“I Scratch Your Back, You Scratch Mine.” How Corporations Control the Government by Ted Baumann, The Sovereign Investor
When I was a lad at “varsity,” as we called the University of Cape Town, I triple-majored in politics, history and economics. I was fortunate to have studied at such a place and time. The surrounding society was going through a mighty upheaval. Many of my professors were from great British institutions such as Oxford, Cambridge and the London School of Economics. Unlike most American universities, their approach to learning was Socratic and prioritized debate over regurgitation of dogma. Their relentless demand for critical thinking shaped me as a person.
That’s why I often think back with sardonic scorn at an experience I had just before leaving for UCT. To get a student visa I had to prove I was eligible to enter a U.S. university. So I applied to the University of Maryland just for that reason.
When I went to get the necessary papers signed at UM registration day, a bearded and bespectacled professor of sociology looked at me with disgust (this was at the height of anti-apartheid movement) and told me — loud, so everyone could hear — that I was making a big mistake. Nobody would take an education from a “banana republic” institution seriously. My life would be ruined by leaving the U.S., where I could benefit from living and studying in the best of all worlds.
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Banana republic! … I’m laughing out loud now, just typing those words … how little that professor understood about his own country…
Been There, Done That
In those days, the African continent was littered with object lessons in the interplay of my three fields of study. It was impossible to speak of “markets” as abstract places of exchange, or of “government” as something separate from the economy that merely regulated it, as in the textbooks. They were two parts of the same thing. The recent history of colonialism had set them up that way.
Wealth and power were mutually reinforcing. African governments were themselves critical market players, and African businesses depended on access to government contracts and rule-makers. Many African politicians sought office to make money, and used power to reward favored supporters, so as to stay in office. Post-office rewards for favors done whilst in government were standard fare.
Corporations control the government: This fact is what accounted for the instability of so many African countries in those days … what made them “banana republics.” It raised the stakes, creating intense competition for control over the levers of power. What was theoretically supposed to be a constitutional process of elections and government became a bitter struggle among corporations to control government to preserve and extend special arrangements and favors. If constitutions got in the way … well, they were “just pieces of paper,” in the immortal words of Zimbabwean President-for-Life Robert Mugabe.
So it was with delicious irony that I read the other day of the widespread hat-swapping going on in Washington, D.C., after Republicans wrested control of the Senate from the Democrats.
Bananas on the Potomac
Apparently, as soon as Harry Reid handed over the keys to the majority leader’s office to Mitch McConnell, HR directors all over Capitol Hill sprang into action. Out went the call to K Street, the infamous home of D.C.’s lobbyist army. It was time to change the guard.
A senior lobbyist for ag-food giant PepsiCo became staff director of the Senate Agriculture Committee. The House Intelligence Committee chose as its new staff director a lobbyist for the country’s leading intelligence contractors, including General Dynamics, Boeing and mercenary outfit Blackwater Industries. The former vice president of government affairs for U.S. Airways will serve as counsel for the Senate Aviation Subcommittee. West Virginia Senator Joe Manchin, a coal-state Democrat, hired a top lobbyist from coal giant Xcel Energy as his senior policy adviser for energy.
There are dozens of other examples. But the most egregious example of corporations’ control of the government is surely Representative Steve Scalise (R-LA), who had a registered oil-industry lobbyist sit in as applicants interviewed for jobs on Scalise’s staff.
Of course, dozens of retired or defeated legislators are headed in the opposite direction … to a high salary on K Street, reward for services performed.
Freedom or Freebooting?
Some people react to this stuff with a shrug. It’s a free country, and politicians can hire who they want. And who knows best what’s best for American industry than people from those industries?
As they say in England, bollocks to that. The plain fact is that in many U.S. industries, the performance of major stocks depends critically on who’s in charge and who’s advising whom. That’s why stock prices move on news of political appointments in Washington. Power and influence move money and make or break profits.
The question is … by how much?
Think about that when someone tells you that U.S. stocks are the place to be. Do you really want to bet the farm on stocks that may depend more on “banana republic”-style systemic corruption than on underlying market potential? Are U.S. stocks really any more attractive than in places like China, which has a powerful incentive to convince foreign investors that such shenanigans aren’t what’s driving markets?
I’m no expert, but the experts I trust sure don’t think they are. So go ahead … invest offshore. I’ll bet you a bunch of bananas you’ll do better.
Offshore and Asset Protection Editor