Economic Insanity: Chapter 6 (part 1)

A Nation of Wage Earners (Part 1)

Sure, cried the tenant men, but it’s our land.

We measured it and broke it up.

We were born on it, and we got killed on it.

Even if it’s no good, it’s still ours.

That’s what makes it ours—being born on it, working it, dying on it.

That makes ownership, not a paper with numbers on it.

We’re sorry. It’s not us. It’s the monster.

The bank isn’t like a man.

Yes, but the bank is only made of men.

No, you’re wrong there—quite wrong there.

The bank is something else than men.

It happens that every man in a bank hates
what the bank does, and yet the bank does it.
The bank is something more than men,
 I tell you. It’s the monster. Men made it,
but they can’t control it.

—John Steinbeck,

The Grapes of Wrath

Ownership. The ground-level assumption of modern American capitalism is that individual ownership of capital should be unlimited. This assumption gives shape and direction to our wayward economic system and opens the door to the other faulty assumptions we’ve talked about. When we peel away all its window dressing, capitalism isn’t really about free markets or free enterprise, as the economic elite would have us believe; it is about ownership of capital. Period. Capitalism, like communism, is a philosophy about ownership. Over the years capitalism has come to mean “unrestricted private ownership of capital,” a condition that is decidedly incongruent with our political precepts and our social ideals. This, however, was not always the case.

A Misconception

The great misconception about modern capitalism is that it is a democratic economic system. We’ve always equated communism with authoritarianism and capitalism with democracy. The logic goes something like this: since democracy is the opposite of authoritarianism, since capitalism is the opposite of communism, and since authoritarianism and communism always seem to go together, then democracy and capitalism must be one package—you can’t have one without the other. This is nonsense. It is theoretically possible to have political democracy without capitalism. It is also possible to have capitalism without political democracy. Any dictator who allows his subjects to own property and accumulate capital has created capitalistic authoritarianism.

Most capitalists would be shocked, however, to learn that modern capitalism is, in practice, as incompatible with democracy as is the enforced cooperation of communism. Capitalism, technically, is the unlimited private ownership of property and the means of production. The italics here are important, because they point to two conditions that conflict with democracy, create increasing inequality, and spawn a host of problems in society. The fact that I can own a piece of property, build a house on it, and reside there is of little consequence. But the unlimited ownership of capital, the means of production, is exactly what places capitalism at odds with our political and social ideals.

In an unlimited capitalist system such as ours, ownership of capital, although it can take any form, tends to be either concentrated in the hands of one or more active individual owners or dispersed among a large, shifting, external body of passive owners. These two types of ownership are very dissimilar, even opposite, in form, but in effect they are actually quite similar.

Concentrated Ownership

Concentrated ownership, the more traditional form, produces people we generally think of as capitalists: individuals who have accumulated or inherited such large amounts of capital that they can hire others (buy their time and energy, a portion of their lives) to produce products for them. The employees are paid a nominal amount that we call a “fair wage,” the products are sold, profits are reaped, and the owner then uses these funds to increase his capital—so that he can purchase the time of more individuals and further increase his wealth, his capital, and his distance from those whose lives he more or less owns.

And he does own them in more than a metaphorical sense, because he owns the produce of their hands and minds, a literal part of them. And they can’t escape his employ (except to flee to someone else’s), because they don’t have capital. They’re not paid enough by the capitalist to become independent, as he is. He doesn’t share his capital with them. Instead they’re paid just enough to stay one step ahead of the bills (if they happen to be prudent money managers), and for this they should be grateful, or so they are indoctrinated.

Now, you may argue that this is a gloomy, Marxist view of our relatively prosperous economic conditions, especially considering the perceived outcome of the Cold War, but let’s take a closer look at democracy. One would have to be hallucinating to suggest that capitalist businesses of any size are democratic institutions, even those that seriously are trying to “democratize” the workplace. Do the people hired by an industrialist or small business owner have an independent voice in the fundamental decisions or direction of the business? Are they equal with the owner in either pay or power? Of course not.

“But,” some may protest, “many employers are benevolent and treat their employees well.” Certainly, and there have also been many benevolent monarchs throughout history, but their subjects didn’t enjoy democracy, government by the people. The employees of an industrialist don’t govern the organization. Even when they are empowered, they still live in an authoritarian system. There is a world of difference between employee empowerment and employee ownership. You don’t have to “empower” owners. The key here is that someone else is able to exercise arbitrary power in the employees’ lives, even if that person elects not to. It is the ability, the possibility, that is relevant here. The owner, if he chooses, can even require them, if they want to keep their jobs, to conform to trivial or demeaning rules and customs.

A benevolent business owner can easily become a tyrant if the company experiences a few setbacks. WordPerfect Corporation, mentioned in an earlier chapter, was a very good company to work for, or so many of my neighbors have informed me. Employee salaries were above industry average, the atmosphere was relaxed, and year-end bonuses were consistent and generous. Then the atmosphere in the software market, dominated by Microsoft, grew ominous. WordPerfect owners announced that they would terminate 21 percent of the workforce. They deemed this necessary, but that is irrelevant to this discussion. The point here is this: Did these terminated workers have any recourse, any real power? No. They discovered the hard way that they didn’t belong to an organizational democracy. They couldn’t maintain their corporate citizenship by virtue of the fact that it was their business. They couldn’t vote the owners out of office. All they could do was pack their things and hit the pavement. One day they were under the illusion that they were valuable and happy citizens of a wonderful corporate kingdom; the next day they were gone, with a new understanding of why corporate citizen is an oxymoron. Republics have citizens; authoritarian systems have subjects.

Employees in most businesses are trapped. Because they don’t own capital, they can’t just walk away and declare their independence. They have to make a living in some way, unless they prefer to either starve or live off government handouts. Independence and equality have been withheld from them by a system—capitalism—that is overtly authoritarian in nature. And even when it wears a benevolent mask, it is still structurally authoritarian and retains its oppressive potential.

The question today’s progressive business leaders and consultants are asking is: How do we make authoritarianism palatable? Or worse: How do we disguise authoritarianism to make it seem more democratic. These questions will never yield a satisfactory answer.

We extol the virtues of the free-market system, because it is largely (as its name suggests) free; at the macro level, it is consistent with our democratic ideals. But that system ends at the front door to most businesses. The free market exists between businesses, but not within them. Companies in the market are free, but employees within those businesses are not. Gifford and Elizabeth Pinchot have coined the term free intraprise to describe a free-market system that ought to exist within organizations. “The alternative to corporate bureaucracy is not merely training managers to behave in an empowering way within a bureaucratic structure; it is developing a system of freedoms and institutions analogous to free enterprise.”¹ It is my contention, however, that free intraprise cannot truly exist unless ownership patterns change within organizations. Ownership is the entire question where liberty and democracy are concerned.

Dispersed Ownership

As indicated above, our authoritarian system of ownership also has another face. Dispersed ownership, the opposite of concentrated ownership, results in an even more insidious state of affairs. Here we’re talking about the massive corporations that dominate the economic (and physical) landscape of twentieth-century America. These conglomerates are owned (sometimes indirectly through mutual funds and pension plans) by a mass of faceless names that usually play no role within the business as employees or managers and may even have no direct contact with the business as either suppliers or customers. They are strewn from one end of the country to the other, almost as if a big wind had swept them up like autumn leaves and scattered them across the countryside. Some have called them absentee owners. Normally we call them stockholders.

Since these absentee owners are little concerned with the day-to-day operations of the business—taking specific interest only in stock prices, dividends, and earnings per share—they hire professional executives to run the show. And since professional executives actually have more power than the dispersed body of owners, they represent the corporate equivalent of the individual capitalist, the industrialist. They perform the same function, enriching themselves on the labors of others, paying themselves exorbitant wages, acting as rulers and decision makers for the masses of employees whose workaday lives they have purchased (albeit with someone else’s money).

But there are significant differences between an individual capitalist or industrialist and a professional executive. The industrialist invariably has a knowledge of both the product itself and the process by which it is created; he (or sometimes she) is more community oriented, more aware of the lives of his employees, often seeing himself as some kind of benevolent, provident feudal lord; and he is the legal owner of the business.

Most professional managers, on the other hand, are generalists, often having no specific knowledge of the products and processes they are hired to manage. Instead, they’ve been trained in modern business schools; they have white collars and are dressed for success. They know finance rather than the nuts and bolts of a particular industry; and their financial training, they firmly believe, qualifies them to work in any business with any product—because they don’t really deal with products, only with the numbers that surround them.

So they play with ratios and financial statements, dream up marketing strategies, and acquire other companies and products that they don’t begin to understand, secure in the knowledge that their jobs are safe as long as the bottom line, market share, and dividends are on the increase. This is why a company like General Electric, with its relentlessly return-crazy chairman, “Neutron Jack” Welch, now sells bonds, makes jet engines and locomotives, hawks a direct-broadcast satellite service, markets industrial diamonds, and runs a TV network.

Because professional executives see themselves as exactly that—professionals, hired specifically to make tough and perhaps unpopular decisions—they add up the numbers, and if the numbers tell them to lay off thousands of workers, that’s exactly what they do. Neutron Jack, for instance, has at this writing erased 170,000 jobs at GE, sometimes going so far as to send lower-level managers packing on the spot and then shipping their personal effects home by UPS.² This from the man who once said, “Any company that’s going to make it in the 1990s and beyond has got to find a way to engage the mind of every single employee. . . . What’s the alternative? Wasted minds? Uninvolved people? A labor force that’s angry or bored? That doesn’t make sense!”³ Neither does amputating 170,000 people from the body of those supposedly valuable employees.

For fundamental reasons, professional executives have little personal interest in the impact their decisions and policies—from plant closings to pollution—have on communities. They generally don’t live in the communities affected by their decisions. And because they don’t actually own the business, they’re free to look out for themselves, preferring loyalty to career over loyalty to employees or even the organization, usually leaving themselves an open door and a golden parachute, just in case the organizational plane takes a nose dive or the pilot’s seat in a larger aircraft becomes available.

So which masters do you prefer, industrialists or CEOs? As for me, I prefer freedom, for either form of capitalism is at odds with democracy and human dignity. Should this statement surprise us? Of course it should. We’ve always been taught that capitalism is morally superior to communism. In reality, these competing systems are more similar than they are different. They are two sides of the same rusty coin—both outdated, both authoritarian in practice, although, ironically, it is communism, not capitalism, that claims to be democratic in theory.

Times Have Changed

The rise of capitalism actually brought favorable changes in its early years—greater freedom, equality, and democracy—but with no inherent restriction on ownership, capitalism was doomed to its present course. In hindsight, it is perfectly logical that communism should have arisen in reaction to the injustices and abuses that resulted from unlimited capital ownership. It’s interesting to note in this context that Karl Marx’s monumental work, which laid the theoretical foundation for the communist revolution, was titled Das Kapital. Capital ownership was always the central issue. The communist mistake, however, was to swing the pendulum too far—from unrestricted private ownership of capital to no private ownership at all—and then to enforce this arrangement with authoritarian government.

Capitalism, originally, was a liberal economic doctrine, a rebellion against the monarchic and aristocratic systems of Europe. In those days, capitalism was seen as a great tool in dispersing property, wealth, and power among a much broader group of citizens. But capitalism soon developed its own authoritarian and aristocratic classes, and power, wealth, and property soon became restricted and concentrated, just as they had been under the old monarchies.

“Right-wing economics,” according to Christopher Lasch, “conceives of the capitalist economy as it was in the time of Adam Smith, when property was still distributed fairly widely, businesses were individually owned, and commodities still retained something of the character of useful objects.”⁴ But much has changed since then. The rise of large, impersonal economic bureaucracies, the increasing inconsequence of owning private property, and the shift from a production ethic to a consumption ethic have transformed capitalism into something far different from what it might have become.

The most notable manifestation of this transformation appears perhaps in the life of the common man or woman. As the captains of industry consolidated their power, and as their organizations increasingly became employers of the masses, people felt great pressure to change, to trade independence for supposed security and marginal prosperity, to fit the functional corporate mold, and, consequently, they became systematically dehumanized. “The division of labor, John Ruskin argued, was misnamed. It was not the labor that was divided but the men, who were ‘divided into mere segments of men—broken into small fragments and crumbs of life.’ . . . Men were now condemned to forms of labor that made them ‘less than men’ in their own eyes. ‘It is not that men are ill fed, but that they have no pleasure in the work by which they make their bread, and therefore look to wealth as the only means of pleasure.’”⁵ This happens when people do not own the produce of their hands and minds. They become something less than human, and the market mechanism is crippled.

Adam Smith’s “invisible hand” cannot function properly in either the unbalanced power structure of corporate America or our undisciplined “shop till you drop” marketplace; it works best in an ambience of widespread and limited (relatively equal) property ownership. Well into the next century after Smith’s death, it was generally agreed that freedom could not thrive in a nation of hirelings.

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1. Gifford and Elizabeth Pinchot, The End of Bureaucracy and the Rise of the Intelligent Organization (San Francisco: Berrett-Koehler, 1993), 114.

2. Paul Hawken, The Ecology of Commerce: A Declaration of Sustainability (New York: HarperCollins, 1993), 124.

3. Noel M. Tichy and Stratford Sherman, Control Your Destiny or Someone Else Will: How Jack Welch Is Making General Electric the World’s Most Competitive Organization (New York: Doubleday, 1993), 251.

4. Christopher Lasch, The True and Only Heaven (New York: Norton, 1991), 519.

5. Lasch, True and Only Heaven, 137.