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Sunday, January 11, 2009

Feeding the Market with Sausage-Grinder Politics

 Feeding the Market with Sausage-Grinder Politics
Image © Austin Cline
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Even if brilliantly successful, it won't be sufficient for the American government to merely find ways to limit the economic damage and length of the current recession. What America needs just as much are ways to prevent similar problems from developing in the future. I don't think that we can do anything to guarantee that there won't ever be any economic downturns or problems again, but we can identify some of the chief causes of our problems this time so we can take decisive steps to put an end to them at least.

Of course there's no magic bullet — no single policy, regulation, or institution which will do the job. The problems have been diverse, so we'll need diverse tactics to address them. However, there does seem to be a common theme to the problems: stated rather broadly, there has been systemic failures due to a lack strong counterweights to the activities and policies of American financial and corporate institutions.

There are many different ways to have counterweights to some institution, but it helps to think about how they are built into the structure of the American government — people know them as "checks and balances." Most people, or at least those who aren't authoritarians, recognize how important checks and balances can be because they prevent any one branch or part of the government from getting too powerful at the expense of other branches or of the people themselves.

The authors of the Constitution knew that you can't make people morally perfect, so they tried what might be the next best thing: to harness people's less virtuous impulses in the service of virtue. They hoped, for example, that human inclinations towards territoriality and preserving personal power would lead government employees and representatives to resist the efforts of outside institutions to encroach on their turf. Thus one branch, institution, or person would be prevented from amassing too much power, not by people behaving virtuously and selflessly, but rather by people looking out for their own self-interests — and you can always count of people to be zealous in the preservation of their self-interests.

This hasn't always gone according to plan, but for the most part it seems to have worked reasonably well. What about America's financial markets, financial institutions, and large corporations? Where are the checks and balances which would serve to keep them from running amok with undeserved power? There really aren't any. Even in sectors where there is vigorous market competition, that doesn't really serve as a check or balance because competing firms may have more reasons to work together for the sake of common interests (like reducing regulation and oversight) than they do to fight one another.

So what kinds of counterweights should we employ in financial markets and with big corporations? One clear option is government regulation. Government institutions aren't part of the same industry or market so shouldn't be tempted to pursue common interests ahead of the public good. This is undermined, though, when people are allowed to move back and forth between industry and regulatory agencies. A person who understands what they are in charge of regulating is important, but not at the expense of the agency being truly independent of that industry. The regulations should be pursued primarily by career civil servants whose personal interests lie outside the interests of the industry they are regulating.

We can't lay everything at the feet of government, so where else can we find potential checks and balances? Private firms themselves can't provide what we need, but there are other organizational tools available to the public besides the government: activist groups and unions. The activist groups may end having the least impact; they are potentially valuable when it comes to educating the public about what an industry or corporation is doing, but their lack of financial power ensures that they will only rarely have enough of an effect to cause changes to happen.

This leaves us with unions. Some of a union's interests are aligned with the industry or corporation they are associated with — neither wants to see either collapse, for example. However, they also have many competing interests, and neither should always get their way because neither is so virtuous as to merit our trust that they won't screw up. It's in the give-and-take between powerful unions and large corporations where a sensible middle ground might be found.

Unfortunately, unions in America have been so weakened that they aren't powerful enough anymore to challenge the corporations in the manner they should. The "middle ground" which they are likely to reach currently will be far too close to the company's interests and too far away from the workers' interests. This is why the government must strengthen unions — both in the specifics of helping unions organize and in the broader matter of promoting the value of unions generally.

People need to understand how powerful unions can create some of the needed checks and balances against powerful corporations which, when exercising unchecked power, end up causing grave damage to the economy, to society, and to the public's well being. People need to understand that unions are another means by which they can organize and act democratically, exercising their will and their interests in the workplace just as they already (supposedly) value doing with their government.

You will, of course, consistently find conservatives arguing against all of this. Many deny that corporations and markets require any sort of checks and balances aside from the "invisible hand," even when that hand is gripping people's throats and threatening to choke the life out of them. If they are consistent authoritarians who approve of more power invested with fewer people, they will probably object to the traditional checks and balances in the American government was well, not to mention the idea that the people should be able to exercise direct, democratic control over the actions of either political leaders or corporations (say, through unions).

Their "solution" to our current economic problems seems to be that we sacrifice ourselves to the preservation of their idea of what market capitalism should look like. The faults, of course, can't lie in the market or in their vision of capitalism, and certainly not in capitalist leaders themselves. No, it must be the fault of We the People somehow, so no matter how deep the cuts or sacrifices have to be, we're only getting what we deserve. And besides, everyone knows that financial success or failure is merely an outward sign of God's favor or disfavor, so we certainly shouldn't have the government interfering with God's plans by trying to "spread the wealth."

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