Jonathan Tepper (with Denise Hearn) has written a timely polemic describing how capitalism as a wealth creating economic engine has been subverted by corporate chieftains and monopolists using whatever political, social, and economic leverage they can find to minimize competition from business rivals, or to eliminate competition wherever they can. This is an old story, and Mr. Tepper's retelling of it is well done. The book is titled "The Myth of Capitalism; Monopolies and the Death of Competition. Mr. Tapper is not an academic, although the book jacket states that he is a former Road scholar, and that he worked as a hedge fund analyst and trader. Mr. Tepper is founder of Variant Perception, a macroeconomic research group, a global macroeconomic research and investment strategy firm whose clientele includes hedge funds, banks and family offices. His co-author, Denise Hearn, is head of business development and Variant Perception. On the face of it, Mr. Tapper and Ms. Hearn are savvy business people who, to all appearances, appear to know what they are talking about. They are basically telling us that since the Reagan administration, corporate business practices have become markedly less competitive through mergers and acquisitions, manipulation of regulatory programs, political lobbying to get legislators and government agencies to look the other way in the face of shady business practices, and with the end result that inequalities of wealth and the political power that wealth buys, have done lasting damage to the American economy, and by extension, the American political system and society itself.
There are literally dozens of books floating the marketplace written by business people with a story to tell or an ax to grind, all of which are seeking our attention, our trust, and with the hope that either individually, or collectively, they will have a positive impact on the way we conduct business. I would guess that Mr. Tepper's and Ms. Hearn's target audience are business leaders and so-called 'influencers' in the corporate and business worlds.
What attracted me to this book, and which prompted me to want to pay attention to what the authors have to say, was actually their publisher, John Wiley & Sons, whose numerous books on law practice found their way onto my professional bookshelves during the 45 years I was actively practicing law. Other than what I read from the information about the authors at the tail end of the book and promotional material on the dust cover, I know next to nothing about them; but, that said, I do have a great deal of confidence in the Wiley imprimatur.
The authors make a provable case that the economic system that we live under is not capitalism, but oligopoly; and they also make the case that the cure for whatever ails the American economy can be found in fostering and enforcing competition by vigorous prosecution of the antitrust laws; prohibiting (and prosecuting) predatory pricing and other unfair trade practices, and subjecting tech giants like Amazon and social media to the rules we commonly apply to common carriers and public utilities, because that is what they actually are.
The authors make a good case that monopolies, and those that behave like monopolies, i.e., markets in which there are may be fewer than five dominant players either selling goods and services, or purchasing goods and services (monopsolies), where the sheer agglomeration of economic wealth and power deprive the market itself of any meaningful competitive character. They conclude, and I would certainly agree, that concentrations of such economic power are inherently illegitimate, and harmful to everyone else concerned.
Each chapter of this book concludes with a series of short statements that summarize the basic ideas that the economic events discussed in that chapter is meant to convey. It would be as if those bullet points were essay examination questions in a college-level course in macroeconomics with a focus on the negative underside of the American political-economic system as objects for future reform. The sum total of what the authors have to say is that the American economy is being sucked dry by wrongheaded policies that put the interests of corporations first, and those of the American people last. And the evidence is everywhere you look.
By implication, the authors contend that Milton Friedman and the Chicago School of economists get it wrong with their dogmatic assertion of shareholder value as the single most important feature of our economic system. On this score, I think they get it right, because business corporations are not creatures of a capitalist economic system; i.e., capitalism can be practiced by anyone, natural born or in association with others, without the necessity of a fictitious entity that exists in law, but not in Nature, called a 'corporation'. In other words, it is the law, not the nature of the enterprise, that is the force multiplier in business. As individuals, business tycoons can be wealthy during their lifetimes, but that ceases when death occurs, and that happens to all of us. It certainly impairs business relationships that may extend beyond the life of single individuals. Partnerships, joint ventures, stock corporations and business trusts are ways in which the lives of individuals become unnecessary to the conduct of business affairs. And thus, business corporations ought to be subject to social controls because they are created by legislatures who are elected to set policy for the entire body politic, not simply businessmen and their investors. Economic efficiency may be a highly sought after value, but it is not the only one. I think Mr. Tepper and Ms. Hearn would agree that outside of government itself, there are very, very few social institutions that are as cohesive and well-organized as business corporations; and that imbalance has done great harm to us all by giving businessmen undeserved leverage over our economic life and political life as a society. Corporations, and the activities that they generate, are scalable, whereas other natural things are not simply by virtue of the way in which things tend to fall apart the larger they become.
That aside, the recommendations that the authors make are intended to make business entities less able to abuse their inherent economic power. Tepper and Hearn focus on the business end of creating wealth with the idea of leveling the playing field for all of those who choose to partake in economic activity. Needless to say, there recommendations leave out many other considerations. One of the principal considerations that gets left out is the so-called 'Commons', that which belongs to all of us in common, and remains undivided because it is held in common. Several states of our national Union style themselves as 'Commonwealths', specifically Massachusetts, Virginia, and Pennsylvania. That we on much in common we inherited largely from our English forebears who understood that human society holds much in common that cannot be monetized directly by each of us were members of that society. I think that the Friedmanites tend to forget that, so focus as they are on shareholder value and the duty a corporation owes to those shareholders. Those shareholders did not create the corporations in which they claim to have value invested; the state created the mechanism whereby a fictitious entity called a corporation allowed those shareholders to place their money and hopes of future wealth, something in which those shareholders may claim an ownership equity interest, but whose control is vested in others.
Our political system was specifically designed to avoid the evil effects of monarchy and its feudal heritage in which King and Church conspired against the people's ability to improve their lives through their own productivity and efforts. The Hamiltonian view of the Republic that the Founders intended to create was that the Government would support the advancement of commerce, and of the sciences, but to do so in a way that would not allow those institutional interests to usurp political power. Hamilton and his brethren were no fools; but their collective life experiences, however broadly-experienced and well-educated they might have been, could not have included an ability to imagine a situation in which business corporations would be able to usurp political power to the extent that they have done so from the post-Civil War era to the modern day, all in the name of economic efficiency, based upon the naivete and self-interest of economic philosophers, most of whom were mathematicians. As theoreticians and advocates, they had no understanding that a theoretical model that works well in the short run, using hypothetical examples at the lower levels of scalability implicitly includes hidden force multipliers that we have seen to have serious and uncontrollable adverse consequences when allowed to operate at their logical conclusions. Nowadays, we see these phenomena as the products of so-called 'power laws' having effects such as we saw at the time of the 2008 economic meltdown that nearly destroyed the American economy, and indeed, economies worldwide. That these economic innovations over the past century have been celebrated as being more 'efficient' has sufficiently come to mean that when economic conditions go south, they do so much more rapidly and with less ability to fend off disaster than their proponents could ever imagine. This is the effect of a nuclear reactor going critical with catastrophic consequences.
That they did so willingly, albeit with some dispute amongst themselves over whether the Jeffersonian imagery of the independent yeoman farmer should be the centerpiece of the American political system, and with no ability to even guess at how the Industrial Revolution just then beginning would work itself out. Their common sense reasoning gave them a firm grounding at the beginning of their venture into the political future of our country, and their emphasis on the short-term fixes for the problems they saw could not imagine the future problems those measures would create down the road. Given the bounded rationality of the human mind, were we to do this today, we might come up with different answers as to how to control the economic dynamo that is capitalism. But Alexander Hamilton and his cohort would certainly understand the resistance that unaccountable wealth-backed economic interests would used to protect themselves. And, as we have discovered, economic tyranny can be as brutal and oppressive as absolute monarchy.
Regrettably, Mr. Tepper and Ms. Hearn make no mention of corporate influence in political affairs other than to mention (in considerable detail) corporate efforts at lobbying Congress and the executive branch in regulatory matters that affect competition. In this respect, their failure to discuss the effects of the Citizens United case decided by the Supreme Court is an omission of monumental proportions, because in the competition for ideas, the loudest voice in the public square is able to drown out all other competitors. Corporate wealth coupled with social media is the decisive political problem of our time, where disinformation and outright fabrication are the weapons of choice. Where money and access are force multipliers, there needs to be away of protecting the public square from overuse and abuse by those who have both the intent and the resources to drown out all other messages. This is the message of mass dictatorships that occurred during the 20th century, where propaganda was monopolized by the state for its own purposes.
Back when I was younger, and when broadcast bandwidth was limited, use of the airways for political purposes was had been by the so-called "equal time" rule that required broadcasters to provide equal amounts of time for competing political messages. That had the effect of limiting the amount of time the most wealthy and well-connected advocates could obtain for their political messages to the electorate. Back then too, there were no social media to target and influence potential voters by bombarding them with unending streams of political advertising and messages intended to influence their political views and votes. Sensory overload has had a deleterious and highly divisive effect on our politics, and our ability to hear and understand what others have to say. That should have been afforded a few pages of discussion and analysis in this book.
The American state was intended to be representative, albeit in different ways, and hosting different constituencies depending upon the offices and interests to be represented, but always in the name of the people. At bottom, the people of the United States were supposed to be in control ultimately Infecting that political system with the idea that imaginary voters in the form corporations, because they exist in the contemplation the law only, was not with the Constitution was intended to create. From the very beginning, only natural born individuals acting in their capacity as citizens were afforded the right to vote, even as the franchise was restricted to property holders; but inanimate property itself had no vote. The idea that a single man could incorporate himself, and transfer his property to that imagined entity, reserving to himself the right to control the corporation for his personal benefit, would have been seen as an absurdity bordering on madness. Nonetheless, in today's business world, that is what businessmen do to insulate themselves from personal liability arising from the conduct of their business.
There is a move afoot that would effectively give business corporations and others that exist only in the contemplation of the law the same political rights as individuals, including the right to vote. The idea is not entirely new. A century ago, in England, a man owning a business in one election district, while residing in another, have the right to vote in both the district in which he resided and in which he maintained his business. That has since been changed; but the idea of a multiplicity of voting opportunities based upon localized business interests has not gone away.
In matters of corporate governance, votes are counted on the basis of the number of shares voted in favor or against management's wishes; whereas, in the political world, it is still 'one person, one vote'. In contrast with corporations, we do not permit weighted voting based upon the wealth of the voter, i.e., the number of shares a voter as personal shareholder may have. In the political sphere voters are stakeholders, not shareholders, meaning that voters have a political interest in the outcome of any election on a wide range of issues not restricted to the health of a business corporation or the prerogatives of that corporation's management. Individual voters acting in their capacity as citizens of a state, district, county, or community have no direct pecuniary interest in the outcome of a political election. Corporations are excluded from voting because they are persons in the eyes of the law only, and only because by judicial decision, corporations and unincorporated associations are now treated as juridical entities for purposes of litigation and other matters of law. Political entities as subdivisions of the state in which they exist have no general right to vote; such votes as they may cast in an election are permissible only where the state legislature has provided a mechanism for voting on particular issues, and within the carefully circumscribed provisions of the state enabling statute in matters affecting those incorporated entities specifically.
Back before 1913, when members of the United States Senate were appointed by the respective state legislatures of the states they represented, the states themselves were the voters representing their local constituents, not the citizens of those states directly. With the adoption of the 17th Amendment, proposed by Congress in 1912 and declared to be ratified by 36 of the van 48 states of the Union on May 31, 1913, Senators became popularly elected to the same extent as members of the House of Representatives. With that, the philosophical construct of a state legislature representing a governmental branch of a state under the Constitution was officially abandoned. However, the idea that business, economic, and social groups of citizens could use their financial material resources to achieve the same objectives that the 17th Amendment was intended to reject, by reinstituting indirect election, not by politically responsive state legislatures, but by investment-backed economic interests in the form of corporations, supposedly representing their shareholders, which shareholders might also be incorporate business interests, rather than real people. Although corporations could not yet cast a legal vote in an election, the door was open to what amounted to a monopoly of messaging in terms of ability to drown out competing voices of the public square. Monopoly in the public sphere begets monopoly in the political sphere, resulting in skewed priorities and mismanagement of public offices at all levels of government.
Therefore, the state, representing all of us who are not shareholders, and including those who are, is entitled to the final say. Under a democratic, republican form of government, that would seem to be the logical and equitable thing to do. Each of us has a stake in the outcome, Milton Friedman notwithstanding.
In sum, there will always be inequality in economic affairs, but the way that things are organized now have effectuated too large a departure from human scale, taking a useful economic tool and allowing it to become the enemy and oppressor of human society. As Mr. Tepper and Ms. Hearn suggest, reducing the power of monopolies and promoting competition would be an effective way of bringing corporate economics back to scale by preventing business corporations from unfairly leveraging their economic power exclusively for their own benefit and for the benefit of their investors and managers.
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