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Business versus Government: Historical Perspectives

Epic events in world history focus on conflicts between representatives of different civilizations. A power struggle takes place between institutions embodying different functions within society. In western Europe a thousand years ago, the struggle was between government and religion. Royal governments demanded the right to invest (appoint) local clergy. The church fought back by excommunicating monarchs who opposed its will. Such monarchs would be denied Christian sacraments and therefore entrance to Heaven. A poignant moment occurred in 1076 A.D. when the Holy Roman Emperor, Henry IV, stood barefoot in the snow for three days before Pope Gregory VII granted him absolution from excommunication. In those days, business was not yet a fully organized sector within society. Religion and government were the two centers of power.

Business was an activity focused on the market place. As merchants bought and sold merchandise, wealth accumulated throughout the realm. Parliaments were organized to help the monarch collect taxes. Its members testified to the tax-producing capacity of areas which they represented. This branch of government grew in power. The Puritan revolution of the mid 17th century and the American and French revolutions of the late 18th century deposed the king in favor of parliamentary government. It was the culminating act of a new civilization.

Where the king had derived his authority from God, the authority of parliament rested upon popular elections. The democratic method of selecting a ruler reflects mechanisms of the marketplace. The outcome - election to a position in government - is the result of a contest between competing candidates supported by voters who exercise their individual judgment. In a like manner, free markets allow individuals to determine prices and quantities of commercial products by their separate decisions to buy or sell. Money and votes are the media through which important decisions are made in the third civilization.

In the United States, the politics of the new democratic republic took the form of a struggle between rich merchants, traders, and bankers on the east coast and farmers and workers who were settling the western territories. President Andrew Jackson's decision not to recharter the national bank brought this politics into sharp focus. During the period of "Jacksonian democracy", labor unions arose as working people organized around the struggle for a shorter working day. In the 1880s, labor's campaign for the 8-hour day gave rise to the international holiday known as May Day. Labor unions were organized at the level of the business firm to bargain with employers. Also, a labor-friendly political movement appeared in the form of international socialism (or communism).

Socialist politics represented an extreme tipping of the political scales against business. Government used its monopoly of force to expropriate private property and put it into collective hands. Government took over the ownership and management of business often without compensating the previous owners. Worse yet, the communists used physical violence against property owners as when Stalin liquidated the kulaks of Russia and the Ukraine. In the power struggle between private businesses and government, socialism put the balance of power completely in favor of government.

As we know, the socialist regime known as the Soviet Union became an ideological rival to nations which had capitalistic economies and a democratic form of government. In the latter nations, some balance was maintained between business and government. The Soviet bloc engaged in a costly arms race with the western democracies which eventually led to the downfall of the Soviet Union. President Reagan shrewdly pushed that nation into bankruptcy by its need to respond to his "Star Wars" initiative. Communist society was also showing internal strains, both economic and moral. The totalitarian government which resulted from destruction of the rival commercial and religious power centers practiced brutal acts against its own people. Today this form of government is largely discredited.

With the fall of the Soviet Union and other communist governments in the late 1980s, the United States became the world's only military superpower. Our nation came to dominate the world politically, culturally, and economically. In the power struggle between business and government, the pendulum now swung the other way. The communist menace was defeated. Organized labor also went into political decline.

I attribute this decline, in part, to the fact that labor abandoned the struggle to reduce work hours. That had been its mission in a time when the unions were built. Those battles won, union members saw the overtime provision as an opportunity to earn more money than a deterrent to scheduling long hours of work. Also, labor hopped aboard the Civil Rights movement, the women's movement, and the immigrant-rights movement, casting a blind eye on the weakening of the solidarity principle upon which its strength had been based. A defining moment occurred when President Reagan, himself a former union president, fired the striking air-traffic controllers and broke their union.

At the same time, business began to squeeze government for favors. Changes in election law allowed business to form political-action committees, undoing a previous rule that corporations could not contribute to political candidates. Business lobbyists, as well as lobbyists from other interest groups, swarmed Washington and the fifty state capitols seeking an advantage for their clients. Public office was linked with this type of influence-peddling job in a revolving door. Business influence increased with the increasing amount of money donated to political candidates and the thick presence of lobbyists. Elected officials were forced to solicit campaign contributions to keep up with the escalating cost of elections. They were begging for someone to buy them. And buyers were not hard to find.

It used to be that the news media would communicate information about government activities free of charge as part of their news coverage. As journalists have inserted themselves as gatekeepers into the news process, political candidates have been forced to communicate with their constituents through paid advertising. The high cost of television commercials explains why political campaigns have become so expensive and why, consequently, moneyed interests have gained such influence over government. The television broadcasters are using a public resource free of charge. The private companies which control the broadcasting industry have, in effect, exercised "squatters' rights" to monopolize certain broadcast frequencies. They are now making political candidates pay to communicate with the voters in election campaigns.

Yet, elected officials are afraid to challenge this arrangement for fear of offending the powerful broadcast industry. Newspaper reporters increasingly cover political campaigns from the standpoint of how much money is raised or what television commercials have been run, suggesting that only the best-financed candidates can win elections and therefore interest their readers. So, this corrupt relationship between journalism and moneyed interests feeds on itself. Business, which has the most money to spend on advertising, necessarily gains the upper hand in political affairs.

Organized labor, the main political counterweight to business, has gained an entrenched interest in certain business firms. Over the years, union members have gained in wages and benefits to the point that labor costs in unionized firms are out of line with costs elsewhere. Meanwhile, business has steadily invested in labor-saving technologies, allowing its operations to be handled by a smaller complement of workers. Proportionately fewer workers are employed in the more highly paid union shops. As a result, the labor movement is no longer seen as a idealistic effort to upgrade the condition of working people generally. Instead, the public increasingly regards unions as a selfish enterprise designed to allow a shrinking group of overpaid workers to retain their privilege. The political influence of labor has declined accordingly.

Business managers are eager to cut costs and remain competitive. Because top managers would risk losing their jobs if they resisted union demands and a costly strike ensued, they look for alternative ways to achieve the same end more smoothly. One way is to make investments in capital equipment by which a smaller number of employees can handle the production. Another is to work employees for longer hours. A third way is to close down operations where unions have become entrenched and outsource production to facilities with lower costs. These could be nonunion shops in a part of the country where labor is weaker or plants in low-wage countries abroad.

The ideology of "free trade" took hold during the Reagan administration. A free-trade pact was first concluded with Canada. Then, under the first President Bush, it was extended to Mexico. President Clinton arm-twisted the U.S. Congress to approve the North American Free-Trade Agreement (NAFTA). Where the U.S.-Canada pact had given Canadian businesses access to lower-cost production in the United States, NAFTA gave U.S. and Canadian business access to cheap Mexican labor. The free-trade principle has since been extended to commercial relations with other countries. Essentially, national governments have agreed to reduce tariffs and non-tariff trade barriers to the lowest possible level in their trade with each other. The term "trade" may be a misnomer. The idea is to let multinational businesses shift production to low-wage countries and export the production with minimal restrictions back to the high-wage countries where it will be sold. It's a device to bypass high-priced union labor.

The doctrine of free trade, enjoying strong bipartisan support, has organized labor on the run. American consumers appreciate the low-cost imported goods that they can buy at Wal-Mart. "Buy American" has less appeal if it means supporting angry people who strike for higher pay while making more money than the average consumer. On the other hand, as production outsourcing is applied to more functions in the economy, people are starting to realize that their jobs, too, could be eliminated. It has been a shock to realize that well-educated but less well-paid Indians, who speak good English, are taking many of clerical, technical, and professional jobs once handled by Americans. No job is safe from outsourcing.

Meanwhile, Wall Street fund managers and stock analysts are relentlessly demanding higher profit margins from business firms. Hungry CEO's need to be paid. Financial managers require their fees. It's the people down the corporate ladder who pay for this, either in reduced pay and benefits, increased work pressures, or loss of employment. Wages are flat. A smaller percentage of private firms offer paid vacations, health insurance, or pensions. Work hours are increasing. Job security is nonexistent. The health-care system has reached a state of crisis. "Affordable housing" for working Americans has become an important political issue not because there are not enough homes but because people cannot afford them on their current salaries.

What we have, then, is a kind of business totalitarianism, milder perhaps than the political totalitarianism of the 1930s but totalitarian nonetheless. Any extreme swing of the pendulum creates a dangerous situation. Only a reasonable balance of power between business, government, and other institutions within the society will provide safe conditions for people. That's why government must become stronger in relation to business. Organized labor must also become stronger by becoming less selfish. Such things are possible if a political consensus can be formed which is based in a vision of a better society. With such a consensus, government can bring its superior power to bear upon the problems created by business overreaching; for government has the power of the gun.

The preferred strategy would be to use this power sparingly. Build flexibility into government regulation. Use taxation policy and financial penalties to encourage certain behavior without requiring it. The overtime-penalty provision of the Fair Labor Standards Act provides a model of such regulation. Hours worked beyond the standard number of weekly hours are not forbidden but financially discouraged. Likewise, tariffs on imported goods place a financial burden on production outside the country but do not legally forbid it.

Business has the power to make decisions about where to locate its facilities and the jobs that go with them. This power has been used to wrest financial concessions from government. Government, however, has the power to penalize or restrict access to markets within its jurisdiction. National governments should use that power to control business firms which ignore social and environmental needs to increase profits. To increase the share of national wealth for working people would pump new money into the consumer market. In that kind of power struggle, the long-term interests of business are served. No one needs stand barefoot in the snow.

I suggest that the maxim, "that government governs best which governs least", should be targeted to the monetary and fiscal policies of government. Government should cut business subsidies to the bone. It needs to purchase fewer goods and services. It needs to stay out of wars. Government should forgo direct spending and return to basic regulation. Its regulations should be disinterested and uniform. Politicians in a position to do special favors for contractors, taxpayers, or anyone else should work themselves out of a job. Let our laws, once set, go on automatic pilot. Shrink the discretionary powers invested in public officials so that private interest groups will find it less rewarding to contribute to political campaigns. Forget the policies of Lord Keynes.

In the years ahead, the federal government's huge debts and its immense trust-fund deficits will force governmental operations to contract. Also, the earth's finite natural resources cannot sustain present modes of economic activity. No longer able to "grow" our way out of economic problems, we will need to develop a strategy for dealing with that situation. What positive scenario which can be imagined in those circumstances?

If past history is any indication, our future society will be one where economic activity, after self-destructive convulsions, shrinks down to a stable arrangement. Those kinds of activity which require fewer material resources will set the pace of creative change. A society of more general leisure represents my best guess of how humanity can prosper in the years ahead. Given sufficient (but not abundant) material resources, individuals would have freedom to shape their own lives. This vision of personal opportunity should extend to everyone.

In theory, the people control the government. Shareholders control the management of corporations. In practice, those arrangements don't work because the ownership interest is hopelessly divided. Yes, the people could dictate their wishes to government if they were of one mind. Yes, shareholders banding together could tell corporate management how to run the company. But, in fact, the hirelings rule the roost. The shareholders of any large corporation, being numerous and diverse, must defer to the paid managers in making decisions for the company. The managers will, of course, reward themselves to the extent that they can. Likewise, those lower-ranking employees who have organized themselves into a union take advantage of incumbency in a job to squeeze what they can from the corporation. This has little to do with decisions of the free market. It's tenancy in a position of trust.

Henry Ford once said that each private fortune was really a public trust. Socialism may have erred in letting government assume direct control of productive enterprise, but, where the managers and operators of this enterprise fail to serve the public, government has a right to step in to correct the situation. Certainly government has the power. The solution lies, first, in gaining government power and making it amenable to those ends; and, then, in establishing a workable arrangement to benefit the world's people and the earth itself.

(adapted from On the Ballot in Louisiana by William McGaughey)

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