Corporatism Kills

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In the short run, it’s a great deal for corporations.  They get to nail the consumers twice – once as consumers, and once as taxpayers.  They get to prevent competitors from entering the market.  They get to stop foreign competition from providing cheaper products.  In many cases, they get tax breaks.

In the long run, however, corporatism is devastating for industries.  The Cuban sugar industry provides a perfect case study.  Prior to the communist takeover of Cuba, the U.S .was the largest buyer of Cuban sugar, purchasing nearly 60 percent of their exports.  Once Castro grabbed power, the U.S. initiated an embargo that nearly crippled the industry.  The Soviet Union filled the gap, and Cuba’s sugar business boomed once again – but only because the Soviets subsidized it heavily.  Over the course of time, the Soviets were forced to spend more and more money on Cuba.  No longer was Cuba competing on the world market; now it was getting special benefits from its master.  Cuba’s sugar industry became a paradigmatic representation of the regulatory-subsidization model.  In the late 1980s, the Soviets bought up between 50 and 60 percent of Cuba’s sugar exports at an insane markup, and brought cheap oil to the island country.  In 1987, the Soviet Union paid Cuba a whopping $0.42 per pound for sugar, even though the average world price was $0.06 per pound.  That was actually the low water mark for the 1980s.  During that decade, over 80 percent of Cuban sugar was exported to the Soviet Union.  At the same time, the Soviets sent oil so cheaply to Cuba that Cuba began re-exporting the oil at a normal world mark-up to make money.

Then the Soviet Union collapsed.  So did Cuba’s sugar industry.  In 1988, Cuba was the world’s third largest sugar producing country.  By 1995, it had fallen to number eight.  By 2005, it was down to number 17.  Today, Cuba’s sugar economy is nearly dead.  Subsidies may float industry for a while, but in the end, they kill it.  Companies and industries live up to the market, or they live down to their subsidies.  Meanwhile, consumers and taxpayers have to swallow the cost.  Just ask the citizens of the Soviet Union, who had to suffer through severe sugar shortages in order to ensure that Fidel could afford to smoke his cigars.

We’re seeing the same thing in today’s United States.  The government’s bailout of Chrysler, it was reported this week, lost the taxpayers some $1.3 billion.  That was on top of all the subsidies and tariffs from which the US auto industry has benefitted, jacking prices up for American consumers.  America’s auto industry is dying because of corporatism – government regulation of and on behalf of industry.

The car industry isn’t alone.  We’re watching the same process in virtually every American industry.  We must realize that the death of American industry isn’t the fault of mythical free market corporations – it’s the result of the toxic and incestuous relationship between corporations and the government.  We, the citizens, consumers, and taxpayers, pay the price.

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  • Amused

    Ben , take a walk to your local Home Depot . Scan the shelves , for that item you may need . You'll be lucky , if you find 1 out 20 , of that particular item MADE IN THE USA . Also , take note of the difference in price for that item . Example 8 inch .Pruning shears $ 10.99 for the China made / $15.99 for the US made . Note the selection – of the 5 selections , only one made in the US .If you work with hand tools , you'll also notice immediately the difference in quality . Unlike cars , the US tools are of higher quality .Now take a look at the trade surplus . That's where the jobs went .Entrepeneurs , when developing a new product , the next step is almost always , finding a manufacturer overseas where labor is dirt cheap , safety and environmental regulations are non-existent , and government subsidy , is the rule of the day .

    • Chiggles

      Too many commas.

      • Amused

        you're an arsshole

    • StephenD

      Most of the issues you raise can be eliminated with a flat tax system and streamlining of regulations. There is a reason the Major Industry players help write the regulations. GE can handle the imposition of increased regulations Joe's Appliance Company cannot.

      • Amused

        GE can go to overseas for production , Joe's appliance can't . In addition most of Joe's customers first need a job before they can buy at Joe's . But those jobs went overseas.

    • Paul Streitz

      Exactly right. It has been Free Trade, outsourcing and massive immigration that destroyed American industry. The titans of Wall Street traded cheap labor for American workers. The result was a massive outflow of capital and income to China and other third world nations. Globalist capitalists gained, while American workers lost jobs as industry went abroad.

      We don't have to "create new jobs." Much easier to erect high tariff barriers and bring back the manufacturing jobs sent abroad. Corporate profits will be lower, but incomes of lower income workers will rise significantly. As for the argument that prices will be higher, maybe slightly so, but it doesn't matter what the price is if you are a worker without a job.

      • RonWagner

        Actually we have to compete on the world stage, on even terms. We have not negotiated even terms because our politicians are beholden to the very corporations who manufacture in China. GE is a prominent example, and darling of Obama. The RINO Republicans are no better. We must grade corporations on where they produce and who they employ. The real reason the border isn't closed is because of corporations with influence who love the cheap, abundant, hard working labor. All major nations are now run in a similar way. It used to be called fascism. Now it is called crony capitalism. Fascism is too ugly of a word to dare use.

  • Amused

    As soon as I read the title of your article , I knew it wouyld eventuiall y be critical of unions .It is the mantra of the right .After all unions are "marxist-socialist -crooks -and commies . Why do consumers in theUS pay more for clothes made from cotton , when pakistan has a drought ? Disaster strikes in Japan , and auto parts become scarce .We had a building boom , US mnade drywall became a big demand, did wer boost US production ? No , we had China pick up the slac , for half the price of course , and of course the builders payed the same price as for US made drywall – ONE PROBLEM though ……we all know the story about Chinese drywall .And the multi-millions bit cost builders liable , their insurance companies and the unfortunate homeowners . Of course little or no regulation of products coming into the US . Corporatye profits up , US jobs lost , inferior products for the consumer "to save money " on .Connect the dots Ben , this type of economy is unsustainable over the long haul ….and that's where we are , after 30 years of such behavior .But you go blaming unions if you like . You couls eliminate ALL unions , and you'd wind up in excatly the same place .

  • tanstaafl

    Big business likes big government.

    If big government is bad, why is big business good?

    Government regulations hamper small businesses who do not have the resources to either fight or comply with them.

  • RobertPinkerton

    The 1886 SCOTUS decision vesting the civil rights of a natural person in corporations, was a wrong turning in life for the United States. IMHO, ANY corporation, for the solely sufficient reason that it is a corporation, should be forced to function in a regulatory environment of harshly distrustful vigilance.

    I am a heretic in that I believe that any government owes a duty of loyalty downward from above to the People who raised it by their consent, and that part of that duty of loyalty is to police the marketplace against unlawful or unconscionable practice.

    • Jim_C

      And if I'm not mistaken, Mr. Pinkerton, that decision was not intended to set the legal precedent it has become. When people act like sociopaths we penalize them. When corporations act like sociopaths (which is in essence how they are supposed to act) we reward them. They reap the benefit of the rights of an individual without having the same responsibility.

    • RonWagner

      Good comment. Corporations, in my experience, used to be benevolent. Now they are dog eat dog. Loyalty is rewarded as long as it is convenient, but employees are discarded and abused whenever it is convenient also. They even fight to avoid paying unemployment if possible, as a matter of course. I have seen a steady downward trend in many companies. This is a good thing to check out in advance,if you have the luxury.

  • CharlesMartelsGhost

    A supporting example: In 2002 Diebold acquired Global Election Systems, a maker of electronic voting machines, creating Diebold Election Systems as a wholly owned subsidiary. That same year the Help America Vote Act was passed. HAVA provided government subsidies to states, cities etc.. to upgrade their voting systems. Due to HAVA, Diebold Election Systems went from generating approx. $10 to $15 million in annual revenue to generating over $140 million in revenue. After the HAVA money was spent by states, cities etc… Diebold Election Systems revenue started decreasing, due to less demand for outfitting states and local government with election voting machines, plus the PR nightmare of being in the election business, i.e. when elections went not as planned losing parties claiming machines rigged etc… In 2005 Diebold sytarting downsizing the subsidiary and put it up for sale. ES&S bought the subsidiary in 2009.

  • Jim_C

    If there was a will to enforce, we wouldn't need so many regulations. But because we don't enforce existing regs, we make up new ones. And then corporations hire lobbyists to defang those.

    The main problem is the complexity of some of the business. How many people truly understand what happens on Wall Street–I mean the formulae, the mathematics? Despite hordes of know it alls, not that many. The ones who do understand, and who can innovate, get jobs on Wall Street, or maybe jobs at the SEC. And if you have a job at the SEC, you know you can get a much more lucrative job on Wall Street consulting on how to get around the SEC. So why make waves?

  • al222

    the fundamental problem is that crony capitalism and free market capitalism have become indistinguishable from one another in the minds of too many

  • Kendrick1

    From this article: "Here’s the typical history of corporations. They begin as small businesses that use the freedom of the market to produce great products at low prices. Slowly, they consolidate more and more market share. At this point, the government, spurred by press coverage over the “inequitable state” of the industry, intervenes.!!!"

    I gleaned from this article that there was no problem with corporations until the Socialistic Press deluged the government with their "unfair and unbalanced" opinions. The government (eyeballing the opportunity to gain some CONTROL over corporations,) then sticks in its nose and utters the ten most dreaded and horrible words in any language: "I'm from the government and I'm here to help you!!"

  • flyingtiger

    The problem today is foreign capitol versus american labor. A foreign corporation cares little about the safety and welfare of american workers. American capitolists can be embarressed to to be concerned about the safety and welfare of American workers.
    Also american businesses have to compete against foreign businesses that are subsitized by their governments.
    Capitalism only works best when american corporations support american workers.

  • Fred Goldman

    You suggest there is an alternative. Therefore you suggest the alterenative is government control of some sort. If you want to write about economic matters, learn something by reading Human Action by Ludwig Von Misses.

    • Supreme_Galooty

      That would require purchasing a dictionary. But von Mises should be required reading for everyone interested in economics.

  • Rifleman

    I neither love nor hate corporations, myself.

    First came government power to make or break businesses and industries, then came corporate money and influence over it. Corporations react to conditions, and those that don't buy influence to do in the competition, must buy it to keep from being done in. As long as the power exists, those seeking to influence it will find a way to do so.

    The only real solution is the one the Founding Fathers implemented, restrict government power. I read a letter from Jefferson to somebody (I can’t remember who) once, where he was decrying efforts to introduce federal subsidies for something, so this isn’t new. They were called “bounties” back then.

  • tanstaafl

    We don't really have capitalism. Large corporations have become rent seekers no different than welfare recipients.

  • Supreme_Galooty

    The author makes use of the word "corporation" without properly defining it. What he seems to really mean is LARGE corporations. There are thousands upon thousands of corporations with only one or two employees. And he doesn't examine the nature of corporations and why they are even in existence at all. Pointing the finger at corporations is pointing the finger at yourselves.

    Then the commenters jump into the middle of the disarray with observations from Firebaugh to Nantucket to the Moon. You folks would be far better off complaining about the Dodgers moving out of Brooklyn, or the dangers of premarital osculation and interdigitation.

    Big business (including corporations) operate for profit – even in America. When government meddling and taxation become onerous, when labour becomes feisty and less productive, and when conditions become better in foreign countries than they are in one's own country….. it would seem the prudent course to move one's operations.

  • Supreme_Galooty

    It occurs to the Supreme Galooty that labour unions are not bashful in the least about lobbying the government for favour. Neither are the alphabet groups: NAACP, NOW, NARAL, PETA et alia. Likewise the enviro-weenies: Sierra Club, Earth First, Friends of the Gorge, Greenpeace, etc., etc., ad nauseam. Big business should act otherwise?

  • waterwillows

    Actually, there has never, ever been a level playing field. Right from the beginning that has and is the state of things. One can jump up and down, make all the laws in the world and the level playing field will always be elusive.
    It is better to work with the devil we know than to vainly try to build a new devil.
    My take on this article is that business is being what it is; and what is more or less expected.
    Not so with government though. They are the ones not being true and doing and going where they have no business being. If you can't get a rightly inclined government, don't bother moaning about corporations. At least we expect business to be what they are.

  • Ben

    Clear and simple description of big corporations` problems. I see the most commentators don`t like both-big corporations and big government. Come back?

  • Jim

    it is not government that controls business ;it is business that control government

  • Alex Kovnat

    The Good Lord giveth and taketh away

    Government first taketh away and only then giveth. People tend to remember the latter and forget the former when it comes to government-auto industry relations.

    In criticizing the Chrysler bail-out, we must remember the taketh away as well as the giveth part of government's actions over the years. Like forcing Chrysler to build unprofitable small cars in union factories. Like not allowing Chrysler to make use of GM catalytic converter technology. Like laying on fuel economy, emissions and safety rules that GM (and Ford) find it much easier to comply with because of their larger size.

  • Mark

    Even if the U.S. becomes more business-friendly, there will always be someone abroad willing to do the job for less, and capitalism will rear its ugly head via outsourcing. Corporations don't care about quality – they care about profit.

    Until Americans are willing to work for pennies on the dollar, the jobs will never return.

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