A standard critique of capitalism, going back to Chesterton and Belloc, is the accusation that in our current system we have neither domination by Big Government as the conservatives warn, nor an enslavement by Big Business as the liberals fear, but rather a collusion between Big Government and Big Business—an arrangement allowing each to benefit the other and work for the aims of the other—in such a direct way that the folks running government and running business are the same people.
This is what Chesterton referred to as the dilemma of Hudge and Gudge in What’s Wrong with the World:
I do not know whether the partnership of Hudge and Gudge is conscious or unconscious. I only know that between them they still keep the common man homeless.
While most in the West take the side of Hudge against Gudge or Gudge against Hudge, the informed distributist understands that Hudge and Gudge are two sides of the same coin, two faces of Liberalism that are moving us toward the Servile State. Over time, this collusion between the State and Big Business, united by the bonds of big finance, is becoming more and more observable.
In the next two articles, we will examine some ways in which Big Business and Big Government cooperate and discuss possible solutions for remedying this situation within a distributist framework.
Disparity in Sentencing
This collusion between government and the business world is especially evident in the manner government treats criminals of big financial firms—unpunished men who steal billions of dollars, wreck the economy, cost thousands of people their jobs, and destroy retirement funds. With few exceptions, their punishments are not only lenient, they are practically immune from prosecution.
Glenn Greenwald, whose book With Liberty and Justice for Some thoroughly documented the plutocratic inequalities of our justice system, has noted that while the rich have always enjoyed a disproportionate influence in the American justice system, the flagrancy with which this power is now touted is a troubling novelty:
Obviously, those with money and power always enjoyed substantial advantages in the U.S. justice system, but lip service was at least always paid to the core precept of the rule of law: that—regardless of power, position and prestige—all stand equal before the blindness of Lady Justice. It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear U.S. elites unblinkingly insisting that those who become sufficiently important and influential are—and should be—immunized from the system of criminal punishment to which everyone else is subjected.”
The reason the rich routinely avoid criminal prosecution gets right to the heart of the issue.
Greenwald cites the case of HSBC, one of the world’s largest banks. In 2012, United States federal investigators found that HSBC spent years committing serious crimes, even “facilitat[ing] money laundering by Mexican drug cartels”; and “mov[ing] tainted money for Saudi banks tied to terrorist groups”. Those investigations uncovered substantial evidence “that senior bank officials were complicit in the illegal activity.”3
Yet the United States decided not to prosecute HSBC on the grounds that the bank is simply too big, too important, and integral to the well-being of the financial market for its operations to be disrupted by something as petty as a federal criminal investigation. The Justice Department ultimately opted to impose a trivial fine instead of prosecution. Their rationale merits to be quoted at length:
U.S. authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the ‘collateral consequences’ of taking the bank to court….
Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC”s ‘blatant failure’ to implement anti-money laundering controls and its wilful flouting of U.S. sanctions, the consequences of a criminal prosecution would have been dire.
Had the U.S. authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilised.
HSBC, Britain’s biggest bank, said it was ‘profoundly sorry’ for what it called ‘past mistakes’ that allowed terrorists and narcotics traffickers to move billions around the financial system and circumvent US banking laws….
As part of the deal, HSBC has undertaken a five-year agreement with the US department of justice under which it will install an independent monitor to assess reformed internal controls. The bank’s top executives will defer part of their bonuses for the whole of the five-year period, while bonuses have been clawed back from a number of former and current executives, including those in the U.S. directly involved at the time.
The bank processed cash for Mexico’s Sinaloa cartel, regarded as the most powerful and deadly drug gang in the world, among others. At least $881 million in drug trafficking money was laundered throughout HSBC accounts. In order to handle the “staggering amounts of cash”, the bank even widened the windows at some branches to allow tellers to accept larger boxes of money. HSBC also helped rogue states including Libya, Sudan, Burma and Iran to work around US rules banning them from using U.S. financial system in a scheme that went on for decades.
Prosecuting such a large bank could have potentially “destabilized” the market, and therefore the United States settled for nothing more than a promise from HSBC that they will behave, with some additional internal monitoring, and executives foregoing a share of their bonuses. Let this sink in: HSBC walked away scot free after laundering almost a billion dollars for one of the world’s most violent drug cartels in a scam which many high-level bankers knowingly participated.
If going after big banks is undesirable because their downfall can significantly weaken the economy, the government is implicitly aiding banks in their immoral activities by creating a moral hazard, that is, a circumstance where reckless financial activity is encouraged due to a real (or perceived) immunity from punishment.
What would have happened, pray tell, if a single poor black woman was caught with a small fraction of cocaine? The authorities would have thrown the book at her. And, in fact, they did. Stephanie George of Pensacola, Florida, was sentenced to life in prison at age 27 for possessing cocaine in a lockbox stored in her attic.5
This sort of collusion happens at the local level as well through tax abatements.
A tax abatement is a remission of either all or part of the property taxes a company owes to a municipality and may be granted at various intervals; the standard municipal tax abatement in Michigan, for example, is a 50-75% abatement of all property taxes in a new development for a period of 12 years. At times, 100% abatements are granted for special projects meeting certain criteria set by the state. These abatements thus function almost as indulgences for businesses, remitting either all (plenary) or some (partial) of their tax burden.
Abatements are usually granted for admirable motives. For example, larger expansions that create new jobs. Municipalities covet the large tax revenues that they will reap from multi-million dollar investments once the abatement period has expired. However, because state laws allow abatements only under certain conditions (usually the company has to demonstrate that it will create a certain number of jobs and the “investment” in the community has to be significant) only very large companies are eligible for these abatements; projects in the tens of millions of dollars.
Abatements are technically available to any applicant, but the guidelines ensure that only sufficiently capitalized applicants will ever qualify to receive them.
These unfortunate inequalities are justified in light of the eventual good that will accrue to the community by the new jobs and new tax revenue the corporate development will eventually reel in. The irony is that even these supposed benefits are ephemeral; there is no way for the company to ensure that only local persons are hired. In many cases, workers hired as a result of the development are from out of town or transfer from another factory.
And what about the taxes that will come into local coffers after the abatement period ends?
Usually, a company that receives a 12-year abatement will file a property tax appeal their thirteenth year and fight tooth and nail in expensive lawsuits that municipalities cannot afford to fight, eventually securing further tax concessions. Therefore, local governments grant tax exemptions to big corporations to get them into their towns while corporations play cities against each other, seeing who will give the most lucrative deal. Big corporations cooperate with the community only long enough to enjoy the fruits of their abatement before suing the same city that granted them the abatement in order to get their taxes lowered again.
Meanwhile small businesses are without recourse or the benefit of polices written for them that qualify for abatements. This is a prime example of a common form of government-corporate collusion that goes on all the time at the local level and rewards big corporations while doing nothing for small businesses. (Not to mention that abatements are only available for new businesses or expansions; existing businesses, even if they have been faithfully serving the community for decades, cannot apply for them unless they build an expansion or open up a new building.)
The Revolving Door
This collusion is perpetuated by a phenomenon that social scientists have dubbed “the revolving door.” The revolving door refers to the way legislators and other government bureaucrats freely move from elected office into cozy corporate lobbying positions. The persons making the laws and those advocating on behalf of big businesses are the same people. Lobbying firms hire outgoing lawmakers because the legislators know the inner working of Washington and can bring this knowledge to the advantage of the lobbying firms; legislators, for their part, know that firms they advocate for during their tenure can be counted on to provide them with a snug, secure position when their term of office is over. The cozy relationship between lobbyists and legislators, and the real crossing over of persons between both groups, ensures that legislation is written oriented in favor of business interests—that is, after all, the end of all corporate lobbying.
This phenomenon is fairly universal; in the past decade, 400 lawmakers and 5,400 staffers have made the jump from Capitol Hill to private lobbying firms advocating on behalf of big businesses. Likewise, 605 lobbyists have taken up jobs on Capitol Hill in the same timeframe.6
The relationship between lobbyists and lawmakers has been described as “symbiotic”.7
Lawmakers and lobbyists each have something to offer the other, and the collusion between representatives of public and private interests leave us with big corporations effectively writing legislation for big corporations.
“Virtual Lobbying” for Small Business?
One objection could be made that lobbying is not as inaccessible to small businesses as one might think. Small businesses might not have the funds to hire their own lobbyist, but they may participate in a sort of “virtual lobbying” by joining and paying dues to organizations that are big enough to lobby. So, for example, a corner shoe store that could never hope to pay for its own full-time lobbyist might become a dues-paying member of the Chamber of Commerce, knowing that the Chamber advocates for business in general and is a very powerful voice on Capitol Hill. The shoe store, while not represented directly, is represented virtually through the Chamber, and thus is able to lobby in a certain way.
This concept of “virtual lobbying” suffers from two major flaws. First, it can hardly be said that a massive umbrella organization like the Chamber, representing so many distinct forms of business, can effectively lobby for the specific needs of any particular sort of business, especially if the aims of its members might be contradictory. For example, the Chamber might advocate for free trade with China, knowing that many of its larger, industrial members will approve of the continued ability to get cheap-labor for their manufacturing. Yet this same “free trade” that pleases one Chamber member is detrimental to our above-mentioned shoe store, whose smaller, off-brand and locally produced stock cannot compete with the low-cost junk made by Adidas, Nike and Reebok in the Chinese sweatshops. Second, while smaller businesses certainly can join the Chamber, so can large corporations like McDonalds, Exxon, etc., allowing for a situation in which the donations of big dollars to the Chamber outweigh the small sums donated by smaller businesses.
Lest one think this accusation is unfounded, a 2010 investigation by the New York Times revealed that “while the Chamber boasts of representing more than three million businesses, and having approximately 300,000 members, nearly half of its $140 million in contributions in 2008 came from just 45 donors.”8
Dow Chemical, for example, made a $1.7 million donation. Do we really believe that the $150 paid by a local restaurant for Chamber dues carries the same weight as $1.7 million from Dow Chemical? James Carter, founder of a smaller, alternate business advocacy group called the “Green Chamber of Commerce,” observed that the Chamber is “dominated by oil companies, pharmaceutical giants, automakers and other polluting industries.”9
The fact of the revolving door and the inequality in virtual lobbying by umbrella groups demonstrate what a sham the whole lobbying network is: Big companies with big budgets employ full-time lobbyists who cozy up to lawmakers to ensure laws are written with corporate ends in mind; in exchange, lawmakers get information and advice from lobbyists and can count on cushy lobbying jobs themselves when they end their elected terms. Meanwhile, small businesses unable to afford lobby are relegated to making their opinions heard through large umbrella groups to whom they pay annual dues, only to have the wishes of a handful of large donors (the same ones employing the full-time lobbyists) dominate the organization. The result is that law is written for corporations, corporations write law, and small businesses get the shaft, paying dues to organizations that do not represent them and receiving no real representation at the same time.
How can we reverse this trend? How can we restore true subsidiarity to our economy and end the hijacking of government for corporate ends as well as the concomitant influence of corporations on government? This is a tall order, but I think we can propose a few changes that would be keeping in the spirit of Distributism and would go a long way towards rectifying the problems we have highlighted.
To be continued.
- G.K. Chesterton, What’s Wrong with the World (San Francisco: Ignatius Press).
- Reader Supported News.
- HSBC’s record $1.9bn fine preferable to prosecution, US authorities insist.
- For Lesser Crimes, Rethinking Life Behind Bars.
- Study shows revolving door of employment between Congress, lobbying firms.
- Top Corporations Aid U.S. Chamber of Commerce Campaign.