Concentrations of Power

Watching the past few years unfold, and now the Occupy Wall Street protests, it strikes me that our democratic institutions, across the free world, need some major reform.  Despite being Canadian and Israeli, I will focus mostly on the US, with some comments about Israel at the end.  However, a lot of these trends are true in Europe as well.

Liberal democracy requires separations of powers between lawmakers, the executive branch and the judiciary.  This is what we all learned from Schoolhouse Rock.

Separation of powers guarantees that no branch of government is ever dominant.  The theory is that each branch will check and balance the others.

But what happens when the powerful group is no longer government, but in the private sector?  How does its power get checked?  What happens when government becomes its servant? In the 1950s President Eisenhower warned of the "military-industrial complex", a growing powerful group of defense contractors, working with their colleagues in the military to exert undue control over US foreign policy.  In the 2010s, I think we need to update to the "financial-corporate complex", which may be more dangerous than the "military-industrial complex" ever was.

We have a situation where financial power is controlled by a smaller group of people than has ever been the case.  The 1% that OWS talks about is generous, as Paul Krugman has pointed out.  Really it is the 0.1% who are the problem, and they are almost all in the financial sector.  Their lobbyists have essentially taken over the government, and they own big parts of the media.  They have killed any efforts to regulate their activities, even after taking down the world economy with their shenanigans.

It is even worse, because these wealthy individuals sit on top of massive financial corporations, and have those resources at their disposal as well to make sure that the system never gets changed.  The Supreme Court decision in Citizens United allowed corporate money to be used in unlimited amounts to influence the political system.  This means that the few people in charge of these large corporations have an enormous megaphone to push for their interests, and it is very hard for the public (who own the corporations) to do anything about it.

I am not a big believer in conspiracies.  I don't think there are a group of fat cat bankers sitting in a room planning how to take over all the wealth in the world, and oppress the 99%.  What I do think is that the incentives are all skewed towards having them act as if they were.  The capitalist, free market system is set up such that everybody has an incentive to maximize their profits.  The problem is that in any market, this means that it pays for players to try to monopolize their market.  As long as they don't succeed, competition keeps the market free.  However, once they get undue market power, it snowballs.  The system eats itself and the market may remain capitalist, but it is no longer free.

If I were a Marxist (which I am not), I would say that at this point the proletariat needs to rise up and overthrow their capitalist overlords.  Since I am not, what I think is that balance needs to be restored so that the free market can function properly.  The right-wing in America will have you believe that any government intervention by definition makes the market less free.  I would contend that it takes government, as imperfect as it is, to regulate the free market, and guarantee that it remains free.  (I also think the government has a role in making sure that externalities and public goods are paid for, but that is a post for another day.)

It seems to me that anti-trust legislation, which is still in place, is to economic concentration of powers what the separation of powers is to government concentration of power.  Breaking up the "too big to fail" banks would not only prevent the need for another bailout, it would also reduce their power.  I am not an expert, but it seems to me that if any player in a market (any market) is so big that its failure would bring the whole market down (and in the financial sectors case, the whole economy down), then it should be a target for anti-trust action, even without any new legislation.  We just need an executive with the guts to do it.  This is not the full solution, but would certainly be a good start.

In Israel, it is not only the financial sector that is too concentrated, it is the whole economy.  The few families controlling most of the banks, holding companies, investment houses and media in Israel are good people and patriots, I am sure.  However, there are too few of them, and the structure of Israeli holding corporations allow them to leverage their control over vast publicly held companies as well.  There have been some good moves in this direction recently, but the proof is still in the pudding.