In essence, the United States society is based upon one principle: Free Contract.

In such a society, bargaining power is everything. Everything that goes on around us, be it advertising, personal grooming or politics in Washington is all about individuals, or groups, trying to gain greater leverage.

When Republicans win, the rich gain leverage. When Democrats win, everyone else gains leverage. It's all about bargaining power, baby.

Incidentally, the U.S., prior to the Civil War, had perhaps the broadest distribution of wealth in the history of the world - even with slavery down south. The civil war was fought, in large part, to end that.

Yet after the civil war America descends into the gilded age where concentrations of wealth and diffusion of poverty and squalor became extreme. How could this be after a civil war was fought towards reverse ends?

The answer is, the invention of the modern limited liability corporation in 1862, in England, spreading quickly to everywhere else in the western world shortly there after. (The purpose for inventing the limited liability corporation was to facilitate accumulation of capital for the construction of rail roads.)

Corporations are ownership collecitves. The collectivization of ownership gave corporations enormous bargaining power especially when that collective bargained with individuals for their wages.

That situation was finally addressed with collective bargaining for wages, becoming effective during the New Deal era.

In some cases, however, the bargaining power was reversed. Unions controled labor for an entire industry, thus were bigger than the corporations. To address this imbalance, the steel industry bargained collectively. The result of this was a steel oligopoly that quickly lost its ability to compete on an international level.

Republicans have been able to attack unions as hurting the nations competitiveness, and there's some grounds for that, in the way they are structured. The only solution for this is to adopt the Japanese model of widespread tenure and company unions. Japan has, both, the broadest distribution of wealth and the most competitive companies. There's no point in arguing this.

What's important is to realize that concentration of wealth and power has lead to epic collapses in history: Rome (see Nobel Prize winning Douglas C. North's 'Structure and Change in Economic History, Pgs 100-115); Ancient Egypt's New Kingdom; Pre-Islamic Mecca (Islam is a reaction to concentrated wealth); Byzantium (triggering the crusades); Medieval Japan (no invation, just internal collapse); Hapsburg Spain, Bourbon France; Romanov Russia; The Great Depression (courtesy of the Republicans, which lead directly to the rise of the NAZIs in Germany, WWII, and the Holocaust - Yes the Republicans are to blame for all of that).

Contrast that with the era of great compression, an era of wide spread liberal policies, globally, where in less than 30 years, the Globe's productivity doubled. That's right: in less than 30 years the global economy increased more than it had in the prior 10,000 years.

Wealth distribution matters.

Posted at July 3, 2008 4:07 PM in response to Class Warfare and the New Gilded Age

And more people end up losing out. Sharp professionals in the prime of life can't beat the S&P 500, why should we expect retirees?

My father retired with the option of taking a nice lump sum pension as opposed to an annual payment.

The financial advisers told him it made better sense to take the lump sum. Then they told him it was better to take invest then to buy an annuity. He went with a stock broker from Merril Lynch that everyone else retiring at the time went with. That broker managed to get more and better healed clients then my father.

That stock broker placed my father in Merril Lynch's 'far east mutual fund'. When the Pacific Rim economies began to collapse in 1997, he kept my father in it. ML wanted to prop up the fund even as the investments were funding - they didn't do this with their truly rich customers - my father played the sap.

Other mistakes continued, especially as my father's mental abilities declined. Eventually my mother saw what was happening, and stepped in, took over and stopped the bleeding.

My parents now, own their own small home in Arizon, have a small cash cushion left, and basically live off of Social Security now.

The odd thing is, everything good that they've gotten in life is the result of liberal policies, yet that they are faithful watchers of Fox news and never fail to vote Republican every chance they get.

Posted at July 2, 2008 2:11 PM in response to Muddy Brooks

Yes, I am aware of the fact that the Japanese have been very good about providing cheap money to their industrial (capital intensive industries). One secret of Japanese economic development is that they have nearly always (the post war era being an exception) had sufficient internal capital, even in the pre-Meiji era.

The technique (policy tool) developed by Japanese bureaucrats, which I have describe as 'a compression effect' involved several aspects, including artificially high levels of capital at artificially low levels of cost. That is one aspect of the compression effect. The other aspects include, but not limited to, protectionist barriers, and loan guarantees (again capital).

This combination creates compression: an artificially large number of firms with artificially large levels of capital and artificially low costs of capital within a protected environment creating artificially intense levels of competition WITHIN the protected zone - in otherwords, within an industry group, compression. The results of the 'compression effect' is industrial firms that in relatively short order go from primitive underdevelopment to hyper levels of competitiveness.

Important to all of this is the internal structure of these firms. Tenure creates a more competitive firm. For Tenured employees, their future is guaranteed secure so long as their firms future is guaranteed - so you have a more intensive relationship. But a fundamental element of Japanese competitiveness is the lack of consolidation in industries as they mature. Japan has 6 to 8 independent domestic auto manufacturers (depending on how you define that) for a nation that has half the population and a fraction of the paved road space as America does (2 to 3). One of the reasons for this is Employee primacy.

In most aspects, Employees are a good proxy for the shareholders, but there is one area they are not - consolidation. Shareholders love corporate mergers because they can get a control premium on the value of their shares. Employees hate them because they mean job reductions do to redundancy. But in this respect, the Employees interest is a proxy for society's interests regarding the economy. Society is better served by having more firms to compete offering more choices and lower prices and more competitive firms.

Because of the 'compression effect' industrial development policy, Japanese industrial firms are born in hyper-competitive environment. Because of employee primacy, they stay relatively competitive long after the state has dialed back on policy and moved on to other things.

An important aspect of Employee Primacy is the focus on long term market share growth. Employees want to ensure that the company is thriving 20 to 30 years down the road. The company, in order to protect the jobs it is responsible for maintaining, has to focus on long term market share. Thus, during the go-go 90s, while Chrysler, GM and most especially Ford were cutting back on money spent on cars for the sake of Trucks and SUVs, Toyota and Honda were tinkering with hybrid vehicles, the reason being, they can't predict where the market will go, some day energy consumption might be a market driver, as it had been in the past, so in order to protect their long term market share, they have to make sure that they have a competitive position if it does come to pass. Sure enough, Toyota is thriving on the Prius while Ford is choking on SUVs.

Because of tenure, Japanese companies will create research projects just to keep engineers busy. Honda did this with regard to jet aircraft, and the result was a very creative small jet aircraft that launched for them an entire new line of business - and it occurred at a time where owning a small jet mapped well to America's concentration of corporate wealth and high transaction cost to commercial air traffic (fear of terrorism, long lines, high prices). Neat trick, huh.

Of course a lot of the policy making doesn't work in a lot of industries, nor this corporate structure. However, for the developmental state, the mistakes are more than compensated by the successes and, on the other hand, I would not advocate that all companies or corporations be subject to the Tenure model. But some obviously should be. I don't want to be confused with a pollyanna on all things Japanese - they have lots of problems: but we shouldn't throw out the baby with the bath water, especially when our own industry is running down the drain. Or so it would seem to me.

I agree with you on most things here. A separate analysis is called for regarding the nature of capitalization. While I have some limited background in analyzing that, the corporate and industrial structure is more my forte. The difference between 'them' and 'us' is one of intensity and purpose.

Posted at July 1, 2008 4:14 PM in response to Has Corporate America Turned Callous Toward Its Workers?

And as a textbook case, I offer up Carla Fiorina of Hewlett Packard - Now a Co-Chair of the McCain campaign. Her biggest accomplishment was merging HP with Compaq - two companies that both built PCs.

She lowered HP's stock by 1/3rd and was forced out with a $20million plus severance package. But she was good enough at marketing to finagle a sympathetic portrait of her cast on 60 minutes.

Just one example. There are thousands more.

Posted at June 30, 2008 4:42 PM in response to Has Corporate America Turned Callous Toward Its Workers?

And never, had so much as, read Upton Sinclair or John Steinbeck or at least had watched "It's a Wonderful Life". Then there's Dickens. Christmas Carol takes place in England, but it's hardly different than America at the time.

Posted at June 30, 2008 4:31 PM in response to Has Corporate America Turned Callous Toward Its Workers?

I find the excuse of foreign competition to be less than genuine. In key industries, such as automobiles, the foreign competition has unions as well. Also, Europe and Japan face the same competitive from developing countries and their working class doesn't have to shoulder the burden the way ours does. Many of these places have worker relations norms much 'kinder' than our own.

In regard to the American work place, I think about Game Theory. Game Theory (according to Robert Paxton's 'Evolution of Cooperation') says that, civility is upheld by tit-for-tat strategy - I punch you in the nose, you punch me back. Eventually, if I get tired of being punched in the nose, I quit punching you in the nose.

My thinking has left me wondering if the decline of the mob during the 1960s predicated the decline of the labor movement. In the 1990s, when a local company threatened to move a plant to south Texas during union negotiations, I asked a construction worker friend of mine, who was instinctivel, exceedingly good at all manner of negotiations, what he would do. He replied, that he would go into the ghetto, find someone with nothing to lose and pay them to throw a brick through the living room window of the company's chief negotiator. What he was describing was 'tit-for-tat'. When you threaten to move the work you're threatening my family, let me remind you that you have a family that can be threatened too, albeit by other means.

Since the crackdown on the mob in the 1960s, management realized that they could treat workers like tripe with immunity.

This kind of problem is endemic in our society because the only real governing principle is 'free contract'. In such a society, bargaining power is everything. Lose bargaining power, and you lose everthing. Gain bargaining power and you gain everything. These days, executives have the most leverage and it shows up in their pay checks.

Other societies, many in Europe for instance, believe in fair contract. Even if you have bargaining power you don't necessarily apply the advantage because the outcome would be unfair.

Look at the NAFTA agreement. It was unfair to Mexican farmers. As a result, unable to live off the land, tens of millions of Mexicans are roaming the American country side trying to find work. The application of bargaining power advantage, just because it was available, was short sited.

The modern limited liability corporation was invented in 1860s. They are ownership collectives. That gave them bargaining power over individuals. Initially this resulted in widespread squalor and concentrated wealth. The initial solution for this was collective bargaining through unions. This is, increasingly, looking like a failed social contract.

Today Toyota is worth $160 billion, while GM is worth only $16 billion, (despite GM being from a country almost entirely reliant on cars - thanks to them - while in Japan, one can do quite nicely without one).

The solution would be adaptation of the Japanese model. Japan has the broadest distribution of wealth in the industrial world - as well as some of the most competitive companies in the world. Japanese model has weak employee unions. The workers strength isn't in collective organization, but in tenure. Tenure changes the behavior of corporations. Since they can't fire people they have to pursue civility.

This isn't just true in Japan, look how Universities treat their tenured employees. At my law school, during a minor crisis that was closely followed by the local media, the Dean was continuously quoted as saying he's working with the faculty to resolve the crisis.

In tenured organizations, the employees interest becomes the principle behavior determinant (employee primacy). Study of Japanese corporations demonstrates that Employees are better proxies for LONG TERM shareholders then board of directors or executives in American companies because employees and long term shareholders want the same thing: market share growth. Thus GM is worth $16 billion and Toyota is worth $160 billion.

You'll never find American executives backing the notion of tenure or employee primacy because executives would lose their bargaining power in the process. Compare the income of American versus Japanese CEOs.

In my view every publicly traded company should have employee primacy rules, for no other reason than as a way to protect shareholder interest. Private companies don't have this problem. (As one of the other posters have mentioned, it would be interesting to compare how private companies versus public companies treat employees).At the very least, any company receiving a government handout should have their charter revised to one of widespread employee tenure and employee primacy as a governing principle.

The basic problem with America today is that Republicans manage to win elections. Maybe when GM is gone, people will sit up and take notice.

In any competitive field of endeavor, be it sports, warfare or business, if a competitor has a superior strategy, you either adopt the strategy or give up competing. With GM at one tenth the value of Toyota, the debate is over. Our social contract lost, their's won. Theirs is a better idea. The smart thing would be to adopt the better points of their idea, leave behind the worse points, and try to improve upon it further still.

Instead we are increasingly experimenting in industrial serfdom (neo-serfdom) and the despite the draconian measures and the widespread suffering involved, we appear to still be losing ground.

Posted at June 30, 2008 4:20 PM in response to Has Corporate America Turned Callous Toward Its Workers?

I am in total and complete agreement.

In the last 24 hours or sow, Obama just jumped the shark - at least for me.

Here at TPM they noted the day before that Obama cut an add supporting a blue dog house democrat from Georgia who is for continuing the war, for keeping bushes tax cuts, the whole Lieberman nine yards.

Then he forgoes public funding of campaigns, totally destroying the concept of it in my life time.

Then he endorses the FISA immunity bill - which creates a precedent where any president can do the same thing Bush did, and promise retroactive immunity at some future date. It totally destroys our constitutional protections.

To cap it all off there's this http://www.nytimes.com/2008/06/20/opinion/20brooks.html?hp

Brooks NYTimes column provides a multidimensional bullseye (including timing of the column) on labeling Obama as just another quick change artist politician.

I'm done backing Obama. I'll vote for him, sure. But he's not "change we can believe in" he's "the same we can not believe in" kind of politician.

Just another lying sack in a suit with a nice turn of phrase.

Yeah, he's got my vote, but that's it.

And I doubt we'll see universal health care in our life times. If not now, its never.

Posted at June 21, 2008 12:15 AM in response to Poll: Obama Vaults To 15-Point Lead Over McCain

The past 24 hours have been devistating in my opinion of Obama. DEVISTATING.

First their was his support for a Blue Dog Georgia Democrat who is for staying in Iraq, keeping the tax cuts for the wealthy the whole nine yards.

Then their is his abandoning of public finance of elections, which destroys the concept, once and for all, out right.

Then there was Brooks Dr. Jekyl/Mr. Hyde column in the New York times that lays out a pattern (Dr. Obama/Fast Eddie) that, given the last 24 hours, molded into concrete in my brain.

Now there's this - the compromise on the FIFA bill.

Giving retroactive immunity means that the whole thing can happen again. It also means that big money and big money politics still controls Obama, and thus, our politics, and thus us.

I am very, very, very, very distrubed by all this. Right now Brooks comments seem more than on the money, and more than a bullseye, more like a multidimensional bulls eye.

All this means is that Obama is just another politician. All this means is that I was right in supporting Edwards. And I have no hope of getting universal health care in my life time.

I am, to say the least, very very very very very disappointed. Shocked. Jaded. There's no bottom to the depths of my disappointment.

Maybe if these things had been peppered across a couple of months the sting wouldn't be so bad.

Of course, I will still vote for Obama. But now I'm think he's just a shill in a suit, with a nice turn of phrase. That's all.

He didn't have to do these things. It's like Nixon in Watergate - he was going to win by a landslide anyway, why the hell break into Watergate?

For me, Obama has jumped the shark. I don't see me recover for this. I was going to volunteer my services when I free up time later this summer, now maybe not.

Really shocked.

Posted at June 20, 2008 11:11 PM in response to Why Obama's Support For FISA Cave-In Is Such A Downer

You can't be the land of the free if you're not the home of the brave. - T. M. Kane.

Posted at June 10, 2008 12:30 AM in response to Fear Itself

The great white whale for Republicans for almost 70 years has been elimination of social security.

Bush wanted his shot at it. That's what the second term is for. Once there's no worry about winning a another election, that's when the real motives come out. War empowers the presidency, and it empowered this president. He used it first to get reelected, but then upon reelection he put everything he had into undoing Social Security.

That was the great battle of this current era. It was the equivalent of the Battle of Britain in Europe or the Battle of Midway in the Pacific during WWII.

There were other great battles too. The attempted coup at the justice department was another big one.

These were epic battles.

Posted at June 10, 2008 12:28 AM in response to Fear Itself