The Breaking Point

by James Dale Davidson

  While feudalism was a system in which wealthier persons within the hierarchy of poor agricultural societies exercised disproportionate military power, gunpowder weapons empowered poor people within rich societies. (By implication, other things being equal, declining returns to scale in warfare now imply an eclipse in the power of the poor.) As suggested by William Playfair, gunpowder weapons spurred the development of commerce because only wealthy political entities could afford the costs of outfitting ever-larger military forces as the Gunpowder Revolution unfolded.

  Put simply, it was so costly to outfit a military force that it became prohibitive for lords, dukes, earls, and other proprietors in the medieval ruling class to remain militarily viable. Hence gunpowder became a propulsive force driving the consolidation of territorial states. As firearms became more effective, the scale of battle rose, and ever-larger armies were required to achieve military effectiveness. Giovanni Arrighi noted, “From about 1550 to about 1640, the number of soldiers mobilized by the great powers of Europe more than doubled, while from 1530 to 1630 the cost of putting each of the soldiers in the field increased on average by a factor of 5.”4

  The coevolution of larger political entities and more effective gunpowder weapons progressed through a number of stages in which different political-economic entities achieved predominance or hegemony.

  The Eclipse of Mass Society . . .

  It may seem a bit “crazy” to suggest that the megapolitical shifts that made Communism obsolete could also make US-style big government and big business capitalism obsolete. But think about it.

  In our analysis of the underlying megapolitics of the Information Age, Lord Rees Mogg and I saw that the microchip had decisively changed the character of the state of nature, reducing scale economies and thus altering the costs and rewards of projecting power. Microprocessing meant the eclipse of what Sir John Hicks, the Nobel Prize–winning economist, identified as the modern phase of fixed industrial capitalism in his 1969 book, A Theory of Economic History. As Hicks advised, we looked for clear reasons of why one state of society should give way to another.

  We saw that the industrial economy, based primarily upon the manipulation of raw materials at a large scale, was destined to give way to an information economy, based increasingly upon the digital manipulation of data at a micro scale. This necessitated a very different organizational structure than that embodied in the Soviet economy, and indeed, in Western industrial democracy.

  One-Size-Fits-All Mass Production

  The technological characteristics of enterprise compose an important megapolitical variable. The era of one-size-fits-all mass production found its most extreme expression in the Soviet Union, as we have seen, but it was only a matter of degree. Stalin borrowed his industrial production model from Henry Ford in Detroit. Big business capitalism and the Communist “worker’s paradise” in the Soviet Union had the same megapolitical foundation. Economies of scale in mass production were so great that products, like automobiles or tractors, were built in enterprises employing thousands or even one hundred thousand or more people.

  During the agricultural era, the fixed supply of land implied declining returns to scale in the absence of new technology. Hence real incomes per capita grew very slowly or not at all. From the year AD 1000, most economic growth was absorbed by a fourfold growth of population. Only after the Industrial Revolution, beginning in England in the final quarter of the eighteenth century, did per capita real income and life expectancy surge.

  After long centuries in which power was organized in hegemonies of ever-greater scale organized by nation-states, megapolitical conditions now point to the devolution of power to a smaller scale. During the Industrial Age, especially during the most recent phase of US hegemony, you needed a big government to protect the large, vulnerable capital installations where mass production was geared to mass consumption in a one-size-fits-all mold. Remember Henry Ford’s Model T, which you could choose in any color—so long as it was black.

  Big Government and Big Business Capitalism

  The heavy fixed investment required to build an industrial facility of mass production made the enterprise a sitting duck, vulnerable to shakedowns both by the government and by labor unions. You could not easily pick up and move a factory to another jurisdiction with lower taxes or more amenable labor laws once the installation was built. Big business capitalism went hand-in-hand with big government.

  Consider Ford Motor Company’s River Rouge Complex. The largest integrated factory in the world, it took 11 years to construct, measuring 1.5 miles wide by 1 mile long, with 93 buildings encompassing nearly 16,000,000 square feet of factory space. It had its own docks and, Ford Motor Company bragged, steel furnaces, coke ovens, rolling mills, glass furnaces and plate-glass rollers. Buildings included a tire-making plant, stamping plant, engine casting plant, frame and assembly plant, transmission plant, radiator plant, tool and die plant, and, at one time, even a paper mill. A massive power plant produced enough electricity to light a city the size of nearby Detroit, and a soybean conversion plant turned soybeans into plastic auto parts. The Rouge had its own railroad with one hundred miles of track and sixteen locomotives.

  Mass Production: An Alternative to Free Market Capitalism?

  It is scarcely an exaggeration to say that Henry Ford’s River Rouge Complex made Stalin and Hitler drool. Economic historian Stefan Link reports that, at the behest of the Supreme Economic Council of the Soviet Union, a commission headed by Stepan Dybets set up shop at Ford Motor Company in the summer of 1929.5 At Stalin’s request, the Soviets later contracted with Ford to build a version of the River Rouge Complex at Gorky, to build tractors and automobiles for the Soviet Union. Hitler sent Ferdinand Porsche as his emissary to Detroit to borrow Ford’s River Rouge program of mass production to make an affordable, mass-produced “people’s car,” or Volkswagen. Link emphasizes that totalitarian leaders considered Ford’s system of mass production an alternative to free market capitalism—what the Communists and the Nazis both called “decadent Anglo-Saxon capitalism.” Ford’s mass production was an illiberal panacea for their projects of state-led economic growth.

  During the 1930s, more than 100,000 workers were employed at River Rouge. Needless to say, the staggering sunk cost of the investment in the River Rouge Complex—billions in today’s dollars—meant not only that the plant could not easily be moved to a more competitive location, protecting property rights at a lower cost in taxation, but also that its owners could ill afford for it to sit idle. The Ford family could make money when the River Rouge Complex was cranking out a new car every forty-nine seconds. But they could not make money when the output of the factory was forcibly stopped by a labor union strike. Therefore, they had a strong incentive to avoid or settle any strike that threatened to close the facility, even if that meant agreeing to pay wages that were higher than would have been justified in a free market by the skills of the workers.

  “Marx in Detroit”

  There is a reason that American factory workers became history’s best-paid unskilled labor in the middle of the last century. The unprecedented scale of enterprise, involving vast amounts of fixed investment, gave them an unparalleled leverage to sabotage the profits of their employers. In essence, they used organized force to seize some of their employers’ property right to their facilities, extracting higher wages by denying the employers the option to hire anyone else at a market-clearing wage. The employers acceded to the shakedowns by granting wages for unskilled work that were six to seven times higher in real terms than those paid by today’s largest US employer, Wal-Mart.

  With this in mind, it is perhaps not as surprising as it might at first seem that Marxist philosopher Mario Tronti placed the true epicenter of worldwide class struggle in the United States during the era of big-business, mass-production capitalism. In his 1968 essay “Marx in Detroit,” Tronti nods approvingly at labor union shakedowns in the United States, pointing out that if the success of class struggle is
measured by how much has been gained, that its most advanced model is that of workers in the mass production industries of mid-century United States. Tronti exulted in the fact that in 1946 there were 4,985 strikes involving 4,600,000 workers out of work—16.5 percent of the entire employed workforce.6

  Perhaps the signal triumph of the mid-twentieth-century class struggle was the “Treaty of Detroit,” between General Motors and the United Auto Workers union, concluded in 1948. As Harold Meyerson details in his article “The Forty-Year Slump,” GM agreed to grant its workers a sizable raise, a yearly cost-of-living adjustment matching the rate of inflation, and an “annual improvement factor” raising pay in tandem with the United States’ productivity, for a two-year no-strike pledge from the union.7

  That was at the outset of the Baby Boom in the middle of the previous century. Today, there is no prospect that 16.5 percent of the entire employed workforce could go on strike, as only 11.3 percent are union members. More to the point, a treaty in Detroit, now a “Disneyland of rest and ruin,” would lead nowhere. Decentralization of the technology of production gives decidedly less leverage to union shakedowns. Megapolitical conditions have changed.

  Notes

  1 Newport, Frank, “Congressional Approval Sinks to Record Low: Current Approval at 9%,” Gallup, November 12, 2013, http://www.gallup.com/poll/165809/congressional-approval-sinks-record-low.aspx.

  2 Utterstrom, Gustaf, “Climatic Fluctuations and Population Problems in Early Modern History,” The Scandinavian Economic History Review 3, no. 1 (1955).

  3 Playfair, William, An Inquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations (London: W. Marchant, 1805), 73.

  4 Arrighi, The Long Twentieth Century, new ed. (New York: Verso, 2010), 43.

  5 See Link, Stefan, “Transnational Fordism, Ford Motor Company, Nazi Germany, and the Soviet Union in the Interwar Years,” http://www.academia.edu/1591016/Introduction_to_Transnational_Fordism._Ford_Motor_Company_Nazi_Germany_and_the_Soviet_Union_in_the_Interwar_Years_.

  6 See https://webspace.utexas.edu/hcleaver/www/TrontiWorkersCapital.html.

  7 Meyerson, Harold, “The Forty-Year Slump,” The American Prospect, http://prospect.org/article/40-year-slump.

  Chapter Three

  The Political Economy of Plunder

  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.

  —Adam Smith, The Wealth of Nations

  As you will have guessed if you have read this far, I am by no means a partisan of income redistribution or the tired political agendas of the “proletariat.” Yet being somewhat mindful and alert to civic discourse, I could not help noticing that recent years have brought a revival of interest in the theories of Karl Marx. The New Yorker staff writer John Cassidy even hailed Marx as “the next big thinker” in his 1997 piece, “The Return of Karl Marx.”1 Why?

  This requires some explanation.

  I attribute the revival of interest in Marx mostly to bad branding. Capitalism needs the services of Kim Kardashian’s PR agent—but that isn’t happening any time soon. Notwithstanding having been around for a couple centuries longer than Kim Kardashian, capitalism has not generated the white heat glare of favorable attention that has been lavished on her well-oiled celebrity ass. (Google reports 1,230,000 entries on that topic; partly, this may be because it is a bit easier to recognize than capitalism.) After all those years on reality TV, people know Kim Kardashian when they see her. Not so with capitalism.

  In fact, capitalism suffers from recurring unpopularity mostly due to mistaken identity. As the world economy has stagnated and real income growth stalled in recent decades, many people misattribute the decline in their living standards to capitalism, rather than to corrupt and dysfunctional political systems that deform any semblance of “capitalism” wherever they find it. Deformed, or “crony,” capitalism is the universal expression of the political economy of plunder.

  I see three different types of corrupt political systems in action fleecing people today:

  1. The Total Kleptocracy, in which the political oligarchs essentially steal the whole wealth of society. This is seemingly the case in the African nation of Angola, ruled by the Popular Movement for the Liberation of Angola (PMLA), headed since 1979 by Jose Eduardo Dos Santos (whose current net worth is $3.7 billion, according to Forbes). Dos Santos came to power with backing from the Soviet Union at the vanguard of a Marxist revolution. The PMLA claimed to be a Marxist-Leninist party until 1991 when the Soviet Union collapsed, taking with it a handy source of cash for the ruling oligarchs. Now, a quarter of a century later, the aging revolutionaries have moved beyond Afro-Stalinism to embrace capitalism. Peter Lewis, a professor of African Studies at Johns Hopkins University’s School for Advanced International Studies, explains that Dos Santos and his inner circle have numerous business interests with murky sources of funds and corporate governance. As reported by David Smith in a 2012 Guardian article, Elias Isaac of the Open Society Initiative of Southern Africa put it more colorfully, saying that the president had created a system of “blood sucking” in which he was the “main vein,” and therefore, he could not be let go. In other words, they steal the money.2 Isabel Dos Santos, Dos Santos’s oldest daughter, has emerged as Africa’s richest woman and first female billionaire (worth $3 billion, according to Forbes). For more gaudy details of how a small cadre of Marxist revolutionaries turned “capitalists” stole outsized fortunes in an African country with a poor population and the highest infant mortality rate in the world—one in six Angolan children dies by age five—see Magnificent and Beggar Land: Angola since the Civil War by Oxford professor Ricardo Soares de Oliveira. The author reveals surprisingly frank admissions by PMLA officials about how they made money from a new industrial park, filled with obsolete factories—even before it began to operate.3

  2. The Quasi-Kleptocracy, as exemplified by Brazil, in which politicians steal money to enrich themselves, but corruption is more complicated. Part of it, perhaps a big part, is done on the political plunder model. Politicians auction off, or rather rent, government power to the highest bidders to generate campaign finance to keep themselves and their cronies in power. Brazil’s corruption is something of a hybrid between Kleptocracy, where political oligarchs use the powers of government to steal as much as possible for their own enrichment, and a Pimpocracy, as exemplified by the United States. You may have heard about the billions of dollars stolen from Brazilian oil giant Petrobras and allegedly funneled into the pockets of top Brazilian politicians, including the speakers of both the Brazilian Senate and Chamber of Deputies. Brazilian politicians, of course, have been hoping to confine this corruption scandal to the footnotes. But an astonishing number of Brazilians seem unwilling to sit still for it. On Sunday, March 15, 2015, an estimated 1.2 million Brazilians took to the streets of São Paulo in a demonstration demanding the impeachment of President Dilma Rousseff (who was duly impeached a year later). Perhaps for our benefit as outside observers, they obligingly marched behind banners that demanded in English: “Thieves! Bring back our money!” Fat chance. Remember, it was Brazilian president Getulio Vargas who proclaimed the boldest and most succinct statement of corporatist crony capitalism ever uttered: “For my friends anything—for my enemies, the law.”4

  3. The Pimpocracy, in which politicians essentially force taxpayers to give up assets or freedoms to the benefit of special interest groups or others. While Brazil provides a striking example of a Pimpocracy in action, Brazilians are amateurs compared to what goes apparently unnoticed in the United States. As I was mulling over the proper technical term to describe the American style of political plunder, I recalled a shrewd observation attributed to Donald J. Boudreaux, then chairman of the economics department of George Mason University, in 2009. As reported in Washington’s Blog, Boudreaux opined that politicians are not prostitutes but pimps, using other pe
ople’s property for their own gain.5 Pimps provide their clients with access to prostitutes’ assets, while politicians’ clients receive access to taxpayers’ assets. The pimps don’t actually render the services personally, nor do politicians, and they both pocket the majority of the profits.

  Professor Boudreaux’s preamble to Pimpocracy provides a useful introduction to a startling study that has been languishing in the footnotes of American life.

  The Sunlight Foundation—a nonpartisan watchdog group that tracks lobbyist spending and influence in both parties—reported on research it undertook between 2007 and 2012, tracking 200 of America’s most politically active corporations. After examining 14 million records—including data on campaign contributions, lobbying expenditures, and federal budget allocations and spending—they found that, on average, the United States’ most politically active corporations received $760 from the government for every dollar spent on influencing politics, for a total of $4.4 trillion (two-thirds of the $6.5 trillion that the federal treasury received from individual taxpayers). As the figure was rounded up slightly, that translates to a 75,900 percent rate of return. Compare that to the 0.25 percent Grandmother gets on her CDs.

  Recall our discussion from chapter 1 on the finding, from the Journal of Economic Growth, that the proliferation of US government regulation since 1949 has cost every man, woman, and child in the United States about $125,000 of annual income.