Michael McCarthy – The feasibility of government regulation of big business: notes from across the pond

I am very sad to have to announce that the author of this essay, Michael McCarthy, died on 5 May 2012. He was a very dear friend whom I met while we were studying together at Durham University in 2001-2. This article is testament to his unique, illuminating and penetrating intelligence. John Slinger

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At first, those of us who supported Barack Obama’s presidential candidacy did not really believe he would win. The mere notion that a black man could be elected president of the United States had been somewhat of a running joke among African American comedians for several decades: the president lives in the White House after all. As recently as 2008, polite American opinion held that sure, a black man could be elected president, but it would have to be someone along the lines of a Colin Powell – a safe, respectable, career army officer and member of the Republican Party.

What the American people voted for in November 2008 was very different. Barack Obama proposed a national health service, for example. He took on the Clintons’ deep establishment pockets with a grass-roots, internet-based funding campaign that proved equal to the challenge. He had opposed the invasion of Iraq from the beginning. By focusing on pocketbook issues, he showed a genuine faith in the will of the people to craft monetary policy. He brazenly subverted prevailing political sensibilities, arguing that if politicians would just tell people the truth, democracy need not lead inexorably to such seemingly intractable issues as abortion, immigration, or even terrorism – issues fomented by American politicians in need of votes, fear-mongers who cynically foist their product onto a generally unwilling and indifferent American public. His leftist-sounding attacks on both major American political parties further enhanced the Cinderella-like quality of his candidacy.

Obama won for reasons that should be obvious to anyone who believes in the democratic process, sweeping through sections of the United States that had previously been off-limits to liberal candidates. Voter turnout was enormous. He appealed to liberals and conservatives alike with his forthright manner, and his disdain for politics by focus group and media spin. But the American people’s victory on election night was pyrrhic – between Obama’s triumph in November 2008, and the formation of his cabinet two months later, the innocence of the campaign evaporated. Gone were the rousing speeches and simple truths – those trappings of underdogs the world over. Backroom deals were struck almost immediately, and Obama quickly disappointed the faithful by surrounding himself with prominent Clintonites and Wall Street moguls. Obama promised on election night that he would not pick his cabinet from among former White House officials. Then he appointed Hillary Clinton as Secretary of State. Bush’s Defence Secretary, Robert Gates, simply continued in office as if the election had never happened. Obama’s supporters may have won the battle, but rather few of them could find a job in the new administration.

It is undisputed that the American people voted for a left-wing government and got a centre-right one instead. Why? Numerous theories abound. Obama’s legacy will be the election itself. The country is in trouble economically and now it’s down to him and not Bush II. The Republicans obstructed his legislative agenda in the Senate. All of these explanations are plausible. My own theory is that even in one of the world’s great democracies, true power means not having to seek popular approval every two to four years; in fact, true power means picking the Government, and contrary to our theory of government, that power is currently vested not in the people but in a cabal of large multinational corporations. Despite the tenor of Obama’s speeches, or perhaps because of it, corporate donations poured in once his campaign gathered steam.

Consider an American corporation with hundreds of billions of dollars in revenue every year. A minor change in an obscure government regulation could, by itself, cost the company millions. If the corporate tax rate were increased, share prices might suffer. And if the American people should suddenly elect a left-wing government, then who knows what would happen. Businesses hate that sort of uncertainty, because it compromises their ability to plan for the future. How much money to borrow, whether to hire more employees, how to allocate resources geographically – the answers to all of those questions presume that the Government’s disposition toward business will not change radically, or even slightly for that matter. Consequently, corporations have devoted vast sums to minimise the range of choice offered to the voter, thereby mitigating their exposure to risk and uncertainty.

In America we like to think of ourselves as true believers in both democracy and capitalism. Yet democracy and capitalism are often contradictory ideals, rather like liberty and security—you might want both, but you only gain one at the other’s expense. The danger for the American people is that, in our belief that we can have our cake and eat it too, we have tipped the balance so far in favour of capitalism that any correction, however desirable or necessary, will now be extremely difficult to make.

We have already reached the point where our government cannot enact basic, fundamental policy decisions without corporate approval. Corporations are the archetypal over-mighty subjects. They are allowed to report one set of profits to their shareholders, and a different (much lower) number to federal revenue officials. Thanks to a favourable ruling from the Supreme Court, they can now fund unlimited political advertising campaigns, rewarding their protégés and punishing their opponents. Corporations demand—and get—a leading editorial role at American media outlets, and they filter facts and opinions to suit their needs and shape public opinion. Government service is frequently seen merely as a path to lucrative employment in a corporation, a situation that discourages confrontational approaches to enforcement of any regulations that have not already been disemboweled by Congress. Lawyers on corporate retainers write legislation and hand it to members of Congress for a rubber stamp. American monetary policy has thus far been formulated by free-market economists, apostles of a social theory contradicted by nearly every religion in the world, namely, that greed is good.

The results of this kid-glove approach to regulation of business have been predictable, and there are lessons for all Western democracies in some of the excesses we have seen here in the United States over the last decade or so. Here are but a few:

• Corporate interests spearheaded by disgraced energy giant Enron successfully lobby the State of California to privatise the provision of electricity to its citizens. Prices increase dramatically. When that isn’t enough, the power companies jack up prices even further by creating phony shortages of electricity, resulting in blackouts to millions of residents, as well as schools and hospitals.
• Oil prices triple when the US military destabilises the Middle East region by invading Iraq after heavy lobbying by the industry. Oil companies deny that they are better off as a result, but they report record profits to their shareholders. Iraq’s infrastructure is decimated in the war, and a no-bid contract for reconstruction is awarded to Vice President Cheney’s company Halliburton.
• The system of private health insurance leaves anyone who cannot afford health care without it, but the health insurance industry fights tooth-and-nail against proposals to limit its profits to 20 per cent of its gross income. The industry launches an aggressive media campaign, labeling national health insurance as “socialism” and claiming that a majority of Americans are opposed to it, despite the obvious fact that Americans are overpaying for health care.
• Banks inflate the value of real estate by pumping money into the housing market and commissioning fake appraisals, artificially increasing the number of qualified buyers as well as the paper value of the debt they own, and then millions of Americans lose their homes in foreclosure when the bubble pops.
• Wall Street investment firms rig up complicated securities schemes, which constituted fraud on a breathtaking scale, and then they force a government rescue from bankruptcy, even to the point of paying large bonuses to their executives (which were presumably not performance-based). Meanwhile, Americans’ retirement and pension accounts are cleaned out when the stock market collapses.
• Not less than 50 per cent of the entire US budget is denominated as defence spending, most of which goes to a handful of corporations that have wangled lucrative government contracts of questionable necessity through historically generous campaign contributions. The United States spends more on defence than every other country in the world combined. Granted, the United States provides security to much of the world, but the last attack on the United States was pulled off by a crew of hijackers armed with box cutters available at any hardware store.
• Private armies mustered by American companies sell “security” contracts to the US Government and pay their soldier-employees twice or three times what a typical American serviceman would make while serving in uniform. These armies train on US soil and are ultimately funded by the taxpayer.

The list goes on. It is hard to see how any of these examples of overbearing corporate behaviour constitute efficiency in the marketplace. It ought to be clear that as a result of blatant fraud and graft, vast sums have been skimmed off the American economy by a few companies that have become accustomed to booty. This money is not trickling down. It ought to be equally clear that a majority of Americans could not possibly approve of being fleeced; their voices were heard in November 2008, when across the country Americans of all persuasions demanded a stop to corporate greed. Experts routinely cite a dearth of regulation as the reason for the latest disaster or scandal, but the Government consistently refuses to take anything more than symbolic action to deter further abuses.

All government authority rests on the consent of the governed, however that is obtained. In the United States at least, that consent has been obtained through democracy – giving people the opportunity to select a new government at regular, fair, and free elections. People cannot very well take to the streets and demand a government of the people, by the people, and for the people, when they are taught in school that they already have one. And American democracy has worked thus far, in the sense that (ignoring our Civil War in which 650,000 people were killed in a four-year period) the US Government has been a model of stability for other young republics around the world.

Yet whether you believe democracy is inherently the best form of government, or simply that for all its flaws it works better than anything else, there is cause for alarm in America today. As Lord Thurlow famously stated, corporations have no soul to damn and no body to kick – thus they are immune from the traditional methods by which authorities coerce people to behave within acceptable limits. Capitalism, like any political force, will eventually get out of control if left unchecked. The challenge for Western governments in this era of powerful multinational corporations is to create environments in which businesses can prosper without becoming governments in their own right, taxing the people but accountable only to their shareholders.

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Article image by Rev Stan