Creeping Fascism, Part One: Return of the Company Town

By: John Rubino | Thu, Feb 16, 2012
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The US government's obliteration of the Bill of Rights via the Patriot Act, the recent defense bill that allows the military to detain citizens indefinitely without trial, the health care law that forces citizens to buy insurance, and the attempted takeover of the Internet through SOPA and PIPA has gotten a lot of attention lately, and in a few rare cases has generated some effective push-back.

But according to an article in this month's Harper's Magazine (Killing the competition: How the new monopolies are destroying open markets, by Barry C. Lynn), US corporations are evolving into forms that are more threatening to their victims than anything emanating from Washington. As the author characterizes it, a new generation of monopolists are imposing their own private governments on their industries -- and not always the industries one would expect. This long, detailed article should be read by anyone with a desire to understand how the US is evolving. Here I'll highlight a few excerpts to summarize the major plot points:


Silicon Valley

Just a few years ago a software engineer's talents were almost completely portable, allowing a programmer to move effortlessly between tech companies. In other words, there was a functioning market for talent in which the individual had power and choice vis-à-vis local employers. Then a handful of companies began to accumulate near-monopoly control over their product lines -- and their workers. From the article:

These days the Valley is once again abuzz. Headlines report bulging wallets and a smorgasbord of new perks. Venture capitalists hum down Route 101, and angel investors lurk and listen in the bars. But instead of a disruptive melee like that of the late 1990s, with its diversity of players and voices, the overwhelming tendency today is a further consolidation of power by the already powerful. During the past decade, a few giants have managed to fence in market after market for hardware, software, and content. Some did so simply by buying up their competitors....

Yet this de facto license to govern a trillion-dollar industry--and with it, entire swaths of the American economy--appears to have left these high-tech headmen unfulfilled. Or so we learned when the Justice Department complained in 2010 that senior executives at Apple, Google, Intel, Pixar, and two other corporations had "formed and actively managed" an agreement that "deprived" the engineers and scientists who work for them of "access to better job opportunities." Even in those reaches of society long accustomed to the rule of the few, the fact that some of the biggest and the richest had agreed not to poach one another's workers managed to shock. In an editorial, the New York Times wondered "What Century Are We In?" Yet in the Valley itself, from those most directly affected, we've heard only the rarest of whimpers. The anger is there. But it's tamped down by fear.

...At a crossroads just south of Apple headquarters, in front of a Valero gas station, I caught up with John, who was speed-walking to the dentist. "Of course I don't like it," he told me, and proceeded to recount the facts of the settlement in detail. "But what can we do? It's not like anyone ever dares to speak about it. I mean, they actively encourage us not to talk to one another. It's all taboo."

Poultry Farming
The broiler industry was one of the first in which the generation of monopolists succeeded in replacing open markets with vertically integrated systems designed to be controlled by a single local buyer. The men who rule America's chicken-processing plants have therefore had decades to master the art of setting individual farmers--who still own the land, equipment, and liabilities--against one another.

This sounds bad enough. But when I sit down with poultry grower Mike Weaver in his snug rambler to learn how such tournaments work in practice, he seems astonished at my naïveté. "That's not even the half of it," he begins.

Weaver, a former fish and game officer who can raise flocks as large as 94,000 birds on his farm, slides a "settlement sheet" across the table. It records the amounts JBS paid to seventeen farmers who delivered their flocks to the plant on one particular day. The company, he shows me, paid the top-ranked chicken grower 63 percent more per pound than it paid the bottom-ranked grower. "Naturally," he says, "this sort of differential will tend to make a man work harder to stay ahead of the next fella."

What makes the system truly insidious, Weaver adds, is that the whole competition takes place without any set standards. "There is no baseline," he explains. For one thing, JBS requires the farmers to procure from the company itself all the chicks they raise and all the feed they blow into the houses. Yet the quality of the chicks and the feed can differ tremendously, from day to day and from farm to farm.

What's more, the full-grown chickens are weighed after being trucked off the farm. The farmer is not allowed to see whether the figure on the scale is accurate--nor can he tell whether the chickens he's being paid for even came from his farm. He is simply expected to take the money he is given and say thank you.

As much as he resents being forced into a gladiatorial relationship with his neighbors, Weaver says an actual tournament with a level playing field would be "far better than what we have now." Under the current regimen, the processors "don't just force us to compete against each other. They rig the competition any way they like. They can be as sloppy as they wish or as manipulative as they wish. We are entirely subject to the company." After a moment, Weaver modifies his statement. "Really, we are entirely subject to the foreman at the plant, to the technician who keeps a watch on us. Those men can make us and they can break us, and they know it."

His face reddens. "The market in this valley is very simple to understand. They give preferential treatment to those who kiss their ass."

For the local community, the outcome of this arrangement can be devastating. Traditionally, farmers have tended to join politically with their neighbors. But Weaver, who heads the local poultry-growers association, says nowadays many farmers end up viewing their neighbors as rivals. Most of the 400 or so farmers who sell into the Moorefield plant "try to resist such feelings," he says. But over time, the system wears them down. It also makes them highly reluctant to speak out in public. "Most of the farmers are afraid to say boo for fear the companies will take away their chickens," Weaver tells me. The processors "know we have our house and our land in hock to pay for the equipment. They know we are honorable people who won't walk on a promise. And they exploit this."

Weaver has learned this from bitter experience. In 2010, he spoke at two Department of Agriculture hearings on the consolidation of the packing and processing industries. Ever since, he tells me, the foremen have rated his chickens near or at the bottom, after years of ranking them near the top. This costs him thousands of dollars per flock.

"I can't prove a thing," Weaver says when I ask if there's any way to verify that the company is retaliating against him for speaking out. "That's the beauty of the system. They know everything and we know nothing. They get to decide what's real."

Book Publishing
But perhaps the best way to understand the true structure of America's political economy in the twenty-first century is to talk to some of the people who publish, edit, and write books in America. These days, most articles on the book industry focus on technology. The recent death of the retailer Borders is depicted as a victory of Internet sales over brick-and-mortar stores, the e-book market as a battle between the Kindle e-reader and the iPad. But if we look behind the glib narrative of digitization, we find that a parallel revolution has taken place, one that has resulted in a dramatic concentration of power over individuals who work in this essential, surprisingly fragile industry.

A generation ago, America's book market was entirely open and very vibrant. According to some estimates, the five largest publishers in the mid-1970s controlled only about 30 percent of trade book sales, and the biggest fifty publishers controlled only 75 percent. The retail business was even more dispersed, with the top four chains accounting for little more than 10 percent of sales. Today, a single company--Amazon--accounts for more than 20 percent of the domestic book market. And even this statistic fails to convey the company's enormous reach. In many key categories, it sells more than half the books purchased in the United States. And according to the company's estimates, its share of the e-book market, the fastest-growing segment of the industry, was between 70 and 80 percent in 2010. (Its share of the online sale of physical books is roughly the same.)

Not surprisingly, then, we find the same sort of fear among our book publishers as we do among the chicken farmers of the Sweedlin Valley. I recently sat down with the CEO of one of the biggest publishing houses in America. In his corner office overlooking a busy Manhattan street, he explained that Amazon was once a "wonderful customer with whom to do business." As Jeff Bezos's company became more powerful, however, it changed. "The question is, do you wear your power lightly?" My host paused for a moment, searching for the right words. "Mr. Bezos has not. He is reckless. He is dangerous."

Later that same day, I spoke with the head of one of the few remaining small publishers in America, in a tattered conference room in a squat Midtown office building. "Amazon is a bully. Jeff Bezos is a bully," he said, his voice rising, his cheeks flushing. "Anyone who gets that powerful can push people around, and Amazon pushes people around. They do not exercise their power responsibly." Neither man allowed me to use his name. Amazon, they made clear, had long since accumulated sufficient influence over their business to ensure that even these most dedicated defenders of the book--and of the First Amendment--dare not speak openly of the company's predations.

If a single event best illustrates our confusion as to what makes an open market--and the role such markets play in protecting our liberties--it was our failure to respond to Amazon's decision in early 2010 to cut off one of our biggest publishers from its readers. At the time, Amazon and Macmillan were scrapping over which firm would set the price for Macmillan's ebooks. Amazon wanted to price every Macmillan e-book, and indeed every e-book of every publisher, at $9.99 or less. This scorched-earth tactic, which guaranteed that Amazon lost money on many of the e-books it sold, was designed to cement the online retailer's dominance in the nascent market. It also had the effect of persuading customers that this deeply discounted price, which publishers considered ruinously low, was the "natural" one for an e-book.

In January 2010, Macmillan at last claimed the right to set the price for each of its own products as it alone saw fit. Amazon resisted this arrangement, known in publishing as the "agency model." When the two companies deadlocked, Amazon simply turned off the buttons that allowed customers to order Macmillan titles, in both their print and their e-book versions....


Other Industries

In 1978, 43 firms made and sold beer in the US, with the biggest controlling less than a quarter of the market. Today, more than 1,750 companies make beer in this country but Anheuser-Busch and MillerCoors control 90% of the market. Harper's asserts that this gives them the ability to decide which small brewers survive, and quotes a microbrewer: "When I want to get my beer on a store shelf, I don't call the retailer. I have to beg Anheuser-Busch."

In the 1980s, there were more than a dozen large ad agencies and scores of smaller ones on Madison Avenue. Today four--WPP, Interpublic, Omnicom, and Publicis--control almost the entire industry. "WPP alone controls more than 300 ad agencies, including such once iconic shops as the Grey Group, Ogilvy & Mather, and Hill & Knowlton. And the four giants vigorously shore up this power with strict non-compete employment contracts."

Musicians are being squeezed by Live Nation, doctors by hospital management corporations. Retailing is concentrating into a few mega-box chains. The list just keeps going.


Some thoughts

One thing the article doesn't mention is the concentration of Wall Street financial power. The vast majority of home mortgages and financial derivatives are now originated by a handful of mega-banks. These banks are among the biggest campaign contributors to both parties, while the Fed and Treasury are run by their alumni, so it's no surprise that financial policy tends to benefit Wall Street at the expense of pretty much everyone else.

The battle against monopolies has been going on since the days when Alexander Hamilton, the spiritual father of the Federal Reserve and Goldman Sachs, attempted to use government power to consolidate control of various industries in the hands of his banking cronies. More recently, the early 20th century US economy was run largely by a handful of railroad and natural resource "robber barons." So what's happening now is not new, and the solution -- break the bastards up -- has historically worked, at least for a while. Our problem today is that this relative handful of companies seems to own so much of the government that the two sectors -- mega-corporations and big government -- are now essentially business partners.

The poultry farming story illustrates the connection between economic and political dominance. When a single company or oligopoly controls an industry, workers can't speak out or organize because they fear for their livelihoods. They're serfs in every meaningful way.

All of which makes the left/right divide irrelevant, because both ideologies are getting what they want as well as what they fear. The left wants a big, active government and fears corporate control, while the right (including libertarians) wants free enterprise and fears government control. Yet as things are playing out we're getting the worst of both: pervasive government and corporate dictatorships controlling huge sections of our lives. Whether we call it fascism or totalitarianism or neo-feudalism, the end result will be indistinguishable on the ground.

 


 

John Rubino

Author: John Rubino

John Rubino
DollarCollapse.com

John Rubino is author of Clean Money: Picking Winners in the Green Tech Boom (Wiley, December 2008), co-author, with GoldMoney's James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, January 2008), and author of How to Profit from the Coming Real Estate Bust (Rodale, 2003). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He now writes for CFA Magazine and edits DollarCollapse.com and GreenStockInvesting.com.

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