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VOLTAIRE'S BASTARDS -- THE DICTATORSHIP OF REASON IN THE WEST |
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16. The Hijacking of Capitalism
Nowhere has the role of Lewis Carroll as linguistic architect of the twentieth century been more apparent than in the world of big business. Nouns, verbs and adjectives are flung about with great enthusiasm, anger and sincerity, leaving mythological trails so evident that not one of them. needs to be explained. Capitalism, free enterprise, risk, private ownership -- all these phrases and many more, when heard or read, produce a nod of instant understanding and either approval or disapproval. Thanks to this clarity, we have been able to carryon an endless public debate over what form modern society should take. Should we release the creative/selfish forces of free enterprise? Or should we protect/ coddle/free the citizen in the face of the challenges/dangers of risk? These questions have been further simplified by a tendency to use interchangeably the phrases free world and free enterprise. George Bush, and Ronald Reagan before him, spoke of free markets and free men, in that order. While some Western leaders are more discreet in their wording, not many of them, even the socialists, would give much energy to disagreeing with the principle. Such whirling about of rootless words has created the illusion of a real debate. And that illusion is so convincing that we rarely examine exactly who is arguing with such fervour in the name of capitalism. The curious thing is that very few of them are capitalists. Instead, there are bevies of corporate managers, financial managers, financial speculators and service providers. Still more curious, if you begin to question them, you discover that they are horrified by the personal commitment and personal risk which is central to capitalism. They are, in effect, the prophets and defenders of an economic system which they reject. What we have done in the West is throw three elements together as if they were part of a natural family: democracy, reason and capitalism. But they are not even natural friends. The businessmen who speak so aggressively today in capitalism's defence are, in reality, the product of its defeat by reason. This product is by no means unidimensional, however. The speculators, for example, are a sign of reason's failure. The service providers seem inoffensive enough. All they do is fill a void in our economy. The danger lies in our believing that they are a new solution, rather than another sign of our problem. As for the managers in capitalists' clothing, they are not entirely a disaster. After all, during the periods of their rise to power, we did establish some sort of general social compromise, shaky and uneven though it is. However, the gap between the capitalist illusion and its reality is now so great that the practitioners and indeed the civil authorities have difficulty making economic decisions in a sensible manner. Their problem begins with the democracy = capitalism equation. Running democracy and capitalism together as a single idea is a wonderful Marxian Joke. That is to say, in the tradition of the Marx Brothers. Neither history nor philosophy link free markets and free men. They have nothing more to do with each other than the accidents of time and place allow. In fact, free enterprise worked far better in its purer state, when it operated beneath friendly, authoritarian government structures. Unquestioned political stability suits the embracing of financial risk. Authoritarian governments can ally themselves to money without fear of conflict of interest. They can do things faster. Compromise less. Democracy, on the other hand, is subject to ongoing political and social compromise. It tends to want to curb activities of all sorts, business- elated or not, in order to protect the maximum number of people. Thus capitalism's moments of greatest glory were under the benign authority of early Victorian England, before universal male suffrage and before child labour laws, work safety regulations, the right to strike and contractual employment. It flowered under Louis Philippe, the businessman's King, who even dressed like a company president; and again under Emperor Napoleon III, who removed the universal male suffrage which had been established by the short-lived Second Republic. It did well under Kaiser Wilhelm II, who cut back on the liberal reforms of his father and of Bismarck. The last Russian czar presided over the greatest expansion of free enterprise the world has ever seen. And in the United States, capitalism was healthiest and happiest in the period before white male universal suffrage in 1860, and then again in the late nineteenth and early twentieth centuries, when large segments of the population were without a vote because of the waves of immigration. Even after becoming citizens, these newcomers remained politically docile during the long process of integrating their particular community into the mainstream of society. American capitalists were at their most dissatisfied from the early 1930s to the 1970s -- the period when there was the most active participation by the citizenry in public affairs, In spite of a prolonged economic crisis, business interests have been happier during the last two decades than at any time since the day before the collapse of 1929. This happiness coincides with a decline in the percentage of voter participation to levels not seen since the arrival of male universal suffrage. Nor is this pattern limited to the West. The most vibrant new centres of capitalism to appear over the last few decades are Singapore, Taiwan, Thailand and Korea. All four are governed through sophisticated and cooperative authoritarian systems. Widespread confusion between the freedoms proper to democracy and those proper to capitalism further confirms that business leaders no longer understand their own ideology. And yet the credo has been public knowledge for several centuries. Capitalism involves the use of capital, not simply its ownership. You cannot own an abstraction. Only the owning of something renders capital concrete. Property, for example. Or a factory. Gold for a long time seemed interchangeable with capital, but it was in reality a concrete good which came to be the measure of capital because it was portable. However, the ownership of something thanks to the transferral of capital is not enough to make the owner a capitalist. After all, the ownership of inanimate objects, such as land or buildings or gold, existed long before capitalism. Those who increase their capital by trading in such commodities are merely speculating on the value of goods. To make money out of an increase in their value is not a capitalist act. Capitalism is the ownership and use of the concrete but dynamic elements in a society -- what is commonly known as the means of production. A capitalist is someone who produces more capital through the production of the means he owns. This necessitates the periodic reinvestment of part of the capital earned into the repair, modernization and expansion of the means. Capitalism is therefore the ownership of an abstraction called capital, rendered concrete by its ownership of the means of production, which through actual production creates new capital. However, capitalism as conceived today tends to revolve around something called the profit motive, even though profit is neither a cause of capitalism nor at the heart of the capitalist action. Profit is a useful result of the process, nothing more. As for the ownership of the means of production, this has been superseded by their management. And yet, to manage is to administer, which is a bureaucratic function. Alternately, there is a growing reliance upon the use of capital itself to produce new capital. But that is speculation, not production. Much of the development of the means of production is now rejected as unprofitable and, frankly, beneath the dignity of the modern manager, who would rather leave such labour and factory-intensive "dirty" work to Third World societies. Finally, the contemporary idea of capitalism grandly presents "service" as its new sophisticated manifestation. But the selling of one's own skills is not a capitalist art. And most of the jobs being created by the service industries are -- with the exception of the high-technology sector -- descendants of the pre-eighteenth-century commerce in trade and services. The service industries cannot even claim to be at the creative end of capitalism - that is, the front end, which converts abstract capital into production. Instead, they live off the results of capitalism. Politely put, they are the tertiary sector, which, in simple terms, means they are economic parasites. The consultants, public relations advisers, financial advisers from bankers to brokers and all the other expert mercenaries are new versions of the courtesans who hung around the kings and nobles. The Master of Royal Fireworks. The Concierge (official candlelighter). The Mistress of the Bedchamber. The moneylenders. Mixed into these service industries are those who speculate in goods. The property developer and the owner of large commerces are the most prominent examples. The property developer existed long before capitalism and will exist long after. He is usually linked to financial institutions, which deal in the abstractions of capital, or to those which administer inanimate goods, such as notaries or government departments. Donald Trump and Robert Campeau existed in the Middle Ages and in the nineteenth century without being considered capitalists. Solvent or bankrupt, they are not capitalists today. On August 13, 1987, the New York Stock Exchange celebrated five straight years of strong growth. The Dow Jones Average had risen 245 percent since 1982. The London Stock Exchange 300 percent. The Toronto Stock Exchange 200 percent. The Paris Bourse 300 percent. And the Tokyo Exchange 1800 percent. In that same period real economic growth in nonfinancial -- that is to say, capitalist -- areas had been minimal. Unemployment, already high, had continued to rise to record levels in Europe, had dropped a bit in Canada and quite a bit in America. The American improvement had depended on a willingness to ignore the lowering of employment standards and the use of part-time labour to count as full-time labour. To put it bluntly, in the 1930s, women who took in washing to get by were not heralded as job-creation success stories, but our service-industry economy measures differently. In that same period the debt crisis put most Western banks into technical bankruptcy. The number of American banks to actually go bankrupt rose every year to a 1987 record of 208, the highest since 1933. Ten percent of the remaining banks (fifteen hundred out of fifteen thousand) were on the Federal Deposit Insurance Corporation's list of troubled institutions. A whole category of smaller financial institutions, the thrifts or savings and loans, were virtually bankrupt. Annual business bankruptcies continued to rise throughout the West, setting new records every year. The only production sector to show serious growth was armaments; noncapital goods which do not themselves create further production. National debts continued to soar; currencies to fly up and down. The trade in real goods was so troubled that the GATT (General Agreement on Trade and Tariffs) talks were stalled and most nations were turning towards protective measures. And yet the stock markets continued their record rise. The purpose of a stock market is to provide a regulated forum in which current owners of the means of production may either sell to new owners by putting their own shares on the market or expand their means of production by raising additional financing through the issuing of new shares. A rise in the market should be a sign of the rising value of the means of production, thanks to increased sales and new investment. Neither of these things happened between 1982 and 1987. And yet, enormous sums of capital poured into the market. Where did the money go? It seemed to disappear into some sort of paper-printing maze in which managers and speculators chased each other around in a directionless circle with nothing in mind except control of the management levers and the maximization -- indeed, the artificial creation -- of profits. It was perfectly appropriate that the American secretary of the treasury, the German minister of the economy and both the Canadian and the French ministers of finance during much of this period were ex-stockbrokers or ex- merchant bankers. And that the star, of what many people came to see as a generalized, irresponsible American corporate managerial style during the 1980s, was Ross Johnson, a particularly close friend of the Canadian prime minister. [1] Modern capitalism could justify this general situation only by claiming that the maximization of profits is at the heart of the process. But if maximized profits really have become the justification for the existence of a capitalist economy, then services and financial speculation really are the new capitalist enterprises. And if that is the case, then capitalism, which was one of Western man's greatest innovations, has been debased today into a fancy version of old-fashioned speculation, in the tradition of the South Sea Bubble and the John Law inflationary bust. When Black Monday, the crash of October 19, 1987, came and nothing particularly dramatic happened to Western society, it did indeed seem that capitalism, in its modern form, had become so divorced from the means of production and obsessed with paper profits that it had also become irrelevant to the real economy. *** Perplexed by the apparently unsolvable nature of various economic problems, the citizen turns to the capitalist in search of some explanation. The capitalist inevitably chides him for failing to use his initiative and for not working hard enough. This lecture is followed by the invocation of a personal moral rigour which turns on risk, competitiveness, market forces and individualism. Finally he refers the citizen to his government, as the party responsible for inflation, unemployment, stockmarket crashes and restrictions on each man's freedom to act. The citizen turns to go as instructed, but as he does his eye is caught by something strange in the capitalist's appearance. This, he suddenly realizes, doesn't look like a man in command, an owner, a risk taker. He does indeed project assurance, but there is no fire in his eyes. He is too sure of himself to be really responsible. And his clothes are too uniform for an individualist. There is no edge of creativity about him, nor the wear and tear of having built an enterprise. His words are too much part of a universal patter on free enterprise and the profit motive. Suddenly, the citizen understands -- this is not an owner of the means of production. This is an employee in drag. He is chairman, president, chief executive officer, chief operating officer -- he is anything he wants to call himself, but he doesn't own the place. He has been hired to do this job. He has a contract guaranteeing him employment under set conditions, cars, first-class travel, pension plans, holidays, club memberships. He is an MBA or an engineer who has a stock option for two thousand shares paid for by the company. Even those aren't his. They're just a legal way to save him years of tax on extra income. He'll sell the shares on retirement and walk ~way with the cash. And if, for some reason, he were fired, his contract would include a settlement provision to make him a reasonably rich man. If the citizen were to insist on meeting the real capitalist -- the owner -- he might find himself being humoured by the chairman, who would insist that the owners are just stock speculators. Besides, there are 173,000 of them. If asked how, then, this modified capitalism can control and give direction to the managers, he might launch into a long explanation of the role played by his board of directors and his annual meetings. The citizen realizes immediately that the annual meeting is a toothless affair. Because of the impossibility of assembling the 173,000 shareholders, management will exercise the majority of the votes. As for the board of directors, the game is more subtle. Most directors are nominated indirectly by the management. Most directors take on the job not because they wish to control the company, but because sitting on the board is prestigious. It gives them good contacts. extra power around town and extra income. They do not devote themselves to ensuring the company is making the right decisions. They just keep their eyes open for basic errors, More important, they watch for opportunities for themselves -- not so much of the insider-dealing sort. but more subtle opportunities. Service contracts. for example, which might be given to other companies they are involved in. And even if they did wish to be diligent. how would they do it? The management accompanies each resolution presented to the board with thick briefing books. These resemble the briefing books prepared for government cabinet committee meetings. These company briefs have been prepared by dozens, perhaps hundreds of experts on the proposed matter. What is the director to say? Whatever it is, the management will have a reassuring answer. Four or five managers will be board members. If national assemblies. with the authority of universal suffrage. are unable to control governments despite the glare of public debate, and cabinets are unable to make government structure move. despite the prodding of parliaments. how could a few part-time directors succeed, when limited to private debate and deprived of even the organized support of the shareholders? Besides, management works very hard to turn directors into captives. They are paid quite handsomely. The fees in the United States are now between thirty and fifty thousand dollars a year. And the more money the directors will take. the more the managers can pay themselves. There are also all sorts of perks. Meetings in agreeable places. The cost of bringing spouses thrown in. Presents from time to time. Access to the company's services, whatever they might be. Banking institutions almost routinely offer their directors access to Swiss or other offshore accounts. The offer is not illegal. but the director's use of it will unavoidably be. The director who takes up the offer thus forfeits any right to make trouble on the board. He becomes a member of the club. One of the boys. And the bank management has enough information on his private affairs to control him if necessary. The assumption that board members exercise effective authority over corporations is one of the central fallacies of contemporary capitalism. The board of directors was never designed to be a control unit representing 173,000 shareholders. It was designed to be a gathering of all or most of the owners. As such, it was a body of real authority. One or more of the director-owners was almost certainly running the company. That sort of situation still exists. but it is limited almost exclusively to smaller corporations. Free enterprise throughout the West is dominated by employees, more and more of them products of business school training or an equivalent. Like bureaucrats. they do not lean naturally towards the inventive approach -- neither inventive investment, nor developing goods, nor winning markets by selling goods. They specialize in developing systems within which they can operate and in producing tight programs which are modelled upon the case study approach. They are invariably eager to change circumstance arid to force it into a set pattern. An individual who stands out, disagrees or takes risks is a danger to such systems and is effortlessly, unconsciously sidelined. The top management of large Western corporations and multinationals has been chosen by the system -- because systems have an inbred logic -- for their mediocrity. There are exceptions, of course. But there are exceptions to everything. Andre Malraux described the early stages of this phenomenon half a century ago in Man's Fate. Gisors, the Shanghai manager of a French-owned company, explained his position: "Modern capitalism is much more the strength of organization than that of power." [2] These managers have no power of their own. They play the corridors the way eunuchs once played the maze of alleys in the Forbidden City. Their interest lies in career advancement and this can best be done by delivering immediate proofs of success. Their management style is therefore based upon rapid returns. The quarterly report syndrome is proper to this approach. There must be constant and immediate signs of success and these must be structured in order to encourage the stock market and to throw constant sops to the board of directors. Long-term planning, basic -and long-term investment, both to improve the established production and to create new production, are the last thing they want. There are managers who wish to stay with a company, in which case they are stolid and terrified of risk. There are managers who fly upwards from company to company, keeping one step ahead of their own activities. They need immediate results. Neither of these types is interested in the aggressive exploitation of the means of production. Neither sort is attracted to the production of things nor to their sale. Things are concrete. Managers, by nature, take what can only be called an intellectual approach. Reason is their sign. They can know and explain without touching. To touch is to slip down into a lower world. It is almost as if they fear the reality of capitalism; fear that the dark, satanic mills might take hold of them and squeeze out their illusions of grandeur, leaving them prisoners of the means of production for the rest of time. No doubt they sense accurately that the reality of the factory world is not easily susceptible to abstract manipulation. A great deal has been said about the inflexibility of Western industry when faced by that of Japan or of Korea or of other new capitalist nations. In rather the same way that the staff officers, who ran World War I, blamed their disasters on the old army class, so the technocrats, symbols of the future, have managed to blame the failures of Western business on the old industrialists. But the old owner-managers of the West haven't been around for decades. At most there are a few pockets of survivors here and there. It is the technocrats, the MBAs in particular, who have been so lacking in flexibility that they have ceded much of the Western means of production to the other civilizations. And it is they who have taken the success of these other cultures as a proof that Western capitalism had to die and be reborn in a clean, urban, nonindustrial form. The lesson they have drawn is clear: if lesser civilizations will assume the hands-on work, the more advanced West can concentrate on working with its brain. Thanks to the proliferation of business schools, this self-interested approach has almost instantaneously been converted into a philosophical rationale. Rosabeth Moss Kanter at the Harvard Business School writes as a leading thinker of the "post-entrepreneurial company," as if this were an intended and welcome result of business evolution, She sees companies marrying "the best of the creative, entrepreneurial approach with the discipline, focus and teamwork of an agile innovative corporation." She writes confidently of "the coming demise of bureaucracy and hierarchy." [3] Kanter's critique of the big, old American corporations is in many ways accurate. But the changes she imagines are dependent on the fact that much of the entrepreneurial and unbeatable competition from the Third World owes its success to social injustice. This does not seem to have made an impact on the intellect of management thinkers or of managers in general. In their exciting role as capitalists they talk endlessly about the innate value of competition. To be competitive is their equivalent of morality. They treat competition as if it were a universal value enshrined within a single definition. Thus they miss the essential relativity of competition. Of course a nation which uses nineteenth-century social standards as a basis for industrial production will produce cheaper goods than one which uses middle-class standards. But even the rolling back of social policy sought by the New Right in the United States and Britain will not reduce production costs to Third World levels. For example, heavy industries, such as steel, have been hard hit by Korean production. In 1979, the American industry employed 435,000 people. Ten years later, it employed 169,000. [4] Why is Korean steel so much cheaper? Before the recent worker protests, Koreans were putting in the longest average work week in the world -- fifty-seven hours. In return they earned 10 percent of a Western salary. Since the Korean cost of living is quite high, the workers live in slum conditions. Unions have been virtually banned and strikes forbidden. The work conditions are reminiscent of nineteenth-century England. In 1986, 1,660 workers were killed on the job; 141,809 were injured. [5] Given the modern manager's devotion to an international "standard" of competition, the effect of the marginal improvement in social conditions brought about in Korea by persistent and violent street demonstrations has been to weaken Korea's attractiveness as a capitalist producer. The citizen who listens to the modern rhetoric of free markets and free men would assume that a bit more social justice and democracy are good things. The cause of Western civilization has been advanced. The manager, however, sets aside rhetoric when it comes to specifics. From his point of view, Korea is now less competitive. For those companies that wish to sell in the North American market, it is now far more competitive to produce goods by using the southern American States and northern Mexico in tandem. Social standards in the American South were never high, but they are now being reinstitutionalized at a low level by industrial investors in search of cheap, unsecured, and unprotected labour. A few hours farther south, across the border, is a massive assembly area called the Maquiladora zone. The southern American states function at half the wage levels of the north, of Canada and of Europe. The Maquiladora zone functions at mid- nineteenth- century levels of child labour laws and factory safety regulations. Wages are a tenth those of the developed world. Dangerous chemicals and explosives can be processed there without the expense of protection for the worker or the environment. A product manufactured between Tennessee and Mexico is now more competitive than one manufactured in Asia. The effect of this tandem is to put downward competitive pressures on the northern United States; on Canada, now linked southward by a continental economic integration pact; and on other countries who wish to compete in these markets or to compete with their exports. The Maquiladora experiment has been so successful that corporations have pushed the American and Mexican governments towards a full-scale economic pact. The Mexicans hope that this will lead to an influx of capital, new jobs and an improved economy. But the interest of the investors is primarily in cheap, unsecured labour and unregulated industrial production standards. Why would sophisticated, technocratic employees seek aggressively to destabilize the structures of their own countries in order to give comfort to the sort of social systems which their fathers rejected as criminal less than a century ago? And why would they or we entrust any part of our fundamental needs to unstable societies which have not yet gone through the economic and political turbulence which surrounds most industrial revolutions? No doubt the managers in government and industry looked at their flowcharts and thought there was no other way. It apparently did not occur to them to question the effects of this strategy on their own society. They have been comforted by a seemingly endless parade of business school professors and economists who spend large parts of their lives on contract to corporations in one way or another. These men have provided an intellectual rationale for economic masochism. At the heart of their analyses one inevitably finds the marketplace. Any integrated view of society, social concerns, morality, democracy and indeed capitalism is necessarily pushed to the margins. This theoretical "marketplace" and the accompanying theoretical "competition," which is required by anyone who wishes to survive in it have both been defined by such people as Michael Porter in a manner which assumes the end of any evolved social contract. Porter is a professor at the Harvard Business School, the author of several books on competition and is having an important effect on business and government in several countries. [6] The complexity of the financial formulas and mathematical models which he uses suggests that a sophisticated advance is being made in business methods. In reality, what Porter and many others are recommending is a return to savage economics. Beneath the patina of their highly professional approach is a deep pessimism about the ability of civilization to determine its course. It follows that we must passively subject ourselves to market forces and reserve all our sophistication for reacting to these brutal "natural" forces, rather than act to control or direct them, even if the result of such passivity is the destruction of our society. Curiously enough, the arguments used by these economists and business school "thinkers" not only obscure the underlying economic effects, they are also extraneous to the corporate life of endless meetings, aimed more at gathering information to be used against those who know less than at actually doing something. There is only so much time and for an executive much of it goes to seducing protectors, inserting oneself into the system, building fortresses of additional structure and initiating plans to be fed out through the structure. The-comedy of corporate life, unrelated as it is to corporate production, has been widely satirized. The manager is willing and even eager to put the advances of Western society at risk because he is not anchored by reality. He doesn't own. He isn't really responsible. He doesn't like the concrete of capitalism. His world is an abstraction. Without the anchor of reality he has no idea of how far to go. A capitalist monster of the nineteenth century might or might not have been held back by the public consciousness that he was responsible for what he did. The more he acted against the perceived interests of his own society, the more his reputation suffered. To the extent that his ambition was to rise in society, he might eventually have reined himself in, in the Andrew Carnegie manner, and attempted to counterbalance his reputation by doing some good. The manager, on the other hand, deals in capitalist theories, not capitalism. (By abstract standards the Mexicans are more competitive than the Germans.) He presents this "truth" as an inevitability. There is a frigidity -- or, again, an asexuality -- in the way he insists that destiny is the slave of theory and he with it. In many ways he resembles an eighteenth-century nouveau-riche bourgeois trying to pass himself off as an aristocrat. He goes further than any duke would go in his mannerisms, his clothes and his snobbery. The manager is the bourgeois gentilhomme of capitalism. These peculiarities appear in even the most solid of corporations. Boeing, for example, is not only the largest constructor of planes, it has been probably the best. This quality was rewarded by great success, to the point where the company sold $30 billion worth of airplanes in 1988 and still had one thousand back orders. To meet this demand it went on a massive hiring binge, to the extent that some forty percent of the workers soon had less than two years' experience. There was enormous pressure on everyone to keep the assembly line going and going fast. The result was an abrupt drop in quality. Crossed wires on warning systems. Crossed wires on fire extinguisher systems. Thirty cases of backward plumbing. Engine-casing temperature sensors installed in reverse order. A disintegrating wing flap on a plane's first day of service. Metal fatigue disintegration of a 737 in flight. Disintegration of part of a 747 in flight. The U.S. aviation agency began reviewing Boeing's assembly procedures. [7] Why did the executive employees of Boeing not realize that their production pace was too fast? Why do they still maintain that it is not too fast? A reasonable executive would conclude that the company would do less harm to its own reputation by limiting production than by turning out craft of a lesser quality. Why do they feel that speed and quantity are paramount? Why do they think that precision work can be exponentially multiplied? Driven by an abstract logic and obsessed by maximizing profits, they seem unable to pace themselves, even in one of the finest high technology corporations in the world. Neither the system nor the managers possess the restraint proper to common sense. *** One of the most obvious innovations of the managed corporation has been the division of currency into two sorts -- apparent money and real money. Apparent money belongs to the corporation but is used by the employees, directly or indirectly, for their personal lives. Real money actually comes out of the individual's pocket. Some people have only real money. Blue collar workers, for example. Or the self-employed. Or writers and painters, apart from the odd grant. The executive classes of the West -- particularly from industry, but increasingly from government -- live large parts of their lives on apparent income. They eat, travel, phone and drive without even considering real cost, because that cost is limited only by their professional level. It is difficult to imagine a quality urban restaurant which does not earn at least half its income from apparent money. At lunchtime, the figure would be closer to 100 percent. City hotels would be empty without the corporate managers. The quality car market would shrivel away without the company car. Sports clubs would be bankrupt without company memberships. A whole category of more expensive air travel -- Executive or Business Class -- has been created for managers who have not quite reached the top. If there are any real capitalists on board - that is, those spending their own money to do business -- they may well be in the cheap seats. There is no way of calculating the costs to the corporations -- and therefore to the shareholders who are, after all, the owners of the corporations -- of this apparent money. The manager's official "perks" or expense accounts are a small part of the total. The rest are integrated into the self-justifying management method of the corporate structure. Apparent money does not double executive personnel costs. The figure is more likely to be three or four times the real salary level. In terms of financial costs to the shareholder, the industry manager is out of control. The more he profiteers from his company, the more he feels and indeed declares himself to be a capitalist. The further he moves up the corporate ladder, the more he spends apparent money in quantities which bear no relationship to the interests of the company or to the needs of the business he is doing. The size and contents of specific offices, for example, are only details of the size and architecture of corporate buildil1gs. Does the decision to cover a new company headquarters with marble, for example, relate to corporate needs or to management's ego? The very shape of office towers is now routinely altered to pump up the executive's false sense of importance. Capitalists have corner offices. More and more office buildings are therefore built, at considerable extra cost, with zigzags in their facades. As a New York architect put it: "The more corner offices you can claim to have, the more marketable a building becomes." [8] At this very moment tens of thousands of employees are flying above in corporate jets. This is as it should be if these private planes are helping them to do more and better business. The likelihood is that they aren't. There are rarely such imperatives of split- second timing in big business. In fact, there usually isn't much of a rush in the completion of big deals. They tend to be rather slow and complicated. There are certainly no real production requirements forcing the executive up into a Lear Jet. The commercial system is perfectly adequate for a corporate timetable. There are between 20,000 and 60,000 business aircraft in North America. A small jet sells for between three and twenty million dollars. This does not include such costs as pilots, insurance, landing fees and fuel. It is as if these men believed that moving faster, seeing more people and going to more meetings replaced .the real process of industrial production. Perhaps their panicked rushing about is an attempt to simulate economic growth. "Our attitudes towards growth are at the heart of the present dilemma of industrial society," the businessman and environmentalist, Maurice Strong, has written." This is the disease which has spread through the body of modern technological societies." [9] Our obsession with profit has driven us to fall back on the idea that rapid growth is a characteristic of capitalism. It is true that the technological advances of the last century led to great growth. The gross world product has increased twenty-one times since 1900, the use of fossil fuels nearly thirtyfold, industrial production fifty times. [10] The resulting goods were consumed by both a dramatic rise in general standards of living and a population explosion -- from 1.6 billion to 5 billion in eighty years. That most of the production came from the West further exaggerated the effects of this growth. We sold our products to the whole world in return for their cheap natural resources. These combined circumstances created a run of exceptional profits. And so in the subsequent era -- our own - devoid as it is of linear memory, the business community began to treat fast growth and massive profits as basic characteristics of successful business, when it was, in reality, a short-lived anomaly. The developing world's population continues to grow in a way which impoverishes rather than enriches them. The population level of the West has paused at saturation level. Our production needs can't help but pause as well. This is only a catastrophe if capitalism is treated as a machine which must produce constant and giant profits. Were we to return to more standard expectations, we would find it easier to accept modest returns. The riches of the real capitalist -- the owner-manager -- came from his ownership and his reinvestment in that ownership. He devoted himself to production. He did not necessarily seek to increase his profit every year. Given low inflation rates, he was quite happy with a return of 5 to 7 percent. What he did seek was stable markets for his goods. Nothing returns to what it was, but it is important to understand the desire for solidity of the average real capitalist in order to judge better the frenetic and aimless leaping about of the modern manager and speculator. These managers have now convinced themselves that profit is the essential nature of capitalism and that they are the new capitalists. From there to a disassociation of corporate profits and managerial income was but a step. Over the last decade, senior managers have gradually assumed all of the capitalists' robes and begun openly to pay themselves as if they were the owners. Thus, at a time of falling real incomes throughout the West and ongoing battles against wage increases from fear of renewed inflation, the senior management has been doubling and tripling its take home pay. In Britain in 1988 alone, top managers received a 31.5 percent increase. And that was after adjustment for inflation. At the middle level in the same year, the increase was 4.7 percent. [11] In 1990, in Britain again, the old and solid Prudential Corporation lost £300 million in a single venture and was forced for the first time in half a century to cut its reversionary bonuses to pensioners by 8 percent. At the same time, its chief executive received a 43 percent wage increase -- £3000 additional per week. The equally respectable Norwich Union had an unprecedented loss of £148 million in the same year. This was matched by a 23 percent wage increase for the chief executive. At Rolls-Royce, the chairman, Lord Tombs, took a raise of 51 percent at a time when 34,000 of his workers were being threatened with dismissal unless they signed new contracts giving up their right to pay increases. 12 Company after company, throughout the West, is now paying its chief employee over a million dollars a year. Apparent income, involving perks, share schemes and management style, will multiply these sums several times. In other words, the manager has entered so deeply into his imaginary role as a capitalist that he mistakes his personal profit for that of his company and mistakes the shareholders' prosperity for his own. *** For those who manage and do not own, there is nothing so disturbing as the sight of one who does. The company owner is a reminder of the manager's false pretences; a reminder that the latter has hijacked the occupation of the former, then deformed it to suit his own more comfortable needs. The logic of the times has had something to do with what has happened to our economies, but the new elites -- industrial and governmental -- have also played a great role. They have created both market conditions and regulations which discourage private ownership and small businesses, while favouring the growth of large, anonymously owned companies. Those who do create companies find it difficult in the current atmosphere to grow beyond a certain size without ceding to the buy-out opportunities offered by the large corporations circling around them. It isn't simply that the private ownership of larger companies has become structurally difficult. It has also become unfashionable. The hundreds of thousands of small businesses in which owners labour to make real money are looked upon by financial institutions, corporations and bureaucrats with superior bemusement. The world of big business is one of anonymity. The executive does not actually touch money. He exercises his profession. At that level, the owner finds himself isolated -- treated as a rather simple oddball whose corporate structures are not complex enough. His desire to control his means of production in such a personal manner throws doubt on the stability of his ego. The important modern capitalist does not stand out. He blends into the structure. He is not an individualist. This fashion is so hypnotizing that owners dream of becoming rich and successful enough to sell their company to a corporation and so, at last, to become a senior executive -- that is, an employee. Vignerons in Burgundy have what comes close to being an ideal life Their work covers almost every area of expertise. They must be highly sophisticated farmers, talented chemists, company managers, public relations spokesmen and efficient salesmen. They work indoors and out. They are tied to both local traditions and international commerce. Few producers have more than thirty hectares -- that is, some sixty acres -- of vineyards. With that they are millionaires, richer than most corporate presidents. Some years will be wonderful and others disastrous, but the stock of aging wine in their cellars will give them financial stability. It is one of the most agreeable, varied and remunerative small businesses in the world. And yet, in family after family, the children, on inheriting, rent out their vineyards on long leases and go off to become corporate employees, teachers or civil servants. To be employed, even with a lower potential income, is to be respectable. To work for oneself is looked down upon. There lie two of the central characteristics of the modern capitalist. He wants to belong. He talks a great deal about his individualism, but nothing frightens him more than independent action. He is profoundly conformist. Second, he flees responsibility the way European aristocrats once fled their estates for the royal courts, as if it were beneath their dignity to actually run something. *** This flight from responsibility is also a flight from imagination. Imagination is at the heart of practical competition -- that is, seeking to create both better products and new products. Attempting to sell the unknown is an area laden with risks. It is also one of the principal arguments used in favour of capitalism -- that the buyer may choose and do so from the widest array of goods. There is no denying that our economic system does try to produce the maximum quantity of goods. But it is not interested in exploiting the variety of tastes which exist in the population. Nor is it particularly interested in the quality of goods. The main desire of management is to minimize both risk and long-term investment. Central to this is a fervent belief in economies of scale. If the foibles of varying tastes were humoured, corporations would have to develop more and therefore smaller product lines. Instead they create blunt- edged products which can be aimed down the centre line of established taste, thus flooding the marketplace with enormous quantities of almost identical goods which are pitted against each other in areas of relatively established demand. The battle of the marketplace cannot turn, then, on the public's comparison of products. Instead, it revolves around invisible organization strategies and visible packaging and publicity. This battle of quantity without variety can be seen in any sector, from high technology to basic manufacturing; from VCR systems, computers and cars to the simple selling of socks. A visit to any sports store in Europe, North America or Australasia will produce the impression that dozens of distinctly different socks are on sale. A difference in price will indicate variation in quality. Packaging and labels will tell us that these socks are for tennis while those are for jogging. The colours and shapes of the packages will tell us that the contents are exciting. Images will suggest that the wearer already has or soon will have muscles. The labels will remind us of worldwide advertising linked to the fastest man or the richest champion. But inside the packages, everyone will be selling one of two basic models. One will be short and destined for tennis, jogging and so on. The other will be long and destined for downhill or cross-country skiing and .other winter sports. The weave of all the short socks will be virtually the same. The artificial content will be either 100 percent or approximately 30 percent. The long socks will have the same percent. ages but a heavier weave. The short socks will usually be white, perhaps with stripes around the top. There will be some colour choice in the long socks, perhaps because snow sports call for a contrast. Only in the odd, museumlike shops here or there, behind a modest facade, can proof be found that variety and quality exist. Without a hint of packaging, dozens of distinctly different sports socks -- weaves, materials, colours, lengths -- will appear. Interestingly enough, a price comparison with the mass-production shop will show that quality and originality are often cheaper than mass production. Economies of scale are somehow not necessarily economic when they hit the store counter. Is this because of the costs of packaging and of supporting a corporate structure, with its managers who do not actually contribute a great deal to the production of socks? Or is it a phenomenon of competition in a sphere artificially closed by the demands of mass production and mass distribution -- what they used to call an oligopoly? Socks are a simple example of how the marketplace offers greater and greater quantities of increasingly similar products. The electronics industry follows exactly the same pattern without a hint of embarrassment, perhaps because its products are the inventions of this era. In its case, the packaging will be the products' actual casing. In this way modern capitalism has inverted the purpose of practical competition. The drive to create different products which compete, thanks to various qualities, for the public's attention, has been replaced by the drive to differentiate virtually identical products in the public's eye through a competition between appearances. *** In this atmosphere of homogenized quantity, integrated structure and glorified senior-level employees, it is only natural that smaller companies suffer. But the principal drive against them has come from within the management of the large corporations. Their own lack or interest in long-term investment, risk or, indeed, products is what pushes the managers to seek organizational ways of creating growth. The most obvious solution is to buy the product-making capabilities of others. These mergers and acquisitions simulate growth by devouring someone else's creativity. And since large umbrella structures seem inevitably to smother, rather than kindle, originality in an acquired company, there is a continual need to acquire more and more. As with Dracula, there is never enough blood. The current "free-market" mythology tells us that those are the breaks. Capitalism is tough. The weak die. The strong survive. The highest bidder wins and, anyway, small units are no longer profitable. What we are witnessing, according to our managerial capitalists, is a healthy weeding of our overgrown garden, a rationalization of the Western economy. Unfortunately, this hyperbole bears no relationship to what is actually happening. The large corporations have in reality become the equivalent of deposit banks. They are perceived as centres of measurable value in troubled times, rather as gold once was. They own property and have such things as production capabilities, trained employees and established markets. This solidity attracts not only shareholder support but also that of governments. It is a support which comes regardless of efficiency and profits. Among the tens of thousands of corporate bankruptcies since 1973, very few have involved large structures. It is the smaller, risk-oriented companies which have been going under. They had no layers of protective fat and so a decade of high interest rates destroyed them. Those who held their lifeline -- the banks -- did them few favours. High interest rates did contribute to a temporary and superficial slowing of inflation, but they also changed the capitalist terrain so drastically as to make a normal economic recovery almost impossible. First, the message sent out via the .inflation figures was totally inaccurate. Only a narrow slice of visible costs is measured in our tracking systems. The various consumer price indexes and other measuring devices do not cover what is really happening. Indeed, in many ways real inflation is higher now than it was in the seventies. As a result the balance created by monetarist' policy is so artificial that the moment growth does increase, so does the measured inflation. Immediately, back up go the interest rates and down go growth and job creation. Using high interest rates to strangle narrowly defined inflation now resembles bleeding a patient to reduce his fever. It does temporarily do just that. But the patient's problem is not the fever. It is a serious infection which is producing the sweat and the high temperature. In ignorance of that, the doctor keeps on opening veins until the patient dies. The effect of our anti-inflationary policies over the last two decades has been that while the smaller, lean and aggressive companies have been going bankrupt, the large, fat, lazy, directionless corporations have been getting through all right. The banks have lent them money at favoured rates. They themselves have been printing money on the public exchanges. And the governments continue to treat them as parapublic bodies. One can hardly blame the politicians, who are terrified by the idea of large corporations closing. The arrival of large groups on the unemployment market is a demonstrable sign of failure in economic management. What's more, when the managers lobby governments, they arrive as important contributors to the party in power. They also talk the same language as the civil servants whom they wish to influence. And so it has all been a neat and tidy operation coordinated by managers in different private and public sectors. Capitalist creativity has been discouraged and financial manipulation encouraged. This starvation campaign has left the fat slightly thinner, having converted some of their flesh into cash. Now they are beefing themselves back up by picking over the carcasses of the young and lean. In 1984 alone, $140 billion were spent in the United States on mergers, acquisitions and leveraged buyouts. By 1988 this was almost $300 billion, with 3,310 companies involved, In the United Kingdom some £150 million a year was spent on corporate acquisitions before the crisis of 1973. This figure then rose steadily to £5 billion and has now jumped to £15 billion. The inevitable passing of the leveraged buyout as it first appeared does not represent a change in the situation, but rather the passing of a particular tool for speculation. For example, worldwide merger- acquisition transactions had risen to $375.9 billion in 1988, involving 5,634 deals. Then came. the collapse in the speculative market. And yet the figures in 1989 were only marginally down, to $374.3 billion involving 5,222 deals. [13] The public perception is that most of this activity is the work of speculators like T. Boone Pickens and the Junk Bond Kings. Not at all. The speculators are merely reflections of the managers. It was the management of big business which brought on the growth of the speculators. in the first place. They were like blind pigs gorging themselves as they wandered aimlessly over the countryside. It was easy pickings. Popular imagery has the loyal management attempting to fight off the greedy speculators. Of course, in some cases this is true; but in most cases they fight because they fear their jobs are at stake. In general, however, management has stopped lobbying for controls on the speculators because they have joined forces with them. What could be better, one wonders, than managers buying out their shareholders? They are at last becoming real capitalists. Owners of the means of production. Owner-managers. But that is not what is happening. Their ownership is based entirely on a debt load which is out of all proportion to the company's equity -- often five to ten times equity. They have replaced a responsibly based ownership of shareholders with the sort of debt-based ownership which brought about the Great Depression. It is a world in which the managers of one large company take runs at the managers of another, usually somewhat smaller company. According to abstract theory, it is all a fair game. In fact, what the managers are doing is damaging the corporation which they now own by loading it up with debt in order to finance their takeover of it. The more productive the company, the more often it will be worth taking over. Many companies have been acquired twice in a decade, some three times. And each time the purchaser's. costs are rolled yet again into the accounts of the purchased. American corporate debt is now some $2.2 trillion. It has almost doubled in five years. Interest payments on this amount absorb 32 percent of America's total corporate cash flow. This figure does not include the $1.1 trillion of outstanding debt in the' private financial sector -- that is to say, the capital sums raised by financial institutions, mainly through corporate bonds and short-term corporate paper for their own use. Nor does it include the $1.17 trillion outstanding in the noncorporate sectors, most of which are in the service industries. In other words, a great deal more than 32 percent of corporate cash flow is absorbed by interest payments. And yet business leaders have been mounting continual attacks on the government debt load, which absorbs only 15 percent of the annual tax receipts. In Britain the corporate sector spends some 11.5 percent of its income on interest payments. The government spends 10 percent. Little of this corporate spending is investment in corporate production capabilities. It is simply the printing and spinning of paper money. In 1984, the same year that $140 billion was spent in the United States on mergers, acquisitions and leveraged buyouts, $78 billion worth of equity actually disappeared from the corporate world. [14] The motive which drives the large corporations on to devour the small has nothing to do with capitalism. Their public relations departments will come up with self-congratulatory phrases, such as that of Philip Morris when it took over Kraft for $13.5 billion: "We believe the combination of Philip Morris and Kraft will create a U.S.-based food company that will compete more effectively in world food markets." [15] The reality is that these enormous financial deals are not related in any way to the use and development of the means of production. They are related to a general management structure in which ever- more-abstract financial methods give the impression of growth. The problem is not simply one of specific probusiness governments serving specific business interests. It is more a logical outcome of the management methods which have been developing for a century. As in other sectors, a perfectly rational system is far more easily abused by the dishonest than used by the honest. In this specific case, by allowing the uncontrolled development of financial manipulation, the authorities have released, for the first time since 1933, the full forces of irresponsible speculation. The confirmation that this frenetic activity is illusory can be seen in the real growth statistics of Western economies. They have been shrinking since the 1960s and, during this last decade of deregulation, have continued to shrink. The simple truth is that the production of a tractor is the result of men who know about tractors actually producing them and then selling them to men who actually use them. Financial planning and management methods are, at best, marginal facilitators. The essential skills of capitalism are concrete. The rest, as they used to say, is fancy talk. A part of that fancy talk has involved arguing that mergers would create diversification and diversification would provide stability in tough times. It would also widen the circle of experience within a single organization. The reality has been that the experience is not used. Instead management feels obliged to design ever larger structures which can deal with all this variety in a homogenized manner. Everything must fit in, and on paper it does. As a result the central managers know less and less about what the company actually does, while those with concrete experience and concrete responsibilities are squeezed into corporate models which have nothing to do with their production. Those who don't know, institutionalize their power; those who do know, live in fear of losing budgets and jobs. Senior management and their doctrinal advisers in the business schools have noticed, unavoidably, that these methods are not working. Their response has been threefold. First, to shut down production in areas in which they cannot "compete." As pointed out, this involves turning whole production areas over to Third World countries, Second, to move into those Third World countries in order to take advantage of local social and employment standards -- that is, to undermine the Western social consensus by relying on early industrial societies. Third, to reverse the process of the last twenty years by splitting their corporations into semiautonomous operations or by selling off chosen sectors, These semiautonomous operations give the managers all the tools of independence except the essential ones. As for the selling off of complete sectors, it simply brings most of those units full circle -- that is, back to being smaller, specialized, independent companies. In the process, however, they have been saddled with two burdens of debt, each in the amount of the company's value. The first was imposed by the takeover company at the time of the original purchase, The second was imposed on the managers by that same owner who now wished to be bought out. Finally, there is the fourth solution, which is to attempt to bring the magical production methods of the East to the West. The East in this case means Japan and it must be said for the Japanese option that it is at least constructive. It also has the exotic charm which always disarms adults when they express a desire to learn. Of course, in the 1960s and early 1970s the same Japanophiles now proposing the Eastern option were teaching their students, or declaring through business organizations, that the Japanese had not gone through a proper industrial revolution and instead had arbitrarily stuck industrial production methods on top of a medieval paternalistic social system. This was socially impossible. Therefore it would inevitably produce a revolution and then the whole edifice would come tumbling down. Today Western economists and business philosophers call this piggybacking, of the industrial on top of the medieval, the Japanese Miracle. The religious image is suitable. It coincides with their own conversion on the road to stagnation. These are the voices of big solutions and so now they talk endlessly of production teams and worker participation and company loyalty. Why a Western white- or blue-collar worker should be interested in loyalty, participation and teamwork is not clear when the units they work for are disposed of by management or speculators with an indifference reminiscent of the slave trade. And if they are loyal and their teamwork does lead to success in the marketplace, their unit will probably be loaded down as fast as possible with debt in order to finance some other unrelated managerial manoeuvre. There are indeed many ways to manufacture and sell an identical object and there have been endless discussions about participatory capitalism, right here in the West, going all the way back to 1799 when Robert Owen, a highly successful owner of cotton-spinning mills, bought the New Lanark mills in Scotland and organized a model community based on the principles of mutual cooperation. His work strengthened the cooperative movement which spread in many separate directions, for example, to Bismarckian Germany and much later to Gaullian France. According to the Swedish historian, Hakan Berggren, it also went by another route, via the Manchester school of liberalism, to inspire the Swedish idea of social democracy. There is, therefore, no need to look to Japan, which has indeed found a solution half medieval, half postindustrial and quite particular to their society. What our thinkers miss is that the West's problem is not one of production methods. Of course, these problems do loom in the factories. Factories are concrete operations where problems cannot be disguised. But the problem itself is largely in the management structure and in the management. If they wish to look to the East, they should note that Japanese companies are scarcely organized at the top. In their system, most of our management would be out of a job for the simple reason that they are irrelevant to the research, creation and production of goods. *** Doing away with themselves and their systems is not among the options being considered by management. Nevertheless, the refusal of the means of production to respond to abstract systems does present a problem. One of the solutions management has found is simply to decide that, as economies evolve towards higher levels of technique and education, so they will evolve away from production and into the heavenly spheres of service. The future of civilized man, therefore, lies in the service industries. Before entertaining an idea so warm and attractive, it is worth opening a contemporary dictionary; for example, Oxford:
Beneath the word service and belonging to the same word family are serviceable, servient, servile, servility, servitude. The philosopher of management would reply yes, precisely. In the future, civilized man, buying his less-sophisticated, messy goods -- such as steel -- from less-developed societies, will have at his beck and call the service industries of his own country. But the professor has confused his modifier. The primary servitude of a service industry is not to the public but to -real industry; that is to say, to the industries which increasingly produce goods under the political controls of "lesser" civilizations. What is this servitude? Quite simply, service industries only have a market as long as real industry continues to supply basic goods at an acceptable price and in a market where the public can afford to buy them. Those three criteria must be satisfied before the public can turn, with whatever remains in its pocket, to purchase service industry goods. The present disorder in Korea shows just how delicate such a servitude can be. It also reminds us that such a relationship assumes our acceptance of and financial support for the social systems in that country. Even Akio Morita, the founder of Sony and thus the man who had led the way in humiliating Western managers, rejects the view that service industries are the wave of the future for developed economies. He believes that economic growth requires a flourishing industrial base that can produce real added value. [16] Closing the dictionary and opening any history of civilizations, the curious reader might consider the characteristics of societies in decay. At the meeting point between their rise and their decline, societies -- or rather the elites of societies -- always discover that it is beneath their dignity to continue to do the concrete things which caused their rise. And so they set about organizing their lives in a manner diametrically opposed to that which created their civilization and therefore justified its existence. However, they invariably retain the original supporting vocabulary and mythology of their rise, as if these talismans will protect them. In embracing the world of service industries. we abandon the foundations of a middle-class society devoted to the work ethic and driven by a flawed, often hypocritical. but nevertheless real belief in some sort of human equality. As if the name Karl Marx had never been heard, we throw ourselves into demonstrating the core of his analysis. While the substructure of a society is rotting away, the superstructure continues to prosper, living off the decay below. But when the substructure is finally gone, it is only a matter of time before the glorious surface crashes down under its own weight. Businessmen and economists argue that it was essential to turn towards service industries because these were areas of new growth. Had they continued to concentrate on the traditional areas, then manpower savings through modernization would have created a permanent unemployment crisis. This is not entirely false. But then, neither is the portrait of our society, as one faced by an urgent choice over the direction to take, entirely true. Nor is the description of the service industries as the natural creators of new employment based on anything more than abstract logic. The most interesting of the service areas -- the high-technology industries -- are the least labour-intensive sector in the economy. Seventy percent of the manufacturing costs of a semiconductor microchip is knowledge- that is, research, development and testing. Twelve percent is labour. In the case of prescription drugs, 15 percent is labour and 50 percent knowledge. What's more, these technologies are using less and less raw materials. Twenty- five to fifty kilos of fiberglass cable can transmit as many telephone messages as one ton of copper wire. And those fifty kilos of fiberglass cables require only 5 percent of the energy needed to produce one ton of copper wire. [17] There is nothing wrong with these savings. To the contrary, they suggest that we might be nearing the end of the terrifying multiplications of industrial activity whose effect on the earth is just beginning to show. The point is that the serious service industries are not going to be massive creators of solid employment. Indeed, they should not be put in the service category at all. Inevitably though, the high-technology industries are invoked whenever the service sector is being worshipped. The suggestion is that computers, software and advanced communications are typical of our service-based future. The reality is that they belong to the manufacturing process" where they are essential in such areas as research, development, design, production and sales. As Akio Morita points out, these elements cannot be separated out to be kept in the developed world, while manufacturing is moved to the Third World. Why, then, have Japanese corporations apparently gone the same way as those of the West by building factories in such places as Mexico and Thailand? The answer is that their overseas production is not the result of a decision to divide the industrial tasks. Japan consciously maintains a complete domestic structure. Foreign factories primarily reflect the success of their international sales drive. They may benefit from lower production costs abroad, but if domestic employment began to suffer, it is probable that overseas production would be cut back. The point is that the Japanese do not accept our revisionist idealizing of the tertiary sector. The original idea of service industries included anyone who did not manufacture a product -- that is to say, a capital good. Thus teaching and communications fell into the category. Many of these professions are now called public services, but if they form or help people, they are indeed making an indirect but essential contribution to production. In any case, it isn't these basic public service areas which are in expansion. Governments everywhere are trying to cut them back. There are also services which are not considered industries because our obsession with profits seems to eliminate them from what we call the economy. In general these fall into the categories of charity and culture. As Maurice Strong puts it -- "Most of the valid needs as yet unsatisfied are of a non-material nature." [18] Why anyone believes that these services ought to be in a volunteer structure is not terribly clear. Is getting meals to old people who live in isolation less important than making golf balls? Everyone will answer no. Why, then, treat the former as after-the-fact voluntary work and the latter as an essential industry? The answer is that our managerial elites have adopted the Andrew Carnegie conviction that "great inequalities between men are essential to competition and to capitalism." The main category of service industries, in which most job creation takes place, is that which creates and satisfies artificial needs. This consumer industry explosion has generally been described. as the inevitable product of a successful, rich and comfortable society, which already had all it needed. The next step was to create things it didn't need and to create actual services whose very attraction was that they were not necessary. These services and service objects, divorced as they are from utility, were free to grow, multiply, and build upon each other, creating their own self-contained justifications for existence. They could seize upon the minutest detail of clothing, hair, skin, sound, sight, housing, sport, food, transport, and build it up into a baroque cathedral of elements, style, complexity and apparent need. There would be nothing particularly wrong with this if Western civilization, particularly that of the modem era, had self-indulgence as its goal. A glance at our history indicates the opposite. A glance at our contemporary situation indicates that while the area of greatest economic expansion is in the services of self-indulgence, growing percentages of the population are slipping back into pre-twentieth-century poverty. And there lies the real paradox of modem capitalism. It is masterful at producing services people don't need and in large part probably don't want. It is brilliant at convincing people that they do need and want them. But it has difficulty turning itself to the production of those services which people really do need. Not only that, it often spends an enormous amount of time and effort convincing people that those services are either unrealistic, marginal or counterproductive. Never have our skills of organization been so developed, never have our desires for the accumulation of objects and comforts been so realizable. and never have events seemed so difficult to control. In other words, a rational economic structure finds it very difficult to give people what they really want because real human demand does not follow a fixed pattern. Giving people what they want is inefficient because it is irrational. On the other hand, it is efficient to give people what they do not want, because an artificial sales structure can ensure some rational buying patterns. *** It is as if we are becoming what we originally set out to destroy. The elites of societies at such a highly evolved stage have invariably gathered into their hands sufficient real power to be able to betray the intrinsic line of their own society. They may utterly betray it while singing the sweetest lullaby to the contrary. While singing their hearts out for capitalism, competition and hard-won success. they may devote themselves to the employee's life. well paid and self-indulgent. The texture of our reigning mythologies is so thick that no one can see what is actually happening behind this intellectual and emotional camouflage. Elites take criticism very badly. They immediately respond that the critic is on the side of the enemy -- the Left, the foreign rival, the forces of Communism or any other handy ideology. But do the elites, with all their competence and power, actually believe that societies-can be destroyed by anyone except those who lead them? The farmers. the factory workers; the ordinary civil servants. the lower- or even middle-level employees simply do not have the power to destroy or even to alter a society's direction. It is the elites who lead the way and the history of past civilizations is that the elites, at a certain point. cease to fulfill their obligations and begin to indulge themselves. The Roman farmer- soldier-citizens began importing wheat and hiring barbarians to fight for them. The European aristocrats abandoned their land and regiments and went to court. where they became well-dressed hangers-on and manipulators. And now our owner-producers are leaving ownership and factories and are becoming the hangers-on of urban comfort and excitement. The modern manager is indeed an urban phenomenon. Preferably the city in question is New York, London, Paris, Toronto, Frankfurt, Milan. There he finds concrete daily proof of his own value by simply observing himself within the urban corporate structure. His hands are dean. He meets only people like himself. The industrial worker is a distant image, as dirty as the farm worker was in the memory of a noble landowner at the court of Louis XV. The manager has no need to know such people or to go where they are. Often he has himself arrived from there. which heightens his desire not to go back. His Gucci shoes are proof that he has not just arrived from Essen or Baie-Comeau. What's more, he is also the prime believer in the advertising and the unnecessary services generated by his class. He buys the clothes. the cars, the makeup. the holidays, the sports equipment. the property. the pools, the tennis club memberships. Even armaments are built by the industrial managers for the consumption of the governmental managers. Needless to say, none of these people want to live in Pittsburgh, Hamilton, Leeds, Lille or anywhere except in the handful of great urban heavens. This drainage of the "undesirable" parts of nations has created enormous social and economic shifts. The only countershift has come from the managerial need to be served by a weekend haven, as well as by summer and winter holiday installations. Thus whole sections of the West are given over to pure consumption during short periods of time -- Friday night to Sunday night or July and August, for example. The rest of the year they are virtually idle. One of capitalism's greatest problems is that factories are less and less to be found in large urban centres. These companies cannot be well run by remote control: And the managerial class does not want to live where the factories can be found. Of course, some managers will live in these places, even good managers. But the pool from which they must be plucked is a birdbath compared to the ever-swelling sea of the urban managerial class. And if this class will not live in these places, then they are places which will continue to be drained of their activities. The conformism of our business elites is such that they will only go where they can find quantities of their own kind. England has suffered more than any other country from this rush of talent towards a single city. The immediate and distant descendants of the men who actually made England -- the Midlands industrial middle classes -- are jammed into central London, trying to be merchant bankers, advertising executives and head-office managers. The Midlands cities suffer from many things, but beneath their problems of equipment, labour and markets lies the simple fact that those who can afford to go to London do. There they devote themselves to being gentlemen -- a word, like so many in this century, which implies one thing and means another. In this case it involves an education, accent and manner of dressing which suggests some sort of long-established social standing. In reality it means membership in the new managerial class, particularly devoted to service industries which pretend to produce but don't. *** After fifteen years of general economic crisis and depression in the West, the business classes are larger and richer than they have ever been. The standards of living of the population as a whole have been declining, while that of the managerial class has continued to rise. There is a shrinking of the middle class in the United States, but that represents precisely the ejection of those in the old middle class who have not managed to convert to the newer, managerial-class model. Looking at the fate of the owners and managers of free enterprise over the last hundred years, it would be difficult to argue that they have suffered in the social democratic state. In fact, it would be impossible. And yet it is worth thinking about the development over the last hundred years of social legislation, work codes, financial market standards, emission codes and taxation policies. Is there a single example in any Western country of business in general reacting positively to the creation of fairer standards? And, when what are called "probusiness" governments have come to power and proceeded to lower the legislated standards of corporate behaviour, is there a single example of business in general feeling that these standards have been lowered far enough? Is there a single example of management feeling that independent public comment on the way businesses conduct their business is fair? A single example of forestry replanting obligations being low enough? Of social security payments being low enough? Of allowable industrial emissions into the air or the water being high enough? Of workers' rights of any kind being restricted enough? All this could be interpreted as the normal give-and-take of free societies. But societies do not grow and flower simply on the basis of guerrilla warfare. The idea contained in the concept of a "society," especially in a "democratic" or a "free society," is that the participants are in general agreement and are willing to cooperate. The business community, and in particular the managerial class today, seems to see itself as a privileged partner who may withhold cooperation at its sole discretion. The labour movement often takes the same sort of attitude. But unions are just a creation of the business community. They are an exact reflection of the corporate mentality. If they are selfish, it is a selfishness proportionate to their employer's. A union can only react to situations it finds. So when someone like Arthur Scargill, head of the British miners' union, creates such disorder that it is clear he has quite another agenda than the settling of specific grievances, it may be true that he is out of control and dangerous. It is also true that he is the creation of long-term unsatisfactory attitudes among mine owners and managers. That he appears when that may no longer be the case merely demonstrates that history works slowly and that reflections may appear after the original mirror has been broken. Quite simply, the union leaders have learned a great deal from the management's noncooperative approach towards society. There is a worrying self-satisfaction about the idea that capitalism is always the enemy of fairness. Is it true that the business classes have always stood united against reform and social cooperation? Clearly not, since the reform parties throughout the West were financed and sometimes led by members. of those classes. Not only the British Liberal Party in its glory, but the Labour Party after it, was supported by men from the great Midlands industrial families. So were the Democratic Party by the American equivalent, the French Radicals and even Socialists, the Canadian Liberals and so on. Today few members of the business classes work within the reform parties, Fewer and fewer, in fact. These men appear to have moved increasingly to the sort of social refusal you would expect from a nineteenth-century robber baron. Their opposition to fair social standards is virulent. You have but to question them on visiting day at their child's private school or as they come out of their large houses with two or three cars in the drive. Each will tell you in an excited manner about the destruction of initiative and the pulling down of free enterprise. No matter how pro-business the government in place, he will talk about Left-wing government policies. He will seem to have no inner vision of himself as a high-salaried and well-protected tenant of a business bureaucracy. Instead he has dressed himself up in his mind to play the role of Andrew Carnegie, the great capitalist, just the way Carnegie must have played himself. As the scene ends, he leaves you behind on his lawn and drives away in the company's Mercedes to his salaried penthouse corner office in heaven. The question recurs: what makes him act this way? He himself doesn't seem to know. He has been handed the carcass of capitalist mythology and been left to do something with it. Rather than admit to himself the limitations of his own power, it is only natural that he should choose to dress himself up in the full regalia of the rampant capitalist. The real owner of real production facilities is the one far more likely today to be interested in social consensus. Without it, he has a great deal to lose. The technocrat's refusal to be a cooperative partner in the establishment of public morality suits his temperament perfectly. He likes to create the context and set the rules before he agrees to play. In society this is impossible. The relationships are too complicated. He therefore switches into his natural mold, which is defensive, and uses his detached cleverness to manoeuvre his way through convention and law, cutting as close to the letter of permitted action as possible. The contemporary cliche has it that the Nietzschian Hero is a rebel against systems. But here it can be seen just how like Siamese twins the Hero- technocrat relationship is." Morality is the herd instinct in the individual," Nietzsche wrote. [19] The Hero shows his amoral individualism by setting his personal moral agenda and imposing it. The corporate executive, being but an employee, demonstrates the same amoral individualism by defining the greatest good as the ability to manipulate systems. When a fraud involving £215 million was discovered in the U.K. corporation ISC Technologies, the chairman of the parent company, Sir Derek Alun-Jones, stated that the problem hadn't been picked up at first because £105 million of the total had been siphoned off through offshore companies, "Transactions with Panamanian, Liberian and Cayman Island companies are quite usual in business." [20] In other words, the company was quite used to the idea that the government and the citizenry could legally be denied corporate taxes through offshore mechanisms, Subsequently, certain managers had found a parallel way to remove money from the company, The difference was that the corporate cheat was legal. Moreover, this sort of legal cheat was so widespread as a way of doing business that it had become "quite usual." The illegal cheat was a rare, one-time affair. It is this cleverness which a whole new generation of owners and managers, especially from' the exploding service industries, has discovered and accepted as the norm for business attitudes, Their own service industries being so artificial, they have been able to grasp this cleverness and manipulate it into a means for making considerable amounts of money. There is very little distinction between avoiding the letter of the law and evading the law altogether. When a clever man is operating in the heat of the action, there is no difference at all. *** Those on the Left, whose opposition to Capitalism is ritualistic, of course protested this sort of activity. Unfortunately, the battles they fight generally have little to do with the events taking place. At the 1978 World Socialist Congress, a resolution was passed which began:
But all the information was and is available. If anything, we know too much. In their desire to see the multinational as a premeditating monster, they were missing the very essence of the animal -- that it has no particular direction or desires. It is moved only by the needs of its organization and by the narrow ambitions of its managers. The multinational is like a centipede, which moves across borders with the ease of a structured blob. Because of this the employee of the multinational can be seen as the perfect international citizen. The adjective anational would probably be more appropriate. Already some economists are describing him as the harbinger of a future world in which all artificial barriers to the movement and commerce of man will have been swept away, taking with them the narrow, destructive selfishness of the nation-state. Who better to lead the way than the international manager, who has no ax to grind and just wants to do business? The idea certainly has its attractions. However, the malleability of the multinational executive has its origins not in open-mindedness but in indifference. He is perfectly willing to agree with local politics if they agree with him. Equally, the moment they no longer suit his purposes, he feels free to subvert them. The power of his corporation will no doubt have permitted it to forge an important place in the local economy, often by buying up or smothering smaller national or regional competitors. To his own corporation's opposition to local policies the manager may well be able to add that of his company's friends -- fellow multinationals, banks, international credit organizations and even other governments, particularly that of its home country. The issue at hand may be anything -- taxation levels, pollution controls, employment standards, reinvestment policies, R&D obligations. In annoying a multinational subsidiary, the local government will be creating for itself enemies that stretch far beyond the policy in question. And if that government holds firm, the manager and his corporate subsidiary may simply walk away to some other local situation which suits them better. What's more, the subsidiary may have created such local socio-economic tension that other multinationals will follow. They will leave behind an economic void which may contribute to the eventual fall of the recalcitrant government. The manager and the organization to which he belongs are perfectly disinterested players. In their hands the idea of the public weal withers away. Social unity in any size community is based, after all, on the ability to accept not getting what you want. A desire to free man from the narrow-based interests of nationalism is no doubt a good thing, but freedom is also an agreement on how to share responsibilities. The nation-state is just one of man's many attempts to deal with that idea. Now organizations such as the EEC are attempting to widen the definition by establishing common standards among groups of nations. The multinational, with its anational managers; is an attempt to escape any responsibility, thus retaining the power to treat each community according to the corporation's interests. And yet the multinational is not quite so indifferent as it pretends to be. Even a centipede has a general program in life. Even the most intricate system must satisfy itself. And the core of that system is in head office. It is the interests of the head-office managers which decide the general flow of investment and of capital. When head office is in New York, most of the board members will be American, as will most of the senior managers. They may buy and sell internationally, but they wake up on East Seventy-sixth Street; Their primary concerns are those which surround them. Their first political thoughts are for the country in which the corporation is based. This will not stop them from playing off the policies of a nation in which they have a subsidiary against those of their own country. Their use of cheap Third World labour to force down Western standards is a typical example. The end result, however, is not to give power to the subsidiary. Even when called upon by headquarters to appear threatening, the subsidiary is the passive element in an international structure. In the old colonial manner, local elites are hired to ensure local cooperation. The local authorities can but see themselves as the passive receivers of investments and jobs. You can always tell, from the form that economic discussions take, whether you are in a place which is at the centre of multinational structures or at the end of an extended loop. The further you are from the centre, the closer to the beginning of the discussion the word jobs will appear. Jobs are the passive element in industrial activity. They are received as the result of a process which begins elsewhere with such things as capital investment, R&D, industrial planning and markets. The idea of Capitalism as a venture within society or between societies based upon cooperation and mutual profit is thus absent from the multinational model, and increasingly it is absent from the smaller managed corporations. Precisely that cooperation has made Japan's success possible. All the Japanese particular peculiarities, which we are now attempting to imitate, are merely consequences of that cooperation. That is why our efforts to imitate them resemble parody more than they do reorganization. You cannot have a Friedmanite view of market forces or a business school idea of business as structure and then expect to benefit from the cooperative methods proper to the Japanese or to the Swedes or even to the Koreans, to take three very different examples. The market approach and the cooperative approach are mutually destructive. *** A few years ago, a full-page Gulf Oil advertisement appeared in many newspapers:
Following the 1973 crisis, Western governments had desperately sought a way to deal with the economic catastrophe created by their dependence op OPEC oil. They finally decided to leave the corporate part of the price increase in the hands of the Western-based multinational companies responsible for transporting energy. These corporations could then reinvest their new riches at home or in stable countries outside OPEC, with the aim of discovering and developing a guaranteed energy supply for the West. Their reward for acting as good citizens was that they would make a big profit out of the reinvestment. This was a leap of faith on the part of the citizenry and of their governments. They would have been perfectly justified in taxing away these massive windfall profits, which were bringing the Western economy to a halt. What is more, the lead-up to the crisis had been filled with events which indicated that the oil companies ought not to be trusted with the public interest. For example, only months before the crisis, the Canadian oil companies (largely American owned) had told the government that national reserves were enough to last a century. They said this because they wanted permission to export across the border to the more profitable American market what reserves they actually did have. When the crisis came the declared national reserves turned out to be imaginary and Canada found itself a prisoner of both foreign supplies and the priorities of foreign oil companies. The managers had simply lied behind a screen of misleading statistics. It was not that they had been forced to choose between the interests of their shareholders and those of the citizens in their country of operation. Rather, they had chosen freely to make additional profits for their shareholders, which required endangering the fundamental well-being of the citizenry. A second example affected the United States itself. In 1972 the companies agreed that some $4.50 a barrel would be enough to ensure adequate exploration and production for the domestic market. [22] That is to say, $4.50 would pay for exploration and ensure a healthy profit. A few months later, the crisis struck and OPEC raised the price, not to cover new costs but to increase profits. Abruptly the American companies discovered that they had underestimated the costs of exploration inside the United States. Instead of $4.50 a barrel, they could squeeze by with $10. Then it was $15. Then $20. In the case of each price increase, the justifying technical arguments were so watertight that no reference was made to the very recent cost-related lower price. Some people assumed that the companies were making up for the hard struggles of earlier years by claiming their just reward. But most of these multinationals had been around for half a century. The days of risk were far behind them. They functioned more as oil banks, buying up the discoveries of the wildcatters, who risked their shirts on a daily basis. Between 1968 and 1972, the seven major U.S. oil companies had already accumulated net profits of $44 billion. In the same period, they had paid less than $2 billion in federal tax; an effective rate of 5 percent. When the crisis struck, they were already rich beyond the dreams of most corporations. The Western governments decided, nevertheless, to entrust the companies with the gigantic new profits. In the first year of the crisis, their worldwide earnings increased 71 percent. Their net profits were $6.7 billion. They had paid $642 million in taxes. Texaco, for example, earned $1.3 billion after taxes. Exxon, $2.4 billion. [23] At this point, Western economies were plunging into the abyss. The companies immediately began reinvesting their profits. But not in oil. Mobil bought Montgomery Ward, the department store chain -- net worth $8.5 billion -- and in the same period took out full-page ads:
Sun Oil bought the Stop-N-Go grocery chain. Shell went into plastics; Exxon into copper mining, while mounting a reassuring ad campaign:
As the money rolling into their pockets further crippled the West, the corporations were able to buy companies at depressed prices. Insurance companies. Medical supply companies. Gulf tried to buy Ringling Brothers Barnum & Bailey Circus. Others discovered box manufacturing, timberland, general forest products, more department store chains. By the early 1980s, they had 25 percent of the listed resource chemical companies (copper, lead, zinc, silver, gold). They had also taken over a majority of the largest American coal companies. Their first management initiative in this sector was to cut back production in order to get coal prices up. This was done in a nation already desperate for energy. By the end of the 1970s, they had fourteen of the twenty large coal reserves, two of the three top uranium producers, and three of the four large uranium reserves. [24] Atlantic Richfield had a more concentrated strategy than the others. They bought up surface coal-mining reserves throughout the Midwest until they were the largest player. And then, without rushing to develop these resources, they began lobbying Washington to switch American energy dependence from oil to coal. Their argument was that domestic coal reserves were sufficient to provide long-term stability. They also argued that the market price for this coal would have to be the world price equivalent of an OPEC barrel of oil. They knew that surface coal is almost as cheap to mine as sand on a beach. So did everyone else in the energy sector. The potential profits were therefore unimaginable, even by oil crisis standards. The reason Atlantic Richfield was so eagerly lobbying Washington, instead of just going ahead and using its capitalist skills to mine and sell coal, had to do with physical infrastructure. There wasn't one for the distributing or burning of coal. What America needed in order to embrace the Atlantic Richfield strategy was coal pipelines and new coal-burning plants. Any innocent who had been listening to the free-market rhetoric of the oil companies would have imagined that Atlantic Richfield had already formed a syndicate with other coal-producing companies, so that they could all borrow against their future gigantic earnings in order to finance arid construct this infrastructure. But that idea wasn't even entertained. Instead the entire infrastructure was to be built at public expense. As for the windfall profits which the industry in general was receiving thanks to the oil price rise, some of them were indeed being reinvested in 'new energy development -- not nearly enough, however, to eliminate the West's dependence on foreign oil. And so, like babes in the woods, governments and their citizens slipped towards the next oil crisis, which shook them more than the first. These legal but dishonest actions by the oil companies are considered to be among the great exploits of modern capitalism. Their complex ruses were admired by other business sectors and raved over by stockbrokers and merchant bankers. At first glance it would seem that such an attitude was in direct contradiction of the principles of reason. After all, in the original Encyclopedie, Diderot began the entry on the "Morality of Richness": "The means for enriching oneself may be criminally immoral, although permitted by the law." [25] Of all the integrated energy corporations involved, only one or two were owned or controlled by an individual or by an identifiable group of individuals. The mass of unnamed shareholders at no time pushed their companies to so betray the public trust and damage the fabric of the state. Like most stock market investors, they were in the passive position of watching their money grow or shrink. It was growing and so they were glad. They did not really consider the implications of that growth on their own society. The entire direct responsibility for carrying out what may have been the most irresponsible private economic act of the century lies with the managerial class, who are the flower of methodology and the children of reason.
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