The OS Classroom: Coporatocracy, What We're Up Against

This article is about the idea of government dominated by corporate business interests. 


'Corporatocracy'; a portmanteau of corporate and -ocracy (form of government), is a recent term used to refer to an economic and political system controlled by corporations or corporate interests.[1]

It is most often used today as a term to describe the current economic situation in a particular country, especially the United States.[2][3]

This is different from corporatism, which is the organisation of society into groups with common interests. Corporatocracy as a term is often used by observers across the political spectrum.[2][4][5][6][7][8][9][10][11][12][13][14][15]

Economist Jeffrey Sachs described the United States as a corporatocracy in The Price of Civilization (2011).[16] He suggested that it arose from four trends: weak national parties and strong political representation of individual districts, the large U.S. military establishment after World War II, large corporations using money to finance election campaigns, and globalization tilting the balance of power away from workers.[16]

This collective is what author C Wright Mills in 1956 called the 'power elite', wealthy individuals who hold prominent positions in corporatocracies. They control the process of determining a society's economic and political policies.[17]

The concept has been used in explanations of bank bailouts, excessive pay for CEOs, as well as complaints such as the exploitation of national treasuries, people, and natural resources.[18] It has been used by critics of globalization,[19] sometimes in conjunction with criticism of the World Bank[20] or unfair lending practices,[18] as well as criticism of "free trade agreements".[19]

Characteristics 

Edmund Phelps published an analysis in 2010 theorizing that the cause of income inequality is not free market capitalism, but instead is the result of the rise of corporatization.[21] Corporatization, in his view, is the antithesis of free market capitalism. It is characterized by semi-monopolistic organizations and banks, big employer confederations, often acting with complicit state institutions in ways that discourage (or block) the natural workings of a free economy. The primary effects of corporatization are the consolidation of economic power and wealth, with end results being the attrition of entrepreneurial and free market dynamism.

His follow-up book, Mass Flourishing, further defines corporatization by the following attributes: power-sharing between government and large corporations (exemplified in the U.S. by widening government power in areas such as financial services, healthcare, energy, law enforcement/prison systems, and the military through regulation and outsourcing), an expansion of corporate lobbying and campaign support in exchange for government reciprocity, escalation in the growth and influence of financial and banking sectors, increased consolidation of the corporate landscape through merger and acquisition (with ensuing increases in corporate executive compensation), increased potential for corporate/government corruption and malfeasance, and a lack of entrepreneurial and small business development leading to lethargic and stagnant economic conditions.[22][23]

United States

Labor's share of GDP has declined 1970 to 2013, measured based on total compensation as well as salaries and wages. This implies capital's share is increasing.
In the United States, several of the characteristics described by Phelps are apparent. With regard to income inequality, the 2014 income analysis of University of California, Berkeley economist Emmanuel Saez confirms that relative growth of income and wealth is not occurring among small and mid-sized entrepreneurs and business owners (who generally populate the lower half of top one per-centers in income),[24] but instead only among the top .1 percent of income distribution ... whom Paul Krugman describes as "super-elites – corporate bigwigs and financial wheeler-dealers."[25][26]... who earn $2,000,000 or more every year.[27][28]

Share of income

Corporate power can also increase income inequality. Joseph Stiglitz wrote in May 2011: "Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to zero percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest." Stiglitz explained that the top 1% got nearly "one-quarter" of the income and own approximately 40% of the wealth.[29]

Measured relative to GDP, total compensation and its component wages and salaries have been declining since 1970. This indicates a shift in income from labor (persons who derive income from hourly wages and salaries) to capital (persons who derive income via ownership of businesses, land and assets).[30] Wages and salaries have fallen from approximately 51% GDP in 1970 to 43% GDP in 2013. Total compensation has fallen from approximately 58% GDP in 1970 to 53% GDP in 2013.[31]

To put this in perspective, five percent of U.S. GDP was approximately $850 billion in 2013. This represents an additional $7,000 in compensation for each of the 120 million U.S. households. Larry Summers estimated in 2007 that the lower 80% of families were receiving $664 billion less income than they would be with a 1979 income distribution (a period of much greater equality), or approximately $7,000 per family.[32]

Not receiving this income may have led many families to increase their debt burden, a significant factor in the 2007–2009 subprime mortgage crisis, as highly leveraged homeowners suffered a much larger reduction in their net worth during the crisis. Further, since lower income families tend to spend relatively more of their income than higher income families, shifting more of the income to wealthier families may slow economic growth.[33]

Effective corporate tax rates 

U.S. corporate effective tax rates have fallen significantly since the year 2000.

As another indication of U.S. corporate political influence, U.S. corporate effective tax rates have also fallen significantly, from 29% in 2000 to 17% in 2013. Corporate tax payments have not kept pace with profit growth.[34][original research?]

Some large U.S. corporations have used a strategy called tax inversion to change their headquarters to a non-U.S. country to reduce their tax liability. About 46 companies have reincorporated in low-tax countries since 1982, including 15 since 2012. Six more also planned to do so in 2015.[35]

Stock buybacks versus wage increases 

One indication of increasing corporate power was the removal of restrictions on their ability to buy back stock, contributing to increased income inequality. Writing in the Harvard Business Review in September 2014, William Lazonick blamed record corporate stock buybacks for reduced investment in the economy and a corresponding impact on prosperity and income inequality. Between 2003 and 2012, the 449 companies in the S&P 500 used 54% of their earnings ($2.4 trillion) to buy back their own stock. An additional 37% was paid to stockholders as dividends. Together, these were 91% of profits. This left little for investment in productive capabilities or higher income for employees, shifting more income to capital rather than labor. He blamed executive compensation arrangements, which are heavily based on stock options, stock awards and bonuses for meeting earnings per share (EPS) targets. EPS increases as the number of outstanding shares decreases. Legal restrictions on buybacks were greatly eased in the early 1980s. He advocates changing these incentives to limit buybacks.[36][37]

In the 12 months to March 31, 2014, S&P 500 companies increased their stock buyback payouts by 29% year on year, to $534.9 billion.[38] U.S. companies are projected to increase buybacks to $701 billion in 2015 according to Goldman Sachs, an 18% increase over 2014. For scale, annual non-residential fixed investment (a proxy for business investment and a major GDP component) was estimated to be about $2.1 trillion for 2014.[39][40]

Industry concentration 

(See also: Too big to fail and Concentration of media ownership)

Percentage of banking assets held by largest five U.S. banks from 1997-2011.

Brid Brennan of the Transnational Institute explained how concentration of corporations increases their influence over government: ”It’s not just their size, their enormous wealth and assets that make the TNCs [transnational corporations] dangerous to democracy. It’s also their concentration, their capacity to influence, and often infiltrate, governments and their ability to act as a genuine international social class in order to defend their commercial interests against the common good. It is such decision making power as well as the power to impose deregulation over the past 30 years, resulting in changes to national constitutions, and to national and international legislation which has created the environment for corporate crime and impunity."[41][42]

An example of such industry concentration is in banking. The top 5 U.S. banks had approximately 30% of the U.S. banking assets in 1998; this rose to 45% by 2008 and to 48% by 2010, before falling to 47% in 2011.[43]

The Economist also explained how an increasingly profitable corporate financial and banking sector caused Gini coefficients to rise in the U.S. since 1980: "Financial services' share of GDP in America doubled to 8% between 1980 and 2000; over the same period their profits rose from about 10% to 35% of total corporate profits, before collapsing in 2007–09. Bankers are being paid more, too. In America the compensation of workers in financial services was similar to average compensation until 1980. Now it is twice that average."[44]

The summary argument considering these findings, is that if corporatization is the consolidation and sharing of economic and political power between large corporations and the state ... then a corresponding concentration of income and wealth (with resulting income inequality) is an expected by-product of such a consolidation.[41]

Corporate influence on legislation

Corporations have significant influence on the regulations and regulators that monitor them. For example, Senator Elizabeth Warren explained in December 2014 how an omnibus spending bill required to fund the government was modified late in the process to weaken banking regulations. The modification made it easier to allow taxpayer-funded bailouts of banking "swaps entities", which the Dodd-Frank banking regulations prohibited. She singled out Citigroup, one of the largest banks, which had a role in modifying the legislation. She also explained how both Wall Street bankers and members of the government that formerly had worked on Wall Street stopped bi-partisan legislation that would have broken up the largest banks. She repeated President Theodore Roosevelt's warnings regarding powerful corporate entities that threatened the "very foundations of Democracy".

https://en.m.wikipedia.org/wiki/Corporatocracy

Aside from what our own Koshersalaami has been able to do for us here, this is the best,most comprehensive, and clearest explanation of what's happening viz a viz the government and the economy posited under a single heading , in one cogent essay..

I purposely did a direct and comprehensive cut and paste job because I'm not suffieciently qualified re economics to accurately or adequately determine where edits for paraphrasing and condensation should or could be made legitimately.

However, this is the entire ball of wax in a nutshell...

Stuff we need and must know going forward....

Don't leave home to vote without it! 

Views: 113

Comment by Ron Powell on November 18, 2017 at 6:14pm

Combine corporatocracy and kakistocracy and mix with the deconstruction of the administrative state and what you have is the deepest shit this country has been in since the days immediately following the end of the War for Independence.

Who are these people and what do they think they’re doing?

I  guarantee you that most of them are clueless and don't know as much about what's going on re the economy and the government as you will after reading the piece above...

Comment by koshersalaami on November 18, 2017 at 9:55pm

This is excellent. 

Yes, most of them are clueless, and the rest are actively out to screw us for their own sakes. 

One of the worst contributors to this state of affairs came from the last two Democratic administrations in the form of decriminalization of financial crimes. The Clinton administration made the decision to levy fines rather than prosecute, probably because they figured money they could get but prosecutions would be harder to make stick. The problem is that fines weren't enough of a deterrent. Not that the Republican administrations were better, but we expected that of them.

I agree with Phelps that corporatization is the antithesis of free market capitalism. This is what I mean when I say that lack of regulation and the concentration of wealth are bad for business. 

Thank you for this. 

Comment by Ron Powell on November 18, 2017 at 11:29pm

Kosh, I firmly believe that people simply must learn this 'basic' material. There's simply too much at stake for the general public to remain ignorant of this material.

Young people should be required to demonstrate mastery of this and facility re the electoral process as a,prerequisite to graduation from high school...

If that doesn't come about soon, there's another Trump in our future....

Too many of the people who do know it have chosen to either profit from  it at the expense of the public or weaponize it at the expense of the weak and helpless, the poor and the people of color.... 

MLK became increasingly aware of this in the days leading up to his  assassination....

Comment by koshersalaami on November 19, 2017 at 6:23am

Too many Democrats haven't figured this out, and hardly any have differentiated between small/medium business and major corporate business in terms of the business climate. 

Comment by J.P. Hart on November 19, 2017 at 8:13am

This week my sincere hope is that President DJ Trump does not bite off the head of the White House turkey.

 

Comment by Anna Herrington on November 19, 2017 at 10:36am

Yes, yes, and more YES. Thanks for this post, Ron.

My focus for the past thirty years, as far as personal interest, personal use, and the industries regulating access to and laws concerning, has been on food supply as well as the medicinal herb industry - not pot, but the other herbal medicines in use for thousands of years - taught as one of the medicinal branches in Europe, Germany especially,  and the efficacy of certain medicinal herbs that fill the dangerous gap in medical care left by gaps in the pharmaceutical industry - which is where and when I began to notice how wildly powerful corporations have become in pushing their profit-driven creed right through every aspect of society and life, it seems.

I've written post after post on various sites including here in the past about the dangers of Monsanto now attempting merger with Bayer which would make that mega-corporation wildly powerful and difficult to stop their agenda, period - and it already is - as case after case comes out of their false documentation, their manipulations, their illegal maneuvers time after time as they push false propaganda endlessly while humans buy their products and cancer rates skyrocket and farm field yields crash. The failed 2016 TPP push by Clinton (before she changed her mind again after seeing it wasn't going to fly) included riders that would have stopped the ability for anyone to stop Monsanto - including the ability for Monsanto/(Bayer?) to rule over governments concerning their corporate agenda, regardless of nation. WTF???

Corporations are after global control and I'm glad to see at least one post about it today that addresses the dangers in an even larger sense than I have over and over, by including banks and other corporate areas of power-mongering besides the food industry that I'm most familiar with.

I've been working to get people aware about our global food supply red flags and who controls it and who is poisoning it and who supports the laws and is pushing the new bills and secret riders that is allowing them to profit and gain power even more, for years. It's been tough and yet highly productive in various ways, the push against corporate takeover of the natural world, the food we eat, the air we breathe, the water we drink and need to live. ... (huge) areas of corporate takeover concern.

This is happening in every aspect of industry and we citizens need to research and do our homework and protest and call our House and Senate members and donate and join organizations fighting against, when these bills come along that sneak even more corporate power into our midsts.

Thanks again for posting this.

Comment by Maui Surfer on November 19, 2017 at 4:39pm

You couldn't have been proved more thoroughly than by the tiny show of tiny hands our good President Donald Trump's chief economic adviser Gary Cohn saw at his little get together with the CEO union yesterday.

Comment by Arthur James on November 19, 2017 at 4:49pm

`
SNOOPY?
HUH?
MAURI
SURFER?
ORDERS
RON POWELL
TO ALLOW
FIGS AND
DARES IN
CLASS BUT
NO PRUNES
CAN ARE TO
BE EATEN
`?~!`~!
!`
`

Comment by Arthur James on November 19, 2017 at 5:00pm

`

thanks...

Snoops annoy FBI

&

NSA 

and OS readers.

Muumuu?

Maui Surfer stops

surfing to give

CPR to a CEO

who got bit

by a shark.

`~!`'~

~`~'

`

Comment by Maui Surfer on November 19, 2017 at 9:46pm

Would I save him/her? Now there's a moral dilemma .... and I've saved hundreds of humans in the ocean over the years.

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