We are living in troubling social and economic times. Corporate capitaism and Ayn Rand “caricature” capitalism are rapidly replacing Adam Smith’s “market” capitalism based on true competition between many. Massive consolidation and integration of global business translates into an imbalance of economic power. We cannot wish away the fact that economic power translates into raw political power, even in so-called democracies. Consolidation of the news business – the power of the press – further entrenches power of a few. An imbalance of economic and political power often results in undesirable consequences for “the people,” a lesson that has been learned the hard way several times in our history Thomas Jefferson, observing corporate challenges to the infant American Democracy stated,

"I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country." 1812. 

Frederic Bastiat, a French economist and Statesman, commenting on the socialization of France, stated:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time, a legal system that authorizes it and a moral code that glorifies it." The Law, 1846

Bastiat’s comments about socialism apply equally well to the current corporate takeover of democracy.

President Abraham Lincoln, looking ahead during a difficult time in America said,

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country ... corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." 1864

Lincoln’s economic prophecy was partially realized as a few corporations came to dominate the American economy; fortunately “Trust Busting” and enactment and enforcement of antitrust laws kept the Republic from being destroyed during the early 1900s.

In 1921 – the same year the Packers and Stockyard Act was implemented – Frank Knight, who is now widely regarded as the Father of the Chicago School of Economics, made the common sense observation that the “well being” of society depends on maintaining a balance of economic efficiency, economic power and economic freedom. The so-called Chicago School of Thought – basically economic imperialism – emerged from some of Knight’s students who
obviously did not learn all of the master’s lessons.

Knight also stated that the single-minded pursuit of economic efficiency would be at the expense of maintaining a balance of economic power and at a loss in economic freedom. Few would doubt that domestic and global economic policy has been dominated by the single-minded pursuit
of economic efficiency in the past few decades. Many of us feel that this mindset has resulted in an imbalance of power and a loss in economic freedom, to the long-run detriment of America.

Through political and advertising power gained from economic power, a few corporate executives are becoming the social planners for the masses. Knight also comments indirectly on how the corporate game affects “people,”

“There is also a certain ethical repugnance attached to having the livelihood of the masses of the people made a pawn in such a sport, however fascinating the sport may be to its leaders.” The Ethics of Competition, 1923.

Stephen John Nash, interpreting Frank Knight said,

“On a more practical level, policies which are aimed at increasing efficiency – for example relaxation of antitrust law when a large imbalance of economic power exists – will allow those with economic power to further augment their own power. This will drive the imbalance of economic power further away from its optimal position, reducing economic freedom as well.” Nash, 1998

Anyone who doubts a loss in economic freedom from consolidation and integration of agriculture should talk to a contract poultry producer – except that they are afraid to talk. As a practical matter, entry into poultry production is by invitation only, which means that economic freedom
is restricted.

Contract poultry growers loss of economic freedom comes from an imbalance of economic power – the grower’s only decision is to accept or reject new contract terms offered by the integrator. Rejecting new contract terms often means bankruptcy. So the grower often has little choice but to accept whatever the integrator offers. Even the “chosen ones” – captive cattle feeders – often have no say about terms of captive supply agreements.

Even the giant agribusiness firm ConAgra – with $15 billion in annual sales – is now complaining about being on the short end of the stick,

“The company’s retail customers, such as supermarkets and warehouse clubs, have consolidated in recent years and consolidation is expected to continue. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of resisting price increases and operating with reduced inventories. These customers may also in the future use more of their shelf space, currently used for company products, for their private label products. If the larger size of these customers results in additional negotiating strength or less shelf space for company products, the company’s profitability could decline.” Source: ConAgra SEC 10-K dated 8/5/2004

ConAgra is acknowledging to the SEC a problem with buyer power and a form of captive supply (shelf space). Hmmm! Isn’t this precisely the problem independent livestock producers have with packers?

A common sense premise of economics is that a balance of economic power between buyers and sellers is required for markets to be to be “fair” when judged by the true competitive market norm. The need for balancing power is just as true in a market for contracts as it is true for cash markets. And balancing power is a requirement up and down a vertical chain, as well as horizontally.

The Future
Bill Moyers, press secretary to President Johnson and PBS commentator, succinctly stated our present situation in America,

“We are moving toward an oligarchic society where a relatively small handful of the rich decide, with their money, who will run, who will win, and how they will govern. The defenders of the present system will fight hard to hold on to their privilege, and they write the rules. Nothing short of an aroused public can change things, nothing less than democracy is at stake.” 2004

In a recent book aptly titled “Saving Capitalism from the Capitalists,” Rajan and Zingales concluded,

“… the nexus between economic and political power is of special concern in two situations. If a few incumbents (the rich and/or corporate executives) have much of the economic power, they can rely on their own political clout to achieve business ends and may feel little need to establish transparent rules that make markets accessible to all. … More dangerous still than this benign neglect of the market is if the incumbents are incompetent at business, for they may then actively attempt to suppress the competitive market so as to preserve their own positions.” 2004

Rajan and Zingales echo a warning that OCM members have repeatedly sounded,

“… the public should be made more aware of how much it benefits from the market and what the costs of seemingly innocuous anticompetitive policies are, so that the public is less willing to remain passively on the sidelines.”

Looking back on concerns expressed by Jefferson, Lincoln, Bastiat, Moyers and others, it is, as Yogi Berra would say, “déjà vu all over again”. Society doesn’t seem to know where it is going, or recognize very real threats to the foundation of the American political and economic system.
Engaging the public is the challenge for OCM and others who have the common sense and moral concerns to recognize that democracy is threatened. As Bill Moyers said,

“Nothing short of an aroused public can change things, nothing less than democracy is at stake.”

Will Lincoln’s Republic be destroyed or squandered? Will American survive the challenge that few seem to recognize? It’s time for the people – common people – to retake control of their future. RT