Challenging a paradigm

In my travels today, I have hour-to-hour commitments (sort of like wall-to-wall) and so I have called in our guest blogger, Victor Quirk to provide some further fuel for debate in my absence. I will be back in my office on Monday although the Saturday quiz will appear tomorrow sometime. So today Victor is talking about how we go about challenging a paradigm from his perspective as a political sociologist. Over to him.

The challenge

As some of you already know, I’ve spent a few years now looking at the issue of why Australians forgot that their government eliminated unemployment for thirty years after WWII, during which time living standards improved, the nations productive capacity expanded, and in many respects, the country enjoyed a golden economic period.

Then in the 1970s, in line with similar moves around the world, full employment was abandoned, initially by way of treacherous bureaucrats inducing a credit squeeze behind the back of the Whitlam government, and subsequently consolidated through cuts to public sector employment under conservative Australian Prime Minister Fraser. These developments were accompanied by a corporate funded “economic education’ campaign that began in 1976, modelled on a campaign that had been running for several years in the USA, that espoused the free market, small government, household budget propaganda in which we have now marinated for a generation.

Strapped for cash after fighting four federal elections in five years, the Australian Labor Party (ALP) under Bill Hayden from 1977, abandoned its commitment to full employment and embraced the “sound economics” mantra in order to attract corporate financial support for the ALP. When Labor returned to office under Hawke in 1983, despite the rhetoric of the National Economic Summit, there was no intention of restoring full employment. Labor was safe for capital. The Hawke/Keating governments proceeded to then embed the corporations agenda in Australia.

The economic orthodoxy that was installed during this period has prevailed despite never achieving the levels of employment and social equity achieved under the economic regime it displaced. As advocates of a restoration of full employment, Bill Mitchell and certain other post-Keynesian economists have mounted a strong case that preserving the current regime is not justifiable on any empirical basis. It is not efficient, it is not equitable, it is socially destructive, it is unnecessary. Plentiful employment is perfectly feasible, and the country would benefit in a multitude of ways by its establishment.

The old paradigm nevertheless remains firmly embedded as the foundation ideology of economic and public policy in this country. Why?

Conjunctions of economic and political power

Of the quarter million US embassy cables gradually being released by Wikileaks, the most interesting to me are those that reveal the unethical and clandestine strategic ploys of the wielders of economic power, where we see corporations pursuing their interests through covert and unethical political activities which government(s) around the world evidently knowingly condone and abet.

Some examples are the Paris Embassy cable calling for sanctions against European states opposed to the introduction of Monsanto’s genetically modified crops, Shell Oil’s extensive penetration of the Nigerian public service that enables it to monitor every move the Government makes, Pfizers use of private investigators to get blackmail material on an Attorney General … and so on.

The deference and respect governments outwardly appear to have for these companies in public has to be squared with the certain evidence being almost daily released that the US government (and probably most others) know precisely how these companies misconduct themselves across the globe. What we see is that corporations and governments do not behave as they would have the public believe.

Generally, it is this discrepancy between what the public is told and what is actually happening that produces the shock value of these releases, as Carne Ross in the New Statesmen (January 12, 2011) spells out:

… the most embarrassing thing about the WikiLeaks disclosures is not that they happened (though this is bad enough for the American government), but the revelation – long suspected but now proven – of the yawning discrepancy between US words and actions in that most contested area, the Middle East. Cable after cable details the extraordinarily intimate and codependent relations between the US and various despotic and unpleasant Arab regimes. One Arab intelligence chief plots with the Americans to target Iranian groups, or destroy Hamas. Another undemocratic Arab leader invites US bombers to attack targets in his own territory. It is this discrepancy – between word and deed – that will keep fuel in WikiLeaks’s tanks and those of others like it.

We should not be too surprised by the Wikileaks accounts of governments colluding with business in their unethical practices, since without this occurring a wide scale, openly known global business practices could not happen:

More than half of world trade passes, at least on paper, through tax havens. More than half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. An impression has been created in sections of the world’s media, since a series of stirring denunciations of tax havens by world leaders in 2008 and 2009, that the offshore system has been dismantled, or at least tamed. In fact quite the opposite has happened. The offshore system is in very rude health – and growing fast (Nicholas Shaxson, Guardian, January 9, 2011).

Certainly, the idea that governments and business interests collude and pursue their economic interests through unethical and clandestine means, is not really new. Practices such as those being revealed in the Wikileaks material are captured by the term “extra-market operations”, first coined by the Australian economist E.R. Walker in the 1930s:

Extra-market activities might be taken to cover all behaviour outside the market; extra-market operations are only those extra-market activities which are directed toward ends which may be sought and are sought also through operations in the market (Walker, 1943:100).

He cites as examples the National Cash Register Company which “has been convicted for malicious libels in regard to competitors; and for causing its agents to injure internal parts of rival machines when in use, and similar practices”, and J.D Rockefeller’s “attempts to prevent the construction of pipelines in competition with the railways under his control”:

His agents frightened the farmers over whose lands the pipes must pass, by stories of poisonous gas leakages and unquenchable fires, and gangs of railway employees attacked the workman laying the pipes” (Walker, 1943:102).

Walker questioned why economists failed to acknowledge economic phenomena beyond sterile conceptions of “the market”. Drawing on Gunnar Myrdahl’s 1929 study The political element in the development of economic theory, Walker criticised the “theoretic blight’ of his discipline, in which the discordance of its theories with observed reality led to many spurious conclusions:

… the abstraction of economic aspects of behaviour from the rest of social life is a comparatively new achievement of the human intellect and its value is not self evident (Walker, 1943:4).

Walker thought that extra-market operations arise “because they promise better results than can be achieved by strict adherence to market activities under existing conditions” (Walker, 1943:111).

Even observers of early capitalism noticed these propensities to discretely rig the results of market activity, as when Adam Smith famously observed:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The propensity of business people to organise themselves to gain advantage over the wider community was just as candidly particularised by 19th Century Australian business leader Bruce Smith, founder, in 1885, of the Victorian Employers Union, when he declared:

Almost every section of our mercantile community, that is to say those who conduct their business on the most modern principles, has its “ring”. The banks “associate” themselves for the purpose of keeping up the rate of interest on their advances, and keeping down the interest on deposits. The merchants, who deal in any particular line of merchandise such as timber, iron, or coal, are constantly endeavouring to keep up the selling price by a process of combination; and they actually do so for a time, until, as a result of greediness or deception, they come to distrust one another, when the “ring”, so to speak, falls to pieces and competition is again rife until some fresh arrangement can be agreed among the competitors. The shipowners, in the same way, have their “ring”, and by doing so they maintain their freight rates so long as the “ring” can be held together (Svenson, 1995:8).

Of course both Smiths lived in times and places when parliaments were dominated by wealthy interests, owing to property qualifications and restrictions of suffrage, and so the mixing of commercial interest with public policy took place in plain view.

For a while during the early 20th century some thought that universal suffrage and working class parliamentary representation would make government more of an instrument of the people, protecting them from exploitation and other manifestations of greed by the financially powerful. Alas, it was not to be. As the late Alex Carey observed:

The twentieth century has been characterised by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy (Carey, 1995: 18).

This development has been itself an exercise in clandestine strategic coordination, since it is most effectively done when those who pay for it are not openly associated with those who front for it. Despite these practices becoming increasingly well documented and understood, the corporate funded propagandists are so well established that they continue to be treated as legitimate sources of information even when they are openly understood to be paid propagandists for unidentified interests. The frequency with which Centre for Independent Studies speakers appear on the ABC is a case in point.

As for the contribution private think-tanks make to public debate, often their only objective is to muddy the waters – not to propose something different that they believe to be true and can support with evidence, but to make others doubt the truth when they hear it.

For example, you can listen to Naomi Oreske’s (Professor of History and Science Sstudies, University of California) fascinating talk on the ABC Science Show about corporate think-tank techniques used by the tobacco industry and now adopted by corporate-funded propagandists opposed to environmental regulation to cast doubt on inconvenient scientific evidence.

While business propagandists had existed for decades prior to the paradigm shift of the 1970s (the Institute of Public Affairs was established in 1945), much of the modern corporate propaganda that today pours from corporate think-tanks around the globe, seems to owe its origins to a call to arms drafted for the US Chamber of Commerce in 1971 that is worth briefly considering.

The Powell Memorandum

If we travel back in time to the early 1970s, to the time of continuing post-war full employment in countries like Australia that so empowered their labour movements, or to the USA following the social liberalisation of the 1960s, where the civil rights and anti war movements had such impact, we observe significant numbers of people in the press and academia openly critical of the corporate establishment and its interconnectedness with government.

University students protested against the military industrial complex of which Dwight Eisenhower warned in his final Presidential address, speculated on official complicity in the killing of JFK and RFK, saw the Vietnam War as an act of imperialist aggression, and anticipated a better world when it was their generation’s turn to take the helm.

These developments were viewed with alarm by the US business establishment. On August 23, 1971, corporate lawyer Lewis F. Powell Jr. wrote a confidential memorandum entitled – Attack of American Free Enterprise System – for the U.S. Chamber of Commerce. It was discussed the next day by the board’s executive and circulated to the company CEO’s comprising the Chamber’s membership. A few months later, Richard Nixon appointed Powell to the bench of the US Supreme Court.

It depicts US capitalism as under siege from within, and criticises corporate America for its failure to meet the threat with sufficient resolve. Along with outspoken radicals, mildly critical liberal academics, progressive journalists and entertainers were also condemned:

… famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.

Powell continued:

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”

Any criticism of business interests was evidence of the system under attack. He cites a columnist arguing proposed tax concessions would benefit:

… only the rich, the owners of big companies.

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

Powell urged corporate America to see it as a fight for survival:

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself.

A primary focus, he argued, must be the university campus:

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or of moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues

Establishing “balance’ meant equal time be given to pro-business speakers at social science seminars.

The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Which makes one wonder what Milton Friedman and his colleagues at the Chicago school were teaching.

His recommended strategy for meeting the campus crisis included urging the Chamber of Commerce to establish a:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom.

More generally he urged collective action:

Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations. Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

Various wealthy CEO recipients of this memorandum responded by establishing now infamous think tanks and libertarian foundations for the purpose of strenuously advancing the “free enterprise”, small government, anti-regulation mantra we have now heard for a generation.

It also led to the massive 1970s “economic education” campaign, at that time the largest marketing exercise in US history, in which the message was hammered into the schools, workplaces, the media, bureaucracy, with text books, training films, radio broadcasts, public lectures, Friedman’s Free to Choose TV series, etc, all of which paved the way for the Thatcher and Reagan years.

The organisers of the campaign were brought to Australia in 1976 to run it here to prepare the ground for the Fraser, Hawke/Keating and Howard governments.

The details of this episode are documented in Alex Carey’s Taking the Risk out of Democracy, and more recently in several papers and books by Professor Sharon Beder.

Ah plutonomy!

So – we know governments and corporations act in ways that they shield from public view. We know that corporations pay for the propaganda that established and maintains the theoretical underpinning that governments use to fashion much of the public policy of recent decades. Are they simply misguided? Why would they intentionally want to preserve unemployment and poverty?

I realise that from where most of us sit, it is hard to fathom the mindset that would justify the socio-economic domination of the world by nation-straddling corporations, using poverty and unemployment as a weapon for subduing national workforces, but the evidence for it is not hard to find.

I have spent quite a few years documenting the history of business opposition to full employment in Britain and Australia as part of my Phd, but even I was surprised by the hubris with which the authors of the October 2005 Citigroup Equity Strategy report applaud the disparities in wealth of the western Anglo societies (USA, UK, Canada, Australia), what they called Plutonomies, run by and for the top 1 per cent of wealthiest households. It reads like a left wing parody!

… the top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie!

… the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) – the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together (Citigroup, 2005: 3).

What do they deduce from this analysis?

… How do we make money from this theme? We see two ways. The first is simple. If you believe, like us, that the Plutonomy exists, and explains why global imbalances have built up (for example the savings rate differentials), and you believe there is no imminent threat to plutonomy, you must in turn believe that the current “end of the world is nigh” risk premium on equities, due to current account deficits, is too high. Conclusion: buy equities.

There is however a more refined way to play plutonomy, and this is to buy shares in the companies that make the toys that the Plutonomists enjoy (Citigroup, 2005: 22).

In one section of the report they scan the horizon for any signs that the poorer citizens of these countries might call a halt to this wonderful situation.

At the heart of Plutonomy is income inequality. Societies that are willing to tolerate/endorse income inequality are willing to tolerate/endorse plutonomy.

Earlier we postulated a number of key tenets for the creation of plutonomy. As a reminder, these were: 1) an ongoing technology/biotechnology revolution 2) capitalist friendly governments and tax regimes, 3) globalisation that re-arranges global supply chains with mobile well capitalised elites and immigrants, 4) greater financial complexity and innovation, 5) the rule of law, and 6) patent protection.

We make the assumption that the technology revolution and financial innovation are likely to continue. So an examination of what might disrupt plutonomy – or worse, reverse it – falls to societal analysis: will electorates continue to endorse it, or will they end it and why.

Organised societies have two ways expropriating wealth – through the revocation of property rights or through the tax system … [ which they then argue was unlikely to happen].

… There is a third way to change things though not necessarily by expropriation, and that is to slow down the rate of wealth creation or accumulation by the rich – generally through a reduction in the profit share of GDP. This could occur through a change in rules that affect the balance of power between labour and capital. (Citigroup, 2005: 22).

Of course, preserving the power differential between labour and capital, though not explicitly admitted, entails maintaining labour underutilisation.

Conclusion

We have a dominant macroeconomic paradigm, in this country and elsewhere, that budget surpluses are good, deficits are unsustainable, public sector employment is inefficient, governments need to cut spending or raise taxes or borrow money, which drive up interest rates, that full employment means 6-8 per cent unemployment because of a NAIRU … and so on.

Its proclaimed by politicians, bureaucrats, media commentators, think tanks, taught in the universities and high schools, its on the nightly news broadcasts, its in the textbooks.

Despite this Bill Mitchell and his colleagues say on the basis of empirical evidence accumulated for over a decade that these ideas entrench poverty and unemployment, they waste human resources, and deny millions of people around the world a decent standard of living. They argue it is perfectly feasible to have full employment, price stability and ecological sustainability, through well designed public sector job creation systems. Slowly, this idea is gaining ground.

One of the spin-offs that may emerge from the steady drip of Wikileaks material is that people may become more open to the suggestion that all is not what it seems, that governments and corporations regularly lie about what they do and why they do it, to keep the public in the dark, and that this includes why they run the global economy the way they do.

The value of propaganda is that if we are conditioned to believe something cannot be done, we won’t ask our governments to do it. The fact that so much of what politicians do is masked from the public means they do care what the public thinks of them. I will wager my ukulele that if people in democratic countries start seriously demanding full employment of their elected representatives it will happen. Getting enough people to start doing so remains the tricky bit.

Best wishes to all for 2011.

Victor Quirk

Some useful references:

Beder, S. (2006) Free Market Missionaries: The corporate manipulation of community values, Earthscan, London.

Beder, S. (2005) ‘The Role of ‘Economic Education’ in Achieving Capitalist Hegemony’, paper presented to the Hegemony: Explorations into Consensus, Coercion and Culture Workshop, University of Wollongong, NSW, February 14-15.

Kapur, A, Macleod, N., Singh, N. (2005) Plutonomy: Buying luxury, explaining global imbalances , Citigroup Equity Strategy Industry Note, October, Citigroup.

Myrdahl, G. (1965) The political element in the development of economic theory , Harvard University Press.

Svenson, S. (1995) The Sinews of War: The 1890 Maritime Strike, University of New South Wales Press, Sydney.

Walker, E.R. (1943) From Economic Theory to Policy , University of Chicago Press, Chicago.

Saturday Quiz

Bill will be back with the Saturday Quiz sometime tomorrow – even harder than last week!

That is enough for today!