The new American economy: concentrating business power to suit an unequal society

Summary:  Corporate power is concentrating in America, quite suitable for society with growing inequality of wealth and income.  A new business structure for a new society.  Today we look at some examples.  This is one of the drivers of increasing concentration of wealth and power in America, pushing America from Republic to Plutocracy.

Cartels and monopolies were created in the Gilded Age of the late 19th century, especially during the depressions.  Teddy Roosevelt and the great trust-busters restored some competition to the US economy.  The New Deal began a new phase of cartelization.  Now the US economy has entered a new phase of consolidation  — a return to the Gilded age.  In its extreme form entire industries fall under the domination of one company (almost monopolies), which sucks the oxygen so that everyone else in the entire supply chain gasps for air.

It’s clearest in what’s misleadingly called the technology sector.

  • Apple nears dominance over the entire consumer electronics industry.  Even the large telecoms must dance to their tune.
  • Amazon dominates the publishing business, especially electronic publications.  Even the largest retailers and publishers fear them.  And they’re expanding fast throughout the e-retail space.
  • Google dominates the e-advertising business.
  • On a smaller scale, eBay dominates the e-auction business.

More of these will emerge, as deep structural factors drive this trend.  Technology today creates “winner take all” network effects.  But there are other factors at work.  Large companies can wield the patent system as a weapon, buy political protection and tax breaks, get government contracts, suppress unions, and often break the law with impunity.  The banks and drug companies (see here for one of countless examples) illustrate these dynamics.

These giants destroy not just small but even large businesses as independent entities — they become dependent satellites, the business equivalent of Marx’s reserve army of the unemployed.  Made or broken by whim, with profit margins set for the convenience of the megacorps in their field.  The large regional corporations that were the mainstays of local politics and culture in America’s cities become branch offices, radically concentrating the social and economic patterns of the nation.  This process has been running for decades, and now enters a new stage.

This trend of concentration on the industry level mirrors trends on the level of individual corporations, as senior officers take an increasing share of not just total wages, but also corporate profits.  Their power is a means, not an end — and they as a group  apply it to increase their wealth and income. As a result, the senior officers of these companies become plutocrats, members of our small and interconnected ruling elite — rich beyond the imagination of most people.  None of their descendents need work for ten generations.   Meg Whitman accumulates $1.3 billion as the senior manager at Ebay, and attempts to buy the Governorship of California as 19th century English plutocrats would buy an earldom.

For a more recent example, look at Apple, in this excerpt from a report by Indigo Equity Research (25 April 2012):

When Tim Cook was appointed CEO in August 2011 he was granted 1 million restricted stock units, worth $600 million at a share price of $600. … Also Mr. Cook’s salary was raised to $1.4 million. … Arthur Levinson became Chairman of Apple in 2011; he is also CEO of Genentech and is on the Board of Google.

These are the people who increasingly own America. They run for office (eg, Bloomberg; Senate has become a millionaires club called the US Senate). They buy newspapers and magazine, endow think-tanks, to advocate their views. They fund candidates for President to make their view the law of the land. Their wealth allows them to shape public policy as a hobby. They are becoming America; the rest of us will just live here.

These things do not “just happen.”  We allow them to happen.  Our actions and inaction will revitalize or destroy the Republic.

Toys for plutocrats

For more information

About the large-scale evolution of the US economy:

  1. A look at America’s future – grim unless we get smart and pull together, 12 March 2009
  2. Some Americans worry about we’ll have a lost decade. Bad news – we just had it., 31 August 2009
  3. Welcome to American, the new Japan, as we enter a new era of State Capitalism, 28 September 2009
  4. A look at the engines of American job creation, 12 January 2010

About the one cartel to rule them all – banking:

  1. Update: yes, the Paulson Plan was just theft, 14 February 2009
  2. The best way to rob us is to own a bank, 10 April 2009
  3. “The Greatest Swindle Ever Sold”, by Andy Kroll in The Nation, 28 May 2009
  4. More about “Government Sachs” (they own America; we just live here), 31 July 2009

See the FM Reference Page America – how can we stop the quiet coup now in progress?

About inequality and social mobility: once strengths of America, now weaknesses:

  1. A sad picture of America, but important for us to understand, 3 November 2008 — Our low social mobility.
  2. America’s elites reluctantly impose a client-patron system, 5 November 2008
  3. Inequality in the USA, 7 January 2009
  4. A great, brief analysis of problem with America’s society – a model to follow when looking at other problems, 4 June 2009
  5. The latest figures on income inequality in the USA, 9 October 2009
  6. An opportunity to look in the mirror, to more clearly see America, 10 November 2009
  7. Graph of the decade, a hidden fracture in the American political regime, 7 March 2010
  8. America, the land of limited opportunity. We must open our eyes to the truth., 31 March 2010
  9. Modern America seen in pictures. Graphs, not photos. Facts, not impressions., 13 June 2010
  10. A pity party for America’s rich and powerful, 8 September 2010
  11. News You Can Use to understand the New America, 14 March 2012

20 thoughts on “The new American economy: concentrating business power to suit an unequal society

  1. I, for one, am active in this fight. I do not guarantee that my efforts will prove fruitful. I will not accept the label, “compliant,” as a term to be applied to me. The biggest problem that I see is that those of us who are not compliant seem to have either A) few compatriots or B) insufficient organization.

    1. Welcome!

      As for organization, those who wish to save the Republic have no program. My advice has been that we should work within whatever political organizaton we naturally beong. GOP or Democrat, left or right. THese are not inherently partisam issues.

      It’s not a good nswer, but a lace to start. The Occupy and Tea Party movements may be paradigms, both of well-meaning partisan activists. Perhaps we should be thinking about why they went wrong?

  2. “Our actions and inaction will revitalize or destroy the Republic.”

    This is absolute, nihilistic nonsense. Nothing of the sort is even remotely accurate. One must be terribly sheltered and supremely naive (and locked inside an intellectual bubble) to openly dismiss the forces arrayed against the average Citizen in the USA. This type of misplaced call to action is a factor in reinforcing the actual terror many feel for their future.

    Take the time and listen to the type of leadership that was. and contrast this to the degraded state of affairs in the US Politic. Barbara Charline Jordan’s statement on the Articles of Impeachment,
    delivered 25 July 1974, House Judiciary Committee.

    Recall your Republic from days gone by.

    Breton

    1. Your comment is a rational one. But America has been a defiant contest against the odds throughout our history. That is the challenge our forefathers give to us.

      In May 1764 Samuel Adams took his first steps to end British rule in America (see here for details http://en.wikipedia.org/wiki/Samuel_Adams#Sugar_Act ). That same year in Boston the first of the Committees of Correspondence was formed, one of the major tools of the revolution. A colony revolting against the British Empire with few or no precedents in all of history. What odds would people like yourself have given them? The Revolution ended with the Treaty of Paris in 1783, 19 years later.

      In 1774 Benjamin Franklin and Benjamin Rush founded America’s first anti-slavery society. They sought to end a practice that has been almost in history. What odds would people like yourself have given them? The Fourteenth Amendment was ratified in 1868, a century later. A century after that, the great Civil Rights legislation in the mid-1960s ended (or radically reduced) government-sponsored opporession of Blacks in America.

  3. For your first bullet point, I think you meant Apple instead of Amazon. “…nears dominance over the entire consumer electronics industry. Even the large telecoms must dance to their tune.”

  4. Barbara Jordan could very well be speaking in the House today. Her issues and understanding of the role of the House mentions issues still of pressing concern.

    Your examples from the days of the formation of the revolutionary leanings of the USA come from an isloated Colony, seperated by a large ocean, faced with a frontier and a burgeoning economy only modestly dependent on the Empire.

    “A colony revolting against the British Empire with few or no precedents in all of history. What odds would people like yourself have given them? ”

    What we face today is not even remotely similar. In essence the inhabitants then were either transplants for the Empire or refugees from the Empire. So the chances of fermenting revolt were at least foreseeable if not predictable.

    I assure you none of the Benjamin’s or Samuel’s felt they were being constructive to the Cause by excoriating their fellow citizens in how much to blame THEY were about the injustices they saw in those days. No. They were focused on providing a Vision and a Call to Arms, eventually.

    They were Leaders. We can pray for a new set of Barbara Jordans. And I most assuredly would help and have at times any who show such deep moral courage.

    Breton

    1. Let’s mirror back Breton’s logic.

      (1) Today’s conditions and challenges differ greatly from those I cite from early America: “What we face today is not even remotely similar.”
      ** Check!

      (2) My recommended methods differ from those: “… felt they were being constructive to the Cause by excoriating their fellow citizens in how much to blame THEY were about the injustices they saw in those days. … They were focused on providing a Vision and a Call to Arms”
      *** Check.

      What is Breton’s objection? If the situation differs, then so should the solution.

      (3) “They were Leaders. We can pray for a new set of Barbara Jordans”
      *** My two favorite responses: we lack leaders equal to our awesomeness, and need only wait foothe Blue Fairy provide magic Pumpkins!

      (4) “So the chances of fermenting revolt were at least foreseeable if not predictable.”
      *** Can you provide some evidence of that? From I’ve read, both the independence movement and anti-slavery movements were considered lost causes at the start — and considered hopeless by many until near the end.

      (5) “I most assuredly would help and have at times any who show such deep moral courage.”
      *** That’s a start.

  5. FM claims: These things do not “just happen.” We allow them to happen. Our actions and inaction will revitalize or destroy the Republic.

    The concentration of wealth is driven by disintermediation and automation — in short, by technology. Most of the companies FM mentions wouldn’t exist without computers and databases and increasingly sophsiticated AI programming. It’s not obvious how anyone can reverse this trend. You can’t uninvent computers or relational databases or AI programs. You can’t uninvent the internet. You can’t uninvent robots or numerically controlled machine tools.

    FM may reply that these wealth-concentrating effects of technology have been made worse by a less progressive tax policy — and that’s true. But that doesn’t change the brutal fact that the absolute most our society can do is to mitigate the effects of fundamental trends caused by exponentially advancing technology. Increasing taxes on the rich won’t prevent another Jeff Bezos from crushing entire industries and creating a virtual monopoly by using the internet and computers…it’ll make the next Jeff Bezos slightly less wealthy.

    The notion that there’s something the average American can “do” about the exponential increase in technology seems bizarre. As long as we maintain a traditional market capitalism system of economics, exponentially advancing technology will concentrate more and more economic power in the hands of people like Jeff Bezos. There’s just to way to avoid that unless you move to an entirely different way of organizing society, perhaps something like an open source peer production version of anarcho-syndicalism. But that’s unknown territory. Since the era of hunter-gatherers, no society has been organized that way, so we don’t even know if that would work.

  6. Fabius,

    Apple gets most of its revenue from handsets. In that field there are some significant competitors: Google/Android and RIM/Blackberry. I’m an Apple computer user but use the Android phone.

    I think the profitability of the various handsets will change. It always does.

    My livelyhood depends on the Apple/NextStep/Cocoa programming architecture on desktop computers. I have a backup plan… port the software to Linux/GNUStep/Cocoa. I hope I dont have to use it.

    1. The facts, such as Apple’s profits, tell a different story. Compare them to those of the entire US retail sector. From memory it equals aprox 1/3 of the total of everything — clothing, food, etc. Apples also dominates its peers, and growing far faster.

      Plus they have tech advantages that you might be too close to the trees to see. Check back in a few years.

  7. This may not be a perfect historical parallel but our current status seems reminiscent of the Gilded Age. We have companies like Apple, Amazon, Ebay etc. that are massively integrated either vertically or horizontally (Carnegie and Rockefeller would blush). We have torrents of money flowing into political coffers due to Citizens United and the rise of SuperPACs. We have police forces crushing Occupy Wall Street like the crushing of industrial workers protests. The question is will we get angry like Theodore Roosevelt and Upton Sinclair or will we cower in fear like the sheep Fabius frequently and accurately calls us? Will we act like subjects or citizens?

    1. Don’t forget that the police now have a very powerful weapon: they can force all those they arrest to be strip-searched. There is no reason required. The person could have been a journalist covering the protest and simply picked up with all the rest. None of that matters, the police can punish their victims by humiliation.

  8. The police now have much more powerful weapons than strip-search. They have the LRAD sonic cannons and the micrwave pain ray Active Denial System.

    The LRAD sonic cannons have already been used against Occupy demonstrators, resulting in permanent deafness (including among innocent bystanders who were not part of the demonstrations).

    “The intensity of being hit at close range by a high-pitched sound blast designed to deter pirate boats and terrorists at least a quarter mile away is indescribable,” said Piper, now an English professor at the University of Missouri. “The sound vibrates through you and causes pain throughout your body, not only in the ears. I thought I might die. It is shocking that the LRAD device is being promoted for use on American citizens and the general public.”

    In the Guardian article “Run away, the Pain Ray Is Coming: We Test the Army’s New Secret Weapon,” The Guardian {Daily Mail}, 18 September 2007, Michael Hanlon writes:

    This machine has the ability to inflict limitless, unbearable pain. What makes it OK, says Raytheon, is that the pain stops as soon as you are out of the beam or the machine is turned off. But my right finger was tingling hours later – was that psychosomatic?

    … One thing is certain: not just the Silent Guardian, but weapons such as the Taser, the electric stun-gun, are being rolled out by Britain’s police forces as the new way of controlling people by using pain. And, as the Raytheon chaps all insist, you always have the option to get out of the way (just as you have the option to comply with the police officer’s demands and not get Tasered). But there is a problem: mission creep. This is the Americanism which describes what happens when, over time, powers or techniques are used to ends not stated or even imagined when they were devised.

    With the Taser, the rules in place in Britain say it must be used only as an alternative to the gun. But what happens in ten or 20 years if a new government chooses to amend these rules? It is so easy to see the Taser being used routinely to control dissent and pacify – as, indeed, already happens in the U.S. And the Silent Guardian? Raytheon’s Mac Jeffery says it is being looked at only by the “North American military and its allies” and is not being sold to countries with questionable human rights records.

    … In fact, it is easy to see the raygun being used not as an alternative to lethal force (when I can see that it is quite justified), but as an extra weapon in the battle against dissent. Because it is, in essence, a simple machine, it is easy to see similar devices being pressed into service in places with extremely dubious reputations.

    … A report in New Scientist claimed the focus of research was to heighten the pain caused by this semi-classified weapon. And a document released under the U.S. Freedom of Information Act talks of “optimal pulse parameters to evoke peak nociceptor activation” – i.e. cause the maximum agony possible, leaving no permanent damage.

    Perhaps the most alarming prospect is that such machines would make efficient torture instruments. They are quick, clean, cheap, easy to use and, most importantly, leave no marks. What would happen if they fell into the hands of unscrupulous nations where torture is not unknown?

    The agony the Raytheon gun inflicts is probably equal to anything in a torture chamber – these waves are tuned to a frequency exactly designed to stimulate the pain nerves.

    … Dr John Wood, a biologist at UCL and an expert in the way the brain perceives pain, is horrified by the new pain weapons. “They are so obviously useful as torture instruments,” he says. “It is ethically dubious to say they are useful for crowd control when they will obviously be used by unscrupulous people for torture.”

    From the 2006 New Scientist article:

    The ADS fires a microwave beam intended to heat skin without causing damage, while inflicting enough pain to force the victim to move away. However, tests of the weapon showed that reflections off buildings, water or even the ground can produce peak energy densities twice as high as the main beam. Contact with sweat or moist fabric such as a sweaty waistband further intensifies the effect.

    The safety concerns, revealed in the details of 14 tests carried out by the US air force between 2002 and 2006, were acquired under a Freedom of Information request by Edward Hammond of the Sunshine Project USA…

    It is an absolute certainty that the microwave pain ray is being used today by America as a torture device. It is virtually certain the the microwave pain ray will be deployed against American protestors in the near future. The only real question seems whether small handheld versions of these millimeter-wave microwave pain projection devices will become available to police, mall guards, and private security guards employed by corporations.

  9. “How Apple Sidesteps Billions in Taxes“, New York Times, 28 April 2012 — Excerpt:

    Apple, the world’s most profitable technology company, doesn’t design iPhones here. It doesn’t run AppleCare customer service from this city. And it doesn’t manufacture MacBooks or iPads anywhere nearby. Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.

    Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains. California’s corporate tax rate is 8.84%. Nevada’s? Zero.

    Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

    For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

    … The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. … Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.

    Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

    Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8%. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.)

    By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24%, which is about average for non-tech companies.

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