding ,is the ability of this organization and others like it–organizations that are pursing equally dangerous and/or dishonest goals (ALEC comes to mind, but there are hundreds, if not thousands, of others)– to wield dramatically disproportionate influence in America’s legislative bodies.

Ordinary citizens lack the resources to hire lobbyists, make significant campaign contributions and otherwise mount effective responses to these organizations. Worse still, the stealthy ways in which these organizations influence policy keeps most of us ordinary citizens from recognizing their existence or understanding what they are doing and how they are doing it.

It’s fashionable these days to attack capitalism, but America no longer has a genuinely capitalist economic system; it has corporatism— control of government  by large interest groups.

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Foxconn For Dummies

Remember all the hoopla about Scott Walker’s deal with Foxconn? As the New Yorker summarized it,

When it was signed, less than two years ago, the deal that Wisconsin struck with the electronics giant Foxconn contained all kinds of headline-grabbing numbers: the company promised a ten-billion-dollar investment in the state, a new 21.5-million-square-foot campus for manufacturing L.C.D. screens, and as many as thirteen thousand new jobs, paying an average wage of fifty-four thousand dollars a year. The manufacturing facility would be the Taiwan-based company’s first U.S. factory, and the prospect stirred the hopes of a region that still dreams of clawing back the middle-class factory jobs that were its pride in the middle of the twentieth century and that it lost to foreign competition long ago. As Dan Kaufman wrote for The New Yorker last year, the deal also appeared poised to give a boost to the reëlection prospects of Scott Walker, the conservative Republican who was then Wisconsin’s governor, who transformed the state into a bastion of conservative, free-market politics.

Scott Walker’s version of free markets differs rather considerably from mine; giving huge subsidies via tax abatements and other government goodies to large enterprises hardly equates to a competitive marketplace where manufacturers and sellers contend on equal terms with others.

Trump, of course, applauded the announcement as evidence that he–the self-described great dealmaker– was bringing manufacturing back to the U.S. (although from what I read, he had nothing to do with making the deal originally).

As the details of Walker’s great coup leaked out, and Wisconsin citizens found out what the state had promised, the coverage became considerably less rosy.

But since then Wisconsinites have found out a lot more about the $4.5 billion in taxpayer subsidies that Foxconn was promised—money the company was being given despite the dramatic cuts that the state has made, in recent years, to education, infrastructure, and other public spending—along with the pollution waivers and special legal privileges that it was granted and the bulldozing of neighborhoods that it needed to acquire the land it wanted.

Those details helped defeat Walker in the gubernatorial election. But the state was still on the hook for the promised subsidies.

To add insult to injury, the company recently–and significantly– backpedaled on its commitments, telling Reuters it isn’t even going to manufacture in Wisconsin, and will employ mainly research and development workers. As a result, some of the incentives the state originally promised will be left on the table, but others are irreversible. Millions of dollars of highway money have already been redirected to support Foxconn’s project, and a number of homeowners have been “cleared” from the area designated for the factory.

Time Magazine reported that, following a telephone call from Trump in the wake of the no-manufacturing announcement, the company said it would build a smaller factory after all.

I wonder what Trump promised them.

The Foxcomm scandal is just a particularly egregious example of corporate welfare; bribery ( subsidies and an absence of regulation) has become a commonplace element of what is delicately called “economic development.”

This clusterf**k is simply added evidence that America’s economic system is corporatism, not market capitalism. The dictionary defines corporatism as the control of a state or organization by large interest groups, and adds that “fascism was the high point of corporatism.”

Real capitalists are screwed.

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This Isn’t Capitalism

A number of people who comment on this site are consistently critical of capitalism. I, on the other hand, am a committed capitalist, provided that economic system is properly defined and provided it is limited to economic areas in which competitive markets work.

The system in America today–the system that pisses off so many contemporary Americans– isn’t capitalism. It’s corporatism.

In a capitalist system, it is true that some people will do better than others. There is nothing wrong with that; the promise of a bigger reward for building a better mousetrap spurs innovation and benefits us all. It’s only when the rewards are disproportionate to the value of the activity involved– and  especially when those rewards become disconnected from actual economic productivity– that capitalism devolves into corporatism, and things get seriously out of whack.

Competitive markets have numerous advantages in the areas where they work. Unfortunately, in the United States, we have insisted on “competition” in areas where markets are demonstrably inappropriate. From health care to education to prisons, we have pursued a privatization agenda that benefits the entitled and well-connected without delivering any of the benefits of a true market.

That may be crony capitalism, but it sure isn’t the real deal. As I wrote a few years ago,

When what people make is a reflection of their connections and/or the success of their lobbyists, it’s time to consider whether we still have a capitalist system, or whether what America  currently has is corporatism–a system where power is exercised through large organizations in pursuit of their own economic agendas, to the detriment of the common good.

Capitalism creates opportunity; corporatism keeps it “all in the family,” exacerbating inequality.

If you have any doubt that the United States no longer practices capitalism, take a look at the recent, high-profile (arguably obscene) “competition” for Amazon’s second headquarters. As the Intercept recently reported,

Amazon’s announcement thisweek that it will open its new headquarters in New York City and northern Virginia came with the mind-boggling revelation that the corporate giant will rake in $2.1 billion in local government subsidies. But an analysisby the nation’s leading tracker of corporate subsidies finds that the government handouts will actually amount to at least $4.6 billion.

But even that figure, which accounts for state and local perks, doesn’t take into account a gift that Amazon will also enjoy from the federal government, a testament to the old adage that in Washington, bad ideas never die.

Enterprise Zones, one of those ideas that the Intercept characterizes as “bad,” has been resurrected in the GOP’s 2017 “gift to rich people” tax bill.

Under the tax overhaul signed by President Donald Trump last year, investors in opportunity zones can defer paymentsof capital gains taxes until 2026, and if they hold them for seven years, they can exclude 15 percent of the gains from taxation. If investors carry the opportunity zone investment for 10 years, they eliminate taxes on future appreciation entirely. Investment managers have been salivatingat the chance to take advantage of opportunity zones. Special funds have been built to cater to people holding unrealized capital gains — such as Amazon employees with large holdings of company stock.

The article details the goodies taxpayers are providing one of the most successful companies in the country, and notes that  Amazon has already received $1.6 billion in state and local subsidies for its warehouses and data centers.

On the same day as the New York and Virginia announcements, Amazon also announced a new “Operations Center of Excellence” in Nashville, Tennessee, a 5,000-worker facility for which the city gave Amazon $102 million in subsidies.

The report notes that these cash handouts don’t take into account “regulatory leniency and accelerated permitting” that Amazon projects routinely get.

We can quibble over what we should call an economy in which there is nothing remotely like a level playing field; an economy that enriches the already well-to-do at the expense of the rest of us and routinely socializes risks and privatizes profits, but we shouldn’t make the mistake of calling it capitalism.

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Stakeholders Versus Shareholders

Several people who regularly comment on this blog are extremely critical of capitalism. That’s understandable, given the distorted version currently practiced in the U.S., but I would caution that broad-brush diatribes against a market economy and calls to abolish the entire system are misplaced.

The culprits that have led to what we actually have–a “system” more accurately described as “corporatism” or “crony capitalism” are twofold: a lack of understanding of  where markets work and where they don’t–and public policies based both on that misunderstanding and on the outsized influence of monied interests.

A good deal has been written about the lax enforcement of anti-trust laws, and the concentration of economic power, but there has been less attention paid to structural problems that provide perverse incentives.

Earlier this month, Elizabeth Warren introduced a bill intended to address those problems. Titled The Accountable Capitalism Act, Warren’s plan “starts from the premise that corporations that claim the legal rights of personhood should be legally required to accept the moral obligations of personhood.” Warren has described herself as a “huge” proponent of capitalism, whose goal is to make the system work properly for all stakeholders.

And “stakeholder” is the operative word.

Shareholder primacy—the belief that everything a corporation does must be for the benefit of shareholders (who should extract as much wealth from the company as possible) and no one else—is the dominant legal framework operating within firms today…. Ignoring the contributions of all stakeholders to corporate success, the shareholder primacy model has driven the deep-rooted economic inequality that we live with in America today.

The linked discussion from the Roosevelt Institute traces the origin of this focus on shareholders to the detriment of others who have important interests in the operation and health of the corporation.

Part of the problem is that in the U.S., states charter corporations. As any corporate lawyer will confirm, larger enterprises “shop” for states in which to incorporate by looking to see which states have laws that are most beneficial (i.e., least restrictive). States woo new businesses, and so corporate law has become a race to the bottom (which is Delaware).

Warren’s bill would require large corporations–those with revenues over one billion– to be chartered by the federal government.

Under current law, corporate boards are elected by, and represent, shareholders. The consequences are predictable:

Board members who want to hold onto their seats are going to do what they can to please short-term oriented shareholders. And chief executives are now largely compensated in ways that are tied to the price of shares, so they have an additional incentive to steer the board towards decisions that push up short-term share prices. The existing shareholder primacy model means that boards focus too much on increasing their share price. That’s why Goldman Sachs estimated that American corporations are on track to spend $1 trillion dollars in 2018 on stock buybacks,essentially propping up the entire stock market by repurchasing their own stock.

Stakeholder governance would recognize that many different groups contribute to a corporation’s success. Employees, customers, even the public, have a stake in that success along with the shareholders, and they all should play some role in the corporation’s decision-making, as they do in a number of other countries.

This means that employees have real representation on corporate boards, so that decision-making is shared among stakeholders, instead of shareholders electing all board members. Accountability to stakeholders also means that the board has to consider all of the company’s stakeholders when making decisions, including customers, suppliers, and the broader public.

The focus on shareholder returns to the exclusion of all else hasn’t always been a part of corporate behavior, as Vox points out. That single-minded focus has come to mean that

for executives to set aside shareholder profits in pursuit of some other goal like environmental protection, racial justice, community stability, or simple common decency would be a form of theft. If reformulating your product to be more addictive or less healthy increases sales, then it’s not only permissible but actually required to do so. If closing a profitable plant and outsourcing the work to a low-wage country could make your company even more profitable, then it’s the right thing to do.

There is nothing about market competition that requires government to allow rapacious business behaviors. For that matter, markets only work properly when government works properly– insuring a level playing field and requiring obedience to laws and regulations.

When government fails to work, capitalism devolves into what we see around us.

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It Isn’t That Simple

We Americans tend to be “either/or” people. A policy is right or wrong; a system is good or bad, “those people” are all sterling characters or (more frequently) worthless bums.

Things aren’t going well, and need to change? We throw the baby out with the bathwater.

Speaking of throwing, the election of Donald Trump has thrown a number of the problems with American governance into stark relief;  it’s hard to deny the influence of money, or the venality of certain lawmakers. But rather than resolutions to correct the laws and political processes that have led to the current mess, I am increasingly reading diatribes from people who have decided that it is all capitalism’s fault, and want to replace the country’s system of market economics with socialism.

As the kids might say, let’s get real.

First of all, the worst aspects of our current, deeply dysfunctional economy aren’t capitalism. A genuinely capitalist system is regulated by an impartial “umpire” (the government) to ensure that enterprises compete on that all-important level playing field. What we have today is corporatism: Corporatism has been described as what you have when you lose the laws and regulations that have kept businesses from being able to buy politicians– a system where government is effectively “owned” by special interests.

Market capitalism encourages transactions between willing buyers and sellers, both of whom are in possession of all information relevant to those transactions. Socialism is a system for the collective provision of goods and services that don’t meet that criterion–goods and services that the market cannot supply efficiently or fairly.  We “socialize” things like infrastructure, police and fire protection, and protection of clean air and water.

A healthy, growing economy requires both. Virtually all western industrialized countries have mixed economies, meaning that the government socializes certain areas of the economy and leaves other areas to the market. The challenge is to get the mix right.

Both capitalism and socialism can be manipulated by greedy or unethical offiicials–that’s why electing people who demonstrate respect for ethics and the rule of law is so critical. Unregulated capitalism becomes corporatism, allowing the “big guys” to prey on smaller businesses and consumers. Socializing too much of the economy depresses innovation,  invites stagnation and encourages petty bureaucrats to abuse their authority.

If we want to fix our broken economic system–and not so incidentally, our broken government–there is no substitute for doing the hard work of re-regulating markets in those sectors where markets work well, and carefully socializing areas (like health care) where the evidence overwhelmingly demonstrates that markets do not and cannot work.

We can and should argue about the level of regulation we impose on market enterprises–what is too much, what is not enough?–and we can and should require hard evidence before moving to socialize additional areas of the economy. What we shouldn’t do is apply  bumper-sticker solutions to problems requiring careful analysis and measured policymaking.

We don’t need to throw the baby out–just the dirty bathwater.

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