By Matt Stoller
Let’s start with Pfizer, which announced the acquisition of generics maker Hospira for $17B this week. Pfizer isn’t a drug company. Pfizer is a financial company that happens to own some labs and drug factories. Pfizer’s business model is to acquire small companies who innovate, lay off their scientists, and ride the patent or other monopolies. Former employees of acquired companies explain this clearly. So does Pfizer itself.
Pfizer is telling Wall Street that the acquisition will be ‘accretive to earnings’ and it will cut $800M in costs. Laying off scientists. What this means, in reality, is that large pharma companies are actually innovation destroying machines. How did we get here?
Prior to the 1980s, Americans understood that corporations were private governments of resources and people. Large corporation consolidations in the 1890s were done under the auspices of rationalizing the economy. Then antitrust from the 1930s to the 1970s was done to force these private governments to act in the public interest. RCA, GE, Alcoa, Dupont, Xerox, etc – all were forced by antitrust actions to put their patents into the public domain. The US gov’t structured markets as a way of ensuring that these political entities had checks and balances on their activities.
Antitrust was a Madisonian solution to the monopoly problem of the 1890s-1920s, which was understood as political NOT economic. This had an incredible effect. Large companies, like Dupont, were forced to spend more on R&D instead of acquiring innovation. Because they had to compete against smaller firms and they couldn’t acquire (due to merger scrutiny). Pfizer’s business model, in other words, would have been illegal prior to the 1970s.
Most of the laws that forced this state of affairs are still on the books. The were just reinterpreted by Reagan. Any President can simply go back to the pre-1981 model through executive action. Every merger is still reviewed by DOJ.
In the 1980s, an intellectual revolution took hold. Corporations were no longer private governments. They became property. They weren’t political entities, but economic entities pursuing ‘efficiency’. Corporations exist only for shareholder benefit. This idea was radical. Prior to this, few thought large shareholders were the only stakeholders, or even the most important ones. Eliminating all other interests – workers, managers, customers, communities, national security, small shareholders – was truly radical.
It was a political fight, but the Reagan conservatives along with Wall Street Dems of the early 1980s won. Liberal Democrats had focused their energies on important social questions, rather than the nature of the corporation. The result was Wall Street primacy and a massive merger boom in the 1980s. Layoffs, offshoring, globalization, monopolies, etc.
This idea that these private governments – corporations – exist solely for shareholders has led to a dangerous unbalanced politics. In which the industrial base, worker rights, small businesses, consumers, don’t matter. Even China’s strategic threat is irrelevant.
This is changing. Net neutrality is the first significant antitrust concept to emerge and take hold since the Reagan revolution. Because tech companies and citizens intuitively understand but can’t articulate that telecoms are private governments, not just property.
Which brings us back to Pfizer. The ability to create/sell medicine is of deep public interest. Pfizer has a state charter to do this. That Pfizer instead is full of financial engineers who generate cash by destroying access to medicine is increasingly understood. Same with hospital monopolies. These should not be run to maximize cash generation over patient well-being. This is a consequence of the Reagan revolution in corporate governance. It is unsustainable. And the ideas behind it are stale and bad.
All it will take to reorganize our culture is relearning that corporations are part of our political system and need to be managed through a Madisonian checks and balances system of ensuring competition and the public interest as mattering.
Antitrust is popular, Zephyr Teachout got huge applause lines on it when she ran a shoestring campaign in NYC. Net neutralit generated 4 million comments to the FCC. People get it. It’s simple stuff. The liberal lawyer elites aren’t there yet. But we’re beginning to understand the importance of the government protecting private property from corporate predators. And Citizens United is opening up a new (or rather old) way to understand how political corporations really are.
And that is why these ideas are coming back. And why our political system feels deadened, but is on the verge of renewal.
(And to make the point another way: In 2008, Pfizer/Wyeth spent $13B on R&D. 2009, Pfizer bought Wyeth. In 2013, the combined company spent $6.55B on R&D. Down 50%.)
So, the US posted another set of decent (not spectacular, but decent) job gains. It’s hard to credit this to anything but the price of oil. I say this because large chunks of the rest of the world are throwing off lousy stats, including China, either the most important economy today or the second most important, depending on how you slice your onions. And a lot of the non-job US numbers have been atrocious as well.
I’m curious how long this dynamic can go on. It’s good that oil prices are low (as long as you don’t sell it), but the general collapse of commodity prices and the general reduction in Chinese manufacturing activity looks very bad.
A lot of the world economy is in the hands of various decision-makers. Those who can print money, public or private, control the economy, and given the lack of mark to market, they are not particularly constrained by “economic reality” if such a thing exists.
The way inflation has pooled in highly specific areas tells the story. What we have is two things:
- Vast funnels of money to the rich;
- vast manipulation of prices to forestall market mechanisms from working (which would wipe out the rich);
This means there is vast mal-distribution of resources, even by the warped standards of pre-financial crisis markets.
Traditionally such mal-distribution comes to an end because those who don’t mal-distribute, or mal-distribute less, defeat those who do. But the world system is set up to make sure that no one can or will distribute in an effective and efficient matter, by freezing them out from needed resources, and by rewarding elites for cooperating with the current regime. “This might not be good for your country, but it’s good for YOU.”
Since external threats won’t work, and since internally oligopolies and the politically connected are rewarded over socially effective and efficient enterprises, this system can only end when it collapses internally. That can mean internal collapse of the world system—deals which become so ruinous for too many member countries that they revolt (Greece might, though it hasn’t yet. Venezuela tried and failed.) Or it means internal collapse, as the inefficiencies become so blatant that countries cannot maintain internal order and cohesision. You can see this in Mexico, which has buckled under the requirements of maintaining the world order. I can pretty close to guarantee that Mexico would not be in this state if the policies that pre-dated free trade deals were still in place.
The smarter elites are, thus, doubling down on repression. Whether it’s Canada after the Parliament Hill shooting, France in the aftermath of Charlie Hebdo, America in the aftermath of well, who needs an excuse any more—the developed world is clamping down with draconian near-panopticon surveillance, huge restrictions on previous civil liberties and draconian “justice” for anyone they want to destroy.
I think, personally, that this is a race they’re going to lose. I’ll write on why, next week.
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I’m with Robb on this. It’s barbaric and no one should be burned alive. I also strongly believe in good POW treatment (though, obviously, ISIS is not a party to the Geneva conventions.)
But pilots are more hated than virtually anyone. They kill and maim (and often burn people to death) and they do it with what seems like complete impunity. The Afghans used to throw Soviet pilots to the women, and, well, you don’t really want to think about what happened to them.
Pilots aren’t given sidearms to kill the enemy with if they are shot down. They’re given sidearms to kill themselves.
The Kipling rule applies: always save the last bullet, for yourself.
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Russia said they would consider, if asked, bailing out Greece. (This is a way of saying, “go ahead, ask”.) Given Russia’s own reserve problems, one wonders where it would find the money, BUT my guess this is a “if you default” scenario. Russia won’t pay off European banks for Greece, but if Greece defaults, it will help Greece running. (Not least, most likely, by selling them heavily discounted hydrocarbons, and probably even loaning them the rubles to buy them with.)
That takes care of one of Greek’s main problems: food, oil/gas, and medicine—what they MUST have which they MUST buy from other countries.
A few words on Greece’s negotiations with Europe are also in order. First, note that the “bailouts” given to Greece mostly weren’t — 89% just went back to lenders. Worse, the imposed austerity conditions caused an actual collapse in GDP and employment, which means that the cost of the bailouts was far more to the Greek government and economy than the actual amount of money received.
In other words, this was all just a bullshit way of bailing out banks, and as the FT notes, only because bailing them out direct was “embarrassing”. To avoid embarrassment, millions were impoverished, people set themselves on fire, and Greece was devastated.
This, people, is why I say, and mean, that Merkel is monster. A disgusting, rotting excuse for a human being, let alone a statesman. Millions suffered, not just in Greece but in the other peripheral countries, for no good reason. Austerity is just the voodoo economics of the modern day, but even more devastating.
The deal Greece wants is more than fair to “lenders”. And I mean “more than fair” literally. They deserve to be defaulted on, because they didn’t do their due diligence, and all loans since the financial crisis at the very least, should NEVER have been made.
An independent Bloc is desperately needed in the world. BRICS plus allies, with their own payment system, reserve currency and international trade and settlement system. Until it exists, countries like Greece will feel (and often be right) that they have no choice but to buckle under to whatever terms the West sets.
Enough. This suffering is not required in any world which runs on rational economics AND has as its goals the welfare of everyone. It never was required. All of the deaths, job losses, homelessness, hunger and so on was optional. It was chosen because it suited oligarchs and politicians like Merkel.
This is the world you live in. It must be changed. Since core westerners are unwilling to change it from withing in time to save millions and millions from suffering; it will have to be changed by those it is most severely impoverishing.
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Oh, there’s more to it than this, but these contain core articles on:
- Ideology
- How character is created
- How leaders are picked and molded
- How the world economic system works to destroy democracy and create oligarchy
- How we went from the great post-war liberal era to Gilded Age 2.0
- How and when violence works
- What types of economies are viable
- How change plays out personally for those caught in it
- What prosperity actually is, and isn’t (less obvious than you think)
- What a good economy looks like
- How previous economic solutions have worked, and why and how they’ve failed
- The role of ethics and morality, and how they interact with economics
- An explanation of why in terms of happiness or health or meaning, human history is not a march of progress
- Why, specifically, it seems impossible to get the mass of ordinary Americans to take political action to save their own bacon;
- and far, far more.
This is a political, economic and philosophical education. I’ll be putting out these compendia in e-book and/or .pdf form in a few months, with additional commentary, a few extra articles, and some proper editing.
But if you want to read them now, you’ll benefit.
The Role of Character and Ideology in Prosperity
Why the Economy Sucks for Most People
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So, the New York Times has an article on how Venezuelan stores are running out of basic goods, because they import so much, and with the drop in oil prices, they don’t have enough hard currency to buy what they need.
Repeat after me for the 100th time, “all resource booms end.”
All of them. Always. Gold, oil, rubber: it always ends. Period. The question is only when.
Back around 2004, myself and Stirling pointed on the late (and defunct) BOP News that Chavez was screwing up his revolution. That’s not a way of saying I disapprove of his goals, I very much agree with what he was doing in general terms. But in specific, he was not making his country independent of high oil prices.
What a country needs it must either be able to produce, or have product it knows it can sell to someone who can produce what it needs, and who is a reliable partner. (No Western country is a reliable partner to an actual left wing revolutionary government.)
Period.
If you do not, things may go well for a long time, but you are ALWAYS vulnerable to the hegemonic economic state and its allies. Right now that’s the West. For a long time, if the West were jerks to you, you could run to the USSR, but right now there is no complete replacement, though China, as leader of the BRICS, is coming on strong.
Note that when the USSR fell, Russian support for Cuba almost entirely went away.
It was a huge shock, but Cuba survived it.
Chavez was a great friend of Castro’s, but he did not learn from Castro. He did not figure out how his country could survive being cut off from what amounted to essentially it’s only source of support (in his case, oil sales).
Now Venezuelans pay the price.
Learn the lesson.
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Stephen Pinker, in 2011, for the Wall Street Journal, wrote an article on the decline of violence, arguing that it has been decreasing for thousands of years for a number of reasons, including the rise of states. Pre-state periods had a lot of violence (15% according to Pinker.) This sweeps a lot of pre-history into the basket (violence was not that high when humans were far below carrying capacity), but I’m willing to grant the point for the sake of argument.
What I want to say is something different: the decline of violence due to repression has a price. To be sure, a subject of the Pharoahs was much less likely to be killed by their neighbour. But they had a vastly increased incidence of disease, worked far longer hours, lost their teeth by the time they were 40, were forced to labor for their overlords and not allowed to keep much of the proceeds of their own labor, almost certainly died more frequently in childbirth, and didn’t live as long if they avoided a death by violence.
The power of the state is, as Pinker notes, used to reduce violence so that assets useful to the state (people) are not destroyed. But the state’s primary means of reducing violence is that it is much better at violence than individuals or small groups. People put up with living conditions and political conditions they would not put up with if they had recourse to violence. (They also don’t get as involved in feuds and so on, which is a good thing.)
This is visible even in very recent history in the United States. Everyone likes to go on about how violence was reduced in the United States from the 80s on, or so.
So was equality. This is not unrelated. The more powerful the means of repression, the less violence there will be
That doesn’t mean that reductions in violence always mean reductions in equality. But all other things being equal, a reduction in the capacity for non state/government/chieftain violence will generally lead to a reduction of equality, and that loss of equality will lead to an increase in other types of suffering (inequality is correlated with everything bad from heart attacks to depression, even controlling for objective material possessions.)
I will also note two other things, though there is much more one could note about incidental deaths from things like famines and pogroms.
The old Chinese maxim of “too soon to tell” applies. Our capacity for murder is so great now that all it would take is one world war to erase all the gains.
Second: we have displaced the death to the natural world. We may not be killing each other, but we are creating a great die-off. A lot of non-humans are dying for our peace.
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Granted, I think the evidence points to significant Russian support. Nonetheless, the Ukrainian army is just embarrassing at this point.
Back in 2008 I wrote that Crimea and the Ukraine would be the next likely flashpoint, and that Russia would never tolerate any possibility of losing Sevastapol. The serious people who know how the world works told me how wrong I was—that the Ukraine and Europe and Russia were in a mutually beneficial arrangement.
But arrangements change, and Russia has always been a country with a clear view on what its strategic interests are.
So now we have an economic war against Russia and a shooting war in the Ukraine, encouraged by the Russians (and by the Americans: the first big Ukrainian offensive occurred after CIA chief Brennan visited.)
Sanctions did little to the Russian economy, but crashing oil prices did. Russian currency dropped almost exactly in concert with the drop of oil. Given the consensus that dropping oil prices so precipitously was a Saudi decision, meant in part to take out high cost unconventional oil production, but also in part to damage Russia and Iran, this can only be seen as hostile foreign action by the Russians.
Russia’s vulnerability is due to mistakes made by the Russians. The lack of diversification of the economy, and the vast corruption made Russia a petro-state, reliant almost entirely on oil revenues. Countries which need to import a great deal are always vulnerable to foreign economic action.
The question, then, is this: how threatened does Putin and the rest of the Russian leadership feel? Putin is unlikely to survive a leadership change for long unless it is his hand-picked heir who takes over, and maybe not even then. Many others in his government would similarly be in danger.
If they feel endangered, then the traditional thing to do is start a war. This proxy-war in the Ukraine may not be enough.
Keep an eye on the security of Putin’s leadership. If it starts looking insecure, the Americans will think they are close to getting what they want: a new leader, who will understand he rules only so long as they are kept happy. But it will also be the point Russia becomes most dangerous.
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One of the great “mysteries” of the last 7 years or so is why all the money from unconventional monetary policy hasn’t shown up as inflation. Many analysts thought that printing that much money must surely increase prices, but inflation indices in most of the developed world are barely up, and in many cases are flirting with deflation.
The answer is obvious, but you’ll hardly see anyone point it out.
First, who was the money given to?
Rich people and corporations.
Ok then, what do rich people and corporations spend their money on? Stocks, and real estate—high end real estate.
In America as a whole, let alone New York, housing prices have not returned to pre-financial crisis values. But luxury apartment prices now exceed pre-financial crisis prices. Real estate prices, period, in London, are now higher than pre-financial collapse.
Meanwhile, the Dow Jones Industrial Index is up about 175% off its lows of 2009. The annualized gain is therefore about 29% a year. GDP has not risen anything like that, neither have wages. Corporations, however, are flush with money, and they have spent a great deal of it on stock buy-backs, while rich people, of course, have bought stocks.
Inflation has, then, shown up exactly where one would expect, in the assets bought by the people who were given money. Ordinary people did not receive the largesse from unconventional monetary policy, rich people and corporations did.
This is not hard, this is not difficult, this is not complex. The fact that mainstream analysts and pundits do not connect the dots on this is because they do not want to.
That inflation has not shown up in much (though not all) of the rest of the economy is simply based on the fact that no one else except the rich and corporations has received (I can’t call it “earned”) more money. Nothing more, nothing less.
This economy is entirely artificial. It is based on giving money (in various ways) to those who already have a lot of it. This is in no way a competitive market, certainly not a free market, and barely deserves to be called a market at all. It is pure oligarchical abuse of the power of printing money in all its modern guises.
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I have a simple question for those who read this:
Why is it not OK to kill people in the name of a religion, but it is OK to kill people in the name of a nation?
I’ve always had a great deal of trouble with the way most people run their morality and ethics. Objectively, the Iraqi blockade of the 90s killed vastly more people than 9/11. I once got to see an Iraki pediatrician writing in real time about all the children who died in the 90s, whom she could have saved, if she had had the medicine the West was denying Iraq.
The Vietnam war killed more people. The Chechen war killed more people. The (insert war here) killed more people.
I can run through the intellectual arguments, but on a fundamental level I don’t understand: why is it ok for nations to kill on a mass scale but no one else can? (Well, except some corporations. See Bhopal, India and Union Carbide).
The true decline of religion in the West is, in fact, indicated exactly by the fact that many people think it isn’t OK to kill in the name of your religion. The Crusades, and the religious wars of the Reformation and the Counter Reformation would like to chat with you about that.
For that matter, austerity has certainly killed more people in the West than religious-based terrorism has. Heck, practically everything that does kill people, kills more.
Humans are just very odd. Very, fundamentally, stupid and foolish. Barely conscious.
Spend some time thinking about this. Because it’s a question that is more important than it seems (and it should seem important enough as is.)
