World in the Grip of an Idea: 20. The United States: Business as an Instrument of Political Power
AUGUST 01, 1978 by CLARENCE B. CARSON
In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the impact on several major countries and the spread of the ideas and practices around the world.
Bridles for horses are equipped with blinkers. They are flaps on both sides of the horse’s head at the level of the eye. Horses are skittish animals, and the purpose of the blinkers is to shut off peripheral vision so that the horse will not attend to or be startled by something seen out of the corner of the eye.
Modern man is provided with blinkers, too. These are intellectual blinkers provided by the prevailing ideology. Under the sway of the idea that has the world in its grip, intellectuals blinker or blind us by determining what are the issues and in what terms they are to be discussed. Our intellectual vision is narrowed to take in only what we are supposed to see. True, there are those who persist in seeing more than is prescribed, but they are usually denied any forum from which to dramatize their viewpoint.
The prevailing ideology holds that "business," defined as an interest group, is in a continuing opposition to government intervention and regulation. The antecedents of this notion are in ideology. Marxist ideology proclaimed that a class struggle was in progress. The main antagonists in this struggle were the capitalist class and the proletariat class. Gradualists have watered down this doctrine considerably, softened it at the edges, and made it less pronounced. But as they have instituted their reforms and regulations in the United States, they have clung to a subtle variation of the class struggle notion that capitalists are the enemy. On this view, businessmen favor laissez faire and oppose government intervention, while government intervenes on behalf of "the people" to hold obstreperous businessmen in line. These are the terms in which the issues must be discussed, if intellectual fashion is to be observed.
The Marxist notion that capitalists constitute a class vigorously defending their interests against all challengers is about as valid as would be the notion that all females eligible for marriage constitute a class pursuing the common aim of marriage. The fact is that eligible females are in competition with one another for the available swains, if matrimony is their object. In their own way, businessmen are in competition with one another. They compete for customers, for materials, for workers, and for whatever they conceive would be advantageous to them. True, some businessmen oppose regulation as a matter of principle; and a goodly number oppose regulations when it is expedient to do so. It is also the case that businessmen are more apt to denounce regulation than are, say, journalists or teachers—regulation of business, that is.
Be that as it may, it is a grotesque distortion of what is happening to look at the matter this way. There is every reason to believe that businessmen spend vastly more ingenuity, energy, and money to get regulations construed so as to be able to live with or take advantage of them than they do in opposition to intervention. If this were the issue, however, there would be room for it as an issue in the framework of the prevailing ideology. There has been much discussion over the years about how the regulated manipulate the regulators. Those favoring government restraint of business have deplored it, while those more favorably disposed toward the needs of business activity have been more charitably inclined toward something they consider inevitable in any case.
Businesses Collect Taxes
But what is happening most prominently is of a different order. The grip of the idea is being fastened on America by using business as an instrument of political power. Much of the force of government power reaches the individual today indirectly by way of his employer and the other business and financial institutions with which he is involved.
Some of this instrumentation of business by government for its own ends is well known and needs only to be alluded to in order to be accepted. Businesses collect most of the taxes from individuals and pay them into local, state, and federal treasuries. This has already been discussed in connection with restrictions on enterprise, but it needs further elaboration in the context of government use of business to extend political power. Employers collect most income taxes, both state and Federal, by withholding them from salaries. They also collect Social Security taxes in the same way. Stores and other retail outlets collect sales taxes. On budget type mortgages, the mortgage company collects one twelfth of the projected real estate taxes by way of the regular monthly payment. Telephone, electric, and gas companies add whatever taxes there may be upon their services: to their bills, and when the bills are paid, the tax amounts are set aside to be paid into governments. Service stations collect the taxes on gasoline, tires, and other automobile accessories. There are also a considerable variety of hidden taxes on businesses which are generally passed on in the price of the product.
The most extensive of these, though it is not usually referred to as "hidden," is the tax on corporations. Businesses collect these taxes, of course, because they are required by law to do so and would be subject to punishment if they did not. The collection of them, the keeping of records, and the other costs associated with it, are generally a cost of doing business. The consumer pays these costs as well, though it is only fair to observe that he would no doubt pay them, and they would probably be higher, if government collected the taxes directly.
However that might be, it should be clear that government has empowered businesses to perform the bulk of one of its most disagreeable functions—the collection of taxes. This does not mean that people usually blame businesses for the taxes, though they are apt to blame them for high prices when, in fact, much of the price is attributable to taxes. The main impact of this use of business by government is somewhat more subtle. When business collects the taxes the individual loses his ability to contest paying them. He can only prevent income taxes from being withheld by quitting his job. He can only refuse to pay the sales taxes by declining to buy what he wants. The normal route for taking a case to court is denied him because of the difficulty in refusing to pay. The individual’s economy is intertwined with the power of government over him.
Enforcement of Labor Laws
Business becomes an instrument of government, too, as the main executor of the government’s labor and employment policies. The individual is the pawn in the midst of the complex rules by which government activates its policies through business. Whether he can get a job at all, whether he will have to join a labor union, how long he will work for how much, among other things, are determined by government policy.
Wages and hours legislation has been around for forty years now. Government prescribed minimum wages determine practically whether a person may be employed or not. If a person is unskilled, handicapped, or slow, he may not be sufficiently productive to be employed for a job because of the mandatory wage. The inexperienced are at a particular disadvantage, because a prospective employer has no way of knowing how long it will take or even whether an applicant may become productive enough both to earn the minimum wage and repay the expense of training him.
Union wages and other rules and restrictions are often an extension of government policy over business. The National Labor Relations Board, an arm of the federal government, establishes the framework, though it may not be known, sometimes, in advance of a ruling, within which company union relations are to be carried on. Once a company recognizes a union, it tends to become an instrument of union policy—collecting dues, hiring through a union hall, requiring union membership of those it employs, maintaining seniority rules, and paying a union wage. The individual is at the mercy of the NLRB, the labor union, and the company when they act in concert.
Fair employment practices, as they are called, and Affirmative Action are prescribed by the federal and many state governments. Thus, the hiring and promotion practices of business become an instrument of government policy. To avoid litigation or government penalties many firms undertake joint ventures with minority owned companies, establish what are in effect quota systems in hiring and promotion, and conduct searches for minority personnel to fill vacancies. To the extent that political prescription is substituted for business judgment, a business becomes an instrument of political power.
Many of the regulations, restrictions, and restraints under which we live are imposed by way of business. For example, automobile safety equipment and emission controls come by way of requirements on auto makers. Safety belts, shoulder harnesses, interior design, structural strength, and so on, have made their appearance not from customer demand but by way of legislation. Buzzers, filters, and an assortment of other devices are attached to the vehicles by government fiat. An individual who wishes to have his vehicle divested of any of this impedimenta must either do it himself or find a wayward mechanic to do it for him.
Most of the housing available to us has its quality and character determined by building companies and financial institutions acting as instruments of government. Most of the financing of homes comes from privately owned institutions. However, their lending policies are heavily influenced and widely determined by government policy. VA and FHA guarantees under gird a considerable portion of the loans made to individuals. Although the money comes from private sources, VA and FHA lay down standards for and determine much about the houses so financed. Many savings and loan associations are federally chartered and make their loans in terms of these government charters. Builders impose, as it were, the numerous requirements of local, state, and federal government on buyers, such things as zoning restrictions, setback ordinances, distances of buildings from property lines, structural standards, sanitation and electrical prescriptions, the paving of streets, and so on and on. Real estate agents, if their services are to be used, impose the rules governing them upon their customers.
Examples could be multiplied of businesses as instruments of government, but perhaps enough has been told to establish the point. Virtually every business in America (if there is an exception, it has escaped my notice) acts as an arm of government in one way or another and to a greater or lesser extent. While the evidence to substantiate much of this must be familiar to most of us, the implications and results of it may not be so readily apparent.
The matter is more complex than the above would indicate. The examples thus far could be interpreted as being simply a case of government imposing rules upon business which they in turn, however reluctantly, impose on their customers. Undoubtedly, that is the way it is often enough. But that is hardly the whole story. Government and business are so intricately intertwined today that many businesses have taken on the character of governments. I would like to back into an explanation of the how and why of this development with a simple story.
Some years back I lived in a state which had a tax, imposed annually, on checking accounts in banks. This tax came to my attention one day when I was going over my monthly bank statement. There was a deduction from my account to pay this tax. This struck me as highly impertinent behavior by the bank. My understanding of the agreement I had with the bank was that when the spirit moved me I would deposit money with them. Then, when, as, and if I decided to do so I could order all or some portion of it to be paid out by writing checks on the account. They were trustees, so to speak, of such money as I deposited with them and were only to disburse it on my order. It seemed to me they had violated that trust by paying out my money without my knowledge or consent.
With that understanding in mind, I placed a call to the highhanded bank in question. (I am now older and wiser and therefore know in advance the futility of such calls, although I still make them sometimes just to prove that I am alive.) When I had finally been connected with someone sufficiently high up in the bank to deal with so exalted a question, I made inquiries about their behavior. I was assured that the bank had acted in accord with state law, something I had never for a moment doubted. But, I asked, has the law been challenged? He did not know, as best I can recall, nor, so far as I could make out, care.
My thought was that this manner of taking my money was in violation of the Fourteenth Amendment to the United States Constitution, which prohibits states to take the property of their citizens without due process of law. Moreover, it seemed to me that the bank had strong incentives to challenge such a law. After all, the bank wanted deposits from customers, and one of the best arguments for using their services was the security they provided for your money. It happened, too, that the bank was ideally situated to challenge this law, for it could do so by refusing to pay the tax, an option not available to me. In addition, the bank probably had a prestigious law firm on retainer to protect its interests, since this particular bank was one of a large chain spread over the state, there being no law in that state to prohibit branch banking.
My reasoning was not so much faulty as incomplete. True, banks have the incentive to reassure and protect their depositors. But I was ignoring something so basic as that the state government was probably one of the largest depositors in the bank. Indeed, the likelihood is so great as to amount to virtual certainty that the tax money taken from mine and other accounts did not even leave the bank; it was just shifted to the state’s account. That, however, might not have been determinative if it were all that was involved.
I was ignoring the more trenchant fact that banks are creatures of government, that their very existence by charter depends upon government, that their privileges arise from the state, and that banks can be harassed, audited, have their charters revoked, or be closed down. That being the case, banks are about as likely to take on an adversary relationship to the state over some paltry tax as an unemployed spinster is to sue her parents with whom she lives over the lack of variety in her breakfast. Besides, the tax could hardly harm this chain of banks if all other banks in the states had to collect it too. Laws applied to a whole industry become merely a condition of doing business.
Is this an indictment of business? No, it is a description of what is happening in America as the concentrated power of government tightens its grip on people. The idea that has the world in its grip only permits what is called private business to exist on sufferance. It can exist only to the extent that it serves the ends of the idea as determined by those who control or manipulate government. Businessmen know that as a rule they cannot even survive, much less prosper, if they adopt an adversary relationship with government. Both politicians and businessmen sometimes speak as if they were adversaries. No great harm results. The ideological view of the relationship is affirmed, and each is given an opportunity to vent his spleen. But beneath the surface something quite different is going on.
The Ties that Bind
Business and government are intricately intertwined. Businesses generally depend upon government for charters, for licenses, for contracts, for subsidies, for guarantees of foreign investments, for favors for their particular industry, and so on, and on. Business serves government in the ways that are specified, becomes an instrument of government, in order to continue to function and, hopefully, make a profit. Airlines seeking new routes, continued payment for carrying the mail, and favorable rates are not about to contest the regulations on smoking that they apply to their passengers. Home builders hoping for some new government subsidy program to enable them to sell more houses have the incentive to work with rather than oppose government. Public utility firms seeking higher rates can hardly afford to object to being tax collectors. Whether unwillingly or not, business acts as a partner with government in imposing political power on Americans.
You cannot play with fire without getting burned, of course. The more closely business becomes intertwined with government, the more like government it becomes. The object of politics is power. The aim of business is profit. The method of business is attraction and persuasion. The method of government is force. As business becomes politicized, it does not forgo its aim of making profits. What it does do is begin to seek to use the force of government to increase its profits. Power and profit are linked together as government and business become intertwined.
The Energy Crisis
This development may best be illustrated by an example. In the early 1970′s a gasoline shortage occurred. It was a shortage engineered by politicians, of that there should be no doubt. The governments of several major oil producing countries declared an embargo and proceeded, thereafter, to raise the price of oil drastically. The shortage evaporated and was no more, though prices of gasoline were much higher than before. Nonetheless, American politicians proclaimed that we were in the midst of an incipient energy crisis. What the politicians had discovered was something known to economists for at least two hundred years, and to most other folks considerably longer, namely, that the sources of energy are scarce. Indeed, it is the very scarcity of fuel that makes it costly at all. We shall not, of course, run out of energy—not, that is, until the sun grows cold or this planet is wrenched away from its favorable location to the sun—but different sources may have to be tapped to get it.
Nonetheless, having misconstrued permanent scarcity as incipient and worsening shortage, some politicians went into their "sky is falling" routine, made a national problem out of it, and began to bring forth programs to solve it. Not surprisingly, these programs involved various sorts of government intervention. What may have been surprising, however, was the way in which fuel suppliers joined into this hue and cry. Full page advertisements began to appear in newspapers, ads paid for by oil companies, electric power and gas companies, and such like, urging the conservation of energy and describing the efforts they were making to deal with the shortage. Power and gas companies began to include tips on conservation of energy in the envelopes containing their bills. Business instrumented itself swiftly to political policy.
For years, electric companies had urged their customers to use more and more electricity. They had extolled the virtues of electric appliances over all others.
Moreover, they had encouraged greater use by giving customers lower rates as the amount used increased. Indeed, there did not appear to be anything odd about this earlier behavior. It was what advertising was for, to encourage use of a product. It was in keeping with what is economic. There are economies of scale in production. In the case of electricity, this means that when the investment in machinery has been made, the more that is produced with it, the less it costs to produce each unit: In order to sell this electricity, the company would promote greater use by reducing the rate as more was used.
And then, overnight, as it were, electric power companies stopped advertising their product and began propagandizing for conservation, adopting the same line as the government. Utility commissions began to approve what are called "inverted rate structures." What these rate structures do is penalize heavy users of electricity, by charging higher rates for greater amounts of electricity. The model for this rate structure must have been the graduated income tax.
Why would a power company stand still for such a rate structure? After all, it still got the advantage of economies of scale whether there was an energy shortage or not. Moreover, it costs little, if any, more to get the electricity to a home using1500 kilowatts per month, say, than one using 500. The meter has to be read only once each month regardless of how much electricity is used. It costs as much to bill the user for 500 as for 5000 kilowatts, and the same expenses attend processing either account.
There are two answers which help to explain this otherwise strange power company behavior. One is that the power company was serving the source of its monopoly—government. The other is that the company was being well served, at least temporarily, by the utility commission. Undoubtedly, a power company could be greatly enriched if it could enjoy economies of scale and charge even more for this electricity than that bought by small scale users.
Most likely, such a policy would, in the long run, be harmful to the power company, for profits would surely dwindle as use declined. But in the short run—before those who had all electric homes could convert to other power sources, before alternative sources of power have been developed, before people changed their life styles to reduce the consumption of electricity—the companies should reap a windfall of profits.
Of course, high profits would bring them to the unfavorable attention of utility commissions who had approved the rates in the first place. Except that some power companies have already been foresighted enough to forecast a need for a vast amount of capital to increase production to meet demand. It apparently does not matter that the demand they are forecasting is based upon a projection of increases in the past, increases which took place when the use of electricity was being vigorously advanced by advertising and lower rates for heavy users. What the present policies will lead to is uncertain. Meanwhile, the intertwining of government and business has produced some strange uneconomic policies.
The Customer Loses
The final stage of business as an instrument of government will almost certainly be that business will be transformed into government, or be so much like it that we will have a distinction without a difference. The most basic distinction between business and government is this: Business serves; government commands. That distinction has been breaking down for years. One way it has broken down is that government has provided many services itself: education, parks, electric power, mail delivery, garbage collection, and so forth. The other way is that many businesses have been granted monopolies and special privileges so that they become more like governments than businesses.
Government regulation of business is almost always advanced as a way of restraining or inhibiting business. But it does not necessarily work that way. Government regulation limits and restrains business in serving customers. If a business is only permitted to stay open during certain hours that limit its service to those hours. If rates are regulated, this may appear to limit the businessman, but it also limits the way in which he can serve. But most importantly, as the businessman is more closely regulated he shifts from serving to enforcing the conditions under which he will serve. He comes to resemble the policeman more than a businessman.
Public utilities are apt to be as inflexible in enforcing their rules as any government. The telephone installer will not install the telephone unless the householder is at home. The utilities will not begin service, ordinarily, until the person wishing to be served has made his way to their offices, put up a deposit, provided whatever information they require, and otherwise satisfied them that he is responsible. Hospitals are notoriously rule ridden places, and many a nurse appears to be a frustrated prison matron. (It should be noted in this connection that hospitals are generally heavily subsidized by government and are coming under ever more strenuous regulation and controls.)
From Service to Compulsion
Every organization must have internal discipline over its employees, of course. That is not at issue here. What is at issue is the shift of business from service to compulsion. It is, no doubt, a natural tendency of those who live under rules to shift the weight of the rules from themselves toward those whom they are supposed to serve. There is a corrective to that in the open market under competition. The customer does not like to be ordered around, and he goes elsewhere. He gives his business to those who wish to serve him rather than command him. Any rules that he perceives that apply to him had best be kept to the minimum and be unobtrusive.
When government steps in, that changes. So long as the rule applies to all in the industry, competition is no longer a factor in whatever is involved. The business no longer has to serve in that particular way; it needs only to do whatever the law requires. When rates are regulated, the business need no longer compete in that way. If some of the rates are not particularly profitable, those in the industry will discourage that particular custom, providing only the bare minimum of service that the law allows. Indeed, the burden of obtaining the service is often shifted to the customer. For example, when long term interest rates for home buyers has been set below the market rate, the borrower usually has had to pay for the loan by what are called "points" and other advance charges. In addition to that, the conditions to be met in order to obtain the loan are usually quite exacting. Long waits for loan approval are common. The lender is not gladly serving; he is emphasizing the commanding position he occupies.
Evolutionary socialism advances gradually and step by step in America. The inroads are usually made under the guise of controlling, regulating, and taxing business and the sources of capital. On the surface, this does indeed occur. But beneath the surface government and business become intertwined. Business becomes an instrument of government, willing or not. Business becomes politicized. Business begins to serve its master, government, instead of or in addition to the consumer. Business begins, unwittingly perhaps, to adopt the posture of compulsion rather than of service.
According to the lore of our time there is a public sector and a private sector in the economy. But where is the private sector? Does it consist of privately owned companies such as those of the auto makers? What is private about mandatory seat belts and shoulder harness? What is private about mandatory emission controls? What is private about being forced by government to recall millions of automobiles annually to replace parts? What is private about having to pay union wages and submit to union requirements reinforced by the National Labor Relations Board? Rather than referring to this as the private sector, it would be accurate to refer to it as the politicized sector of the economy. But which "sector" is not? Some are more, some are less, but all are being politicized.
The Political Framework
The deeper significance of this development needs to be clearly understood. To understand it, it is necessary to see it in terms of the appropriate theory. Much has been written about the impact of intervention in terms of economic theory. This is enlightening and informative. But when business becomes an instrument of government, economics becomes secondary, for the framework and the determinative element is no longer economic. It is political, and political theory must provide the framework from which it is to be understood.
Political theory has to do with how effectively to govern and how government may be restrained and limited. The greatest work on political theory in the United States was The Federalist. It was written as an exposition and defense of the Constitution of the United States and, more specifically, to urge its ratification. The great principles set forth there are those of constitutionalism, of representative government, of the dispersion of power in a federal system, of the separation of powers into three branches—all of which they argued would provide an energetic and strong but limited government.
The reason for limiting government was clear to the Founders of these United States. Government is dangerous. It differs from other organizations in that it has the power and authority to use sanctions. In a word, it is empowered legally to use force. Unlimited government means unlimited use of force. In practice it means that all institutions and organizations are permeated by force. The end result is tyranny.
No better prescription for tyranny could be written than to make business an instrument of government. Every businessman and every employee of businessmen becomes a servant of government. Every consumer, each one of us, is at the mercy of politicized business. The usual argument against intervention is that it is harmful economic restraint of goods and services business can and would provide. There is a more telling argument. It is that government control over business is inevitably government control over consumers, and the instrument of that control is business.
Next: 21. The United States: The Thrust to Transformation