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WHO CALLS THE SHOTS? (PART I)

August 31, 2016

WHO CALLS THE SHOTS? (PART I)

In a democracy (self-government) the theory is that it’s the people who call the shots in the rules we make for our economy via their representatives, but as a practical matter and since the 1970s, it has been the financial elite who are calling the shots with their hijacking of the political process in making rules for our market economy, and such rules as remade have been a bonanza for the paper shufflers and other Wall Street drones and a disaster for the poor, the middle class and labor in general, not to mention its deflating effect on aggregate demand. By reducing the share of the economy’s pie to working Americans and assigning it instead to return on capital, they not only set out on the road to riches for themselves but correspondingly reduced the ability of working Americans to influence the politicians in ways favorable to their interests (as noted by Robert Reich in his book, Saving Capitalism).

We know why, how and when this wage inequality catastrophe began. We know of the infamous memo of Lewis Potter (a Richmond, Virginia lawyer who represented the tobacco industry) to his friend, the president of the United States Chamber of Commerce in 1971; we know that Potter was appointed by Nixon to the Supreme Court a few months later; we know that the memo contained a course of action by which the rich and corporate class could take over the political class with campaign contributions and lucrative revolving door jobs between government and business; we know that trampling of unions with their demands for fair wages and working conditions was a priority in the takeover, we know how Big Money (read Kochs et al.) in one way or another influenced legislators at the state level to pass right to work laws to reduce labor’s share of the economy’s income and thereby increase corporate profits, and we know the why of all this and many other such machinations of these corporate apostles of greed.

The why was and is to increase corporate profits out of what should have been the wage share assigned to working people from the economy’s pie which the rich and corporate class expropriated for their own. Not satisfied with such expropriation of working peoples’ share of the economy’s income, this class of greed even expropriated all of labor’s productivity increases since the 1970s while refusing to share them as before and simultaneously threatening their workers with layoffs, sending their jobs to Mexico, their production to China or other low wage venues and all the while demanding more hours of work for less wages. Result? Accelerating wage inequality, as noted by Piketty, Stiglitz and other responsible economists, a situation now in crisis mode which explains tepid demand in our underperforming economy due to corporate failure to provide a fair share of the economy’s income and worker productivity gains with their workers, and all because the financial elite calls the shots in setting the rules governing our economy. Per our best economists of today, this situation cannot be sustained either politically or economically. I agree. Not only is our economy at stake, but our democracy itself is up for grabs as a result of such unconstrained greed.

To reiterate, with the capture of the political class and the underhanded means of deciding what the rules of the market are to be by the rich and corporate class (including an oft-amended tax code which favors wealth over work), democracy itself is at risk as the economy continues to weaken due to chronic lack of aggregate demand. The “people” are not in charge of making the rules of their own economy; rather one of the participants (capital) in the economy has successfully hijacked the process.

The legal irony in all this is that irrespective of the inane political holding in Citizens United and other such wrongheaded decisions, corporations are in truth only artificial persons and are nothing more than collections of contracts and property rights. They are not “owned” by shareholders the way ordinary goods are owned. The fact is that individual shareholders frequently are unaware of what companies they own stock in because their ownership is through pension funds or mutual funds that tend to move into and out of stocks with lightning speed, seeking speculative gains.

Shareholder ownership is thus a legal fiction, as is the idea (now judicially approved) that the sole purpose of the efforts of CEOs and other corporate executives is to maximize “shareholder value.” Such a decision gives corporate America cover to ignore the interests of the community in which they operate, the interests of consumers and producers, and even an arguable base upon which to ignore environmental constraints on their operations. It was not always thus, as we shall see in Part II.

The fact is that corporate charters, issued by states, are mere contracts between the issuing state and the corporation, and even in such states as Delaware and Oklahoma, which are notoriously lax in corporate governance requirements as they compete for the business of corporate charters, there is no requirement that corporate officers have a fiduciary duty to “maximize shareholder value.” It is now a judicially approved fiction clothed with the majesty of law at the behest of the rich and corporate class, and damage to both working Americans and aggregate demand in the economy is continuing unabated as a result.

We are headed for the economic cliff not for the usual business cycle or shocks of corporate malfeasance or wars or pandemics as reasons; all of us (ultimately including even the corporate sector) are rather headed for the economic cliff in lockstep in order to further enrich the rich, and now with judicial approval of such pure greed for the few to the detriment of the many and the consequent risk to all our institutions of democracy. We the people clearly need to rescue the rule-making power over our economy from those whose only interest is profit-making, and soon, since we don’t know how much more damage our economy can take before crashing as it continues to suffer greed’s deflationary effects.

So what were the duties of corporations as seen by corporate executives before Powell’s memo and the subsequent corporate takeover of the political process in making the rules for our market economy? I will discuss such duties as then seen in Part II, among related topics. Stay tuned.     GERALD      E

 

 

 

 

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