Читать книгу The Finance Curse - Nicholas Shaxson - Страница 11

In April 2018 Mark Zuckerberg, of Facebook, facing a grilling from a Senate panel, took about as much care with his own information as Facebook does with your data: he allowed a photographer from the Associated Press to snap a photo of his crib notes. One of his arguments was aimed against anyone suggesting that Facebook should be broken up: “US tech companies key asset for America; break up strengthens Chinese companies.”

There were other fascinating things in Zuckerberg’s notes, and few people probed this particular tidbit very far. But his argument was odd, if you think about. He was calling for Congress to accept his monopoly, which profitably harvests and sells valuable and sensitive data about American users, in the interest of American competitiveness (and national security). Or, to put it more simply, to improve American competitiveness by restricting competition in America.

Lawmakers and commentators mostly fell over themselves to flatter Zuckerberg, and with a couple of honorable exceptions, they avoided the elephant in the room: Facebook’s gargantuan monopoly, trapping us in a devil’s bargain where we have no choice but to accept being subjected to secret surveillance if we want to connect with friends and neighbors this way online.¹ And that is because, until very recently, few were paying much attention to the awesome monopolistic powers of big firms like Facebook, Google, Amazon, and Netflix. The Obama administration was so cozy with Google that it may as well have given it the keys to the White House. The Trump administration is even worse.²

Most people still aren’t paying attention. How did these remarkable blind spots come to exist? The perils of monopoly power have been clearly understood since long before Rockefeller built Standard Oil. “If we will not endure a king as a political power,” said Senator John Sherman, who sponsored America’s first proper antitrust law in 1890, “we should not endure a king over the production, transportation and sale of any of the necessaries of life.” The New Deal program that followed the crash of 1929 had strong antitrust measures—a large and varied body of anti-monopoly laws to tackle big banks and great concentrations of economic power—at its heart. Yet in the modern era this has all been swept away. Who killed anti-monopoly?

There is, in fact, a clear answer to this question. We can trace the shift back to an ideological insurgency in the 1960s and 1970s, led by a group of Chicago School economists who would, as with a magician’s trick of misdirection, shift attention away from the all-important question of whether corporations have too much economic and political power and toward a far narrower issue: whether the price is right. If the merger of two large companies doesn’t lead to higher prices, the argument now goes, what’s the problem? The services of Facebook and Google are free, apparently, so move along, folks, there’s nothing to see here. This narrowing of focus has blinded us to many deeper issues, which are among the biggest drivers of financialization and the finance curse.

This revolution was sparked at a dinner party in 1960 at the Chicago home of Aaron Director, an American economist with a small mustache, horn-rimmed glasses, and a lightweight boxer’s wiry frame. Director was a contrarian, pugnacious antigovernment fanatic, a former radical leftist union organizer who had crossed over and now seemed hell-bent on smashing the consensus that once fed his idealism. His politics were completely, purely free-market and even to the right of Milton Friedman, the godfather of libertarian free-market economics, who was married to Director’s sister, Rose. “Family dinners at the Friedmans’ house must have been a bundle of laughs,” said Matthew Watson, professor of political economy at Warwick University in England. “There can’t have been many house guests where Milton would have been accused of being too pro-government and too left wing.” That particular night Director hosted twenty dinner guests, conservative thinkers including not just Friedman but George Stigler (who would go on to make a name for himself attacking government regulation), the British economist Ronald Coase, and a fire-breathing lawyer called Robert Bork.³

The University of Chicago was a bear pit, an arena of intense macho intellectual combat where academics were constantly struggling to outdo each other with clever theories about efficient markets—theories that often perched on toe-curling assumptions—to defend unconventional, even antisocial positions usually supporting big business and attacking government. Mathematical and logical elegance trumped the messy reality of life and the world. Director himself was one of the truest of true believers who thought pretty much anything worthwhile could and should be shoehorned into the price mechanism in the interest of “efficiency.” His messianic zeal mesmerized many of his students. “I regarded my role as that of Saint Paul to Aaron Director’s Christ,” Coase said. “He got the doctrine going, and what I had to do was to bring it to the Gentiles.” Bork, another disciple, said Director “gradually destroyed my dreams of socialism with price theory,” adding that many of his colleagues “underwent what can only be called a religious conversion.”

The guests that evening came to listen to Coase present a draft paper, “The Problem of Social Cost.” Stigler remembered wondering “how so fine an economist could make such an obvious mistake.” At the start of the evening Coase summarized his idea and a vote was taken. All twenty guests opposed him.⁴

Coase deployed a novel argument. Corporations in those days were supposed to be subject to the law—or at least the law came first. If a corporation was pumping illegal pollutants into a river, you went out and found the pipe or some incriminating documents, then wielded the law to stop it. Pollution is an externality, a consequence that affects other parties who aren’t associated with the transactions or businesses involved. Markets can’t generally solve externalities; it had long been accepted that governments and laws needed to step in to stop such failures in the market. Coase wasn’t having this.

Imagine, he said, that a farmer’s cattle ravaged his neighbor’s wheat crop. If the law held the cattle farmer liable, he’d have to pay for a fence or negotiate compensation with his neighbor. If the law didn’t hold him liable, the wheat farmer would pay for the fence. But from an overall efficiency perspective it didn’t matter which farmer paid for the fence, since the cost of the fence was the same. So the law itself didn’t really matter, he went on: laws should be subject to a sort of cost-benefit analysis where harm caused by the polluter or the careless farmer or the tax cheat should be weighed against the benefits derived by those actors who gained. It was enough to show that overall “welfare” was maximized to let this happen.

You could extend this logic. If there was a large banking monopoly, for instance, any losses to consumers or workers could be balanced out by gains to the bank and its shareholders, and there might be no net loss overall. Bring in gains such as economies of scale reaped by larger corporations, and monopolies might turn out to be a good thing! Monopolies were the natural way markets wanted to go, and it wasn’t the job of judges to interfere. Once you took into account the apparent costs of regulation to the monopolizers, he said, it became hard to justify doing anything about them.

The guests were stunned. Until then antitrust—the large body of established law and theory that said monopolies were harmful and that governments should regulate them—was supported both on the Left of the political spectrum, where people fretted about giant banks and industrialists oppressing workers and customers, and on the Right too, where people were keen to protect and promote competition and the integrity of markets. Coase had just lobbed a bomb into this whole edifice—and into a few other edifices too.

The dinner progressed. The arguments mounted. “As usual, Milton [Friedman] did most of the talking,” Stigler remembered. “My recollection is that Ronald didn’t persuade us. But he refused to yield to all our erroneous arguments. Milton would hit him from one side, then from another, then from another.” But then, as in the plot of Twelve Angry Men, the mood began to change. “To our horror,” Stigler said, “Milton missed him and hit us.” By the end of the evening they took another vote: all were for Coase. “I have never really forgiven Aaron for not having brought a tape recorder,” Stigler said. “It was one of the most exciting intellectual events of my life.”⁵

This violent attack on the foundations of legal authority—that laws should be subjected to economic cost-benefit calculations and rejected if they fail to pass muster—was a classic example of the Chicago School’s “economics imperialism”—a power grab by economics professors with ambitions to colonize and dominate as many areas of social and political life as they could lay their hands on. It was at the same time an example of red-blooded neoliberalism, which argued that lawyers and laws should bow down to economists and economics and that everything had a price. The scale and success of this insurrection was made clear later on, in 1983, when a group of Chicago School economists was reminiscing about—one might say gloating over—this power grab. This short exchange between Bork, influential jurist and economist Richard Posner, and Henry Manne, another influential economist, gives a flavor.

BORK: As far as I know, the economists have not yet done any damage to constitutional law.

POSNER: We are working on that.

MANNE: We’ll chase you out of that too. [laughter]⁶

It doesn’t take a genius to see how elevating easy-to-massage numbers above the rule of law was likely to boost lawbreaking everywhere, not least in the financial sector.

These revolutionary ideas percolated slowly at first, but cheerleaders and corporate funders weren’t hard to find. One early enthusiast was a partner at a Wall Street consulting firm who was already a fanatical devotee of the antigovernment novelist and libertarian guru Ayn Rand. “The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance, … confusion, contradictions and legalistic hairsplitting,” he thundered in 1961. “The world of antitrust is reminiscent of Alice in Wonderland.” The problem wasn’t big business, he said; it was big antitrust and big government. This irate Wall Street partner, whose name was Alan Greenspan, would later become chairman of the US Federal Reserve.⁷

The United States is the historical home of anti-monopoly, and trends around the world have been led by what happens there. Anti-monopoly has been hard-wired into the American psyche since the country’s founding. America’s rugged individualism emerged as a bulwark not only against oversized government but against overwhelming business and financial power too. The Boston Tea Party of 1773, which helped trigger the War of Independence from Britain, was in large part a protest against the monopolizing East India Company, “which, besides the trains of evil that attend them in the commercial view, are forever dangerous to public liberty,” wrote Samuel Adams and John Hancock.⁸ And this was always understood: monopoly wasn’t just an economic problem but a fundamental threat to liberty and democracy.

Anti-monopoly zeal and monopoly power ebbed and flowed for centuries alongside shifting political tides. President Andrew Jackson launched a titanic struggle in the 1830s against what he called a “hydra of corruption”—a net of interlinked monopolies centered on the Second Bank of the United States—and his victory preceded a period of strong defenses against business predation and of tremendous economic dynamism. “The stranger is constantly amazed by the immense public works executed by a nation which contains, so to speak, no rich men,” wrote the French political scientist Alexis de Tocqueville in 1840. “What astonishes me is not so much the marvelous grandeur of some undertakings, as the innumerable multitude of small ones.”⁹

The Civil War in the 1860s was a fight against slavery and monopoly: the abolitionist senator Thomas Morris of Ohio called “slave power” the “goliath of all monopolies,” and his fellow abolitionist Wendell Phillips railed against the “aristocracy of the skin” in the slave economies of the South. When the war ended, however, America drifted fitfully toward the “age of Caesarism,” the era of the Rockefellers, Carnegies, and J. P. Morgan, who justified their power as necessary to “rationalize” their industries in more “efficient” ways.¹⁰

Democratic pushback emerged to confront these concentrations of economic and political power, often with geographical roots that are eerily similar to what we see today. Communities across rural and poor America saw large conglomerates sucking wealth and control away from their regions to benefit elites in mostly coastal cities like New York. The Sherman Antitrust Act of 1890, which empowered the government to finally break up Standard Oil in 1911, was partly inspired by these geographical iniquities. “If we would not submit to an emperor,” declared Senator John Sherman, after whom the act was named, “we should not submit to an autocrat of trade.”¹¹ The act was fairly broad and blunt, but its teeth were sharpened with new laws added over the coming decades.

The biggest wave of antitrust actions to date happened in the 1930s with Franklin D. Roosevelt’s New Deal, a sweeping package of progressive political reforms in response to World War I and the great crash of 1929, which helped shift economic and political power away from finance and large corporations toward ordinary folk. The New Dealers created a carefully calibrated system of government checks and balances to mediate between competing social priorities, regionally and nationally, breaking up concentrations of power in different parts of the economy. Their flagship legislation was probably the Glass-Steagall Act of 1933, which forced banks to separate their commercial banking activities from the more speculative investment banking, breaking up the banking behemoths.

At every stage it was understood that this was not so much about economics as political power and protecting democracy. Economic efficiency was exactly the wrong goal; the point of antitrust laws, as the antitrust lawyer Louis Brandeis explained, “was not to avoid friction, but by means of the inevitable friction incident to the distribution of the government powers among three departments, to save the people from autocracy.”

While Hayek and the neoliberals saw government as the agent of tyranny, with the post–World War II Soviet Union as the prime bogeyman, the anti-monopoly crusaders argued that large concentrations of private power bred tyrannical government, especially fascism. For them, Nazi Germany was the prime exhibit. “The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself,” Roosevelt said in a landmark address to Congress in 1938, as war loomed in Europe. “That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.” The Nazi state, the corporatist Fascist Italian state, and the imperial Japanese economic system were all heavily cartelized; in fact the Nazis in 1933 had actively encouraged the formation of big industrial cartels as a way of enforcing top-down control, eliminating foreign competitors and juicing up profits for big firms backing the war effort. As trust-busting US congressman Emanuel Celler put it, “The monopolies soon got control of Germany, brought Hitler to power and forced virtually the whole world into war.”¹²

When the war ended, a victorious America began to spread its doctrine of benevolent antitrust around the globe like a democratizing shock wave. The United States inserted anti-monopoly principles into the constitutions of the defeated aggressor countries as one of its “four Ds” for postwar governance: denazification, deconcentration, democratization, and decartelization. European countries adapted in their own ways. Britain took all this rather seriously too, though in its own way. For Britain’s financial sector, run by an old boys’ network that had grown fat off the profits of empire and had been protected from international competition, the problem was less about monopolizing giants and more about gentleman’s agreements to carve up turf, restrict competition, and pocket the resulting profits.¹³ After the war, Britain’s bloodied workers were in no mood for compromise, and the new economic regime that began to emerge wasn’t so much about breaking up giant corporations as about full-scale nationalization, bringing the energy industries, the railways, the coal mines, and iron and steel under government control. And on the European Continent the 1957 Treaty of Rome, which laid the foundations for the European Economic Community, contained strong antitrust provisions modeled on the Sherman Act.¹⁴

But with the growth of the offshore Euromarkets in London, the steady resurgence of finance, and the rise of neoliberalism, the pendulum began to swing back again. US regulators began to notice British intransigence. “There was always a lot of trouble across borders,” said the antitrust lawyer Jack Blum. US laws in this area were supposed to apply internationally, but “the British fought us tooth and nail on that proposition,” he said. “That was with regularity. The UK passed laws to prevent the US investigating.”¹⁵ Yet these were minor difficulties when compared to the devastating blows that were to come, especially at the hands of Director’s dinner guests, most obviously Robert Bork.

Bork was a cranky lawyer who had been growing steadily more agitated about impending moral collapse. He blamed America’s ills on feminists, multiculturalists, gays, pornographers, fearmongering “race hustlers,” and most especially leftist professors. He once asserted that “homosexuals, American Indians, blacks, Hispanics, women, and so on” had only “allegedly” been subjected to oppression, and that the list of victim groups “is virtually endless, including at one time everybody but ordinary white males.”¹⁶ The answer to modern moral turpitude, he said, was censorship.

With eyes alternately hooded and bulging, and sometimes both at the same time, if you can picture that, Bork was beefy, physically imposing, and, to many people, terrifying. One television critic said he “looked and talked like a man who would throw the book at you—and maybe the whole country.” As US solicitor general, Bork fired the courageous special prosecutor in the Watergate scandal that would eventually bring down President Nixon in 1974, a dismissal that was later ruled illegal. Years later Senator Edward Kennedy would denounce him in these terms:

Robert Bork’s America is a land in which women would be forced into back-alley abortions, blacks would sit at segregated lunch counters, rogue police could break down citizens’ doors in midnight raids, schoolchildren could not be taught about evolution, writers and artists would be censored at the whim of government, and the doors of the federal courts would be shut on the fingers of millions of citizens for whom the judiciary is often the only protector of the individual rights that are the heart of our democracy.¹⁷

Bork denied these charges and his record was a bit more nuanced than Kennedy’s picture suggests but there is no doubting it: he was a piece of work.

His colossal contribution to the game at hand was a little firecracker of a book published in 1978 called The Antitrust Paradox. This built on work by Richard Posner and Ronald Coase, shifting the focus of antitrust law even beyond Coase’s emphasis on “efficiency” to something simpler and narrower: prices for consumers. “The only legitimate goal of American antitrust law,” he said, “is the maximization of consumer welfare.” Channeling his guru, Aaron Director, he made some astonishing arguments based on the assumption that markets behave efficiently. Predatory pricing—in which players in a market collude to extract profits by restricting competition—was “a phenomenon that probably does not exist,” he said, because monopolists making large profits would be instantly undercut by “entrants who would arrive in sky-darkening swarms for the profitable alternatives.” It was “all but impossible” for actors to corner markets by buying up competitors, he asserted. (Try telling that to anyone who has tried going head-to-head with Amazon or Google.) If monopolies did persist, Bork said, it was only because they were more efficient, and if monopolists did raise prices, this was just fine because monopolists were consumers too! Traditional antitrust concerns, he argued, were “nonsense … mechanisms the law has imagined.” The book was, as the US antitrust expert Gerald Berk put it, “vehemently anti-constitutional democracy.” What is perhaps oddest about this episode is what Bork eventually became most famous for: arguing that the US Constitution should not be interpreted according to prevailing democratic spirits but instead should be taken literally, just as the founding fathers had originally intended, however much the country had moved on. Yet his arguments on consumer prices as the sole lodestar for antitrust were exactly contrary to what the framers of the constitution had intended. Indeed, the words ‘consumer prices’ don’t appear anywhere in any of America’s antitrust laws.¹⁸

What mattered to Bork was not reality but elegant models of reality. Boil everything down to price, ignore all this leftist claptrap about laws and rights and power, and efficiency would follow. Instead of regulating preemptively by focusing on the structure of markets and whether any players have too much power in those markets, regulation should happen only after the event, once an alleged monopoly had been established and you could measure its effects. Monopolies staring people in the face could be assumed out of existence because they just couldn’t exist, and if they did, well, they might just be brilliant. Bork’s book was so influential, says the Open Markets Institute, America’s leading independent anti-monopoly group, that it became “the main guide to more than a generation of policymakers and enforcers.”¹⁹

These ideas gained heavy tailwinds. The high inflation of the 1970s and early 1980s encouraged a worldview focused on lowering consumer prices. And big business and big banks loved Bork too, of course. A “Law and Economics” school set up in 1974, first in Miami and now at George Mason University, also began to spread the ideas of applying cost-benefit analysis to laws, while its founder, Henry Manne, worked to raise corporate donations and, with Bork’s help, spread the word. At George Mason, Manne joined forces with the conservative thinker James McGill Buchanan, another godfather of the libertarian Right who would join with Charles Koch and other antigovernment billionaires and corporations to fund and spread these ideas. (By 1990, according to the historian Nancy MacLean, Manne could boast that 40 percent of the U.S. federal judiciary had been treated to a Koch-backed curriculum.)²⁰ One Chicago consulting firm, Manne frankly admitted, “more than once expressed their appreciation to me for substantially boosting their business.” These anti-antitrust attitudes spread and spread, not so much by transforming the laws themselves, which remained on the books, but by getting judges to interpret them in new, narrower ways.

When Republican Ronald Reagan became president in 1980, another old argument came to the fore—just like the one Mark Zuckerberg would later use to try to bamboozle the US Senate—that American national economic champions and “America’s international competitiveness” weren’t compatible with strong antitrust laws.²¹ Let American giants exploit American consumers, workers, and suppliers more effectively, it argued, to boost their profits so they can better compete on the world stage.

Some US firms were then large vertically integrated companies guided by Fordism—a one-stop-shop production model named after the Ford Motor Company, which brought coal, iron ore, and other raw materials into one side of its vast River Rouge Complex and produced finished cars out the other. US antitrust authorities had until then recognized that in industries such as vehicle manufacture it was necessary to operate on a large scale, so they tolerated these behemoths but tried to ensure there were several competing against one another in any market. Europe, for its part, wanted its own champions to take on the Americans and the Japanese and set up projects like Airbus and the Ariane rocket program. European financial and market integration, it was calculated, would provide the expanded base for launching these cross-border Eurochampions into the world economy, going head-to-head with the Americans and Japanese. With these changes, anti-monopoly took another hit.

As the 1970s became the 1980s, American antitrust law shifted its focus away from worrying about the structure of markets, and the immense wealth and power that can be milked from rigged markets, to a narrower focus on simple metrics based on price. The authorities stopped writing detailed analyses of the industries and markets they regulated and came to understand less and less about how they worked or what made economies tick. A growing band of anti-antitrust academics also realized there was money to be made by selling consultancy services to big corporations and increasingly “seemed like paid apologists for wealthy corporate interests,” says Kenneth Davidson, a veteran US antitrust expert and former regulator. Many academics got rich in the Wall Street–led feeding frenzy of monopolizing mergers and acquisitions in the 1980s that would have been forbidden a few years earlier (and they continue to do so: economics professors today can earn over $1,000 per hour defending megamergers²²). From 1981 to 1997 there were more than seven thousand bank mergers in the United States alone, almost unopposed. To understand how badly things went from there and why this matters so much to us now, it is necessary to delve further into the madness of the real world and look at how monopolies work.