Reaction 7 for ECO/SOC 935

The type of capitalism currently present in the United States may very well be detrimental to democracy. In fact, there are a few immensely wealthy individuals who are very influential as a result of this wealth. They constitute a sort of oligarchy, or small group of privileged citizens from a dominant class with political power. The vital concern here is that, as David Stockman said in his interview with Bill Moyers, “money dominates politics. And as a result, we have neither capitalism nor democracy (David Stockman on Crony Capitalism).” We have what he calls “Crony Capitalism.” Winters states that whereas “oligarchy rests on the concentration of material power, democracy [rests] on the dispersion of non-material power.” He also suggests that oligarchy could be understood as the “politics of wealth defense.” An imposing issue is that, even in a democracy, oligarchs retain “near-veto power” on threats to their wealth. According to Winters, they employ:

            lawyers, accountants, wealth management consultants, revolving door lobbyists, think-tank debate framers and even key segments of the insurance industry … [for] the defensive redeployment of their money and income across a global geography of jurisdictions, banks and offshore havens through the use of tailor-made tax instruments,   evasive trusts, and shell corporations.

In addition to finding ways to defend their wealth, these oligarchs also influence lawmaking with their financial power. These oligarchs can firstly, offer more financial support to favorable politicians than most people can, and secondly, afford to spend thousands of dollars on lobbyists. A single oligarch may be able to spend on and influence politics as much as a large coordinated group of average citizens. Moreover, these oligarchs generally band together to defend their wealth against a common threat even if they disagree on other political matters (Winters). One baffling show of power from the oligarchs dates back to the early 20th century. These oligarchs went on a tax strike through tax avoidance and even evasion. Winters notes that between 1916 and 1925, “tax filings by the rich dropped by an average of 50 percent.” The oligarchs used lawyers to find ways to avoid these taxes and make it “costly and politically risky” for the government to get its taxes (Winters). They demonstrated exactly how powerful they were. Of course, since the government could not simply forgo this revenue, the rest of the taxpayers had to fill in for the oligarchs’ share. Although that case was settled, the wealth defense industry has only grown, and the oligarchs now employ much more sophisticated ways to avoid taxation, and “legalize” new forms of wealth retention.

To further worsen this matter, various oligarchs are part of ALEC, the American Legislative Exchange Council. ALEC is an organization in which corporations work closely with legislators. Essentially, ALEC is a way to lobby: member legislators are invited to lavish ALEC events at which they can luxuriously be persuaded by corporation representatives to grant said corporations unabashed support. ALEC, in fact, passes on drafts of laws which favor the corporations and which legislators are invited to present to their respective legislative bodies. In other instances legislators are convincingly encouraged to oppose laws that would hinder corporations’ business, etc. Yet, the central difference between ALEC’s way of lobbying and regular lobbying is that, officially, ALEC is not a “lobby” and is actually registered as a non-profit educational organization. As a non-profit organization it is therefore exempted from taxation. Openly lobbying would take away this exemption. This double dipping adds injury to insult.

Arizona State Representative Steve Farley said that corporations do have the right to get involved with politics, but strongly feels that they have no right to “lobby and not register as lobbyists” (United States of ALEC). He further denounces ALEC’s aforementioned events because regular citizens have no idea of “what’s really gone on and how the legislator has gotten that idea and where it is coming from” (United States of ALEC).

Another huge issue is that oligarchs politically support the capitalist free market, but they actually operate in a controlled environment. These “too big to fail” companies can count on government bailouts like the one of 2008. In a truly “free” market, risk can either result in profit or failure. Conversely, the oligarchs’ risk will at worst result in government bailouts. Stockman argued that “you can’t save the free enterprise by suspending the rules just at the hour they’re needed” and that “if they’re too big to fail, they’re too big to exist” (David Stockman on Crony Capitalism). Additionally, these “too big to fail” companies felt entitled to the billions of dollars to each of them from the 2008 bailouts. Yet, cynically many of these top-percentage earners are quick to denounce the welfare system as detrimental to the Nation; in their view poor families have too easily grown accustomed to the government’s hand outs.

Fortunately, there are some efforts to oppose this so-called crony capitalism. The American Legislative and Issue Campaign Exchange (ALICE) is a “transparent, non-corporation, out-in-the-open web-based library of model laws on a range of public interest issues” (United States of ALEC). It is dedicated to educating people about this harmful type of capitalism and ALEC. Through organizations like ALICE, the American people can be informed on the drawbacks of this crony capitalism and decide whether to join the effort to oppose it.

Works Cited

Stockman, David. “David Stockman on Crony Capitalism.” Moyers & Company. 2012. Retrieved from: http://billmoyers.com/segment/david-stockman-on-crony-capitalism/

United States of ALEC. Moyers & Company. 2012. Retrieved from: http://billmoyers.com/segment/united-states-of-alec/

Winters, Jeffrey A. “Oligarchy and Democracy.” The American Interest. 2011. Retrieved from: http://www.the-american-interest.com/articles/2011/9/28/oligarchy-and-democracy/

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