Saturday, July 19, 2014

The GAP - Part V - the money flow

Despite this administration’s rhetoric against oligarchy, we have seen a rapid concentration of wealth and depressed conditions for the middle class. The trend began in earnest in the Reagan years and is now firmly entrenched.  Is that good or bad?
In today's economy, money flows away from the communities where people work, off down the road and across the country it flows to the coffers of corporations.  These are the companies that now are larger than many of the world's countries, economically speaking.  Money now flows out from every community to the coffers of Wall Street and Wal-Mart.

Business began as local labor and collaboration and mutual benefit.  Farmers and stores, suppliers and consumers, locally connected.  As industries grew, some problems arose, like unfair competition.

It's been against the law for a hundred years to monopolize a segment of the business arena.  Monopolies emerged with large business ventures.  Steel mills and railroads were early examples.  Railroading was widely viewed as a “natural” monopoly.  It didn't make sense to have two railroads laid side by side in competition with each other because of the cost. Problems arose when the powers in that monopoly were left unregulated, and powerful people like Vanderbilt, Rockefeller, and Carnegie used those natural monopolies to capture control of other businesses that had to ride the railway to get to the market.

For a little while, the railroad corporations themselves became the most powerful enterprises in America, but then a few people figured out how to leverage the railroad monopolies to make something even bigger, like Standard Oil.  Rockefeller’s greatest skill was in leveraging the railroad monopolies to make his company more powerful.

Interestingly, the first public uprising against monopoly was the Boston Tea Party. Everyone nowadays says it was a rebellion against taxation. But if you go back and read the actual writings of that moment, it was a purposeful rebellion against the British East India company which had swallowed the trade and transport segment of the economy. 

So, we eventually made laws and limited the marketplace.  ITT got broken up into competitive smaller companies.  The goal was at least 4 or 5 companies in any business segment to keep things under control.  Mergers required federal approval and if they consolidated more than 5% or so of a business segment, they weren't approved.  The biggest company couldn't buy its nearest competitors.

During the Reagan years, the administration with informed congressional concurrence directed a reinterpretation of antimonopoly laws that opened the door to abuse by big business.  Mergers went ahead with government approval, citing 'efficiency' and lowered costs after they fired all the unnecessary people.

Today, we have all sorts of monopolies and near monopolies in the United States. Many are created simply by one company purchasing all their competitors. Some years back a company named Tyco decided to take over the business of making plastic clothes hangers. It went out and bought at least four companies, and that gave it the power to jack up prices to clothing retailers. 

In the glasses and corrective lens market, one company holds 80% of the market; the world market. Most brands come from the one company; Luxottica. Monopoly.

Small town stores, family businesses that are part of the community, they've failed and closed as Wal-Mart steps in across the country.  Small towns have changed.  Is it for better?  Or worse?

The real issue with Wal-Mart is not that it sucks to live in a small town, it’s that the Walton family now controls more wealth than the bottom third of all Americans. One family with as much wealth as 100 million Americans. Now, who’s gonna get listened to when they show up on Capitol Hill? Or in the State House? Or the Town Hall? Is it Mrs. Smith? Or is it going to be the Walton family? (cross check 1, 2 3)

Rather than business and profit going to local folks who do the work, the profit runs away to corporate coffers in another state.  Or country.  Wealth is sucked from every locale by big business with no commitment or involvement in the well-being of the communities.  

The GAP widens from such practices.  What is the impact and what are the future implications of the money flow?

The only way for a small group of people to become obscenely rich is for huge masses of others to be kept quite poor.