Vulture Capitalism is Alive and Well

For all the lofty reports lately of a capitalist reformation and new age economics that recognize natural and social capital in addition to financial capital, there's this.

In the U.S., five states are poised to begin actively poaching California companies.   What is the weakness they're lining up to exploit?   Why it's an insidious, voter-approved initiative to raise income taxes to finance education.

That's driven knowledge-based companies such as Google, Apple and SolarCity to make tracks for backward, low-tax states like Texas, Arizona, Virginia and Nevada.   They want highly-educated workers.   They just don't want to have to chip in to pay for educating them.

Texas, Arizona and Nevada smelled blood in the water and are all coordinating programs for California companies looking to expand or relocate.

A recent report by Thumbtack.com, a San Francisco-based website that links service providers with customers, zeroed in on small businesses. The company doled out letter grades for the most and least small business-friendy states and cities.
California got a "D." But hey, that's up from an "F" last year.
Locations were evaluated in 11 categories, including taxes, ease of hiring, regulation and ease of starting a new business. Overall small business friendliness was calculated with survey answers from more than 7,500 businesses to specific questions about how open the state or city seems to their companies.

The Capitalist Reformation? Not Holding Breath, Not Holding Breath.

Even dedicated capitalists are beginning to realize they're in a hole to nowhere and they have to stop digging.

Just as classical economic models are being recognized as obsolete and of waning utility in a finite world heading toward a population of nine-billion, so too is capitalism coming under self-scrutiny.

Peter Bakker, president of the World Business Council on Sustainable Development, recently observed: "I am a capitalist … The mistake currently lies in only expecting (and managing) a return on financial capital. Capitalism requires a new operating system, and needs to be rebooted so that we expect and manage the return on financial, natural and social capital.

"Business as usual is not an option for a future-proofed economy in which nine billion people live well within the limits of the planet by mid-century."

Bakker's call to reboot capitalism exemplifies the disquiet among many these days, both within and outside the business community. Each offers a somewhat different diagnosis and treatment, ranging from the piecemeal vs the systemic, the incremental vs disruptive, and internally vs externally driven issues.

...Science and empirical metrics signal impending and irreversible ecological breaking points. Revisionists perceive that the drive toward boundless economic expansion clashes with the realities of planetary boundaries.

The ideal conditions for high functioning markets – no externalities, perfect information, and perfect competition – are becoming increasingly detached from reality. All this while the co-mingling of corporate power with political power undermines the capacity of governments and citizens to tame the impulses of financial and real economy enterprises to seek gain and socialise harm. This also leads to growing inequalities between the haves and the have-nots.

This does sound more than a bit lofty.   Commerce embracing social idealism?   Coming from an era of obsessive maximization of production and consumption and damn the externalities, the notion of some global commercial epiphany that arrests inequality and empowers social justice seems more than just a bit far fetched.

It seems far more likely that reformation will come to capitalism when conditions force that result. 

The Myth of Free Market Capitalism

Criticize supposed "free market" capitalism these days and that makes you a flag-burning, god-hating, Socialist to some.   There are some very wealthy capitalists who spread a bit of their wealth around to fund organizations, like the Tea Party, to get that very message out.  It just sounds so much better when it comes from some old granny sitting on a cheap lawn chair.

What's curious is how these same wealthy capitalists actually work to destroy truly free markets so that they can make even more money.   For them, it's "do as I say, not as I do."   If anything, their corporate ethic is eerily reminiscent of the way business once got done in the Soviet Union.

The Soviet Union was known for narrowly held control of broad sectors of the Soviet economy.   The state decided how collective farms would be organized, what they would produce and in what quantities.  The state decided most aspects of production and consumption including how resources would be allocated.  We knew this as an incident of Communism.

Barry Lynn explores this in a fascinating essay in this month's Harper's , "Killing the Competition, How the New Monopolies are Destroying Open Markets."  Lynn traces the powerful narrowing of control of American market sectors, transforming small producers into serfs to an insidious form of feudal capitalism.

"...every day, there are fewer buyers; fewer of them.  Hence they enjoy more and more liberty to dictate terms - or simply to dictate.

"...monopolization of our public markets is first and foremost a political crisis, amounting to nothing less than the re-establishment of private government.   What is at stake is the survival of our democratic republic.


One sector Lynn examines is the high tech world of Silicon Valley.

"...today's lords of the Valley ..enjoy the power to choreograph competition among the latest generation of upstarts and then buy whom they please, when they please.   ...the Justice Department complained in 2010 that senior executives at Apple, Google, Intel, Pixar and two other corporations had 'formed and actively managed' an agreement that 'deprived' the engineers and scientists who work for them of 'access to better job opportunistic.'" 

It's the sort of thing we recall from movies about Hollywood.  "Do that and you'll never work in this business again."   Employees live in fear.   If they lose their jobs their employer can see to it they're blackballed.  It creates an inequality between the provider of services and the few buyers that can lead to perverse outcomes.  Lynn interviewed the worker who stood up, leading the class action suit against the Tech Barons.


"Sure the pace was grinding, the hours crazy.  One team, he recounts, worked for 110-hours per week for nine months straight.  But 'everyone believed they were making something important.'

"...his attitude began to sour after Lucasfilm completed a particularly ambitious project.  The very next day, he says, shaking his head, executives came in and 'fired almost everyone.'   These were employees who hadn't had a day off in months. 'People were running around crying.  It was a bad sight.'" 

You can only treat faithful employees that brutally if your other employees live in abject fear of losing their own jobs and have no decent prospects if they bolt.

Another sector Lynn looks at is America's poultry industry where giant megacompanies harness small, independent producers, their suppliers, into a form of servitude that often pits one against the other.

"The concept of such competitions - or 'tournaments,' as the industry calls them - is generally credited to the economist Edward Lazear, who served as one of George w. Bush's top advisers.  ...The idea, first laid out in a 1981 paper titled 'Rank-Order Tournaments as Optimim Labor contracts,' is straightforward.   Rather than pay all workers the same rate for any particular task, Lazerar wrote, why not set up a 'labor market contest,' in which those who produce more also get paid more per task or per piece?  Such a system of reward (ad, for those at the bottom, punishment would, he claimed, increase the incentive to work harder."

This distortion of capitalism institutionalizes inequality between seller and buyer.   There is no open market.   No producer is allowed to know the price his neighbour gets on market day.  He can't judge what the market will bear.   All he knows is what he's told he will get and, if he gets out of line, he may find his once perfect chickens will be graded as inferior.

Lynn's essay is well worth a read.    Check out the latest Harper's.

Capitalism No Longer Fits

"Capitalism, in its current form, no longer fits the world around us."  What a curious thing for the founder and chairman of the Davos World Economic Forum, professor Klaus Schwab to declare.  "A global transformation is urgently needed and it must start with reinstating a global sense of social responsibility," he added.

"Growing inequities within and between countries and rising unemployment are no longer sustainable ... We must rethink our traditional notions of economic growth and global competitiveness, not only by focusing on growth rates and market penetration, but also, equally — if not more importantly — by assessing the quality of economic growth."

"How sustainable is it and at what cost to the environment? How are the gains distributed? What has become of the family and community fabric, as well as of our culture and heritage? The time has come to embrace a much more holistic, inclusive and qualitative approach to economic development."

Into this burst of overdue enlightenment plods Canada's own mildewed cardboard leader, Steve Harper, to deliver an unlikely keynote speech laced with economic Calvinism.   Steve is widely expected to scold the Euros and preach fundamentalist capitalism as the cure for what ails everyone else.

Why is it that, no matter the venue, Steve must be such an embarrassment to his country and the Canadian people?  His followers say Steve always considers himself the smartest man in the room but that only begs the question of what perverse notion of "smart" must this out-of-touch demagogue hold?

Like Obama, the Davos chairman is zeroing in on the malignancy of inequality.   Professor Schwab speaks of sustainability and the environment, community, socially responsible capitalism.   These are notions utterly alien to Steve Harper, beyond the realm of his constipated intellect.

The good thing is that broadbased movements like Occupy, shifting public attitudes and an awareness at the altitudes inhabited by people like Professor Schwab and Barack Obama, suggest that we're on the brink of social change that, at this point, probably can't be stopped.   The bad thing is that there remain plenty of Steve Harpers with atrophied and myopic thinking that will have to be swept out of the way before the floor is clean enough to move on.  These obstacles to progress are invested in their fundamentalism and they won't go until they're forced out.  And we owe just that to them.

Do Stock Brokerages Have the Right to Kill?

Why do big investment houses have the right to speculate in ways that can lead to death?  Speculation in food, in water.   While there are fortunes to be had in creating bottlenecks that restrict access to the very things people cannot survive without do nations and leaders have a moral right or duty to suppress this sort of perfidy?

A study released last week by Cornell University reveals that the relatively recent scourge of food insecurity manifested in substantial food price hikes is mainly the result of investor speculation and ethanol conversion.

"...The two sharp peaks in 2007/2008 and 2010/2011 are specifically due to investor speculation, while an underlying upward trend is due to increasing demand from ethanol conversion. The model includes investor trend following as well as shifting between commodities, equities and bonds to take advantage of increased expected returns. Claims that speculators cannot influence grain prices are shown to be invalid by direct analysis of price setting practices of granaries. Both causes of price increase, speculative investment and ethanol conversion, are promoted by recent regulatory changes---deregulation of the commodity markets, and policies promoting the conversion of corn to ethanol. Rapid action is needed to reduce the impacts of the price increases on global hunger."

If nothing else, it's high time we were honest with ourselves.  Our 21st century concept of deregulated market capitalism is entirely accommodating of practices that inflict suffering, even death on the most vulnerable for the sake of nothing more than maximizing investor profits.  And let's be honest enough to understand that these greed-driven practices will eventually spark retribution on us.