December 9, 2012

Caught in the big squeeze

Colin Read, Everybody's Business

— The economist in me gives me pause for concern about big institutions of any sort. I believe those who founded our country shared that concern. In response to the perceived tyranny of the British Empire, our founders produced a constitution that empowered the individual, offered liberties that became a global pinnacle, and provided checks on institutions that might otherwise become too big.

The original checks were on government itself. These checks were later extended to Gilded Age trusts and holding companies through our antitrust laws. However, we have witnessed in our lifetime the erosion of these constraints to monopolies.

The most important freedom is our ability to express ourselves freely. I lamented recently that this freedom ought not be without cost. The principle of freedom of expression was to foster a marketplace for knowledge, ideas and debate. The First Amendment was created in an era in which this meant we had equal access to the primary public forum — the town square.

Even once we had broadcast technologies, expression was not cheap, and not without oversight. Only since the Internet could all individuals express themselves, almost without any form of censorship, and often devoid of the civility that we use when we express ourselves in person.

Then, with the Supreme Court’s Citizens United ruling, our biggest institutions and deepest pockets were granted almost unbounded access to the media. Our individual voice became proportional to the size of our wallet.

I am confident our founders would not have approved of such a near monopolization of public discourse.

We have also seen big business grow in parallel to the growth of bigger government. Some even argue that we need bigger government or big unions to check the power of big business, in what to me appears to be a Cold War arms race-like mentality. As businesses become too big to fail and are able to privatize their gains as we socialize their losses, it appears that, more than ever before, big business is in cahoots with big government, while government is sometimes in bed with big unions. 

We are witnessing a wary battle of titans, something that President Eisenhower warned us about more than half a century ago in his concerns that a military industrial complex, if left unchecked, would come to dictate public policy.

Caught in the squeeze of big institutions are regular folk and small businesses. It is our entrepreneurs who have been the creative class, the job creators and the lifeblood of economies like ours. And, it is this sector that is being driven out by large institutions.

This big squeeze often occurs because of unintended consequences. For instance, the recent Dodd-Frank bill was designed to prevent another global financial meltdown. Their intentions were good, but the ensuing politicking was unfortunate.

Big investment banks looked at the proposed stack of reforms, thanked the politicians for their diligence, and asked for their indulgence by removing a clause here or there that big banks found troubling. Once the lobbying was over, little was left that would reform the way big banks did business, but there remained a lot of provisions that increased the costs of small community banks.

Such lobbying often imposes new costs disproportionately on small and medium-sized businesses. It hinders the businesses that cannot afford lobbyists and political action committees, and enhances the big government/big corporation/big union troika. Each of these titans believes that they are merely looking out for their various constituencies. I understand that. However, the totality of their actions have become unbalanced. The big squeeze is on, and the little guy is becoming increasingly small.

Our current reality would have our founders rolling over in their graves. This nation was formed over a suspicion of disproportionate political power. The original visionaries realized that a healthy and well-balanced economy was essential for individual empowerment. While they produced a constitution that provided checks against concentrated power, they could not have imagined our modern society in which size creates almost unimaginable political advantage.

Economists universally agree that the monopolies foster waste, lack of innovation and economic decline. So did our founders. We need our institutions. We just don’t need them to be so large, powerful and prevailing over us all. 

When government deals across the table with big business and big unions with deep pockets, and dictates to the rest of us in a very different way, it becomes obvious that we have repealed the principle of one person, one vote. We need to reinject local control and local responsiveness into our institutions, if for no other reason than to prevent the tyranny of the wealthy, the powerful and the deep-pocketed. If we don’t, I wonder whether our system will implode, as lobbying and deal making among titans drives the real economy into oblivion.

Colin Read contributes to and has published eight books with MacMillan Palgrave Press. He chairs the Department of Finance and Economics at SUNY Plattsburgh.