Predator State
From P2P Foundation
Whereas in the new industrial states the organization existed principally to master advanced technologies and complex manufacturing processes, in the predator state the organization exists principally to master the state structure itself.”
- James Galbraith [1]
Book: The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. James Galbraith. Free Press, 2008
Contents |
Summary
From the author:
"Of course, we have very different views of where to go from here. Reagan abandoned the free market in practice, and Bush abandoned it in theory. Why? Because it is a useless, romantic concept, with minimal real world application. In the world of arcane technologies, structured financial derivatives and a precarious global atmosphere, decentralized markets and "supply-and-demand" decide very little, and "market discipline" is a contradiction in terms The job of discipline belongs to governments. And they must act not only on behalf of today's citizens but of all those yet to come - of those who need clean food and water, of those who need safe cars, appliances and workplaces, and of those will be around the low countries when the ice caps melt. Dealing with problems means thinking ahead, from an independent, forward-looking point of view. This is called planning. It means providing stable, predictable rules for the private sector. This is called setting standards. And in the present international economic climate, it means giving the rest of the world a reason to finance the continuing prosperity of the United States.
The Predator State criticizes conservative economics, but that's not the big point. My argument is directed largely at liberals. And especially at those liberals who remain transfixed by the "logic" of markets, by the faded political clout of the Reagan rhetoric, and by the idea that respectability requires continuous genuflection at the shrines of the Chicago School. It is these mental habits that we, who are liberals, must break. The Predator State is aimed at the notion that the liberal formula should be "making markets work."
I have never accepted that the United States fits the mold of a "free market economy." If we ever did, that model collapsed in the Great Depression. What was built in its place was a remarkable mix of public and private. There was, of course, plenty of room for enterprise. But it came in a framework, of a government that was, at its best, competently concerned with research, infrastructure, national security, the workplace and the environment, that provided Social Security and a large share of education, health care and housing. Part of the accidental genius of the system was that the public-private mix in those three areas, especially, created "soft budget constraints" that caused higher education, the medical sector and the mortgage market to grow very large - far larger than they ever could have, under either the free market taken alone or under socialism. While many notorious problems remained (especially our lack of universal health insurance), this enriched the middle class and was an immense source of growth.
The Bush-Cheney years should have taught us that today's right wing understands this very well. They are not interested (if they ever were) in reducing government. On the contrary, they are perfectly willing to expand it. But the goal, in every case, is to expand government in such a way as to benefit, first and foremost, political friends and supporters at the expense, mainly, of the middle class. And while a rich country can survive a fair amount of this, it cannot withstand the complete control of government by predators. For what happens then, is a population crash of the prey. This, as a result of the sub-prime mortgage crisis and the systematic deregulation of securities and futures markets, we now confront in the financial crisis and the speculative commodities bubble. And if we do not reclaim and rebuild the capacity of our government to act, with purpose and on a large scale, we will eventually see far worse as the climate crisis unfolds.
What's required? Three despised ideas need to be re-thought and re-spoken. The first is planning. Markets cannot foresee the future, only human imagination does that. Corporations, of course, do plan. The question is, can you trust all the planning that needs to be done to the "planning" department of ExxonMobil? No? Then government needs to get back into that game. The job is not for the faint-hearted: there is no perfect plan, and the first thing predators do, of course, is shoot the planners.
A second is standards. In a world where interest rates are set by the central bank and the oil price is set by the Saudis, there's nothing wrong with guidelines for fair wages and to protect the living standards of the working poor and the middle class. (We already have the minimum wage, after all: it's just not high enough.) Standards are needed not just in trade agreements, but at home can give a more fair society, and also a more efficient and successful one: you need to be efficient to pay fair wages. Firms, on the other hand, that cannot pay decent wages or meet environmental and safety codes should not be coddled. They should be phased out, and the jobs transferred, in effect, to more productive and efficient firms.
The third idea is interdependence - as a financial fact. America can no longer justify its huge debts and the world role of the dollar through the security leadership we once provided, when people needed it, back in the Cold War. As a substitute, the war on terror is a dud. And the go-it-alone mentality that got us into Iraq is even worse: a path to financial disaster." (http://tpmcafe.talkingpointsmemo.com/2008/08/11/what_is_the_predator_state/)
Excerpts
The Origins of the Predator Class
Selection from Gordon Cook [2]:
"“What did the new class — endowed with vast personal income, freed from the corporation, and otherwise left to the pursuit of its own social position – set out to do in political terms? The experience of the past decade permits a very simple summary explanation: they set out to take over the state and to run it – not for any ideological project but simply in the way that would bring to them, individually, and as a group, the most money, the least disturbed power, and the greatest chance of a rescue should something go wrong. That is they set out to prey on the existing institutions of the American regulatory and welfare system.” p. 126
“But as power ebbed from the corporation in the late 1970s and 80s and became vested, once again, in free acting individuals of the type we have described, the basis for collaboration between comparatively progressive elements within business and a broadly progressive state tended to disappear. Instead, business leadership saw the possibility of something far more satisfactory from their point of view: complete control of the apparatus of the state. In particular, reactionary business leadership, in those sectors most affected by public regulation saw this possibility and direct to their lobbies – the K Street corridor – toward this goal. The Republican Party, notably in the House of Representatives under Newt Gingrich and later Tom Delay became the instrument of this form of corporate control. The administration following the installation of George W. Bush became little more than an alliance of representatives from the regulated sectors – mining, oil, media, pharmaceuticals, corporate agriculture – seeking to bring the regulatory system entirely to heal. And to this group was added another, overlapping to some degree, of equal importance: those who saw the economic activities of the government and not in ideological terms but merely as opportunities for private profit on a continental scale. Jack Abramoff became, for a moment, the emblem of this class.”
“This is the predatory state. It is a coalition of relentless opponents of the regulatory framework on which public purpose depends, with enterprises whose major lines of business compete with or encroach on the principal public functions of the enduring new deal. It is a coalition, in other words, that seeks to control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established. They are firms that have no intrinsic loyalty to any country. They operate, as a rule, on a transnational basis, and naturally come to view the goals and objectives of each society, in which they work as just another set of business conditions, more or less inimical to their free pursuit of profit. The assuredly do not adopt any of society goals as their own, and that includes the goals that may be decided on, from time to time by their country of origin, the United States. As an ideological matter it is fair to say that the very concept of public purpose is alien to and denied by the leaders and operatives of this coalition.”
“The Predator State is different from the New Industrial State, and yet it grows directly from the decline of the economic system my father described in 1967. An economics of organizations and not of markets remains the only useful and pertinent way to describe it. Whereas in the new industrial states the organization existed principally to master advanced technologies and complex manufacturing processes, in the predator state the organization exists principally to master the state structure itself.”
“None of these organizations has an interest in diminishing the size of the state, and this is what separates them from the principled conservatives. For without the state and its economic interventions, they would not themselves exist and could not enjoy the market power that they have come to wield. Their reason for being, rather, is to make money off the state – so long as they control it. And this requires the marriage of an economic and a political organization, which is what, in every single case, we actually observe.”
“The major battlegrounds of American domestic politics today emerge clearly once there is an understanding of the predator state. They do not consist in the bipolar argument toward which so much thoughts and arguments is directed – that of government versus the market. They do not for the most part consisting in a perpetual war, as many are led by their training in economics to suppose, over whether the frontiers of the state should expand or contract. Rather they assume that over time, the role of the state will gradually grow. At some deep level, everyone with a serious role in the policy debates agrees on this. The politics consists in a continuing battle over who gets cut in on the deal – in a corresponding argument over who gets cut out, and how for there is profit both in cutting in and cutting out.”
“Thus health care. The politics of health care in our time does not revolve around any grand conservative scheme to return medical care to the private sector; it is immediately apparent that without the state funding, both the medical sector and the overall economy would collapse. ” pp. 130-132
How to deal with the Predator State?
From the author.
Selection from Gordon Cook [3]:
"“The predator state is an economic system wherein entire sectors have been built up to feast on public systems constructed originally for public purposes and largely serving the middle class. The corporate republic simply administers the spoils system. On a day-to-day basis, the business of its leadership is to deliver favors to their clients. These range from coal companies to sweatshop operators to military contractors. They include the misanthropes who led the campaign to destroy the estate tax; Charles Schwab who suggested that the dividend tax cut of 2003; the Benedict Arnold companies that move their taxable income to Bermuda or the Island of Jersey. They include the privatizers of Social Security and those who put the drug companies in a position to profit from Medicare. Everywhere you look, regulatory functions have been turned over to lobbyists. Everywhere you look public decisions fueled gains to specific private persons. Everywhere you look the public decision is made by the agent of a private party for the purpose of delivering private gain. This is not an accident. It is a system.”
“In the corporate republic that presides over the predator state nothing is done for the common good. Indeed in the men in charge do not recognize that public purposes exist. For this reason concept of competence has no relevance: to be incompetent, you must at least be trying. But the men in charge are not trying: they have friends, and enemies and as for the rest we are the prey. Hurricane Katrina illustrated this perfectly, as Bush gave contracts to Halliburton and at the same time, it tied up efforts to restore the city. The actual population of New Orleans was at best an afterthought; once dispersed, it was quickly forgotten. Several hundred thousand Democratic voters were scattered to the hinterlands of Texas and Georgia, where they would no longer hold the swing votes.”
“Is this class war? No in the strict sense it is not, for not everyone who is successful under capitalism is a fan of the predator state. Indeed the predatory model can help us understand why many rich and successful people came to hate the Bush administration and why major parts of businesses as a whole eventually swung into opposition against it.”
“Predation is the enemy of honesty and independent and especially of sustainable business. Of businesses that simply want to sell to the public and make a decent living over the long run. In a world where the winners are all connected, it is not only the prey (who by and large carry little political weight) who lose out. Is everyone who has not licked the appropriate boots. Predatory regimes are, more or less exactly, like protection rackets: powerful in theory but neither loved nor respected. They cannot reward everyone, and therefore they do not enjoy a broad political base. In addition they are intrinsically unstable, something that does not trouble the predators but makes life for ordinary business enterprise exceptionally trying. Economic instability is in fact much more serious for small business operations than for large ones, and much harsher on the poor than on the rich.”
“It is reasonably obvious event to tolerate the predator stake is a formula for eventual national economic failure. It will lead over time, to the crowding out of advanced, innovative and useful businesses within each industrial line by their reactionary and backward counterparts. Where the reactionary branches of business – the worst polluters, the flagrant monopolists, the technological foot draggers are given control over the system and capital markets reward them, their more progressive counterparts will eventually give up, disappear or move away. Bad business practices will drive out good. Ultimately the country as a whole will become, in effect, a repository of the worst business practices and correspondingly unable to assert leadership in the world economy at large. This is the evolutionary opposite to the Scandinavian model. It is the race to the bottom, driven forward by the government itself.”
“And equally: predators suck the capacity from government and deplete it of the ability to govern. In the short run, again this looks like simple incompetence, but this is an illusion. Predators do not mind being thought of as incompetent: the accusation helps to obscure their actual agenda. But if the government is predatory, then it too will fail in every substantial way. Government will not cope with global warming, or hurricane Katrina, or the occupation of Iraq, or election Day chaos, or avian influenza, or the proliferation of nuclear weapons. Nothing will work, and nothing will be done about the fact that nothing works. Failure on that scale is not due to incompetence. Rather, it is intended. There is a willfull indifference to the problem of competence. Inside the government, no one cares. The attention of the people in charge is focused on other goals.”
“The end of the Predator State will come only when the more reasonable, more progressive part of the business community and the insists on it and is willing to make common cause with unions, consumers, in environmental lists and other mobilize social group to bring the predators to heel. The question is what will it take? Will that “more reasonable” element ever be heard from? And will it be heard from, especially while it remains important enough to matter? Or will action be delayed and blocked until such time as meaningful reform has no effective constituency left?’
“Dealing with this issue is in other words race against time.”
Examples of the effects of Predation
(from chapter 10 of the book)
Healthcare
"The politics of health care in our time does not revolve around any grand conservative scheme to return medical care to the private sector; it is immediately apparent that without the state funding, both the medical sector and the overall economy would collapse.
The healthcare battle is waged in ways they tend to expand the system; the issue is on what terms and with how many concessions to existing predators. A major liberal goal is to expand coverage of health insurance --particularly to children. Private insurance companies are opposed to this. Why? Because they stand to lose part of their existing clientele - better off families with small children. Their economic function is uncomplicated -- it consists in marketing to people who are relatively unlikely to need health care, while also not the most likely to get sick. Reform would be less profitable, and the health insurance companies have the profits to defend and resources – (those profits)– to defend them. The political battle is over nothing else.
Does the country benefit in any way from having such families with children under private insurance? Does it benefit from having any families under private insurance? No. To ensure the whole population without screening would be economically efficient. It would save the resources now devoted to screening, and this would be cheaper from both an economic and an administrative point of view. Among other things more resources could then go to actual health care. Harvard medical economist Daniel Himmelstein and Steffie Woodhandler estimates the bureaucratic waste and private medical insurance to be around $350 billion per year or just under 2% of the gross domestic product and more than half the cost of the Defense Budget. They also point out that popular liberal solution of employer mandates is in effect it, having been tried in numerous states without noticeable effect: the mandate model for reform rests on impeccable political logic: avoid challenging insurance firm’s stranglehold on health care. But it is economic nonsense. The reliance on private insurers makes universal coverage unaffordable.
This struggle is epic precisely because it is a zero sum. Here we see the immense power of the legitimating myth. By discussing it as though the issue had something to do with the efficiency of markets or freedom of consumer choice, the defense of a functionless pool of profits can be made to seem a legitimate political position."
Schools
"Schools have been a bastion of American public effort for nearly 2 centuries, and they are today on the front lines of the predator state. Early in the Bush administration, policy toward the public schools took the form of advancing voucherization, a system that would have allowed a partial state subsidy for alternative schooling, in encouraging middle-class parents to take their children to the private sector. (Such a system exists in Chile having been created by the military regime of Augusto Pinochet.) The not very effectively disguised purpose was to get public funding into the hands of for-profit and religious entities, which would then set up voucher eligible schools. Clients of this system would have been middle-class parents unhappy with the public schools, able to spend something from their own pockets on their own children’s schooling, but not willing to pay for private schools on top of the taxes that support the local school board. Vouchers would in effect permit those parents to pull their property tax payments from the public system.
The idea of vouchers, whose origins go back to Milton Friedman himself, once again rested on the rhetoric of markets, competition, freedom, and school choice. But by and large, the public has not been persuaded: vouchers enjoy little public support, and the proportion of American children attending public school has so far not materially declined. It developed that even most middle-class Americans were not sufficiently unhappy with the public schools their children were actually in to risk confiding their children to schools not yet in existence, whether they’re run by for-profit educational corporations or by churches. Nor were they willing as a group, to desert the social and community networks that in many American communities are organized around a public school systems.
Taking stock, the Bush team switched its emphasis to No Child Left Behind, a program that expanded federal spending on public schools while imposing an intense testing regimen on them. Forms of predatory free enterprise in which certain Bush family members participated -- selling test preparation programs to public school systems – quickly emerged. but the larger effect of No Child Left Behind was to foment middle-class discontent in public schools, for three reasons.
First the testing regimes cut deeply into the flexibility and creativity in the classroom, discouraging creative professionals from becoming teachers and demoralizing many who remained. Second to the emphasis on teaching to the test undermined educators attention to and resources available for on testable programs including art, music, and athletics. And third, the harsh evaluation regime behind the tests themselves worjked to label, and therefore to stigmatize, certain schools as failing. From the standpoint of both parents and teachers schools that were judged to be failing by the test results sometimes were not. But this was beside the point: a bad test result could have serious, even catastrophic effects on reputation and funding, participating middle-class flight from a system. In this way no Child left behind would feed the demand for vouchers later on.
At the university level to take a minor but telling example, what had been a low-cost, publicly administered student loan program was devolved onto private companies, whose marketing programs quickly assimilated imaginative elements of bribery.
Companies were offering a largely standard product in competition with one another; since become peaking plants could barely be distinguished, advertising directly to students would’ve been largely pointless, an unnecessary business cost easily countered by other firms in the business. Instead the companies chose what was undoubtedly the rational economic strategy given the profits to be had, the market solution that they faced and the ethical climate of the time. To succeed in this arena, all they had to do was persuade the student loan officers of universities to class the plans as approved by the university administration. The provision of convention holidays to those officers was a cheap, efficient, and no doubt agreeable way to build and maintain market share. were the companies necessary at all? Was any efficiency gained? Was anything except private profit served by moving the provision guaranteed student loans from the public to the private sector? Of course not."
