Yves here. Black’s post discusses a turning point that is not as well known as it ought to be. Thanks to reader John M for bring this post to my attention.
By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives
August 23, 2011 will bring the 40th anniversary of one of the most successful efforts to transform America. Forty years ago the most influential representatives of our largest corporations despaired. They saw themselves on the losing side of history. They did not, however, give in to that despair, but rather sought advice from the man they viewed as their best and brightest about how to reverse their losses. That man advanced a comprehensive, sophisticated strategy, but it was also a strategy that embraced a consistent tactic – attack the critics and valorize corporations!
He issued a clarion call for corporations to mobilize their economic power to further their economic interests by ensuring that corporations dominated every influential and powerful American institution. Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.
Confidential Memorandum:
Attack on the American Free Enterprise System
DATE: August 23, 1971
TO: Mr. Eugene B. Sydnor, Jr., Chairman, Education Committee, U.S. Chamber of Commerce
FROM: Lewis F. Powell, Jr.
http://www.pbs.org/wnet/supremecourt/personality/sources_document13.html
Lewis Powell was one of America’s top corporate lawyers and President Nixon had already sought to convince him to accept nomination to the Supreme Court before he wrote his memorandum. Powell was famous for his successful efforts on behalf of the Tobacco Institute. The Institute was desperately seeking to prevent the government from alerting consumers to the lethal effects of tobacco and to prevent its customers from holding the tobacco corporations legally responsible for their premature deaths. The Institute played the critical role in covering up the lethality and paying for junk science designed to mislead consumers about the lethal effects of tobacco products. They were literal merchants of death, selling a product that when used as intended was likely to kill the customer.
For the past 45 years,” Attorney General Janet Reno said at a news conference, “the companies that manufacture and sell tobacco have waged an intentional, coordinated campaign of fraud and deceit. As we allege in the complaint, it has been a campaign designed to preserve their enormous profits whatever the cost in human lives, human suffering and medical resources. The consequences have been staggering.
Powell’s confidential memorandum begins by explaining that he wrote it at the request of the U.S. Chamber of Commerce. Powell’s first substantive sentence is that business is under assault – and anyone who disagrees with him on that point is incompetent. “No thoughtful person can question that the American economic system is under broad attack.”
Powell then explained why business was losing the public debate.
The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking.
Ralph Nader’s Nadir: The Outrage of Calling for Criminal CEOs to be Jailed
Among these articulate voices, the person that Powell most feared was Ralph Nader, who he described as “the single most effective antagonist of American business.” Powell cited a Fortune article to explain why Nader was the great danger.
The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.
One can understand why Powell felt so personally threatened by Nader. “Willfully manufacturing unsafe products that will maim or kill the buyer” describes the tobacco industry and Powell was that industry’s most prestigious apologist.
The issue I wish to emphasize, however, is why Powell and Fortune viewed Nader’s statements as evincing “hatred” of the enterprise system. Focus on what Fortune (a virulent opponent of Nader) says that Nader argued. Nader believed that the CEOs leading anti-consumer control frauds should be imprisoned where they (1) defrauded the consumer with shoddy merchandise, (2) poisoned the food supply, or (3) willfully manufactured unsafe products that will maim or kill the buyer. Powell and Fortune view these beliefs as radical, dangerous, and hostile to what Powell refers to in his memorandum as the “enterprise system.”
I submit that Powell and Fortune are not simply incorrect, but as wrong as it is possible to be wrong – and that Powell was blind to reality despite his intellectual brilliance in corporate law. First, is Nader the only one who believes that CEOs who commit control frauds are criminals? Anti-customer control frauds have defrauded, maimed, and killed hundreds of millions of people. In my prior columns I have focused on accounting control frauds because they are the “weapon of choice” in finance. One way of classifying variants of control frauds is by their principal intended victims. Accounting control frauds target creditors and shareholders. Anti-public control frauds target the general public, e.g., tax fraud, the illegal dumping of toxic waste, or illegal trading in endangered plants and animals. Anti-employee control frauds target employees, e.g., by not paying workers wages they are due or exposing them unlawfully to unsafe working conditions.
Anti-customer control frauds target customers. The seller may deceive the customer as to the quality, quantity, or safety of the good or service or the legal authority of the seller to convey the good and/or the promised security interest in the good. Cartels are another variant of anti-customer control fraud. The fraud is that the firms purport to be competitive rivals when they are secretly co-conspirators acting against the customers. Examples of recent anti-customer control frauds that maim and kill include the recurrent counterfeit infant formula scandals (which killed six infants and hospitalized 300,000), various lead toy scandals, counterfeit cough syrup (made with toxic anti-freeze), defective body armor for U.S. soldiers, unsafe water for U.S. troops, unsafe showers for U.S. soldiers (electrocution), counterfeit medicines including anti-malarial drugs, dwellings falsely certified to comply with seismic codes that pancake in earthquakes and kill tens of thousands. Then there are cigarettes, which were actually sold via fraud, are addictive, and lethal if used as intended. This form of fraud, addiction, and lethality was so effectively marketed that it became immune from normal laws and legal restrictions for centuries. Cigarettes have killed millions of customers and others subjected to second hand smoke.
Many anti-customer frauds do not routinely maim and kill. Misrepresenting the quality of a car to a customer can cause him a serious financial loss, but most of the hidden defects will not cause him or others physical injury. (Defects involving the brakes or safety equipment can imperil the customer, passengers, and the general public.) We call a terrible quality car a “lemon” and George Akerlof’s famous article on “lemon’s” markets was published one year before the Powell memorandum. It was this article that led to the award of the Nobel Prize in economics to Akerlof in 2001.
The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. Akerlof, George A., The Quarterly Journal of Economics, Vol. 84, No. 3. (Aug., 1970), pp. 488-500.
Economists have a Pavlovian response to any mention of Akerlof’s seminal article on lemon’s markets – “asymmetric information.” The committee that awards the prize in economics in honor of Nobel cited Akerlof and his co-awardees’ work in developing the economic implications of asymmetric information. Economists have tended to ignore, however, the context of Akerlof’s famous article. The specific examples of the sale of goods that Akerlof discusses are frauds. More particularly, each is an anti-customer control fraud – a fraud instigated by the person(s) controlling a seemingly legitimate entity where the primary intended victims were the customers. Akerlof did not discuss the variants of anti-customer control fraud that maim or kill – he focused solely on examples of economic injury due to fraudulent misrepresentations by the seller of the quality or quantity of the goods sold. More precisely, two of Akerlof’s examples – the fraudulent sale of defective cars and rice deliberately intermixed with stones – do maim and kill some customers, but Akerlof did not discuss this aspect. (Biting down on a stone can easily shatter a tooth. That causes excruciating pain, but it also exposes an Indian peasant – the fraud victims Akerlof was discussing – to a greatly increased risk of dental infection, which causes an increased risk of severe cardiac illness.) Akerlof had appropriately large ambitions in his article. He sought to provide a “structure … for determining the economic costs of dishonesty” (p. 488). Goods that maim and kill the customer impose the primary economic costs of dishonesty.
So, the first problem with Powell and Fortune’s horror that Nader believed we should prosecute those CEOs who caused the sale of the goods they knew would maim and kill their customers (and others) is that Nader was obviously correct – prosecuting those CEOs should be a top priority – globally. Prosecuting the fraudulent CEOs who “merely” cause their customers financial losses by deceptive sales of defective goods and services should be a significant priority.
Second, Powell and Fortune believe that prosecuting criminal CEOs is terrible for businesses, terrible for CEOs, and terrible for “free enterprise.” They conflate support for prosecuting criminal CEOs with “hatred” for “corporate power” and they conflate “corporate power” with “free enterprise.” Recall that this is their conclusion about Nader:
The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power.
Powell and Fortune cite Nader’s call for criminal CEOs to be prosecuted as their proof of this conclusion. But why would prosecuting criminal CEOs be bad for “free enterprise?” Powell and Fortune don’t even attempt to explain why this would be true. It is self-evident to them that a world in which criminal CEOs do not enjoy impunity from the law is a world in which “corporate power” will have been ”smash[ed]” and that absent hegemonic “corporate power” “free enterprise” is impossible. Their “logic” and rhetoric are revealing, but absurd. Wanting to prosecute criminal CEOs is not hostile to “free enterprise,” but rather essential to the success and continued existence of “free enterprise.” Akerlof explained why in his 1970 article.
Gresham’s law has made a modified reappearance. For most cars traded will be the “lemons,” and good cars may not be traded at all. The “bad” cars tend to drive out the good (p. 489).
[D]ishonest dealings tend to drive honest dealings out of the market. There may be potential buyers of good quality products and there may be potential sellers of such products in the appropriate price range; however, the presence of people who wish to pawn bad wares as good wares tends to drive out the legitimate business. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence (p. 495).
When cheaters prosper, market mechanisms become perverse and can drive the honest from the marketplace. The market becomes dominated by cheats because they obtain a competitive advantage. The most common reason that firms can cheat with impunity is that their CEOs are cronies of powerful politicians. The defining characteristics of crony capitalism are that the cronies receive subsidies, favors, and immunity from normal rules and laws. The cronies dominate the big corporations and provide reciprocal benefits to controlling politicians. Managerial incompetence and wealth flourishes under crony capitalism. Merit and efficiency suffer, income inequality surges, and class and who one knows become the primary determinants of economic and political success and power. The elites become pervasively corrupt.
Crony capitalism is the antithesis of “free enterprise.” The best way to destroy free enterprise is to allow CEOs to commit control fraud with impunity because that maximizes the perverse Gresham’s dynamic. Only big business had the power to destroy “free enterprise” in America – and Powell’s strategic plan was the best way to destroy free enterprise. As the left had long argued, it was the purported capitalists who would destroy capitalism.
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. (Frederic Bastiat)
Powell’s memorandum sought to glorify plunder with impunity, but he went beyond Bastiat’s warnings. Powell glorified CEOs who killed and maimed customers.
Third, and Powell is rolling over in his grave as I write this, Nader was one of the leading defenders of “free enterprise” when Powell wrote his memorandum in 1971. That was not Nader’s intent, but it was Nader’s efforts against control fraud that helped stave off for a time Powell’s embrace of a system in which elite frauds go free. That system, crony capitalism, destroys “free enterprise.” The regulators and the prosecutors are the “cops on the beat” who are essential to preventing the cheats from gaining a competitive advantage over honest businesses.
Powell could have, far more logically, characterized Nader’s position as “crusader against criminal CEOs” or “crusader on behalf of honest businesses.” Powell would never have referred to an individual calling for blue collar criminals to be prosecuted as a man determined to destroy liberty. He would have said that such an individual was increasing liberty – for criminals and crimes impair our liberty. President Nixon personally convinced Powell to accept the nomination to the Supreme Court to counter the decisions of the Warren Court, particularly the decisions adding to the constitutional protections of blue collar criminal defendants. Powell, particularly as head of the American Bar Association (ABA), was famous for his campaign against street crime. Powell’s biographer, John Calvin Jeffries, wrote that:
Powell argued that “a root crisis of the crime crisis which grips our country is excessive tolerance by the public generally – a tolerance of substandard, marginal and even immoral and unlawful conduct.” It had reached the point of “moral sickness.”
He worried that the pendulum may have swung too far in favor of the rights of criminals. Even Little Orphan Annie quoted the ABA chief: “There are valid reasons for criminals to believe that crime does pay, and that slow and fumbling justice can be evaded.” Justice Lewis F. Powell, Jr.,(2001: p. 210).
Powell, in his address to the ABA at the end of his term as President, argued that making Americans free from crime should be the nation’s “first priority” (Jeffries & Jeffries, p. 211). (Note the phrase “the rights of criminals” instead of “the rights of those accused.”) Powell conflated criminal CEOs with honest businesses – and was blind to the fact that he did so. Had he shown any logical consistency in how he dealt with criminals, Powell would have praised Nader’s efforts to have criminal CEOs prosecuted. But Powell could not see beyond class and his own experience in aiding CEOs who were “willfully manufacturing unsafe products that will maim or kill the buyer” do so with impunity. Can there be any greater betrayal by a CEO than using deceit to willfully manufacture cigarettes that maimed and killed his customers and those exposed to their customers’ smoke – for the sole purpose of making the CEO wealthy through such sales? Powell did not normally smoke, but according to his biography he posed with fellow members of the board of directors of one of the world’s largest cigarette companies in the firm’s publicity photographs with a cigarette to demonstrate his support for smoking. He showed more than “tolerance” for “immoral and unlawful conduct” – he provided them with aid and comfort. Through his famous memorandum he created a criminogenic environment in which control fraud “does pay” because he helped remove the regulatory cops from their beat and claimed that those who wanted to prosecute criminal CEOs posed such a threat to “free enterprise” that business must show “no hesitation” in marshalling its unmatched economic and political power to “attack” them and ensure that they were “penalized politically.”
Powell: Firms that Fail to Use their full Power v. Foes are Appeasers
Powell derided corporations that gave aid and comfort to the enemy by failing to use their dominant economic power against those who wanted to hold corporations and their senior officials accountable for “defraud[ing],” “poison[ing],” and willfully manufactur[ing] unsafe products that will maim or kill the buyer.”
One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.
The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.
Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.”
Powell: the Business Class are Paragons of Civic Virtue
In Powell’s telling, business interests were the political naïf in politics. Other lobbyists were “special interests” while business was dedicated to the public interest. Special interests made self-interested demands on politicians, business did not.
Business, quite understandably, has been repelled by the multiplicity of non-negotiable “demands” made constantly by self-interest groups of all kinds.
While neither responsible business interests, nor the United States Chamber of Commerce, would engage in the irresponsible tactics of some pressure groups, it is essential that spokesmen for the enterprise system — at all levels and at every opportunity — be far more aggressive than in the past.
Corporations and the Chamber of Commerce did not make demands on legislators and did not act as special interests. Powell was not naïve enough to believe his own propaganda, but he knew that the Chamber of Commerce and its members CEOs would delight in even the most oleaginous praise. A corporate lawyer becomes expert in pandering to power.
Powell: Use Economic Power to “Punish” Foes
Powell’s solution was for corporations to act like real corporations by using their wealth and ownership to take control of the universities and media and use that control to further corporate interests by causing the universities and media to extol the virtue of corporate dominance and by influencing the law to support corporate interests. But his central theme was that business must cease its “appeasement.” CEOs should show:
….no hesitation to attack the Naders … who openly seek destruction of the system. There should not be the slightest hesitation to press vigorously in all political arenas for support of the enterprise system. Nor should there be reluctance to penalize politically those who oppose it.
Powell: Do what we do Best – “Produce and Influence Consumer Decisions”
Powell’s specific prescriptions for how corporations should use their economic power to achieve dominance are filled with hortatory expressions about quality.
Essential ingredients of the entire program must be responsibility and “quality control.” The publications, the articles, the speeches, the media programs, the advertising, the briefs filed in courts, and the appearances before legislative committees — all must meet the most exacting standards of accuracy and professional excellence.
But Powell knew corporations’ real strength – manipulating the public through advertising and marketing.
It is time for American business — which has demonstrated the greatest capacity in all history to produce and to influence consumer decisions — to apply their great talents vigorously to the preservation of the system itself.
American corporations didn’t demonstrate “the greatest capacity in all history to produce and to influence consumer decisions” through advertising that was limited to “the most exacting standards of accuracy.” Remember, Powell’s most important experience was representing the interests of tobacco companies. Tobacco marketing had four dominant motifs – smoking was cool, smoking was adult, smoking made you sexy, and even more dishonest efforts to minimize smoking’s health risks. The advertising, marketing, and lobbying efforts on behalf of smoking were based on deception, and they did succeed in “produc[ing] and influenc[ing] consumer decisions” that were literally suicidal and potentially fatal to their loved ones.
Again, Powell’s apparent naiveté about the propaganda campaign that he was proposing that the Chamber of Commerce unleash was pure sham. He knew that businesses frequently created demand for their products through deception and he knew that if business followed his recommendation to unleash its marketing gurus on attacking those who wanted to prosecute criminal CEOs they would do so with as much regard for accuracy as they found useful for the particular attack. If misleading voters and demonizing opponents through deceptive statements worked better as a means of attack, then Powell knew that marketing specialists would have no more scruples lying about Nader than they had against lying about smoking – but he also knew that the memorandum would eventually become public and that it should be written in as self-serving and self-glorifying a manner as possible. Advertising specialists are a cynical lot, so I’m sure they got a great laugh reading the portion of Powell’s memorandum where he conflates of “the most exacting standards of accuracy” in advertising with “professional excellence” in advertising.
Freedom is the Ability of CEOs to Commit Crimes with Impunity
Powell ended his substantive arguments with the claim that regulating business destroyed freedom.
The threat to the enterprise system is not merely a matter of economics. It also is a threat to individual freedom.
It is this great truth — now so submerged by the rhetoric of the New Left and of many liberals — that must be re-affirmed if this program is to be meaningful.
There seems to be little awareness that the only alternatives to free enterprise are varying degrees of bureaucratic regulation of individual freedom — ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.
We in America already have moved very far indeed toward some aspects of state socialism, as the needs and complexities of a vast urban society require types of regulation and control that were quite unnecessary in earlier times. In some areas, such regulation and control already have seriously impaired the freedom of both business and labor, and indeed of the public generally.
It is a measure of how successful Powell’s strategy was in spreading the ideology of corporate dominance and impunity that some of his statements would now be anathema to business. He concedes in his conclusion that: “most of the essential freedoms remain: private ownership, private profit, labor unions, collective bargaining….” In 1971, even prominent Republicans hostile to unions considered the rights to join a union and engage in collective bargaining to be “essential freedoms.” As a Supreme Court Justice, Powell proved to be a disappointment to President Nixon and movement conservatives because he remained a moderate conservative.
Powell exemplifies the limits of even exceptional intellect and great courtesy. He did not set out to harm the public. He felt he epitomized intellectual consistency, but he was blind to how his class bias on behalf of CEOs made him totally inconsistent in his view of crimes of the street and the suite.
The “areas” in which Powell warned that regulation had already “seriously impaired the freedom of both business and labor” – that language is code for rules restricting discrimination in employment based on race, gender, etc. The Civil Rights Act of 1964 and the EEOC were anathema to Powell and the CEOs of many members of the Chamber of Commerce. The anti-discrimination laws applied to unions as well as employers. Powell, careful lawyer that he was, knew not to make that nostalgia for bigotry explicit in his memorandum.
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OMG, Akerlof gets the Nobel in 2001 for a paper written in 1970 where he already proves that some CEOs are crooks, frauds and criminals?
And in 2011, still the same: nobody (in a position to act) seems willing to prosecute those crooks & criminals.
Bananas, anyone?
We have gone back to the days of Upton Sinclair’s 1906 book, The Jungle.
http://www.gutenberg.org/files/140/140-h/140-h.htm
http://en.wikipedia.org/wiki/The_Jungle
While it is best remembered for its description of Chicago’s meatpacking industry, The Jungle was intended to bring attention to the following:
Adulterated Food Black writes of corporate America’s efforts to make more money have led to:
A century ago, large corporations across America engaged in identical conduct. As Sinclair wrote:
(Chapter 7)
Faux corporate competitionBlack writes of crony capitalism, where corporate leaders profit from collusion and suborning regulators. In Sinclair’s time, a small elite used interlocking trusts to own and control companies that seem, to the public, to be viciously competing with one another.
Sham elections. Sinclair warned that the two party system was a sham as the corporate oligarchs and party bosses decided in private who would win what seats. When an older Democrat displeased the elites, he was suddenly replaced by a Republican “reformer” to show that the system could correct itself and remove corrupt politicians. In reality, the Democratic machine quietly helped elect the “reformer:” he was even more corrupt and beholden to the elites than his predecessor. (Sound familiar?)
The rest of the time, according to Sinclair:
(Chapter 9)
“who would win which seats.”
It’s good to keep explaining how corporatism and “free enterprise” are antithetical. Powell and the likes of Fortune do not support free enterprise, real competition, real innovation, real entrepreneurship, or textbook capitalism. On the contrary, they’re servants of rent-seeking oligopoly, and systematic enemies of all those things.
Anyone who truly believes in those things must want to abolish corporations completely, as the corporate form is dedicated to the subversion of all of them. This was already clear enough in theory in the 19th century, and 150 years later we have the unbroken record of evidence. By definition corporations are extensions of the government, command economy manifestations. The organizational principle automatically tends toward kleptocracy, and starting in the 1970s (Powell’s strategy memo was one of the seminal neoliberal documents) we’ve seen the full manifestation of this neofeudal kleptocracy. This is inherent in corporate logic, and the corporate form is the essential vehicle of the kleptocratic process.
So the post is good in educating toward that knowledge, although it doesn’t reach the full implications. It’s still a reformist policy proposal which does not intend to do away with organized crime in toto, but merely to curb its worst “abuses”, as reformists would call them.
(There’s also more of this kind of exculpatory nonsense:
Powell exemplifies the limits of even exceptional intellect and great courtesy. He did not set out to harm the public.
That’s absurd. How was it possible by the 1970s for an educated person to be unaware of the intrinsic malevolence of corporate rackets? Give me a break.)
We see the terminal limitations of Black here:
Anti-employee control frauds target employees, e.g., by not paying workers wages they are due.
Actually, by definition capitalism itself doesn’t pay workers what they are due. If “wages” exist at all, that means the worker is being robbed. So we see how the reformist doesn’t want to end the robbery, but just place some meager limits on it. And we’ve seen how well that works in practice.
attempter said:
“Powell exemplifies the limits of even exceptional intellect and great courtesy. He did not set out to harm the public.”–William Black
That’s absurd. How was it possible by the 1970s for an educated person to be unaware of the intrinsic malevolence of corporate rackets? Give me a break.)
I agree wholeheartedly.
I think it goes without saying that you and I have moved well beyond what every great critic of liberalism has realized to be its greatest defect—-innocence and naïveté.
I just don’t know about the business of being innocent and naive. There also seems to be some denial involved, like say it aint so Joe.
I tended to agree with many of Justice Powell’s opinions, this bit of revelation is new to me and expalins why I not infrequently disagreed with a number of Justice Powells opinions.
If memory serves, I beleive that Justice Powell was confirmed with very little effort. I wonder why?
Justice Powell was confirmed easily as he was considered more liberal than Nixon. Justice Rehnquist was confirmed at the same time with a lot more difficulty. There was an old cartoon our of the Richmond Times Dispatch (Powell was from Richmond) with both Powell and Rehnquist is football uniforms. As Powell dusts off an immaculate uniform, he comments “Nice blocking Harry” to a muddy Rehnquist.
Ironically, the much-villified (often rightfully so) Rehnquist had a far better record on corporatism than most of the other judges, including several exalted liberals. (E.g. William Brennan and Thurgood Marshall both supported corporate speech “rights”.)
This was because unlike the fraudulent Scalia or Roberts, Rehnquist actually had integrity where it came to his proclaimed ideology (federalism) and let that principle guide his decisions even where the result was anti-corporate, as it often was.
I question if one can or should presume to move beyond the capacity for innocence and naivete. I too agree wholeheartedly, but to dump on Black here is bull. One hears similar treatments of Chomsky from another context. These are individuals whose contributions are stellar regardless. Indeed the contradictions are usually most significant. They keep it from being wrapped too tight. Just like innocence and naivete provide the elbow room for idealism and learning.As for exceptional intellect and great courtesy, they are preceded by the singularly apt characterization of oleaginous! He oiled his way across the floor oozing charm from every pore. And what about Powell’s work for the Pacific Legal Foundation? The class he is a function of is post Reconstruction.
Corrupt and/or fired regulators Then, as now, regulators occasionally tried to do the right thing. They were soon fired or forced to resign. The rest accepted reality, and did their best not to annoy the corporate oligarchs.
Predatory lending. The protagonist (a Lithuanian immigrant) decides to buy a home, taking out a mortgage to pay for it. Because he was unable to read English, he takes the contract and mortgage agreement to several local lawyers for advice and to look over the documents. Based on their advice, he buys the house, takes out the mortgage, begins making payments on “his” house.
He soon learns that the lawyers lied to him, that the house was shoddily constructed, that he was really renting it from a trust until the “mortgage” was paid off, that the payments suddenly escalate, that he was responsible for numerous undisclosed fees and taxes, and that the lender wanted to foreclose as quickly as possible so that they could sell it to yet another unsophisticated immigrant.
(During the recent real estate bubble, immigrants were similarly encouraged to buy homes they were completely unable to afford. In many cases, they went to local community organizations, community leaders, or religious institutions for advice. They were unaware that the person or organization advising them to buy a home may have received referral fees from mortgage brokers, funding from banks, etc. Pleased, but extremely surprised, that they could afford a home, they signed whatever papers were put in front of them at the closing. Only later did they learn about such things as adjustable rate mortgages and teaser rates.)
The use of day laborers and mass immigration to undermine unions. In The Jungle, young, healthy workers would be hired by the meat industry and paid a good wage until they became ill, injured, or worn out by the horrible conditions. They would then be summarily fired, and replaced with another worker who would be similarly used up and replaced. By recruiting from the unending stream of immigrants, the employer was ensured a continuing supply of disposable workers who could not effectively complain and had no links to labor unions.
This tactic also allowed the meat packers to capitalize on animosities and language barriers between the different immigrant groups. If that failed, or if there was a strike, the workers were temporarily replaced with southern Blacks, who were sent back to the South as soon as the local workers became more tractable.
(Starting in the 1980s, the meat industry resumed using these tactics, replacing unionized meat packers with non-union, often undocumented, immigrants who could be quickly replaced if they became ill, injured, or troublesome. In the US, multinationals used Hispanics; in the UK, multinationals used Eastern Europeans. Wages quickly dropped, benefits disappeared, and injured workers replaced. Accusations of racism were made against former meat-packers and others who objected.)
Later, the protagonist winds up working as a day laborer building an underground railway intended to allow downtown businesses to stop relying on unionized delivery people. (While the capitalists behind the railway lacked the proper permits, they simply dismissed rumors of the railway as a conspiracy theory, and bought off politicians until the railway was complete and ready to be used.) When he is injured, he is taken to a public hospital to be treated at public expense. Since he was never paid for his work, he winds up homeless.
Externality,
Great snapshots from the past, juxtaposed to current ones to highlight how we managed to survive the 20th century, but without learning anything.
I’d like to add the following to your outstanding list.
• Now…
William Black said:
“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.” (Frederic Bastiat)
Powell’s memorandum sought to glorify plunder with impunity, but he went beyond Bastiat’s warnings. Powell glorified CEOs who killed and maimed customers.
• Then…
Hannah Arendt, writing in Eichmann in Jerusalem: A Report on the Banality of Evil said:
Now and then, the comedy breaks into the horror itself, and results in stories, presumably true enough, whose macabre humor easily surpasses that of any Surrealist invention. Such was the story told by Eichmann during the police examination about the unlucky Kommerzialrat Storfer of Vienna, one of the representatives of the Jewish community. Eichmann had received a telegram from Rudolf Hoss, Commandant of Auschwitz, telling him that Storfer had arrived and had urgently requested to see Eichmann. “I said to myself: O.K., this man has always behaved well, that is worth my while… I’ll go there myself and see what is the matter with him… It was a great inner joy to me that I could at least see the man with whom I had worked for so many long years, and that we could speak with each other.” Six weeks after this normal human encounter, Storfer was dead—-not gassed, apparently, but shot.
Is this a textbook case of bad faith, of lying self-deception combined with outrageous stupidity? Or is it simply the case of the eternally unrepentant criminal (Dostoevski once mentions in his diaries that in Siberia, among scores of murderers, rapists, and burglars, he never met a single man who would admit that he had done wrong) who cannot afford to fact reality because his crime has become part and parcel of it? Yet Eichmann’s case is different from that of the ordinary criminal, who can shield himself effectively against the reality of a non-criminal world only within the narrow limits of a gang. Eichmann needed only to recall the past in order to feel assured that he was not lying and that he was not deceiving himself, for he and the world he lived in had once been in perfect harmony. And that German society of eighty million people had been shielded against reality and factuality by exactly the same means, the same self-deception, lies, and stupidity that had now become ingrained in Eichmann’s mentality. These lies changed from year to year, and they frequently contradicted each other; moreover, they were not necessarily the same for the various branches of the Party hierarchy or the people at large. But the practice of self-deception had become so common, almost a moral prerequisite for survival, that even now, eighteen years after the collapse of the Nazi regime, when most of the specific content of its lies has been forgotten, it is sometimes difficult not to believe that mendacity has become an integral part of the German national character.
P.S.—-All this gives new meaning to Milan Kundera’s wise counsel:
The struggle of people against power is the struggle of memory against forgetting.
History is a pit, if you don’t write it for general consumption, get in it.
Skippy…scribes use bulldozers (D-dogma) these days.
“Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.”
Since corporations pass on the cost of expenses to consumers, isn’t the funding of “movement centers” another form of customer control fraud?
While reading this article, I kept thinking of Hillary Clinton not missing a beat during her hortatory (learned a new word) speech on freedom of expression, while hired goons manhandled a peaceful, elderly protester and whisked him away to jail.
Plus c’est la même chose.
Or Hillary Clinton demanding that foreign countries not impose any restrictions on Internet use, having the State Department fund software to help citizens of foreign countries bypass their countries’ Internet restrictions, and supporting efforts by the Clinton, Bush (43), and Obama administrations to restrict, monitor, and censor Internet usage by American citizens.
While the Obama administration recently proposed a national system to establish the identity of Internet users, the concept originated in the Clinton administration.
Provisions of the Communications Decency Act and Child Online Protection act variously criminalized making available online (where it could be seen by minors) content that was “offensive,” “harmful to minors,” or “indecent.” Prosecutions could be brought anywhere in the US and would be based on local standards where case was brought, not where the content originated.
The only way to avoid prosecution was for websites to verify and record the age and identity of each user using credit card, financial, and other records and to make the information readily available to law enforcement. A massive outcry ensued from free speech, LGBT, HIV/AIDS, and other groups. The relevant provisions of the CDA were struck down by the Supreme Court. The high court later upheld a decision enjoining COPA and declined to review a subsequent appellate decision ruling it unconstitutional.
http://en.wikipedia.org/wiki/Communications_Decency_Act#Anti-indecency_and_anti-obscenity_provisions
http://en.wikipedia.org/wiki/Reno_v._American_Civil_Liberties_Union
http://en.wikipedia.org/wiki/Child_Online_Protection_Act
http://www.nytimes.com/1996/02/08/us/protest-cyberspace-style-for-new-law.html?src=pm
Time for a constitutional convention. Time to change the rules of the game. Time to end corporate shadow government.
Bullshit. If there were a constitutional convention today, just think for a minute about who would be there. New constitutions are always written by the people who are currently in power, and they are going to write it to benefit themselves. If you think shit is bad now, just keep calling for a constitutional convention — whatever came out it would make today’s politics look like the good old days.
There are no wise few. Every aristocracy that has ever existed has behaved, in all essential points, exactly like a small mob.
– G. K. Chesterton
Don’t expect an oligarchy to reform itself!
– ME
He who will not reason is a bigot; he who cannot is a fool; and he who dares not is a slave.
– Sir William Drummond
The regulators and the prosecutors are the “cops on the beat” who are essential to preventing the cheats from gaining a competitive advantage over honest businesses.
No mention of an active powerful press of fearless investigative reporting. More naivete? Or was it unthinkable in 1970 that the free press could be eliminated?
Imus complaining about how Fox watches every little word; he really hasn’t a clue, sounding more like a bunch of giggling high school girls. Shortly thereafter, a voice reports on Citi quarterly results finishing it with, “it is now trading on the FREE market at …”
if that’s not irony … there are lots of examples if you can stand listening to this stuff. My computer is down. That’s my excuse.
Is the Bill Black post dishonest, or just plain stupid? Seriously, I can’t tell.
I think much of the problem is that Black is attempting to take on an “adult” matter, but he does so through the prism and prose of a 14 year old. A perfect example comes when Black outlines (finally) the crux of his post after about 15 paragraphs when he states: “I submit that Powell and Fortune are not simply incorrect, but as wrong as it is possible to be wrong….” C’mon, man. You are a University Professor for crying out loud. “…wrong as it is possible to be wrong….”?
As to the Herculean effort needed to parse the rest of the post…
Notice how Black immediately poisons the well with respect to Powell’s representation of the Tobacco Institute. “Powell was famous for his successful efforts on behalf of the Tobacco Institute…The Institute played the critical role in covering up the lethality and paying for junk science designed to mislead consumers about the lethal effects of tobacco products. They were literal merchants of death, selling a product that when used as intended was likely to kill the customer.” Later in the post, Black actually describes Powell as a “Tobacco Apologist”.
Hey Bill, Powell didn’t conduct “successful efforts on behalf of the Tobacco Institute”…and he wasn’t an “apologist; he was the Tobacco Institute’s f*cking attorney. There’s a wee bit of distinction between the damning “he was a tobacco apologist who conducted successful efforts on behalf of a merchant of death” and being a goddamn attorney. I would imagine that even a 1st year law student would know this….
[What a joke. It’s this kind of blatant stupidity that paves the way for similar attacks on GITMO defense attorneys whose mission is distorted into “conducting successful efforts on behalf of terrorists”. And Bill Black is an attorney for cryin’ out loud.]
After exhibiting a failure to grasp the most fundamental responsibility of attorney as advocate, Black simply spends the rest of the post in a feckless distortion of the Powell memo…as though Powell wrote it for the purpose of paving the way for more corporate fraud.
Take Black’s discussion of Powell’s discussion of Ralph Nader. Black asserts that Powell was threatened by Nader because Powell was “horrified” at the prospect of prosecuting CEOs for willfully selling defective goods.
Get it straight: Powell mentioned Nader in one single paragraph. Powell asserted that Nader was part of a group hellbent on destroying legitimate businesses by implying that it was not just “fly-by-night hucksters” who were wantonly “defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer”, but that the management of Blue-Chip companies was willfully and consistently doing the same.
Powell did NOT assert that consumer fraud go un-prosecuted. Nor did Powell defend fraud. Powell simply asserted that Nader was a problem because Nader tended to lump all businesses together as being a cartel of fraud. Powell was this shot-gun approach. Re-read the damn memo.
The only thing appropriate about Black’s post is it’s closing paragraph. Black asserts that Powell used “code-words” in his memo. The implication being that the code-words were a secret message to his followers to be vigilant against laws which might restrict discrimination on the basis of race and equity. Blacks states that Powell had to resort to these “code-words” because Powell was a “careful lawyer” who knew better than to expose his “nostalgia for bigotry.” Yeah, OK Bill. Powell is ever the lawyer–except, of course when Powell is defending his f*cking clients;then Powell is an apologist.
Such ridiculous bullshit is indeed, an appropriate close to a post that’s…that’s…that’s “wrong as it is possible to be wrong.”
What a joke.
Powell wrote a call-to-arms in response to what he saw as an all out attack on business in this post 1960s climate.
There is certainly room for reasonable disagreement with the Powell memo. Furthermore, it’s reasonable to lament the memo as being a harbinger of the undesirable pendulum in corporate power.
But the analysis of the memo needs to be done through lens of a more insightful and mature commentator. Black, with the intellectual rigor and depth of an 8th grader acts as if Powell was some kind of death-fraud apologist with a “nostalgia for bigotry”.
At best, the Black post is merely the product of an immature, simple-minded professor. At worst, it’s a purposeful distortion and total bullshit.
Either way, in the end, the Black post was pathetic and should serve to embarrass any of his colleagues at the University of Missouri-Kansas City by virtue of association.
Bit over the top with this piece. Why are you mad at Bill Black?
To my mind he is one of the best voices for revealing the pandemic of financial fraud that we find ourselves mired in.
Struck a nerve, did he?
So it’s okay to knowingly lie as long as you’re getting paid for it? Gotcha.
As if to prove Black’s point on the confusion of accused criminals and convicted criminals…
What does Nader get out of “destroying legitimate business?” Everything he has done is consistent with holding businesses accountable for fraud or tort infractions.
Your technique of labeling those you disagree with as “sophomoric” or “14 year-olds” is less effective than you might think. It becomes even less persuasive *every* *single* *time* it is used. Nothing else in your bag of tricks? More attempts at humor? I guess I can be happy *that* has mostly stopped.
Clearly, Black is not a child, and clearly Black does not think or write as a teenager does. This claim exposes you as a moron. It also exposes you as completely unable to grasp objective reality within the first few paragraphs of your sad and embarrassing attempt to fight for what you perceive is better way to structure the world.
What is the most embarrassing thing about your long-winded misfire is that there are *hundreds* of ways to legitimately criticize Black and *his* view of the world, but you are clearly too incompetent to see those ways. Your insistence on unintentionally embarrassing yourself time after time shows a tremendous persistence for self-debasement.
Whenever I see a comment by Dan Duncan, I immediately skim over it. Dan has never said anything worth reading, and I refuse to waste any more of my life on his blather. I think I speak for a lot of regular readers when I say this.
On the other hand, when I see a comment by Anonymous Jones, I pay attention since Anonymous Jones has been regularly insightful. When I come across Anonymous Jones responding to Dan Duncan, it’s a toss up as to whether I’ll read it.
If you don’t like this sort of writing, Dan, why don’t you just go somewhere else? Or are you PAID to write inflamatory bullshit like this?
Ever hear of a “mob lawyer”? he wasn’t representing them at trial, he was advising Tobacco om ways to continue to kill with (legal) impunity. If the Gitmo lawyers were aiding an organization called “The Terrorist Institute” it would be right to hold them accountable.
Golf clap for you Dan. A for effort, F for making an argument capable of changing anyone’s viewpoint toward your worldview.
Wish I could send you a plaque for your wall:
“Frequently wrong but never in doubt.”
Unsurprisingly, I agree with attempter’s use of the word kleptocracy here. It seems that Bill Black is working his way toward this concept but isn’t quite there yet. He describes devastating frauds that as he says affect hundreds of millons. If that isn’t kleptocracy, what is?
I agree too that he cuts Powell too much slack. Powell’s memo is not the statement of a brilliant man who happens to be wrong. It is the expression of a criminal mind. If the Powell memo is not a manifesto for class warfare, what is?
We really need to come to terms with the ideas of kleptocracy, class warfare, and wealth inequality and seek to understand how they permeate our society. But also because this all has been going on for the last 35 years, the Powell memo being something of a precursor, we need to reconsider our understanding of those years, and the people and actions in them, in the light of these concepts. Our current histories have been largely written by the kleptocrats and their minions and reflect their interests. I have said before we need a theory of kleptonomics. We also need a history of it. As long as we steer clear of these and delay their implementation we empower the kleptocrats and the class war they are waging against us.
It’s a classical totalitarian document in that it lays out its plan of attack through the device of fraudulently accusing its opponent of such a plan. Anyone in the know, reading about what all those nasty hippies were allegedly doing, was supposed to understand: “Here’s what we need to do.”
As the recent financial/economic crisis increasingly calls into question the liberal political order, Down South’s reference to Arendt’s “Eichmann in Jerusalem” raises again. the issue of the nature and foundations of totalitarianism.
In her earlier book “The Origins to Totalitarianism” she essentially argued that “the aggressiveness of totalitarianism springs not from the lust for power…not for profit but only for ideological reasons,to make the world consistent….”
Arendt called this mix of ideology and state terror “absolute evil.”
But after she covered the Eichmann trial she subtitled her then new work “A Report on the Banality of Evil.”
In her last uncompleted essay “Life of the Mind” Arendt notes in her introduction that in observing Eichmann “she was struck by a manifest shallowness in the doer that made it impossible to trace the incontestable evil of his deeds to any deeper level of roots or motive.” She goes on to say that Eichmann seemed “quite ordinary, commonplace and neither demonic nor monstrous. There were no signs in him of firm ideological conviction or of specific evil motive.”
We seem left with two contrasting conclusions. In “Origins” totalitarianism was seen as a demonic evil driven by ideology in “Eichmann in Jerusalem” totalitarianism, as symbolized by Eichmann, seemed to be a more banal bureaucratic, nonideological force.
Such contradictory positions on the totalitarian phenomena by one of our most profound modern political philosophers seems to require we focus not only on the economic origins and foundation of this crisis but also on our own internal weaknesses as human beings–if the totalitarian trajectory is to be avoided in the future.
It’s not a contradiction. The ideology is formulated by rogue intellectuals who lead what Arendt calls the mob, “the cast-off detritus of all classes”. These form and lead the totalitarian movement.
Then, when a crisis like the Depression shatters social stability, driving the masses of “atomized individuals” (normal people) to desperation, they turn to the movement seeking their salvation within it, and bring it to power. But they remain normal, banal individuals. Only now many of them embody the banality of evil.
Chapter one of the third volume, “A Classless Society”, gives the most extensive discussion.
I remember my grad school professor for assigning the the Powell memo for reading!
The first shot across the bow signifying an end to the much-touted postwar consensus between CAPITAL and LABOR? The smoking gun for what would become MARKET TOTALITARIANISM?
Either way, Powell’s memorandum of 1971 points up the fact that the postwar consensus was unraveling way before Ronald Reagan became President. It also illustrates how the “revolutions” of the 60s were followed by the COUNTERREVOLUTION in the board room whereby corporate America set out to capture the institutions of civil society for the purpose of promoting and securing the MARKET in the hearts and minds of the American people as the one size fits all solution to everything. But it was not confined to the boardroom for long…
Powell’s memorandum should also dispel the idea that this neoliberal experiment was an elite conspiracy absolving the American people of their culpability in its ascendance. All one had to do was read between the lines to see the writing on the wall.
Whether position papers from the likes of the Heritage Foundation or the Cato institute, Powell’s memorandum illustrates that the counterrevolution was a deliberate effort by the ruling class to take back the political economic agenda in order to make America safe for “free enterprise”. It attests to the virulent CLASS-CONSCIOUSNESS of the ruling class in this country that has never been far below the surface. Finally, it forces one to admit that the period from 1932-1968 [the New Deal] was a historical anomaly brought on by the collapse of the capitalist economic system in 1929. Four decades on, the New Deal has morphed into the Raw Deal underpinned by an ideological hegemony supportive of MARKET TOTALITARIANISM. The fact that the financial collapse has yet to usher in any meaningful reform attests to how successful the “antidemocratic strategy” proffered by Lewis Powell has been in capturing the hearts and minds of the American people. Change we can believe in is not likely in such a sociopolitical environment.
I find it funny as hell when economists act all shocked that big businessmen and their advocates don’t actually care that much for genuine free enterprise.
Why the hell would our corporate elites want capitalism? Capitalism is all about competition. The problem with competition is that nobody wins every time.
If I own a widget factory, the last thing I want is free and fair competition. Somebody might come along and and start selling better and cheaper widgets and put me out of business.
Powell didn’t advocate crimogenic policies by accident. He and the men he was addressing in his memo wanted to transition to a kleptocracy in which their continued wealth and status was guaranteed to remain intact regardless of the quality of their work.
Staying on top in a competitive market is damn hard work. Making vast fortunes by exploiting a government-backed monopoly on criminal behavior is easier and a lot less stressful. Why work yourself into an early grave when you can just go out and rob or scam some schmuck?
“Accounting control frauds target creditors and shareholders.”
Unfortunately, I think we must also add the tax payer to the list of targets of accounting fraud given that most accounting frauds of the past 5 years have been covered by the tax payer instead of shareholds and especially creditors.
There is something troublingly suspicious about Bill Black.
He has worked extensively with OTS, as he tells you in his book. OTS, along with OCC, is undeniably the seat of conspiracy, yet Bill has not been taking them to task?
Almost, they helped to form his present career, so no go to?
Black has mentioned the FBI warning about an epidemic of mortgage fraud in 2004, then they went silent. This is not of central importance to the explainer of ‘control fraud’? Why the hell isn’t it?
LONGtime lurker here on NC.
The OTS is pretty irrelevant as a regulator these days although AIG did manage to dig them out of mothballs and found a way to charter its Financial Products Group so it fell under the OTS.
“Anti-public control frauds target the general public ..”
Yes, they certainly do, Bill.
Some of them possess three-letter acronyms, as well.
It IS time to come full circle, Mr. Black. Your book on the S&L crisis is impossibly revealing: answer your own challenge!
I think you are wrong. The key ingredient of classical totalitarianism is violence toward opponents. In those cases the citizenry are to be mobilized to support the “purge”.
Here the idea different: a passive but thoroughly brainwashed populace is the goal. Therefore it looks to me more like a manifesto of “inverted totalitarianism”.
That also means that the role of Lewis Powell’s manifesto is probably exaggerated. The initial phase was probably McCarthy witch hunt. In 1970 this process was actually already twenty years old and in pretty developed stage. I suspect that it was mainly the creation of people like Richard Mellon Scaife, who inherited part of the vast Mellon fortune from his alcoholic mother and bunch of similar people who inherited vast fortunes.
Those “anti-Titans of Industry” bankrolled not just the conservative legal movement, but the conservative movement in general.
It is very interesting how they managed to adopt and rectified the key parts of Bolsheviks’ Party strategy. The irony is that methods developed to protect and expand communist ideology proved to be no less effective in protecting and expanding “capitalist ideology”. This might be a classic case of adoption of the principles of bitter enemy. Among them:
1. Control the press. Journalists are just soldiers of the Party. Remunerate royally whose who “served with distinction”. Silence those who are not: for journalist silencing is as close to physical death as one can get.
2. Ideology needs to be supported be powerful. well funded research institutions (aka “think tanks”) and in turn be regenerated and adapted to modern realities by captured universities and paid “intellectual” agents to appear more legitimate. The goal is domination of the ideology in all mass media channels, books, universities, etc, not elimination of the opposing view like with classic totalitarianism. There is power in numbers. And at some point think tanks, university endowments, create a self-sustanable “critical mass”. The line between research and PR can be made as fuzzy as possible.
3. Promise anything to be elected, adopting, if necessary the most attractive to electorate parts of the opponents platform. After election behave as you please and do completely opposite as train already left that station.
4. Control all major channel of media and indirectly censor opposing view. Avoid direct censure unless absolutely necessary, as it alienates people and fuel discontent. Jus deprive then of the audience and kill with kindness: provide huge stimulus for those who voluntarily “follow the Party line”.
5. Ensure that textbooks presents historical and other events only through the prism of Party mythology and make part of the mythology sacred so that those who try to attack can be accused in undermining the foundations of civil society. Create and cultivate a newspeak that makes expression of opposing ideas more difficult and more suspect.
6. Demonize the opponent and project your worst inclinations and deeds on them. It had long been a practice of more conservative politicians to refer to liberal reforms such as child labor laws and environment protection measures as “Communist” or “Red plots.” Few people understand that for people of the USSR and Eastern Europe in media CIA played the same sinister role KGP used to play in the USA.
7. Never admit that you are wrong. Explain all failures by enemy actions, natural disasters or due to some other third party. Subvert the law system to protect the Party and never criminally charge the top brass no matte what are actual transgressions.
Excellent analysis. The kleptocrat-capitalists will of course end up self-destructing just like the Soviet apparatchiks, and for the same reason: because their scheme makes no concessions to *empirical reality*.
nice post. like it.