A standard critique of the capitalist system going all the way back to Chesterton and Belloc is the accusation that in our current system we have neither a domination by Big Government as the conservatives are constantly drumming nor an enslavement by Big Business as the liberals fear, but rather a collusion between Big Government and big Business, a collusion that allows each to benefit the other and work for the aims of the other, something in such a direct way that the folks running government and running business are the same people. This is what Chesterton referred to as the dilemma of Hudge and Gudge in What’s Wrong With the World. While most in the west take the side of Hudge against Gudge or Gudge against Hudge, the informed Distributist understands that Hudge and Gudge are two sides of the same coin, two faces of liberalism that are both moving us toward the Servile State.
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As time goes by, this collusion between the state and big business, united by the bonds of big finance, is becoming more and more explicit. In this article, we will examine some ways in which Big Business and Big Government are in bed together and discuss possible solutions for remedying this situation within a Distributist context.
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Disparity in Sentencing
This collusion between government and big business is especially evident in the case of the way the government treats the criminals of big financial firms, men who steal billions of dollars, wreck the economy, cost thousands of people their jobs, destroy retirement funds and yet go unpunished. With few exceptions, they are gifted not merely with leniency, but full-scale immunity from criminal punishment.
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Glenn Greenwald, whose book With Liberty and Justice for Some has thoroughly documented the plutocratic inequalities in our justice system, has noted that while the rich have always had a disproportionate influence in the American justice system. the flagrancy with which this principle is now touted is a troubling novelty:
“Obviously, those with money and power always enjoyed substantial advantages in the US justice system, but lip service was at least always paid to the core precept of the rule of law: that – regardless of power, position and prestige – all stand equal before the blindness of Lady Justice.
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It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear US elites unblinkingly insisting that those who become sufficiently important and influential are – and should be – immunized from the system of criminal punishment to which everyone else is subjected.” [1]
The reason that the rich are routinely not subject to criminal prosecution gets right to the heart of the issue of collusion between government and business. The reason cited by the government for why these crimes are not prosecuted is because it would be too inconvenient to the economy and the aims of the government if justice were served. Greenwald cites the case of HSBC, one of the world’s largest banks. In 2012, United States federal investigators found that HSBC washad spent years committing many serious crimes, involving money laundering for terrorists; “facilitat[ing] money laundering by Mexican drug cartels”; and “mov[ing] tainted money for Saudi banks tied to terrorist groups”. Those investigations uncovered substantial evidence “that senior bank officials were complicit in the illegal activity.”[2]
Yet, the United Stats decided not to prosecute the bank on the grounds that the bank is simply too big, too important, and too integral to the well-being of the financial market for its operations to be disrupted by something as petty as a federal criminal investigation. The Justice Department ultimately opted for a very small fine instead of prosecution. Their rationale is quite amazing and merits to be quoted at length:
“US authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the ‘collateral consequences’ of taking the bank to court. . . .
“Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC”s ‘blatant failure’ to implement anti-money laundering controls and its wilful flouting of US sanctions, the consequences of a criminal prosecution would have been dire.
“Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.
“HSBC, Britain’s biggest bank, said it was ‘profoundly sorry’ for what it called ‘past mistakes’ that allowed terrorists and narcotics traffickers to move billions around the financial system and circumvent US banking laws. . . .
“As part of the deal, HSBC has undertaken a five-year agreement with the US department of justice under which it will install an independent monitor to assess reformed internal controls. The bank’s top executives will defer part of their bonuses for the whole of the five-year period, while bonuses have been clawed back from a number of former and current executives, including those in the US directly involved at the time.
The bank processed cash for Mexico’s Sinaloa cartel, regarded as the most powerful and deadly drug gang in the world, among others. At least $881 million in drug trafficking money was laundered throughout HSBC accounts. In order to handle the “staggering amounts of cash”, the bank even widened the windows at some branches to allow tellers to accept larger boxes of money.
HSBC also helped rogue states including Libya, Sudan, Burma and Iran to work around US rules banning them from using US financial system in a scheme that went on for decades.” [3]
Prosecuting such a large bank could have potentially “destabilized” the market, and therefore the United States has settled for nothing more than a promise from HSBC that they will behave, with some additional internal monitoring, plus a the executives forgoing part of their bonuses. Thus, they walk away scot free after having laundered almost a billion dollars for one of the world’s most violent drug cartels for over a decade in a scam that many high level bankers were knowingly involved in. What would have happened, by contrast, if a single poor black woman was caught with a small fraction of cocaine? They would have thrown the book at her; in fact, they did – Stephanie George of Pensacola, Florida was sentenced to life in prison at age 27 for possessing some cocaine in a lockbox stored in her attic. [4]
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In stating that prosecution of big banks is undesirable because the banks are so big that prosecution could destabilize the economy, the government implicitly aids the banks in their immoral activities by creating a moral hazard, that is, a circumstance where reckless financial activity is encouraged due to a real or perceived (in this case real) immunity from punishment. The government allows the financial criminals to operate without worrying about the consequences of their actions, as they know the government deems them too big and important to disturb with petty matters like justice. Conversely, in being allowed this freedom, the mammoth financial institutions aid the government by continuing the farce that is our economy and not disturbing the apple cart.
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Local Collusion
This sort of collusion happens at the local level as well through the granting of tax abatements. A tax abatement is a remission of either all or part of the property taxes a company owes to a municipality and may be granted for varying amounts of time; the standard municipal tax abatement in Michigan, for example, is a 50-75% abatement of all property taxes in a new development for a period of 12 years; sometimes, 100% abatements are granted for special projects meeting certain criteria set by the state. These abatements thus function almost as indulgences for businesses, remitting either all (plenary) or some (partial) of their tax burden!
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These abatements are usually done for admirable motives; companies that get abatements usually are larger employers whose expansions will create new jobs. In addition to this, municipalities covet the large tax revenues that they will reap from multi-million dollar investments once the abatement period has expired. However, because state laws allow these to granted only under certain conditions (usually the company has to demonstrate that it will create a certain number of jobs and the “investment” in the community has to be sufficiently large) only very large companies are eligible for these abatements – companies whose expansions are projects in the tens of millions of dollars. Though the abatements are technically available to any applicant, the guidelines ensure that only sufficiently capitalized applicants will ever qualify to receive them. Thus the big companies that can most afford to pay their taxes are granted breaks while small companies for whom taxes are a greater burden have no escape from them.
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In typical consequentialist fashion, these unfortunate inequalities are justified in light of the eventual good that will accrue to the community by the new jobs and new tax revenue the corporate development will eventually produce. The real irony is that even these supposed benefits are ephemeral; there is no way for the company to ensure that only local persons are hired – in many cases, workers hired as a result of the development are from out of town or transferred in from another factory. And what about the taxes that will come into local coffers after the abatement period ends? Usually, a company that receives a 12 year abatement will file a property tax appeal in year 13 and fight tooth and nail in expensive lawsuits at the state tax tribunals that municipalities cannot afford to fight, eventually securing further tax concessions.
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Thus, local governments grant tax exemptions to big corporations to get them into their towns while corporations play cities against each other, seeing who will give the most lucrative deal. In the end, the big corporations cooperate with the community only long enough to enjoy the fruits of their abatement before suing the same city that granted them the abatement to get their taxes lowered again. Meanwhile small businesses, who do not have the benefit of having laws written for them that allow them to qualify for abatements, have no recourse. This is a prime example of a very common form of government-corporate collusion that goes on all the time at the local level and rewards big corporations while doing nothing for the small businesses. Not to mention that abatements are only available for new businesses or expansions; existing businesses, even if they have been faithfully serving the community for decades, cannot apply for them unless they build an expansion or open up a new building.
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The Revolving Door
This collusion is perpetuated by a phenomenon that social scientists have dubbed “the revolving door.” The revolving door refers to the way state and federal legislators and other government bureaucrats freely move from elected office into cozy corporate lobbying positions. This mains that the persons making the laws and those advocating on behalf of big businesses are literally the same people. Lobbying firms hire outgoing lawmakers because the legislators know the inner working of Washington and can bring this knowledge to the advantage of the lobbying firms; legislators, for their part, know that firms they advocated on behalf of during their tenure can be counted on to provide them with a snug, secure position when their term of office is over. The cozy relationship between lobbyists and legislators, and the real crossing over of persons between both groups, ensures that legislation is written that is oriented in favor of business interests – that is, after all, the end of all corporate lobbying. This phenomenon is fairly universal; in the past decade, 400 lawmakers and 5,400 staffers have made the jump from Capitol Hill to private lobbying firms advocating on behalf of big businesses. Likewise, 605 lobbyists have taken up jobs on Capitol Hill in the same frame of time. [5] The relationship between lobbyists and lawmakers has been described as “symbiotic” [6]. Lawmakers and lobbyists each have something to offer the other, and the collusion between representatives of public and private interests leave us with big corporations effectively writing legislation and legislation written for big corporations. In case it is not clear, I single out “big corporations” because, of course, mom and pop shops do not have the funding to employ full time lobbyists, nor spend their valuable time lobbying in person. As with abatements at the local level, this form of collusion open to the big players.
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“Virtual Lobbying” for Small Business?
It could be objected that lobbying is not as inaccessible to small businesses as we are one might think. Small businesses might not have the funds to hire their own lobbyist, but they may participate in a sort of “virtual lobbying” by joining and paying dues to organizations that are big enough to lobby. So, for example, a corner shoe store that sells locally made shoes could never hope to pay for its own full-time lobbyist might become a dues-paying member of the Chamber of Commerce, knowing that the Chamber advocates for business in general and is a very powerful voice on Capitol Hill. The shoe store, while not represented directly, is represented virtually through the Chamber, and thus is able to lobby, in a certain way.
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This concept of “virtual lobbying” suffers from two major flaws: first, it can hardly be said that a massive umbrella organization like the Chamber, representing so many distinct forms of business, can effectively lobby for the specific needs of any particular sort of businesses, especially if the aims of its members might be contradictory. For example, the Chamber might advocate for free trade with China, knowing that many of its larger, industrial members will approve of the continued ability to get cheap-labor for their manufacturing. Yet this same free trade that pleases one Chamber member is detrimental to our above mentioned shoe store, whose smaller, off-brand and locally produced stock cannot compete with the low-cost junk made by Adidas, Nike and Reebok in the Chinese sweatshops. Free trade is actually burden to this store.
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Related but more important is the inequality of donations within a large umbrella group like the Chamber. So while smaller businesses certainly can join the Chamber, so can large corporations like McDonalds, Exxon, etc., allowing for a situation in which the donations of big dollars outweighs small dollars. Lest one think this accusation unfounded, a 2010 investigation by the New York Times found that “while the chamber boasts of representing more than three million businesses, and having approximately 300,000 members, nearly half of its $140 million in contributions in 2008 came from just 45 donors.” [7] Dow Chemical, for example, made a $1.7 million donation [4]. Do we really believe that the $150 paid by a local restaurant for Chamber dues carries the same weight as $1.7 million from Dow Chemical? Goldman Sachs and Texaco are among some of the Chamber’s other top donors. James Carter, founder of a smaller, alternate business advocacy group called the “Green Chamber of Commerce,” observed that the Chamber is “dominated by oil companies, pharmaceutical giants, automakers and other polluting industries.” [8]
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The fact of the revolving door and the inequality in virtual lobbying by umbrella groups demonstrate what a sham the whole lobbying network is: Big companies with big budgets employ full-time lobbyists who cozy up to lawmakers to ensure laws are written with corporate ends in mind; in exchange, lawmakers get information and advice from lobbyists and can count on cushy lobbying jobs themselves when they end their elected terms. Meanwhile, small businesses who cannot afford to lobby are relegated to making their opinions heard through participating in large umbrella groups to whom they pay dues year after year only to have the wishes of a handful of large donors (the same ones employing the full-time lobbyists) dominate the organization. The result is that law is written for corporations, corporations write law, and small businesses get the shaft, paying dues to organizations that do not represent them and receiving no real representation at the same time. No mafia boss ever had a racket so profitable or well-organized!
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An End to Corporate-Government Collusion
The classic definition of fascism is a situation in which Big Business and Big Government are formally united in their aims and in many aspects of their administration; government gives business direction in what and how much to produce, and business seeks the authority of government to establish and protect its interests, which are subordinated to the direction of the state. Unlike communism, where the state owns industry, in fascism, the state is independent from industry, but becomes its biggest customer. The aims of the two coalesce. In Mussolini’s Italy, government officials and corporate heads would have regular conferences to decide what “they” were going to do with production in a given period. Because of this legal collusion, fascism has been defined, even by its own adherents, as “national corporatism.” [9]
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We certainly do not have de jure fascism in this country, but when we have so much collusion between the public and private spheres at every level of government, and in many cases the same individuals running things in both spheres with identical aims, can it not be legitimately argued that what we have in the United States is de facto quasi-fascist system, a system which only resembles fascism more and more as both government and business get larger and as subsidiarity is stamped out?
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How can we reverse this trend? How can we restore true subsidiarity to our economy and end the hijacking of government for corporate ends and the concomitant influence of corporations on government? This is a tall order, but I think we can propose a few changes that would be keeping in the spirit of Distributism and would go a long way towards rectifying the problems we have highlighted.
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1. First and foremost, we need to restore justice in the way corporate crimes are dealt with. Too often petty criminals are handed down harsh sentences for stealing paltry amounts of money or possessing nominal amounts of drugs, while corporate criminals who squander and steal billions of dollars, wreck the economy and cost thousands of people their jobs frequently get away with only minimal punishment, if go scot-free altogether. Those who steal billions and drive the economy into the ground should be held criminally liable for their recklessness with prison terms at least as harsh as those meted out to small-time crooks; if this country ever moves towards corporal punishment again, I would recommend flogging in addition to said prison terms.
2. Legally we need to revisit the concept of limited liability, which goes hand in hand with the point above. While limited liability is helpful in encouraging entrepreneurs to take the risks inherent in starting a company, there should be limits to its extension. The sorts of calculations an entrepreneur starting a small business will make are very different from those an executive in a Fortune 500 company would make. If the millionaire hedgefund managers and bankers who orchestrated the 2008 meltdown knew they could be held, to some extent, personally liable for taking wrecking their clients’ portfolios with reckless investments against best business practices, the meltdown might not have went down the way it did. I am not proposing abolishing limited liability altogether, but its extension should not be unlimited.
3. Regarding local abatements, if an abatement is to be granted as an incentive, it should be available to every business owner, not just very large. The lucrative and absurd 100%-12 year abatements should be done away with altogether; instead, abatements should be capped at 10%, and this should simply be a flat rate for any new business starting up in town, or an existing business that, say, merits an abatement by having been in operation continually for a decade or more. The duration of the abatement ought to be seven years, rather than twelve.
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Another option might be to get rid of abatements altogether, or at least for businesses grossing over $2 million in sales annually. This would ensure that decisions aren’t made only for the behest of the largest. If a business does get an abatement, it should be forbidden from challenging its taxes at the state tax tribunals for a period of at least five years from the termination of the abatement; this would put an end to the practice of the local government granting a large corporation a lucrative abatement only to have the corporation turn around and sue the municipality at the tax tribunal the year the abatement ends. But one way or another, either small businesses should have abatements available to them, or else they should not be available at all.
4. Ending the influence of lobbyists might prove to be the biggest challenge. Of course, one could simply ban lobbying altogether. “But how would corporations make their needs known to their duly elected representatives!?” some might argue. Easy. The same way everybody else does: write letters to your representatives, make phone calls, sign petitions, send emails. We all communicate this way without having recourse to professional hired lobbyists. This would make sure corporations did not have special access to government unavailable to the rest of us.
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However, this idea does suffer from a major drawback in that it is practically unenforceable. How would we tell who was a lobbyist and who was not, and what sort of communication would constitute lobbying, and what sort of gargantuan enforcement mechanism would we need to construct in order to catch offenders? No, it is impracticable. to ban the activity entirely. But it could be regulated much more severely: for one thing, the revolving door needs to end. Many businesses already have “non-compete” forms that employees must sign, and this principle could be extended to lobbying – no legislator would be permitted to work as a lobbyist for ten years after the expiration of his legislative term (similar to the law they used to have in the Roman Republic), while any registered lobbyist would have to wait a similar period before he could stand for public office. This would do much towards breaking down the revolving door phenomenon.
Furthermore, there could be inaugurated a graduated system of lobbying fees for registering lobbyists. For companies whose tax returns show a gross annual income of $500,000 or less, there would be no fee. This at least ensures that, theoretically, smaller businesses can afford to register a lobbyist if they wanted to. But the biggest benefit of a graduated system of fees is not what it does for smaller businesses, but rather how it deals with the large. Companies grossing between $500K-$1million, the fee could be $1,000 annually (akin to what most states charge now). Then we could go up:
$1 million-$3 million: $5,000 annually $3 million-$5 million: $10,000 annually $5 million-$10 million: $20,000 annually $10 million – $20 million: $50,000 annually $20 million-$50 million: $100,000 annually $50 million – $75 million: $150,000 annually $75 million – $100 million: $250,000 annually $100 million-$250 million: $500,000 annually $250 million – $500 million: $1 million annually $500 million – $1 billion: $5 million annually $1 billion – $100 billion: $10 million annually $100 billion and above: $25 million annually.
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This fee would be simply to register an individual as a lobbyist and does not take into account the salary the company would have to pay them. Furthermore, these fees are for each, individual lobbyist – so if Wal-Mart wanted to hire ten lobbyists to represent it in Washington for a five years, we would take a look Wal-Marts gross annual sales, which are around $405 billion [10]. This puts Wal-Mart in the highest category, at $25 million per lobbyist per year. That would be $25 million x 10 lobbyists = $250,000,000 in fees Wal-Mart would have to spend to register these lobbyists. But then, since the registration needs to be renewed every year and Wal-Mart wants these lobbyists working on a five-year timetable, this brings their total registration fees to $1.25 billion dollars to hire ten lobbyists for five years.
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This scale would no doubt discourage large companies from flooding Washington with gobs of lobbyists and would encourage middle sized businesses to get into the game. But the best part is, a percentage of these fees (50%?) would be returned to the state, county and municipality where the company is headquartered, in order to make sure that if the company is going to spend money on lobbying, a portion of that money is going to be reinvested in the community that hosts that corporation. So, for example, in my hometown we have a large multinational corporation that grosses about $35 million every year. If this corporation hired a lobbyist, $50,000 of their registration would come back to the community every single year.
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No doubt there are many different ways things could go, and what I have provided here are just a few random thoughts on the subject. But the bottom line is that in our current state of affairs, we do indeed have a real and vital collusion between Big Government and Big Business united by Big Finance. This is an inherently dangerous position for our society to be in, as the common good is subordinated to the private good of business through business’s intimate relationship with government.We can’t trust our economy and society to the whims of big businesses, nor our government when they make decisions in the interest of these corporate behemoths.
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Sources
[1] http://readersupportednews.org/opinion2/277-75/15116-life-sentence-for-the-poor-immunity-for-the-wealthy
[2] ibid.
[3] http://www.guardian.co.uk/business/2012/dec/11/hsbc-fine-prosecution-money-laundering
[6] ibid.
[7] http://www.nytimes.com/2010/10/22/us/politics/22chamber.html?_r=2&pagewanted=1&
[9] ibid.
[10] Tom Lochner, “Chamber hopes local promotion of green business produces national results,” ContraCostaTimes, October 22, 2007.
[6] Payne, Stanley G (1983). Fascism, Comparison and Definition. University of Wisconsin Press.
[7] http://www.statisticbrain.com/wal-mart-company-statistics/
