1: The Flow of Economic History: Accumulation, Monopolization, Competition, p 8 “advancement in the capitalist economy becomes possible only by seizing one of the newer positions of power created by the continual revolutionizing of society’s means of production.”
1: The Flow of Economic History: Accumulation, Monopolization, Competition, p 9 “To survive, the “individual capitalist” must accumulate; to accumulate, he must join in a competitive free-for-all in which control over power resources is always at issue and in which the quantity of them brought under control must be defended and enlarged. The fact that only a few are successful depends more on the structure of the game than on the skills of the players or their strategies.”
2: Accumulation and the Changing Structure of Business, 1790-1860, The Years before 1840, p 13 “The earliest impetus to economic growth came from foreign trade, which boomed from 1793 to 1807. Revolutionary turmoil and the Napoleonic wars in Europe allowed American shippers to capture a major part of the international carrying trade and led to unprecedented volumes of exports and profits. U.S. Shipping earnings rose from $6 million in 1790 to $42 million in the peak year of 1807; the value of all exports increased from about $20 million in the early 1790s to $109 million in 1807 (in current dollars). For a fledgling economy, these numbers are impressive. Exports probably constituted 15 percent of the national product as it was. Cotton exports alone shot up from 189,000 pounds in 1791 to 66 million pounds worth $14 million in 1807. Some merchants amassed fortunes of over $1 million, unheard of from trade during the colonial period.”
2: Accumulation and the Changing Structure of Business, 1790-1860, The Years before 1840, p 15 “Improved highways and post roads and, above all, the construction of canals cut transport times and freight costs dramatically between 1790 and the 1830s.”
2: Accumulation and the Changing Structure of Business, 1790-1860, The Years before 1840, p 15 – 16 “state governments provided critical help, with devices like the chartered corporation. Some of the new banks and transportation companies had relatively large financing requirements. They were drawn to the corporate form not only to procure monopoly-type privileges through public charter, but also to raise capital by gathering in the savings of many small-business people: limited liability made it seem safe to buy a few shares in a bank or turnpike company operating outside one’s own locality. Corporations as devices for mobilizing capital soon became much more important in the United States than in European nations. American capitalists tended to have their personal wealth tied up in mercantile or manufacturing ventures or else were land poor; they lacked the accumulated reserves of funds like those of English brewers or French financiers.”
2: Accumulation and the Changing Structure of Business, 1790-1860, The Years before 1840, p 16 “By the 1830s the sense of social distance between rich and poor was growing, as the changes in business and commerce meant “proportionately fewer independent entrepreneurs with productive property of their own.” The shifts in the character and pace of economic activity were creating the first signs of a new class of wage-earners, who would lose virtually all their independence for slowly and painfully acquired increases in material benefits.” [quoting KARL POLYANI]
2: Accumulation and the Changing Structure of Business, 1790-1860, 1840-1860: The Germs of Industrial Transformation, p 18 “The modern accumulation process is driven by the interaction between profit-seeking investment and the dominant business firm. Giant enterprises made their appearance with the long-term expansion of fixed capital and the increasing resort to the corporate form of organization.”
2: Accumulation and the Changing Structure of Business, 1790-1860, 1840-1860: The Germs of Industrial Transformation, p 25 “By 1860 the wealthiest 2 percent of the nation’s families owned one-third of all physical assets, the riches 10 percent held three-quarter, and the richest 50 percent possessed virtually everything—half of all households had zero wealth.”
2: Accumulation and the Changing Structure of Business, 1790-1860, 1840-1860: The Germs of Industrial Transformation, p 25 – 26 “At least through the 1820s, Americans had taken a pragmatic attitude toward the role of government. Public funds, as noted earlier, had been liberally used to improve transportation and the flow of commercial information. There was general understanding that huge projects like the Erie Canal (1817-25) simply could not be carried out by private enterprise. […]
The defeat of national planning for internal improvements was no doubt related to the growing sectional conflicts, especially between the North and the South, and agitation for “state’s rights.” But the private business sector was also starting to oppose “government interference” in the economy. The ideological reaction apparently began with the great expansion of 1843-1857, when a generation of capitalists began to sense the burgeoning opportunities that lay in free-wheeling exploitation of new technologies and new markets. The telegraph provides evidence. The industry embarked upon its first growth phase in the late 1840s, after Morse’s experimental line between Baltimore and Washington had been financed by $34,000 in federal subsidies. With the swift commercial success of thelegraphy, a campaign for public ownership was undertaken by a number of congressmen and private citizens. Opposition was strong and effective from the outset, “Who should own the Magnetic Telegraph?” asked the New York Mercantile Advertiser in 1846. Surely not the Post Office was the reply, because of “its utter inefficiency, and its absolute inability to meet the wants of the public . . . in comparison with individual enterprise it is perfectly contemptible . . . a bungling concern.”
Similar “government incompetence” language was heard from several of the early telegraph entrepreneurs. By 1868 Western Union had established the nation’s first industrial monopoly, and only in the United States and Canada did telegraph systems remain in private hands. A decade later, Western Union was taken over by speculator Jay Gould and saddled with heavily watered stock. Its efficiency remained spotty, its message-pricing structures were discriminatory, and technological improvements in the industry were mostly the work of inventors unconnected with Western Union. Nonetheless, Wall Street’s Commercial and Financial Chronicle was charging editorially (December 2, 1882) that a government-run telegraph would be “communistic.”
Henceforth, if government wished to subsidize private business operations, there would be no objection. But if public power were to be used to control business actions or if the public sector were to undertake economic initiatives on its own, it would run up against the determined opposition of private capital.”
2: Accumulation and the Changing Structure of Business, 1790-1860, 1840-1860: The Germs of Industrial Transformation, p 25 – 26 “
3: The Grand Traverse of the American Economy, 1865-1900, The Grand Traverse: In Quest of an Explanation, p 33 “Between 1865 and 1900 railroads and urbanization were the powerful investment forces behind industrialization, interacting with a host of other developments.”
3: The Grand Traverse of the American Economy, 1865-1900, Winds of Change: The Consequences of the New Accumulation, p 42 “science-based gains in efficiency [.] permitted huge expansions in productive capacity that tended to overshoot actual levels of private demand. The main problem lay in a system that encouraged efficiency gains but discouraged a distribution of income that could assure commensurate gains in worker purchasing power.”
4: The New Age of Monopolization, 1875-1902, p 43 “By the late 1890s the corporate revolution had transformed the American business system. Small businesses persisted in the hundreds of thousands, but the dominant form of enterprise in terms of economic power and social impact was now the large corporation serving a national market. All the big business characteristics we know today were becoming evident—increasing scale of operations, formal separation of ownership from actual control, complex management structures and multiplant organization, and growing concentration of the output of many industries in a handful of firms.”
4: The New Age of Monopolization, 1875-1902, The Rise of Big Business, 1875-1896, p 50 “Competitive pressures in the new electrical equipment industry, for example, led to formation of the General Electric Company (GE), an 1892 Morgan combination of Thomas-Houston Electric and Edison Electric, leaving only Westinghouse between GE and monopoly of the industry. […] Four years later GE and Westinghouse, following policies begun by Thomson-Houston in 1887, secretly agreed to share patents to prevent the entry of competitive producers of lighting and electrical equipment, the start of a habit that proved hard to break.”
4: The New Age of Monopolization, 1875-1902, The Rise of Big Business, 1875-1896, p 51, ALFRED D. CHANDLER: “the most imposing barrier to entry in these industries was the organization the pioneers had built to market and distribute their newly mass-produced products. A competitor who acquired the technology had to create a national and often global organization of managers, buyers, and salesmen if he was to get the business away from the one or two enterprises that already stood astride the major marketing channels.”
4: The New Age of Monopolization, 1875-1902, Conclusion, p 64 ““Competition” and “monopoly” are not polar opposites but integral parts of one competitive process that leads to concentration of power resources in a few hands.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, p 66 “Throughout the U.S. Economy, in manufacturing and nonmanufacturing alike, “the majority of the industries are noncompetitive in an important way. Specifically, they choose to operate at a point where marginal cost is well below price, a policy that makes sense only if firms influence prices through their volumes of production.” The result is that “market power and excess capacity diminish the strength of the economy’s drive to full employment.”” [quoting ROBERT E. HALL]
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The Oligopoly Firm: Investment Behavior and Effects, p 67 “When a firm enjoys substantial market power, its pricing decision does not ordinarily reflect market demand. The large corporation chooses a percentage markup of prices over costs of production that will provide a target rate of profit to support some desired volume of investment. Product prices are set not strictly to maximize short-run profits but to finance the level of investment consistent with profitable growth, with profits and growth mutually interdependent.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The Oligopoly Firm: Investment Behavior and Effects, p 68 “a recurrent reason for introducing new plants and machinery has been to reduce labor requirements.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The Oligopoly Firm: Investment Behavior and Effects, p 69 “The National Income and Product Accounts show that wages and salaries are equivalent to over 90 percent of consumption outlays and that consumption itself accounts for more than 80 percent of the national income.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The Second Merger Movement, 1916-1929, p 78, RALPH L. NELSON: “From 1924 through 1929 stock prices increased greatly while industrial production increased only moderately. The merger series more closely followed stock prices.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, Toward a “New Era” of Prosperity, 1917-1929, p 84 “Funds for streets and roads became more readily available with the Federal Aid Road Act of 1916, amended by the Federal Highway Act of 1921. They required states to set up highway departments to plan road projects and submit to federal inspections to qualify for federal aid on a “matching funds” basis. Actual outlays, done almost entirely by state and local governments, passed the billion-dollar mark early in the decade and reached $1.82 billion by 1927—one-sixth of all government expenditures, federal, state, and local.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The End of the Boom: 1929 and All That, p 87 “despite the enactment of the federal income tax in 1913, state and local property and sales taxes, which have always been regressive, provided over half of all public sector revenue in the 1920s.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The End of the Boom: 1929 and All That, p 87 “ “At 1929 prices,” reported the Brookings Institution, “a family income of $2,000 may perhaps be regarded as sufficient to supply only basic necessities.” In that year 12 million families—more than two in five—had incomes below $1,500. Nearly 20 million (71 percent) earned less than $2,500.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The End of the Boom: 1929 and All That, p 88 “For the companies involved, “flexibility of price was out of the question.” “Administered prices” guaranteed pricing stability for oligopolized industries but cyclical vulnerability for the macroeconomy: large price reductions would be forestalled by larger cutbacks in production and employment. From 1929 through 1932 prices in competitive industries fell 60 percent compared to only 15 percent in “the more concentrated industries”; and small price declines were associated with big production declines in motor vehicles, agricultural machinery, iron and steel (output down 74 to 84 percent), cement (down 55 percent), and tires (down 42 percent). These forces must have been at work in the 1920s, exerting a negative “acceleration” effect on investment.”
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The End of the Boom: 1929 and All That, p 88 “The automobile industry came to epitomize modern production and distribution of consumer durables, with “deliberate product obsolescence, extensive advertising, and consumer finance. General Motors took the lead in all three advertising, yearly model changes, trade-ins, and living in constant debt were thereby elevated to what many take to be the American way of life. They also postponed the day when the industry would find itself with chronic excess capacity.”” [quoting DOUGLAS DOWD]
5: Investment, Growth, and Instability: Oligopoly and the Pursuit of Prosperity, 1900-1929, The End of the Boom: 1929 and All That, p 88 “When mortgages on homes are included, total personal debt grew considerably faster than disposable income after 1922, rising to the equivalent of 30 percent of disposable income in 1929.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, p 93 “The eight postwar recessions through 1982 were significantly milder than the 21 between 1854 and 1938. Unemployment averaged 5.4 percent of the labor force from 1945 through 1984, against 8.1 percent from 1900 through 1939. Fixed business investment, the economy’s most volatile spending component, fluctuated less widely as well, as did growth in GNP. One result was an 80 percent increase in real disposable income per capita from 1947-48 through 1972-73, surely equal to—or better than—any other quarter-century in U.S. history.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The 1945-1949 Business Cycle and Its Aftermath, p 96 “From 1945 through 1972 there was a historic reduction in business-cycle instability and in uncertainty for large corporations in their financial and investment planning. The more stable environment came from an enlargement of government, the one component of the economy that is relatively immune to cyclical swings in aggregate demand.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The 1945-1949 Business Cycle and Its Aftermath, p 97 “Until the Second World War, state and local government (SLG) was two or three times larger than the federal government. But federal purchases then expanded faster, so that the federal government grew larger than SLG through the 1950s and 1960s. Military spending accounted for more than four-fifths of all federal purchases in this period (9.7 of a total federal GNP share of 11.2 percent during 1955-59, for example).”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The 1945-1949 Business Cycle and Its Aftermath, p 99 “In June 1950 unemployment was still 5.2 percent, considered embarrassingly high at the time. Thereafter it dropped swiftly, to 3 percent by early 1951 and then to a post-Second World War low of 1.9 percent in August 1953. What had intervened was a massive escalation of military spending, from an annual rate of $14 billion in mid 1950 to $51 billion by early 1953, or from 5 to 14 percent of the GNP.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The 1945-1949 Business Cycle and Its Aftermath, p 100 “Other government expenditures might well have served the same purpose, but the military spending preference became firmly established for two reasons—powerful opposition, economic and ideological, to any government programs that might compete with private capital or encroach upon its domain, and the external role that military spending immediately began to play in preserving the international capitalist system.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The Course of Private Spending 1947-1972, p 102 “the momentum behind Los Angelizing came from the cumulative impact of the Federal Highway Acts of 1944, 1956, and 1968. They opened the way to complete motorization and the crippling of surface mass transit.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The Course of Private Spending 1947-1972, p 103 “In 1949 GM and its partners were convicted in the U.S. district court of Chicago of criminal conspiracy […] and fined $5,000.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The Course of Private Spending 1947-1972, p 103 – 104 “Infrared instrumentation, pressure and temperature measuring equipment, medical electronics, and thermoelectric energy conversion all benefited from military R&D. By the mid 1960s indirect and direct military demand accounted for as much as 70 percent of the total output of the electronics industry. Feedbacks also developed between electronics and aircraft, the second growth industry of the 1950s. By 1960 aircraft became the fifth-largest manufacturing industry (behind electrical and nonelectrical machinery, motor vehicles, and steel in value added). Its annual investment outlays were 5.3 times larger than their 1947-49 level, and over 90 percent of its output went to the military. Synthetics (plastics and fibers) was another growth industry owing much of its development to military-related projects. Throughout the 1950s and 1960s, military-related R&D, including space, accounted for 40 to 50 percent of total public and private R&D spending and at least 85 percent of the federal government share. Industrial chemicals and pharmaceuticals were the only growth leaders in the 1950s and 1960s that did not rely heavily on military orders or R&D.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The Course of Private Spending 1947-1972, p 104 “private investment simply did not stimulate the economy the way it did during the Grand Traverse or the 1920s. Between 1865 and the 1890s the investment share of GNP nearly doubled, and from the World War I years through 1926 gross private fixed investment again increased sharply as a proportion of GNP. At no time during the post-World War II era did this happen. In 1948, gross fixed investment constituted 17.7 percent of GNP (in 1982 dollars), a level never again reached over the next four decades, during which the investment proportion of GNP stayed between 14.6 and 17.4 percent.”
6: Investment, Growth, and Instability: The Great Postwar Boom, 1945-1972, The Course of Private Spending 1947-1972, p 106 “In 1950 military spending amounted to $14.3 billion, SLG education $7.2 billion; in 1972 the totals were, respectively, $77.4 billion and $67.7 billion. […] Education was by far the biggest component of SLG spending, averaging 37 percent of total SLG expenditures from 1950 into the 1980s. Highways were the next, with about 16 percent. Together they drove total SLG purchases higher than total federal purchases by 1969-70 (11.4 percent of GNP compared with 10 percent).”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Aggregate Demand: Investment, Consumption, and the Public Sector, p 115 “Construction of new factories, the backbone of American industrialism, decreased very sharply after the mid 1960s, as economic activity began to shift from capital-intensive manufacturing of mass consumption products toward higher-profit enclaves in the commercial sector—upscale retail trade, business and professional services, communications, real estate, and the ballooning financial and insurance industries. Funds flowed into commercial real estate largely from institutional investors such as pension funds and insurance companies; they increased the share of their portfolios invested in real estate in the search for higher returns and hedges against inflation.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Aggregate Demand: Investment, Consumption, and the Public Sector, p 117 “While Pentagon orders and R&D support have strengthened America’s most internationally competitive industries, including aircraft and engines, computers, scientific instruments, communications equipment, and laser technology, there are signs that military projects have become more narrowly specialized, with less spin-off for the decisive consumer industries. A crossover may have been reached in the early 1980s, when the spillovers from the civilian sector to the military began to exceed the flow from the military to the civilian.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Aggregate Demand: Investment, Consumption, and the Public Sector, p 118 “In 1985 the Pentagon’s inspector general announced that 45 of the nation’s 100 largest military contractors were under criminal investigation.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Aggregate Demand: Investment, Consumption, and the Public Sector, p 118 – 119 “Military output does not interfere with or saturate private demand. Pentagon dollars jeopardize no business interests because they go to private firms, providing support rather than competition. The same cannot be said for low-cost housing, Amtrak and mass transit, public recreational and wilderness projects, and many social services like legal aid for poor households. A sizable expansion in areas like these would have disrupting effects on private production and on free labor markets. It would also demonstrate that the public sector can provide certain goods and services more effectively than private profit-seeking companies—a “bad example” to be blocked at all cost.
Most significantly, military spending reproduces the oligopolistic structure of the corporate economy, as it consolidates the power of some of the largest firms in concentrated sectors of the economy. The “defense sector” of private industry looks much like any other industry dominated by big business: among its familiar features are monopolistic power and private planning of output levels and prices, high market shares and excess profits.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, The Faltering Economy and the Curb on Government, p 121 “The plunge in SLG spending [after 1972] is extraordinary, especially since SLF was the leading sector in the U.S. Economy during the heyday of the postwar boom by virtue of its rapid expansion after 1955. The relentless attacks on “big government” by a resurgent right wing, anchored in the Republican party but well represented among Democrats, have borne their bitter fruit—a reduction of the amounts of public spending necessary to generate sufficient aggregate demand to keep the economy operating at a high level of employment and output. The laboratory test is the great postwar boom: in the absence of the rapid growth of government spending from 1947-48 to 1972-73, the economy would probably have exhibited the same stagnationist tendencies evident since 1973. With reduced growth of both investment and government spending, it is not surprising that the overall economy—GNP—has turned in such a poor performance since the early 1970s.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, The Faltering Economy and the Curb on Government, p 122 “A typical new house was within the means of two-thirds of all families in the 1950s, spending 25 percent of their income or less; by 1981 that proportion had fallen below one-fifth.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, The Faltering Economy and the Curb on Government, p 125 “But why withdraw something that on balance is beneficial to the economy, as government spending has been since the late 1940s?
What seems to mainstream economists like an enigma or a misjudgment is neither. Rather, it is proof that economics and politics are never independent but are organically interrelated. In American society, investment and consumption flow in directions largely determined by corporate decisionmaking centers, and the market economy gives rise to a dfinite set of institutions and values that, in turn, contstrain the esolutions mainstream economists can put forward. Thus, the economy may well have performed far better with an ongoing fiscal and monetary stimulus than it did in “the good old days,” but that stimulus can nonetheless be eliminated or curbed for political reasons. This would occur when the constituency favoring full employment and government intervention is overpowered by a superior force—corporate capital intent on doing whatever it thinks it must do to preserve its freedom of action.
The more astute members of the capitalist class may be well aware of the potential costs of high unemployment, excess capacity, and a recession that could spin further downward and set off a financial breakdown. The priority, however, is to maintain control over the profit-making environment and to keep unwelcome incursions into it bottled up. Prices and wages, labor discipline, technological change, product development and marketing, and industrial location all are determinants of profits and as such must be controlled or predominantly influenced by corporate capital. At the same time, aggregate demand must be bolstered by government macropolicies and institutions. But when the two collide, aggregate demand and full employment must give way, at least for what the policymakers trust will be a short run.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Stagflation and the Assault on the Social Wage, p 125 “The impact of external events on an economy may be stimulative or depressive. The opening of new markets abroad or inflows of foreign capital can increase a country’s income, while cheaper foreign goods or price increases for raw material imports can be disruptive. External shocks can be doubly damaging if they force, or promote, domestic policies that complement the stagnationist tendencies of the corporate economy. Here the basic instability of capitalism reappears as an economic policy problem.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Reaganomics and the Fourth Merger Movement, p 132 – 133 “Military outlays, 5.2 percent of GNP, climbed to 6.7 percent in mid 1986 (as officially measured). […] The new “supply-side” economics turned out to be the strongest dose yet of military Keynesianism. The only difference this time was that as deficit spending encouraged consumption to race ahead of domestic output, imports filled the gap and foreign savings financed both the budget and trade deficits. That was the “new” feature of supply-side economics—foreigners supplied the goods and the funds.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Reaganomics and the Fourth Merger Movement, p 133 “Deregulation of industries began in 1978 with the airlines and natural gas, followed by trucking and the banking system. The telephone industry, regulated in 1910, was deregulated in 1984 with the breakup of the Bell system. Replacement of the leaden hand of government regulation by the invisible hand of the free market was supposed to spur competition and productivity and reduce process. While some of these benefits did materialize, they were undermined as these industries congealed into oligopoly through the familiar shakeout cycle.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Reaganomics and the Fourth Merger Movement, p 138 “the psychological climate created by a probusiness administration, the great bull market of 1982-1987, abundant liquidity and the resort to debt financing, and the continued slowdown in real GNP growth. Under these conditions, “corporate restructuring” is more attractive than directly productive activities because it generates faster profits. Speculative financial operations harm the nation’s output potential by diverting effort, talent, and money away from substantive organizational concerns.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Reaganomics and the Fourth Merger Movement, p 139 “Since the firs merger movement of 1890-1902, the success rate for combinations of all types has been about half. And those that survive hardly do so by virtue of consistently superior efficiency. There is little reason to think that, when the long-run returns on the megamergers of the1980s come in, they will be different. One study, covering 1950 through 1986, discloses that 33 companies, “many of which have reputations for good management,” on average divested more than half of all their acquisitions. “The track record in unrelated [conglomerate] acquisitions is even worse—the average divestment rate is a startling 74 percent.” The results “give a stark indication of the failure of corporate strategies. . . . Only the lawyers, investment bankers, and original sellers have prospered in most of these acquisitions, not the shareholders.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Conclusion, p 140 “The response to the supply shocks of the 1970s actually validated Keynesian theory, as tight fiscal and monetary policies depressed economic activity, generated persistent unemployment, and further discouraged the investments needed to get out of the trap.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Conclusion, p 140 “The squeeze on working people was tightened by a redistribution of income toward the well-to-do, one of the objectives of Reaganomics. If another objective was to rechannel income toward corporate profits to increase investment rates, it failed. Real business investment, which fell from 1980 to 1983, snapped back from the long slump by jumping 17.7 percent in 1984 and 6.8 percent in 1985. It then stagnated again, declining in 1986 and increasing a bare 1 percent in 1987, so that its growth during the 1980s was below even the reduced trend rate of the post-1972 period.”
7: Investment, Growth, and Instability: Stagflation and the Corporate Counterattack, 1973-1988, Conclusion, p 140 “The corporate response to the disappearance of a captive domestic market with easy profits compounds the underlying problem of stagnation. It has involved a reallocation of profits and managerial resources toward unproductive activities in finance and insurance, real estate, and business services (advertising, legal, and other). The mergers and leveraged buyouts of the 1980s are an excellent example. Unproductive activities produce nothing that creates new capital, develops new technologies, or improves human skills. They serve only to preserve and extend the existing claims to income and wealth. The paradox of late capitalism may be that sluggish aggregate demand diverts resources into unproductive activity—undermining real capital accumulation and economic growth.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The World the Dollar Built: The Climax of U.S. Power, 1944-1971, p 154 “In the early 1950s foreign operations supplied 7 to 11 percent of total after-tax corporate profits; this proportion then rose steadily, averaging 13 percent in the 1960s and 21 percent in the 1970s. For the financial sector, the foreign link was just as significant. By 1970, from 26 to 46 percent of all deposits of the eight biggest New York banks lay outside U.S. Borders.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The World the Dollar Built: The Climax of U.S. Power, 1944-1971, p 155 “With the dollar fixed in value as the world’s key currency through the 1950s and 1960s, U.S. companies found that their exports tended to be expensive for foreign consumers, but that it was comparatively cheap to buy or build a factory and marketing facilities in a foreign country. The increasingly overvalued dollar shifted attention away from U.S.-based exports and reinforced the direct investment-overseas production habit.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The End of Bretton Woods and the Empire in Decline, p 156 – 158 “All monetary and commercial systems represent the institutionalization of power relationships, and the world the dollar built was no different. Two formal dollar devaluations, in December 1971 and February 1973, destroyed the officially privileged status of the dollar. They put everyone on notice that henceforth the dollar would neither be backed by some immutable gold value nor redeemable in gold for central bank settlements; nor would the dollar be buffered, by its own government or rescue squads sponsored by the International Monetary Fund, against foreign exchange speculation. In accepting dollars, foreign firms, citizens or governments would now be incurring as much fluctuation risk as with other “mortal” currencies.
The decline of the American empire was the product of several forces. European and Japanese recovery from the Second World War inevitably ended the bumper export surpluses the United States enjoyed through 1960-64, its last days as the world’s chief supplier of manufactured goods, as its trade surpluses began to shrink, then disappear. Meanwhile, continued foreign investing by American corporations and, above all, military spending abroad threw the rest of the balance of payments irreversibly into deficit. From 1960 through 1970 net military spending abroad consistently accounted for 87 percent of the overall U.S. Balance of payments deficits. More than anything else it was military overextension in Vietnam that signaled the unwillingness of U.S. Administrations, both Democratic and Republican, to control their now-spiraling balance of payments deficits. It convinced foreign bankers that, so long as the 1944 Bretton Woods system of international finance lasted, they would be left “holding the bag” of unrestrained increases in supplies of dollars. With the dollar’s key currency status, the United States could buy foreign goods or assets without exporting an equivalent value of its own goods, because European or Japanese sellers had to retain the dollars they were being paid as part of their own money supply—their official international reserves. Thus, foreign government holders of short-term dollars found themselves but two choices. One was to tolerate heavier inflows of dollars and thereby help to finance the Vietnam war, American takeovers of industries in their own countries, and possibly inflation too as the dollars expanded their own monetary base. The other was to get rid of these dollars by cashing them in for gold from Fort Knox.
Richard Nixon’s own answer was not long in coming: when you’re losing, change the rules of the game. On August 15, 1971, with no advance warning to any government, friendly or otherwise, he unilaterally slammed shut the U.S. gold window against foreign central banks, terminating dollar convertibility into gold and unhinging the exchange-parity rate of the monetary unit that had been the world’s sole international reserve currency since the Bretton Woods agreements of 1944. Not only did President Nixon overturn the existing international monetary system. Equally fateful was his decision to impose a temporary surtax of 10 percent on imports, a signal that from now on the United States would discard free trade whenever its usefulness seemed outmoded for American purposes.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The End of Bretton Woods and the Empire in Decline, p 159 “a hegemonic impulse tends to outlast its occasioning circumstances and the means for preserving it.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The End of Bretton Woods and the Empire in Decline, p 159 – 160 “While the American share of world exports of manufactures was falling, the American MNC share was not. […] The MNCs increased their exports from facilities outside the geographic United States, in both developed and less-developed countries, to account for more than 10 percent of world exports by the mid 1980s. It became common practice for American MNCs to fill foreign, and some U.S., orders from their overseas factories rather than from their U.S.-based facilities. […] In 1957 foreign affiliates of American MNCs were supplying 17.6 percent of the exports of manufactures by all U.S. Firms at home and abroad; in 1984 that proportion stood at 41 percent. For U.S. corporations, foreign direct investment was providing an escape from constraints at home. But any escape could be short-run, as the transfer of production abroad may transform the excess capacity tendencies of corporate oligopoly into global ones.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, Trade and Investment in the 1980s: The Costs of Reaganomics, p 161 “During the recovery years of the mid 1980s, increases in American GNP accounted for 70 percent of world demand growth in industrial nations, nearly twice as much as in previous postwar recoveries.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, Trade and Investment in the 1980s: The Costs of Reaganomics, p 162 “The great monetarist experiment of 1979-82, and the Reaganomics of enormous increases in military spending coupled with a three-stage income tax cut, were both grossly unilateral acts in an international context of receding American power. Like the corporations’ assumption of permanent economic superiority based on easy monopolization of the U.S. home market until the 1970s, such monetary and fiscal acts by U.S. administrations were relics of a bygone era, when the United States could contain, or compel acceptance of, the ripple effects of its own decisions. From 1979 through 1984 the United States was nakedly forcing its economic policies and priorities on the rest of the world. But this time it succeeded in causing major problems for U.S. foreign policy—as well as for its own economic health.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, Trade and Investment in the 1980s: The Costs of Reaganomics, p 162 “With the dollar falling in value, Japanese exporters defended their U.S. Market shares by raising prices less than the appreciation of the yen even if it meant lower profits—while U.S. firms in Japan preferred to enlarge profit margins rather than cut prices and expand market share.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, Trade and Investment in the 1980s: The Costs of Reaganomics, p 163 “Capital inflows from abroad were needed to cover both the trade deficit and the federal budget deficit; the United States had to borrow in excess of its domestic savings, or sell off factories, bonds, stocks, and other property to foreigners, to finance its high level of private consumption (its import surplus) and public consumption (its federal deficit, with spending exceeding tax revenues). Had the capital inflows been used to finance real investment, as during the nineteenth century, America’s economy might have emerged in a stronger position, with improved productivity and higher income levels that could easily defray the service charges on the debt. But during the Reagan years, the United States borrowed to pay for private consumption and military spending.
The net foreign borrowing quickly ended seventy years for the United States as a creditor nation. In 1981-82, U.S. residents owned $140 billion more in foreign assets than foreigners held in the United States. This margin dwindled to $4 billion in 1984; in 1985 it turned into a debtor balance of $112 billion. By 1987 the United States was the world’s largest debtor nation, with a negative balance of $368 billion. This was a debt greater than that of the three previous leaders combined (Brazil, Mexico, Argentina), although America’s holdings abroad provided investment income, and leverage, beyond the means of any poorer nation. But the American standard of living would likely be affected as the bill came due for the fiscal irresponsibility of the Reagan era.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The United States in the World Economy: New Role, Old Habits, p 165 – 166 “In fact U.S. administrations have been waging trade war against Japan and the EC ever since the 1971 fall from grace; this was the first line of defense of their imperial prerogatives. The list of American “initiatives” in trade is a long one. It runs from President Nixon’s 1971 import surtax to the “orderly marketing agreements” reached with South Korea, Hong Kong, and Taiwan “voluntarily” to limit their exports of cotton and synthetic textiles (1973), with Japan to slow its automobile exports (1981), and with the EC to curb steel shipments (1982). In 1982 the Reagan administration ruptured the Atlantic alliance with an embargo on exports of turbines and other equipment by U.S.-affiliated firms in Britain, France, West Germany, and Italy to the Soviet Union for its Siberian gas pipeline to Europe, an exercise in extraterritoriality that drew an angry rejection even from Prime Minister Margaret Thatcher. In 1983 Washington put on new sugar quotas, subsidized a large sale of wheat flour, butter, and cheese to Egypt, a French customer, to punish the EC for its tariff protection of its own farmers; increased the U.S. tariff on motorcycles tenfold; doubled duties on specialty steel and stainless steel plate; and placed restrictions on 40 categories of garments from several Asian countries including China. In 1986 the Reagan administration set new ceilings on imports of European whiskey, wine, pork, hams, chocolates, and olives to retaliate for food sales the United States allegedly lost to Spain and Portugal when they joined the EC; it also imposed a five-year tariff on Canadian cedar shingles and shakes, drawing immediate retaliation from Ottawa against American books, periodicals, and computer parts and a reminder that Canada remains the largest U.S. trading partner. In 1987 the Reagan administration slapped 100 percent tariffs on certain Japanese computers, television sets, and power tools. In the late 1980s it was taking aim at a high-tech rival, Airbus Industrie, a European consortium whose passenger jets were challenging Boeing and McDonnel Douglas in the hotly competitive international aircraft market.”
8: Foreign Trade and Foreign Investment: The Road to Hegemony and Back, 1880-1988, The United States in the World Economy: New Role, Old Habits, p 166 “The U.S. initiatives, coming as they did during a time of growing interdependence among capitalist nations, embodied a typical American “shoot-out” approach to problem resolution, with a blend of unilateralism, impatience, and conviction that the adversary will yield rather than test American resolve.
The American illusion of omnipotence has been costly and threatens to become costlier than ever.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, A Century of Monopolization: Change and Continuity, p 174 – 175 “in most cases scale economies are exhausted at sufficiently small plant sizes—and market shares—so that something other than tight oligopoly would be feasible. IBM, the “most valuable company” in America, may be the prime example of a firm whose domination of its industry resulted not from declining costs of production but from monopolistic power and the price discrimination tactics employed to preserve it, as documents from the 1969-1982 antitrust prosecution reveal.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, A Century of Monopolization: Change and Continuity, p 175 “Studies of invention show that giant companies are not the fountainhead of technological progress. The largest firms do not support R&D more intensively relative to their size. Small, independent inventors, unaffiliated with any industrial research facilities, supply a disproportionate number of inventions like air conditioning, the jet engine, insulin. “Radical new ideas,” Business Week concluded in a 1976 survey, “tend to bog down in big-company bureaucracy. This is why major innovations—from the diesel locomotive to Xerography and the Polaroid camera—often come from outside an established industry.””
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, A Century of Monopolization: Change and Continuity, p 175 “for big business, profitable growth strategies are linked to the attainment of market power, which often engenders bureaucratic management and conservative policies. Excess profits can accrue long enough to lull corporate giants into a false sense of security. Among the predictable results would be technological lag, periodic attempts to shore up profits and power through mergers, and administrative hypertrophy. This is probably why the United States “is the most over-supervised country in the world. American companies—the big ones—average 12 management levels between the president and those who deal directly with workers and customers. The largest Japanese companies . . . have only 7 levels at most.”” [quoting ROBERT H. GUEST]
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, A Century of Monopolization: Change and Continuity, p 176 “We now know that before the Civil War per capita incomes in the United States were high by contemporary standards, surpassed through the 1870s only by the British. To a great extent this initial advantage was a gift of nature. North America offered its European settlers an almost inconceivable abundance of fertile land and other natural resources for agriculture and industry. These were the factors that places the United States ahead of other nations economically, after which the corporate-led growth of the past century produce only “about average” growth rates.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, The Public Sector in the United States, p 181 “As a proportion of GNP, total expenditures by all three levels of government in the United States run about 34 percent. This is the lowest public spending-GNP ratio of any industrial capitalist nation in the world save Japan.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, The Public Sector in the United States, p 181 “In the late 1970s public enterprises accounted for an average of 13.5 percent of total capital formation for a variety of noncommunist countries, both developed and third world. Excluding the United States, “whose share is untypically low” at about 4.4 percent, the average capital formation share exceeded 16.5 percent.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, The Public Sector in the United States, p 181 – 182 “Social expenditures have risen since the 1930s. They were not driven up by government bureaucrats seeking to expand their own power, as American conservatives claim, but grew belatedly, after the private sector was unwilling or unable to provide old-age support and other human services. They were responses to demands that originated in popular agitation and social movements and were only later enacted into law.”
9: Economic Growth in the Corporate Era: Trends, Triumphs, Paradoxes, The Public Sector in the United States, p 182 “for the most part, government benefits are distributed independent of income and depend upon characteristics like being a senior citizen or a veteran, attending a state university, or being a farmer or disabled. Most benefits are not directed primarily toward lower-income people.”