"Zombie Corporations" Are Destroying Our Economy

[Celerity]

Giant corporations are producing little value, killing jobs, and sucking the life out of the global economy. This is not what capitalism was supposed to look like. IT CAME FROM... THE 80’S - and like cocaine mountains and shoulder pads, we should have left it there. I studied Economics in college — I even managed to get the degree. Now admittedly there’s plenty I don’t remember, but I do recall this much: in the philosophies of the men who “created” capitalism (Adam Smith and David Ricardo for example), there is no mention of “shareholder value” or “analyst expectations”. In Smith’s The Wealth of Nations he does not discuss “stock markets” or “share buybacks”. Now these terms are synonymous with capitalism, and since the 1980’s have created modern day Zombie Companies that are eating our economy alive.

https://thebanter.substack.com/p/zombie-corporations-are-destroying



The Founding Fathers’ vision of capitalism

While there is much to criticize the Founding Fathers for (slavery, the treatment of Native Americans, women for example), their concept of corporations and their relationship to capitalism was remarkably progressive. Like the creators of capitalism, the Founding Fathers would have no doubt seen share buybacks (the re-acquisition by a company of its own shares) as market manipulation, and the obsession with stock price as risky speculation. Though all the old white men certainly would have been aware of joint stock companies and the few extant European Bourses at the time, those markets were very niche and operated nothing like stock, bond, and commodities markets do today. Golden parachutes, poverty wages and share buybacks at profitable companies would have been seen as confusingly inefficient, and an immoral, pointless allocation of scarce capital and resources. Those resources could be much better used by reinvesting in innovation and the labor force. The original purveyors of capitalism believed companies should grow and profit because they innovate and add value to the economy, not because of gimmicks created to attract day traders. The shareholder should receive growth through share appreciation because the company is creating products or services people want to buy, not because executives are pumping the price to line their own pockets.

Enter the zombie companies

After the Great Crash in 1929, financial tools used to manipulate markets were made illegal over fears executives could use them to inflate their company’s stock value. Under Ronald Reagan’s SEC however, these rules were relaxed in the early 1980’s, paving the way for extraordinary abuse and manipulation that has only accelerated in recent times. The Reagan era idea of profitable companies laying off workers to please analysts and shareholders has proven poisonous and contagious. It creates zombie (or if you prefer, cancerous) companies that don’t add anything or improve our lives in any way, and often leads them to mistreat their workers and communities. These companies continue to grow financially while actually extracting value from the economy and resources from workers. Just like a cancer, a parasite or a zombie virus, oil giants, hedge funds and health insurance companies simply consume what others create, destroy smaller companies, and provide no real value to anyone. In many cases they even refuse to pay a living wage, and demand bailouts from the taxpayer when market conditions become too difficult.

The original purpose of capitalism

For Smith, Ricardo and the Founding Fathers, the “free market” wasn’t at all what modern conservatives claim it is: an ‘efficient’ (read inhumane and cruel) consumption machine that acts with no concern for its environment, society, or workers except what it can suck out of them. Instead, for these thinkers capitalism was a means to increase quality of life — not simply through material acquisition — but through education, new technology and ideas that allow us to work less, be more compassionate to the poor and sick, and friendly but motivated competition between mostly small to medium size enterprises. And when those companies can no longer add value, rather than being kept alive simply to continue to produce gains for their shareholders as they do now, they should fail and make space for newer and more innovative enterprises. To early capitalists like the Founding Fathers, a free market was specifically one unencumbered by economic privilege (large corporations getting irregular tax breaks), monopolies (Facebook, Amazon, Walmart) and artificial scarcities (hoarding N95 masks or toilet roll).

They believed that ‘economic rents’, which is essentially money made by what we would call “gouging” or “screwing people”, were not only immoral but a key sign of an inefficient free market. A truly free market was efficient for all of its participants, not just its largest and wealthiest. That means companies get to make a profit for their owners, but people are also paid fair, competitive, living wages for their work, and there is competition amongst both capital and labor. All this nonsense about “supply-side”, “shareholder value” etc, etc. didn’t come about until Friedrich Hayek and Milton Friedman began justifying a return to greed and inequality during the comparatively equal post WWII period. And none if it has anything to do with the type of capitalism Washington, Jefferson, Madison, or Lincoln were familiar with. None of them would see this as a free market, but instead one designed to be (and being) manipulated by those with the most money.

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[KT2000]

1. Cannibalism

is the ultimate capitalism.

[BComplex]

2. Great history of capitalism! Thanks.

I only wish these things were taught in our schools!

[Bradshaw3]

3. K&R

Modern capitalism is all of those elements on steroids. Plus the Founding Fathers lived before the Industrial Revolution, which made their worst fears about it come true.

[Celerity]

5. Industrial Revolution - the period from about 1760 to sometime between 1820 and 1840

The Industrial Revolution marks a major turning point in history; almost every aspect of daily life was influenced in some way. In particular, average income and population began to exhibit unprecedented sustained growth. Some economists say that the major effect of the Industrial Revolution was that the standard of living for the general population in the western world began to increase consistently for the first time in history, although others have said that it did not begin to meaningfully improve until the late 19th and 20th centuries.

GDP per capita was broadly stable before the Industrial Revolution and the emergence of the modern capitalist economy, while the Industrial Revolution began an era of per-capita economic growth in capitalist economies. Economic historians are in agreement that the onset of the Industrial Revolution is the most important event in the history of humanity since the domestication of animals and plants.

Although the structural change from agriculture to industry is widely associated with the Industrial Revolution, in the United Kingdom it was already almost complete by 1760.

The precise start and end of the Industrial Revolution is still debated among historians, as is the pace of economic and social changes. Eric Hobsbawm held that the Industrial Revolution began in Britain in the 1780s and was not fully felt until the 1830s or 1840s, while T. S. Ashton held that it occurred roughly between 1760 and 1830.


Constitution of the United States

Created September 17, 1787
Presented September 28, 1787
Ratified June 21, 1788
Date effective March 4, 1789


So if you take the shortest (1760 to 1820) period, the Constitution was written almost halfway through it.

[Bradshaw3]

6. You are using the British model while I wrote about the Founding Fathers view of capitalism

The full effects of the Industrial Revolution in America (first mill wasn't here till 1790) and didn't take full effect until after the influence of most of the Founding Fathers was over, and really after many of them died and obviously hadn't seen its full deleterious effects. Of course that was the first one. The real explosion of economic inequality came later, and as I learned in college many years ago, its effects were not at all what the Founding Fathers had in mind for this country.

[Celerity]

7. Fair points

[Bradshaw3]

8. I always enjoy your posts

Always intelligent, thought-provoking and informed.

[Celerity]

9. thankies! yours as well

[Locrian]

4. if I recall...

the original charter of corporations in the US was a limited time deal. They were supposed to fulfill their use then be desolved.

They KNEW they were powerful tools and with that power would get too big if left to their own devices.