A company town
from David Ruccio
The other day, I was explaining to a friend the links between inequality and the financial crisis in the United States. His first response was, “That sounds like a company store.” “Exactly,” I replied.
As it turns out, Maxine Udall also finds the metaphor of the company store appropriate to describe the effects of growing U.S. income inequality:
Our current situation in which 5% of the population captures and owns a disproportionate share of national output, which it then lends to the teeming masses whose share of output has been stagnant or dwindling, is really just a new variant of the company store. . .
increasing concentration of wealth in a small “investor” class leads to higher demand for investment assets, such as securitized pools of loans made to wage earners who must borrow to maintain consumption as their real income declines. This sets up the same type of dynamic as a company store. Over time and as wage-earner bargaining power weakens, the investor class is able to capture greater proportions of workers’ declining or stagnant real wages. The effect is that an increasing portion of middle-class wages circulate back to the financial sector as interest and fees instead of into the larger economy (except, of course, as it occasionally “trickles down” from the investor class to what over time is likely to become the equivalent of a servant class).
(My only disagreement with Udall is that the problem of shopping at the company store is not a lack of understanding, which can be countered by financial literacy. Those who are forced to have the freedom to shop at the company store understand very well how they are being ripped off when the company that pays the workers’ wages also runs the store where the workers rent their tools and purchase the necessities of life.)
But the appropriate metaphor goes beyond the company store. U.S. capitalism has come to resemble a company town. As Nancy Folbre explains, Bernie Sanders has criticized the operations of the Fed as a “socialism for the rich,” which is precisely how a company town operates. Not only does the company own the stores; it runs the entire town for the benefit of the tiny minority of owners and managers. Thus, for example, when some of the businesses are on the brink of collapse, all they need to do is go the town’s representatives and request a bailout to keep them afloat. This is particularly easy when there’s a revolving door between private businesses and the town administration.
So, if financial literacy is not the answer, what is? In the case of Pullman, the response to a recent reduction in wages in 1894 provoked a wildcat strike and then a nationwide boycott led by Eugene Debs and the American Railway Union. Later, a national commission formed to study causes of the 1894 strike found Pullman’s paternalism partly to blame and Pullman’s company town to be “un-American.”
How long are we going to have wait before a similar commission declares the inequality that caused the recent financial crisis and the Fed’s bailout to be un-American?
“How long are we going to have wait before a similar commission declares the inequality that caused the recent financial crisis and the Fed’s bailout to be un-American?”
I believe no such thing will happen until and unless workers uniquely situated in a sector integral to the conduct of the remainder of commerce can and do successfully resort to “Pullman” strike tactics when their circumstances provoke it. Is there such a sector, and are those workers subjectively so disposed?
I’m thinkin’ not too soon, if ever. I’m thinking a permanent under-class is going to get bigger and uglier, and things won’t be so organized when things get “wild”. With any luck, the commission-finding phase of things will be skipped entirely. Neither the recent disunity of the Financial Crisis Commission, nor the success of the Budget Deficit Commission, encourages me about commissions in general. Despite the huzzahs re Obama’s redemption since his “shellacking” these last few weeks (and I’ll grant, SOME of that has been for the good), I think we’ll be muddling for a long while yet….
But I’d really like to be wrong.
Rebellion or civil unrest will not in all probability bring change. Nor on the other hand will business as usual. I do believe that Politics and wall St. are inseparable.
The discontinuation of business law and the bankruptcy applications to Wall ST was very unfortunate.
The basic tenants of Capitalism is the replacement of less effective or poorly run business is replaced with more effective and better run on a continuous basis over time. That rule was violated badly.
There are vast inefficiencies of large government as was the case with wall St and its allowed use of private markets Credit Default Swaps(CDS) without concern for the public to whom it serves was Governments fault. The overwhelming proof is that the CDS Market continues instead of being made reportable to a Public Exchange with Margin requirements and mark to market daily as other highly leveraged markets have embedded.
Fixes are simple Government Freeze all hiring for 10 years other than active military. Federal Government has grown 6800% since 1910 population has grown far less than 400% (This includes illegal immigrants). Government will be forced to loose many functions that are mostly State functions dealing with citizens.
Business Wall ST. All markets must be ruled by Public Exchanges. The derivatives market must have an oversight private auditor not related to government. Tranches of derivatives can be formed once, no re-tranching. It is important to note that the derivative market is approximately $600 Trillion.
The CDS market is $55 Trillion. Without oversight we will once again watch CDS being treated like Las Vegas and Macao wrapped into one.