June 21, 2013
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Bigger isn’t always better. From the Tower of Babel to Teddy
Roosevelt’s trust-busting, that principle’s been enshrined in law and
legend since the dawn of history. Have we forgotten the lesson?
Corporations,
databases, storehouses of personal and institutional wealth all are
expanding at ever-increasing speed, threatening to engulf our economy
and our lives as they do. That’s the problem with Big Things: Once they
reached a certain size, they keep on getting bigger.
Here are seven ways the runaway power of Bigger in finance and in data is threatening to overwhelm us all.
1. Bigger Corporations
Americans
have known about the danger of overly large corporations since the
founding of the Republic. “I hope that we shall crush in its birth the
aristocracy of our monied corporations,” said Thomas Jefferson, “which
dare already to challenge our government to a trial of strength, and bid
defiance to the laws of our country.”
“The money powers prey
upon the nation in times of peace and conspire against it in times of
adversity,” Abraham Lincoln observed. “The banking powers are more
despotic than a monarchy, more insolent than autocracy, more selfish
than bureaucracy.”
Even an unlikely populist, Grover Cleveland,
said this: “As we view the achievements of aggregated capital, we
discover the existence of trusts, combinations, and monopolies, while
the citizen is struggling far in the rear, or is trampled beneath an
iron heel. Corporations, which should be the carefully restrained
creatures of the law and the servants of the people, are fast becoming
the people’s masters.”
Oversized corporate power is why Congress
passed the Sherman Antitrust Act of 1890. It’s why Theodore Roosevelt
broke up the railroad. When businesses become so large that
competition’s squeezed out, everybody suffers.
And yet today we’re
confronted with the largest corporations in history, with predictable,
even inevitable, results. In real dollar terms, the minimum wage is less
than half what it was in 1968. One of the main reasons for that is
that
most minimum-wage employees work for large corporations who dominate both their labor markets and the political process.
The
Census Bureau reported
in 2008 that 33 million Americans—more than 25 percent of the total
workforce—worked for corporations with 10,000 employees or more. The
largest employer is Walmart, with an astonishing 1,400,000 employees,
followed by the company that owns Taco Bell, Pizza Hut and KFC, and then
McDonald's.
With that kind of clout it’s easy to keep wages low
while doling out record payouts to executives and shareholders. Walmart,
for example, paid $11.3 billion in
dividends and share buybacks last year. That comes to more than $8,000 per worker. McDonald’s shareholder payouts came to nearly $7,000 per worker.
What’s
more, despite their PR campaigns, there’s no evidence that shoppers
benefit by paying less for their goods. Walmart aggressively forces
prices downward for its suppliers, sometimes below the cost of
production. But the suppliers have to make up the difference somewhere,
either by over-charging other stores or underpaying their own employees
and suppliers.
Either way, it comes out of the public’s pocket in the end.
Companies like Walmart don’t create jobs, either. They take them from elsewhere, and frequently pay less in wages. A
Pennsylvania study found
a correlation between the presence of Walmart and increases in
county-wide poverty, which the authors speculated might have been
because “Walmart stores destroy civic capacity in the communities in
which they locate by driving out local entrepreneurs and community
leaders.”
They can kill leadership at the national level, too.
2. Bigger Banks
The
statistics on too-big-to-fail banks and financial institutions are
staggering: The largest 0.2 percent of US banks—12 of them,
altogether—control
69 percent of the industry’s total assets, while 98.6 percent of all banks held only 12 percent of assets.
The
four biggest banks still control 83 percent of the derivatives market,
and only 25 commercial banks—out of a total of 8,430 FDIC-insured
commercial banks in the United States—control roughly 90 percent of the
market.
With the exception of struggling Bank of America, the top five banks all
grew even more in the first quarter of this year. Richard Fisher, president of the Dallas Federal Reserve Bank,
co-authored a plan to address the unfair advantage these banks receive because everybody knows the government won’t let them fail.
And
while the mega-banks tell us that customers can benefit from their
“economies of scale,” customers have not seen lower rates or charges as
the result of their extraordinary consolidation.
These banks are
holding the economy and the public hostage to their own possible
failure. That’s why they—and the bankers who work for them—were
publicly notified by
the Attorney General of the United States that they needn’t fear
prosecution for their crimes. He later tried to walk that statement
back, but he had only articulated a policy that had long been obvious
among observers and lawmakers.
Our largest banks are becoming bigger than the law.
3. Bigger Investors
Holding
companies, hedge funds, and other institutions own more and more of the
private-sector economy. That includes groups like Mitt Romney’s Bain
Capital, which invests in everything from pharmacies to retail chains to
homes for troubled teens.
Edward Snowden’s revelations about the
NSA lifted the veil of secrecy surrounding government contractors like
his last employer, Booz Allen Hamilton, which is owned by a holding
company called the Carlyle Group. Booz Allen brought the Carlyle Group
$5.9 billion in revenue last year. In a classic example of Bigger in
action, it also announced a new national security deal in February worth
$11 billion.
Mega-investors like Bain Capital and the Carlyle
Group aren’t like entrepreneurs or investors of the past, who put money
and effort into businesses they believed in and then built them to last.
They want their payouts on the shortest possible timeline, so they push
executives at the companies they own to make the bottom line look as
good as possible.
Sometimes that means sacrificing the long-term
good of the company for a fast-buck payout to these holding companies.
That may be one of the reasons why so many American corporations are
giving out so much in dividends and share buybacks, rather than
investing in infrastructure and employees.
When investors get Bigger, they insist on getting paid Faster.
4. Bigger Charities
It
should be no surprise that all of this, along with government policies
toward taxation and other matters, is creating runaway levels of
individual wealth. And as a few individuals amass extraordinary wealth,
even charitable giving becomes a bigger problem.
The philanthropic
world is now dominated by a few players. The Bill and Melinda Gates
Foundation is the mega-player, with more than $34 billion in assets.
That’s more than the next three foundations combined. As of
2011,
the top five foundations held nearly one-third as much in assets as the
top 100 foundations put together. As foundations and other
philanthropies expand, charitable organizations which are outside their
funding protocols are less and less likely to receive funds.
Some
players get Bigger within a niche. New York’s Robin Hood Foundation,
originally funded by hedge fund donors, was given a great deal of
authority over small donors’ funds to aid the region’s victims of
Hurricane Sandy. Like similar foundations, Robin Hood has occasionally
been used as a
propaganda tool for arguing that government “can’t do the job.”
That’s not charity. That’s ideology.
Using
aggressive sales tactics and rough elbows, the Susan G. Komen Race for
the Cure came to dominate the breast cancer charity world. It became
controversial after suing other charities that used some of the same
phrases or symbols, even when they would have seemed to be in the public
domain. (The word “cure” and the color pink were the subjects of two
such lawsuits.)
The Komen group then abruptly defunded Planned
Parenthood and other service groups, seemingly for political reasons.
The resulting controversy helped the debate in one very real sense: it
provided an object lesson in the dangers of Bigger, even in the world of
charity.
5. Bigger Corporate Data
The
recent NSA scandals have revealed the dangers of Bigger Data. But that
phenomenon’s closely linked to Bigger’s other areas of overgrowth,
especially in finance and investment. The scandal and controversy
surrounding Facebook’s IPO (initial public offering) offered a glimpse
into the intersection of Mega-Banks, Mega-Investors, and Mega-Data.
Every large enterprise is now pursuing bigger data. A new
private study suggests
that there continue to be fewer corporate data centers in the United
States, but that each is correspondingly larger. Highly centralized
databases leave businesses, economies and societies more vulnerable to
disruptions caused by accidents, natural disasters, or acts of terror.
The
Big Data vendors include Twitter, Facebook and Google. But they also
include niche forms of Big Data, like banking. Newly launched banking
investigations involve something called "
dark pools,"
an alternative form of trading that takes place outside the normal
stock markets. There is now evidence that the banks and service
companies whose data platforms provide this service have been
"front-running" trades, using customer information from their data
systems to enrich themselves.
Even news organizations are entering the data-selling business. For $2,000 a month, Thomson Reuters offers a service called “
ultra-low latency”
which gives subscribers access to key economic reports two seconds
before they’re released to the public. As Business Insider notes, “two
seconds in … trading time is an eternity.” That’s because stock markets
are computerized Big Data operations, too, and transactions can occur at
nearly light-speed.
Big Data corporations are typically currently
valued well in excess of what its real revenues would suggest. That’s
certainly true of Facebook, because the world of Bigger believes in the
power of data—and Facebook has it.
Most Facebook users would
probably say that its interface is hard to use. Its founders aren’t
wealthy because they’re brilliant programmers. They’re not visionaries,
either. They thought they were creating a relatively small set of social
networks for colleges. But they stumbled onto something powerful—the
power of data that users volunteered about themselves—and they exploited
it aggressively before anyone else could compete with them.
That’s
how the world of Bigger works. You don’t need to be the best. You need
to be the first. Then you need to be aggressive in order to stay the
biggest. The forces of Bigger will do the rest.
6. Bigger Government Data
Mega-data is changing our government, too. The Obama administration’s “
Big Data Initiative” suggests a mentality which believes Big Data is more useful than other forms of information.
Big Data has already created a national security apparatus of staggering proportions, as Dana Priest and William Arkin
reported for
the Washington Post. Large databases can provide enormously useful
information, but they can be a distraction too. As Priest and Arkin
observed, “lack of focus, not lack of resources,” prevented law
enforcement officials from stopping the Fort Hood shootings.
That
can happen when too much data is presented without adequate screening.
Reports from a smaller data initiative—perhaps even an old-fashioned
warrant and search on the radical cleric with whom he was
corresponding—might have been much more effective in preventing this
tragedy.
We should learn from experience before assuming that the
best thing to do with Big Data is make it even bigger. But that’s not
the plan: Amazon, one of the corporate world’s biggest data players, has
been hired to create a
“private cloud” system for the CIA at a
cost of $600 billion. That’s more than half a trillion dollars. For
what, exactly? We don’t know. Perhaps to ensure that the same technology
which keeps recommending those novels you don’t want to read guides the
thinking of our intelligence community.
With Bigger Data comes greater temptation. Thanks to the Center for Media and Democracy’s
review of Freedom
of Information Act documents, we now know that at least one national
security “fusion center” strayed from its anti-terrorism mission in
order to analyze data on citizens conducting peaceful protests. Why?
Because Jamie Dimon, the CEO of Bigger bank JPMorgan Chase, was coming
to town and didn’t want to confront protesters.
That’s how Bigger works. Money, data and influence can intersect in unexpected and harmful ways.
7. Bigger Cronyism
As
institutions and databases become larger, the temptations of power
become bigger too. The Carlyle Group has been able to use its money to
attract government figures from both parties, including former President
George H. W. Bush and several senior members of the Clinton
administration.
For his part, former President Clinton dealt for years with billionaire Ron Burkle, who offered him what the New York Times
described as
“the potential to make tens of millions of dollars without great effort
and at virtually no risk.” For her part, former Secretary of State and
leading presidential contender Hillary Clinton was on the board of
directors of Walmart.
Big Power Often Follows Big Money
The
Clinton, Bush and Obama Treasury Departments and regulatory agencies
each became revolving-door operations for Wall Street. Officials and
bank executives must have grown accustomed to seeing one another on the
Acela train that runs from New York to Washington. The ones headed south
are taking government jobs, where their friends will be well protected.
The ones headed north are cashing in.
Better
We’ve
seen the spectacle of three former presidents, two Republicans and a
Democrat, unable to resist the lure of big wealth. We’ve seen the 21st
century’s two sitting presidents, one from each party, unable to resist
the power of big data. With power increasingly corrupted by ever-bigger
forces, who will speak for the individual citizens of this country?
Obama
advisor Cass Sunstein attributes a wise quote to legal scholar Karl
Llewellyn: “Technique without morals is a menace, but morals without
technique is a mess.” But while Sunstein is presumably arguing against
the latter, today’s more urgent and difficult task is to put an end to
the former.
That’s why we need a new system of checks and
balances. We need to recognize that Bigger needs to be tempered by
fairer, that top-down control needs to be replaced with lateral
decision-making, that a centralized financial, corporate, and government
complex must never replace the smaller and more humane systems of
democracy and small-business free enterprise.
The universe offers
us a warning in the astronomical phenomenon known as a “singularity,” or
“black hole.” If a star becomes too large, it begins to draw everything
around it into its gravity field. Nothing can escape the hole around
it, not even light. Then the star begins to collapse in upon itself,
compressed by the irreversible force of its own mass growing greater and
greater.
We don’t deserve Bigger, we deserve better.
Richard (RJ) Eskow is a blogger and writer, a former Wall Street executive, a consultant, and a former musician.
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