Attachment - Large Corporations

Corporations vs. Capitalism

One of the great over-generalizations in economic discussion is to assume that all large firms are corporations or that one form of ownership is bad, while others are good, Capitalism can occur in large and small firms, in corporations, partnerships and sole proprietorships. Use of the term “corporations” is a way not to be seen as a Marxist and a Russian sympathizer. What we used to call big businesses are now referred to as corporations.

The rise of Putin shows that capitalist authoritarianism can take many forms, from state capitalism to oligarchs. In the United States, the old Soviet Union and modern (?) Russia, the form of organization of a firm has no bearing on its true nature. The only difference in recent times is that a modern Republican President brought sympathy with Russian authoritarianism, and its methods, to the White House.

The term capitalism is widely misused. Many conflate it with free markets. They are not the same thing. The key feature of capitalism is the exploitation of workers, consumers, suppliers and (in corporations) shareholders. The key feature of that exploitation is not size, it is the withholding of information. Entrepreneurs, whether they are in the C Suite, Trump Tower or the back office is the ability to monopolize information. 

In the information age, firms like Wal-Mart and McDonald’s track product preferences at the transaction level. They leverage their information to give the people what they want and their relationships to do this at the lowest possible price. Lower prices bring in customers. Like gerrymandering, where politicians pick their voters, information age firms pick their customers.

Firms can become monopolies for many reasons. For some, it is because they have control of an invention or production process. If they don’t control something, they use their resources to buy off the competition. This ability dampens innovation, which sets the purpose of the patent and trademark power in the Constitution on its head. The other way monopolies and oligopolies exist is in control over suppliers and of the workforce.

Perfect competition requires everyone knowing everything. Such competition is rare in real life. Imperfect competition exists in both selling (monopoly) and buying (monopsony).  These forms range from total Monopoly and Monopsony to Oligopoly and Oligopsony to Monopolistic and Monopsonistic Competition. The less imperfect forms, where there is a degree of branding but a freer market is what defenders of capitalism like to assume. Big business gives us more monopoly and less competition.

Labor markets

On the labor side, monopsonistic competition means lower prices and the ability of workers to move from one employer to another to demand better pay, working conditions and management, or to find another job where a fresh start can be made – that is, that some kind of permanent record does not follow the employee around. The perception that there is such a record is used to keep some employees in line. 

In monopsonistic and oligopolistic labor markets, such a record does exist, especially on those who attempt to organize their fellow workers into the union movement. With the rise of internet background services, including their use by larger employers, the concept of a permanent record is becoming more real than dystopian fiction. 

There are two ways in which big business fight unionization. One is that they threaten to and go through with closing stores rather than letting workers organize at their store. Their actions on the supply side are equally harsh. Unionized suppliers are simply not used when possible, with foreign governments, from China to Latin America, doing the dirty work to dissuade union organizing, from blacklisting to actual violence.

The other method is franchising. By treating local operations as franchisees, no store is big enough to unionize. These firms earn the label “small business” in government statistics, even when they must abide by corporate rules, from personnel to suppliers. Franchisees often complain, in response to minimum wage hikes, that they will earn less than their employees if the wage hike is passed. More about that below. Franchisees are often sole proprietorships, not corporations. We cannot continue to demonize corporations when small businesses share the sins of capitalism.

Government, by not enforcing labor laws, has become part of the problem – both in not enforcing fair pay and in dropping the ball in helping workers organize.

Undocumented workers

Opposition to reform provides a supply of undocumented labor forces immigrants into the shadows of the low wage world as well. Undocumented workers do not unionize. Right to work laws are, in fact, right to employ undocumented labor laws. 

This is a one-two punch at undocumented workers. The demand for undocumented workers would dry up if they were allowed to unionize and did not face deportation for doing so. Union power would drive wages up, with or without a decent minimum wage. The presence of these workers keeps wages low for domestic workers, which causes friction between poorer American workers and immigrants. 

Perverse incentives

Studies have shown that paying workers more is an incentive toward self-betterment. The theory that low wages and benefits lead to the desire to pull one up by one’s bootstraps is a canard. The reality is that keeping people in poverty is an excuse to create and maintain a ready supply of low wage workers. 

This is also the rationale for keeping the child tax credit low. A higher credit, preferably one distributed with pay, would help workers to get out of poverty, lower the abortion rate and leave the low wage market.

Solutions

The ultimate cure for low-wage work and the need for government programs to make it possible is employee-ownership. The only way for workers to know their productive output is to own the company. Ideally, this does more to provide competition for wages, especially management wages, than any form of capitalism – be it corporate, sole proprietor or governmental. 

Tax reform is a way to advance ownership and shift government services to employee-owners. Introduction of subtraction and asset value added taxes can make this work, especially when all sales to qualified ESOPs and COOPs are zero rated.