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, 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

This post originally appeared at Fabius Maximus and is posted with permission.

8 Responses to "The New American Economy: Concentrating Business Power to Suit an Unequal Society"

  1. Dan Buckles   April 27, 2012 at 2:12 pm

    Adam Smith, the father of our economics, was totally against limited liability because there would be no way to keep an eye on the owners. Corporations were never a part of our economy and any large way until the Railroads started being built, and then they got a foot in the door of our political elites. One of the first proponents of Limited liability was Marx, who thought that because you could separate the owners from the management that it would be a useful tool, leading to socialism. But he was wrong on that count, but was right on the idea it would lead to wealth building for corporations.
    Early in our history of corporations, people like Ford, were part owner and investor in their corporations, so they were responsible for their growth and future, but share holders worried that they had no way to see where their investments were going. This changed in the 80's, when corporate management became a bureaucracy. Congress changed the way corporate CEO's were paid and taxed, by being able to garner shares in their corporations, and not be taxed on income over a million dollars. This made the share holders and CEO in line with profits and was supposed to help investors. So as their returns went up, due to share holder maximization, they stopped caring about how much CEO's were paid.
    Jack Welch was a first in industry to support this, but it has lead to stripping out of the wealth building in a corporation, like investing in new technology, jobs, health care, and innovation. Essentially it they became atm machines for the share holders, setting them up to self destruct if they didn't keep cutting back to increase profits. As an example GM was maximizing profits, to its share holders from 1980 to 2009, and not investing in itself, making terrible cars nobody wanted to buy. Of course the Wall Street and anti union detractors were screaming it was the unions that killed the car industry, but in reality it was share holder value that did it.
    Just recently Jack Welch stated that “share holder value was the stupidest idea ever," which tells you a lot about how this concept has worked over the last 30 years for industry and economy.

  2. Dan Buckles   April 27, 2012 at 2:14 pm

    Adam Smith, the father of our economics, was totally against limited liability because there would be no way to keep an eye on the owners. Corporations were never a part of our economy and any large way until the Railroads started being built, and then they got a foot in the door of our political elites. One of the first proponents of Limited liability was Marx, who thought that because you could separate the owners from the management that it would be a useful tool, leading to socialism. But he was wrong on that count, but was right on the idea it would lead to wealth building for corporations.

  3. Ultimate-phyzzbee   April 28, 2012 at 4:59 am

    In Eighth century Tibet – King Trison Detsun tried 3 times to
    distribute the wealth of the kingdom equitably.
    However each time the experiment failed.
    This is because everyone being individuals at different
    levels pursue happiness according to their capacity.
    Some believe drinking chang (Tibetan beer) and gambling
    makes them happy. These deluded types lose all their wealth.
    Savvy types bought more land, more yaks & farm animals
    who in turn reproduced increasing abundance.
    Others used the money for seed money to accumulate more
    resources like sheep for wool and made clothes.
    Hornytoads played with consorts all day.
    Lazy bastards napped in between sleep.
    Equitable distribution of wealth doesn't work
    though it seems fair it is unfair to those who work
    or hone their talents while others piss their lives away.
    And on top of that the Buddhists yogis in Tibet worked
    on their spiritual enlightenment -the ultimate work according
    to the view of a Buddha.
    Compassion should have equanimity but wealth should be
    based on a system of merit according to cultural phenomena
    agreed upon by the wisest aristocracy who are seen as wise
    because of their loving-kindness and wisdom.

  4. rodeneugen   April 29, 2012 at 3:27 pm

    I wouldn’t be so much worried about concentration of the wealth and economic influence in few hands if they get it because of excellence and innovation. No corporation can sustain its prime position in today’s world for long time, unless its product has this excellence. The very good example is Microsoft, that for years kept with Windows and Office his monopoly position in the world of personal computer programs. But then it put to much concentration on marketing tricks and too little to bring to the market a decent product and lost its leadership in innovation. Microsoft’s product become the joke of the day, and it is practically non existing in any of the new developments like Smartphone, tablets, etc., that brought Apple, Facebook, Google and others to the front. Hopefully nobody ever will get in the position, that Microsoft used to have just few years ago, when he could force on costumers new products, that went from bad to worse, until they created a huge movement of experts despising them. Apple and Google got their position out of excellence, and let us hope, they will not follow the footsteps of Microsoft. What worries me more is the corporate management culture, what I call Enron Syndrome, where the leaders of the corporations are disconnected from the supervision of the owners and they act out of short term, egoistic interests and there is no one, who could restrain them in their lust.

  5. R. Coutinho   May 2, 2012 at 4:24 am

    It is not excellence that will be the downfall of an economy, it is rewarding failure. When CEO's can be paid millions in the short-term to make decisions that will destroy the company in the long term, they will make those short-term decisions. That was proven by 2008.

    • rodeneugen   May 3, 2012 at 5:11 pm

      That is exactly what i call the Enron Syndrome. Unfortunately this seems to be a failure of the system and not a failure of an individual. Something has to be done about this crisscross ownerships of banks, investment funds, pension funds, insurance corporations, publicly traded corporation, etc. that support each other in this short term policies that are damaging the corporation to the level, that have macro economic impact .

  6. Trent   May 15, 2012 at 5:44 pm

    Stop acting like the game monopoly is like real life. For more information visit reviewsupportomnitech.com

  7. Wanda Renee   May 19, 2012 at 1:06 am

    Ah yes, Plutocracy- defined: ruled by the wealthy, or power provided by wealth (Source: Wikipedia). Class warfare in the times of the most magnificient trouble – who dare say it does not exist. It has been going on for about 30 or so years and is getting worse. Inequality grows every year and the JPMorgan mess does not make it any better. And to add insult to injury most of the TBTF organizations have two financial statements. Okay I can not prove it, but don't mistake my gut feeling with my outrage of the current state of economic reality.