Where We Are Headed: Corporate Feudalism

In my last posting, I wrote about the indefensible theory of supply side economics.  Today I posit where this theory is heading.  Whether or not it is the goal of supply side proponents, the result will be corporate feudalism.  Let me explain.

Feudalism is defined as “the dominant social system in medieval Europe, in which the nobility held lands from the Crown in exchange for military service, and vassals were in turn tenants of the nobles, while the peasants  were obliged to live on their lord’s land and give him homage, labor, and a share of the produce, notionally in exchange for military protection.”  From a historical perspective, I’m sure this definition is as accurate as one can get while being brief.  I am not a historian (I welcome relevant input from those who are).  I will be looking at feudalism from the viewpoint of an economist, and my focus is on the factors of production.

A better definition of feudalism from an economic standpoint is a system of government based on the tenure of land, or the system of land tenure and of government in which the landholders are the governors.  These governors were the nobility, and were part of a structure that will be described later.  The term tenure means the right to hold property, however it does not mean the right to own that property.  The person is allowed to live on the land in exchange for his services.  If a lord was displeased with a tenant, he was allowed to remove that tenant from the land and give the right to live there to someone else.  No compensation was involved.

The feudal hierarchy was like a pyramid.  At the very top was the pope, and initially, the emperor.   Technically, the king was at the top, but he could be unseated by the pope if the pope became displeased.  Below the king were nobles – lords and ladies, sometimes counts and countesses, etc., who were granted land (hence the term counties) in exchange for an oath of fealty, or loyalty.  The nobles were expected to support the king in both offensive and defensive wars.  In turn, the nobles granted land to knights in exchange for their services.  According to one source, knights were expected to provide two months per year of service in peace times, and whatever time was necessary during war.  Below these were tradesmen, who did not have land per se, but did have housing in exchange for their trade. At the bottom were peasants, who were allowed to stay on the land in exchange for farming and herding.  Ownership of the crops and herds appears to have varied from place to place. In some locations, the land was mined for various ores, and those who worked the mines were granted housing near those mines.  Many of the forests were retained by the king, and in England, hunting in the King’s forests was subject to execution.

In economic terms, the pope and the kings controlled all the factors of production.  Factors of production are defined as follows:

Resources required for generation of goods or services, generally classified into four major groups:

Land (including all natural resources),
Labor (including all human resources),
Capital (including all man-made resources), and
Enterprise (which brings all the previous resources together for production).

These factors are classified also as management, machines, materials, and money (this, the 4 Ms), or other such nomenclature. More recently, knowledge has come to be recognized as distinct from labor, and as a factor of production in its own right.

Source: http://www.businessdictionary.com/definition/factors-of-production.html

The nobility controlled all the land, the capital and determined the enterprise.  They controlled trade routes crossing their land or ports. The only thing technically not controlled by the nobility was labor.  However, in a practical sense, the nobility also controlled the labor, because an individual peasant could not provide for his own livelihood without land or work.  Since the peasant could easily be replaced, he was in a position of having to work for the lords, or leave.

Today, the factors of production are the same, but they have a different flavor.  In place of kings, we have large corporations.  In place of the nobles and knights, we have the companies that are part of the large corporations supply chain.  In place of the peasants, we have the workers.  And, in the place of the pope, we now have a president who appears to be prepared to bestow rights and assets to corporations or withhold them at his whim.

Corporations largely control the factors of production today.  They own the rights to much of the land (i.e. corporate farms, mining, drilling, etc.)  They are pressuring congress to give them the rights to critical infrastructure that the taxpayers have built and the people own.  They have convinced the Supreme Court to grant them rights of persons when it is to their advantage, but not the obligations of persons.  They are rapidly rounding up the resources and means of distribution.  They do not yet control labor, but they are reaching a point where their control of jobs means that labor must submit to their rule.

One element of feudalism that allowed it to continue was the control of education.  Knowledge was controlled by the church.  We all know the price Copernicus and Galileo paid for presenting science that was not approved by the church.  We do not know how many other scientists were silenced.  For the most part, only male nobility could learn to read and write or do basic arithmetic, and while there are instances of women and lower class persons doing so, they are the exception. Books were primarily in monasteries and lords’ castles.  Lords would hire a monk or priest to educate their sons. The education provided to the peasants was of a religious nature, and a fearful type to keep them in line.

As with feudal times, those currently in power are trying to disrupt public education.  They would put in its place private and religious schools.  Already we see many recommending watering down education to those things a person needs to ply his or her trade.

The similarity between the feudal system in what we call the Dark Ages and the direction we are heading with the corporate world is startling.  The speed with which we are moving in that direction is breathtaking.  If we continue on our current trajectory, we will be soon entering a corporate Dark Ages.

Eventually feudalism was pretty much broken.  I will discuss the key to breaking corporate feudalism in my next installment, The Antidote to Corporate Feudalism.

The Lie of Supply Side

I graduated from the University of Missouri with a bachelor with honors in Economics in 1975, the year before Tim Kaine enrolled.  I majored in Economics for the same reason Tim Kaine did – Professor John Kuhlman.  Tim sent a letter to Professor Kuhlman that cited why he changed majors.  “You told our small honors section that you took attendance and that you expected us all to be in class every day, absent emergencies,” Kaine wrote. “Your reason for the expectation was unique and memorable: ‘UMC is a state school. Part of the cost of you being here is paid by the taxes from people all around the state, many of whom will never go to college and might not be able to send their kids to college. You owe it to them to be serious about your studies.’ That statement, and the moral sense that it conveyed, made a significant impact on me, as did your later interest in my progress at UMC.”  The moral imperatives taught in Dr. Kuhlman’s class also stuck with me.

One of those imperatives was that we had to watch our leaders.  Their decisions could have a dramatic impact on the success or failure of our nation.  They could make decisions that would have a beneficial on the overall good of the nation, or they could make decisions that would benefit a few for the short haul but cause sharp decline for the entire nation over time.

Dr. Kuhlman’s specialty was antitrust, and he gave me a passion for it as well. His rationale was simple.  Individuals simply cannot stand up to the power of a large corporation.  Neither can small companies.  When any corporation in any industry gets too big, nobody can compete with it, and there is no competition possible in the supply line.  They will simply suck the consumer dry with their pricing, suck the supplier dry with their ability to dictate prices, and prevent any potential competitors from entering the marketplace.  Worse, they are able to prevent innovation that could move us beyond their products.  We see this now, with the Koch brothers.

Among the things I learned while getting my degree were the demand and supply curve and the multiplier effect.  The multiplier effect refers to the increase in final income arising from any new injection of spending. The size of the multiplier depends upon household’s marginal decisions to spend, called the marginal propensity to consume (mpc), or to save, called the marginal propensity to save (mps).  The mpc plus the mps equals one, or the whole after tax income of the consumer.  The multiplier is then calculated using the formula 1/1-mpc. If consumers spend 0.8 and save 0.2 of every dollar of income, the multiplier will be 5.  This means that the money will circulate through the economy enough to generate 5 times as much value as its original. A common example is that when $100,000 is spent on a new road in a community and the wages go to working people with a 0.8 mpc, it generates $500,000 in economic activity in that community.  This is an important concept.  Because, the mps will vary across different segments of society.  Poor people are unable to save 0.2 of every dollar of income, really rich people are unable to spend 0.8 of every dollar.  In a society with a reasonable distribution curve, it would wash out.  But when income is heavily weighted to the top, the result is a restriction of the economy.

It is this principle that makes trickle down economics a sham.  The notion that if the guys at the top get more money, they will spend more and it will work its way down to the little guy flies against all data as well as being contradicted by the math.  There is nothing anywhere in any reality based world that suggests the possibility of trickle down economics working.

Another nonsensical notion is supply side economics.  Supply-side economics is the theory that says the supply of money, labor, and goods or services, creates demand.  In particular, supply-side economics focuses primarily on lowering marginal tax rates to the after-tax rate of return from work and investment, which results in increases in supply. Supply side economics contradicts any models that have ever worked.  There is not a credible business plan out there that suggests that a company would base new hiring on getting a tax cut.  It just doesn’t happen.

Companies base hiring on the idea that the cost of adding one more person to their employ will be less than the added revenue that employee produces.  That added revenue is generated by consumers buying the goods or services offered by the company.  That added revenue is not generated by tax cuts.  It is generated by demand.  Demand is generated by people having money to spend.

So let’s look at what is about to happen.  We already saw, courtesy of the Bush administration, that tax cuts to the wealthy do not generate jobs.  A major reason they do not generate jobs is because they don’t put money in the pockets of those with the highest mpc.  They put money in the pockets of those with the lowest mpc.  In fact, the Bush tax cuts put money in the pockets of financial hoarders.  Now the Trump administration is preparing to take money out of the pockets of people with the highest mpc, the poor and disadvantaged.  These are the people whose mpc approaches 1.  The only economic thing that could result from this action is a tightening of the economy.  As more and more Americans fall into the poverty bracket, there will be less and less ability to buy goods and services.  Elective purchases will be the first to go, and there will be job losses in those sectors, further increasing the numbers in the poverty bracket.  Those currently receiving the most income, more than they can spend, will not increase their numbers.  Meanwhile, even the large corporations, receiving the juiciest tax cuts, will not have people to sell their products to.  They will reduce employment, and the cycle will be complete.  At this point, the large corporations and the wealthy will no longer be able to sell their goods and services, the money that they gained in tax cuts will be more than offset by their losses in sales.

The wealthy and the corporations will still have a stranglehold on the factors of production, thus leading to Corporate Feudalism, which will be the topic of my next rant.

One Reason Why Equality Matters to Me

I would love to share with you what link Jackie Robinson, Satchel Paige, John McLendon, Marlin Driscoll, and my dad share.  It is a fun story that I think you,  would love and I have not been able to share with anybody.

John McLendon John McLendon

My Dad was born in a very small hut in a very small town in Adamsville, Tennessee.  The hut where he was born was located at what is now home plate in their baseball field. His mother died in childbirth, unattended.  Not only did he never have a birth certificate, noone, including himself, ever really knew what year he was born.  We guessed.  (Coming up may be some words that I know are offensive.  I hope you will forgive that, as it was part of the era – he was born in either 1917, 1918 or 1919 so the world saw things differently.)  Since his father was the town drunk who never quite forgave my dad for “killing his mother,” he was shuffled from aunt to aunt.  He worked in the fields with the black kids, hoeing cotton and tobacco.  When the hoeing was done, they would together go slip under the fence to watch the Negro leagues baseball games.  He fell in love with baseball.  He also fell in love with basketball and would practice shooting and dribbling until the sun went down.

When he graduated from high school – he was young to graduate even with the uncertainty of his birth – he tried to get a baseball scholarship.  Eventually he got one at Milligin College in Tennessee.  He had athletic scholarships, an orphan’s scholarship and cleaned the gym to pay for his education.  He played on the varsity tennis team, baseball team and basketball team.  He graduated with a degree in English.

Here is where it gets murky for me – Dad didn’t talk about his past much.  At one time, the St. Louis Cardinals drafted him.  He played second base in their farm team in Johnson City in Tennessee.  Somehow he wound up in Raleigh-Durham playing baseball and basketball and coaching women’s basketball (yes, they had that in the south then).  Recall, John McLendon was coaching in Durham at that time.  Hold that thought.  (It was also in this time that Sam Snead taught him to play golf.)

When the war came, since he had a college degree, when he enlisted in the Navy, he was made an officer.  Eventually he wound up a captain in the Navy, but I am not sure what he went in as.  They made him morale officer at Pearl Harbor.  His ship just missed being there when Pearl Harbor was bombed – Dad said Sam Snead was late for the ship.  Not sure if that was true or tongue in cheek.  His job was to recruit entertainment for sailors coming to Pearl to heal.  It included sports teams, entertainers, etc.  At various times, his baseball teams had names like Stan Musial (who he had met in the St. Louis system), Pee Wee Reese, Johnny Majors, Bob Lemmon (who dad converted from shortstop to pitcher because Bob couldn’t throw straight), Dom and Vince DiMaggio (Joe went with Army), Phil Rizzuto, Leo Durocher, Bob Feller, and many more.

This next part I am not sure of.  I sat one day as a kid with Satchell Paige.  Satchell had come to Denver (during the minor league days) to do some sort of pregame demonstration and since Dad was doing color in the announcer’s booth, Dad left me with Satch.  (A lot of the grown ups sitting around us did NOT approve.)  As anybody knows, Satchell could spin a yarn, but I don’t know how he could invent this out of thin air …

At some point while at Pearl Harbor, according to Satchell, Dad decided he wanted to recruit some of the players he had watched from the Negro leagues.  Dad (this I know is true) had always believed the black players were at least as good as the white players.  So anyway, Satchell and Dad agreed that Dad would start getting his players mentally ready to accept playing with “coloreds” while Dad tried to get the ok from his superiors.  Finally, Dad’s superiors threatened his commission and he dropped it.  But a thought had been planted …

Several years later, Jackie Robinson was selected to break the color barrier.  Branch Rickey was the President and GM who hired Robinson.  But on the team were Johnny Majors (I think he was General Manager), Pee Wee Reese (Team Captain) and Leo Durocher (I think he was coach?).  Satchell wondered if maybe Dad’s preaching in Pearl had something to do with getting Jackie accepted by the team.  We will never know.

The rest of this is not from Satchell.

After the war, Dad moved to Denver.  He got a masters in business at Colorado College and became an English professor, baseball and basketball coach at Regis Jesuit College (even though he was a Methodist).  He became a celebrity in Denver because his basketball teams were very successful.  They used a totally different style of play – and if you studied it you would see shades of John McLendon.  Over time, he became active in bringing sports to Denver.

First, there were the Denver Broncos.  Dad secured the financing so the team could be brought to Denver (Dad was a banker with Central Bank).  He led the drive to build Mile High Stadium that would keep the Broncos in Denver.  And he pushed Denver to bring in Marlin Briscoe as quarterback.  Marlin Briscoe was the first black quarterback in professional football.

Then there were the Denver Rockets (now the Denver Nuggets).  Dad was part of the original ownership group. While he was still an owner, he convinced them to hire John McLendon as their coach.  John was the first black coach in professional basketball.  However, he lost almost all of his investment when the partnership sold.

Many years later, he co-chaired the Colorado Baseball commission.  He started working on getting baseball to Denver in the early 70s, and I can remember him talking about some choice meetings he had with Peter Ueberroth as they argued over whether Colorado could support a professional baseball team.  Anyway, they finally got baseball in 1993.  And, of course, the first home run hit at home for the National Baseball League team was hit by Eric Young, again, a black man. So, Denver had our first black quarterback, our first black professional basketball coach and nominated our first black president.  That just tickled the heck out of me and I really wanted to tell KO that.  (When my dad died three years ago, only the family was at the funeral.  The rest of Denver had forgotten him.)

I don’t know how to verify parts of this story, but I do know the rest. This battle for equality has not been waged by black people alone, but by people who knew that skin color has no more relevance to a person’s character, capability or intelligence than hair color.

Our House

They tore down our yellow frame house today
The bulldozers and wreckers came
And ground their tires where we wanted lilacs.
We never lived there.
As we sat, side by side,
We watched the walls shatter and reveal
The anatomy of the shelter
We had planned to share
The bedroom – we placed it right
But it was blue, not green.
A steel bared the kitchen
Just as we had imagined.  Another blow
And that dream crumpled.
Finally the living room
Just as the we of us went:
The house collapsed.
We gazed at the heap
And watched the old foundation falter, sigh, then fold.
We parted.
They put asphalt where the house had been.
In place of love we put a cool hello
If we spoke at all.

© Julia F. Varnell-Sarjeant 2011

Mother Earth

Ah, mother Earth I see you in your youth so like me
Passion burning, hot, now spewing as ash
Spraying skyward, landing randomly,
Now slowly flowing as lava burning forests
Baking rock, shaking and trembling, now quaking
Creating, forming, thrusting, squeezing
The ranges, the valleys, formed in untouched desire

Now as mid-age mothers
Dependable, strong, quiet snow-capped peaks
Chortling brooks, waves kissing the beach as children
Wise whispering breezes over gentle prairie
Serene to all who look and I wonder
Whether you, like me, in your core
Still seethe?

© Julia Varnell-Sarjeant 2011

Partings

I’m writing again farewell.
I’ve written it before, each word
Burning like your cigarette in the tray
The hours we sat; the syllables tinkle
As ice in a glass as it melts
And is swallowed
Into dark nights leaning on the rail,
Staring at the water slipping under the bridge.
The commas breathe, as our gasping for air
When the musicians paused and we twirled
To a stop, a goodnight kiss, a wave, and a
Closed door.

© Julia Varnell-Sarjeant 2011