Understanding the New Era of Corporate Socialism -- Page Two
Agricultural Price Supports
Americans have also been extremely inventive in designing ways to manipulate the free market for agricultural products for the benefit of producers. From the 1930s onward the U.S. Federal began paying farmers to forego growing certain crops, bringing total production down. The effect of these production subsidies was to incentivize farmers to produce less, thereby raising the free market prices of wheat, corn, soybeans, cotton, and sorghum. The Federal government also became buyer of last resort for surplus grains in years when the subsidies failed to limit production enough. This protected grain farmers from the economic disasters that inevitably follow overproduction and excessively low prices.
Manipulation of the free market for certain agricultural products was necessary because of the enormous productive capacity of the United States. If all American farmers were allowed to compete freely and produce as much as they could, they would produce too much of almost everything. Prices would collapse, and most of them could be bankrupted. To allow thousands of farmers to go out of business all at once after a price cataclysm would have produced an enormous shortage of production in subsequent years, resulting in price increases that would have angered consumers. Price supports, therefore, were invented to smooth out the wild swings of the free market, and protect the livelihood of thousands of American farmers. To this day they enjoy powerful political support.
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A case can be made that the policy of providing (relative) price stability to American farmers was the most successful Federal program in all of history. Federal price supports have resulted in abundant production, stable prices within a narrow range most of the time, and enabled thousands of family farms to survive the wild oscillations of the free market. It has also produced many unintended consequences, such as the growth of gigantic agribusiness firms that benefit enormously from vast Federal price support subsidies.
Thus in the two most crucial aspects of our economy – food and fuel, two products every single American must buy – our economy is dominated not by the free market but by organized and effective efforts to manipulate prices for the benefit of producers. These market manipulation schemes have been tremendously successful, so we rarely notice they exist. But we should not deceive ourselves into believing that we have ever lived in a truly free market economy.
That idealized world never existed. Truly free markets by their nature tend to produce wild swings. A stable economy, therefore, requires producer protection and limits on production of certain kinds of commodity goods.
Supersizing Capitalism
The other powerful trend that laid the groundwork for the new era of corporate socialism was the sheer size of some 21st Century American corporations. Under the conditions of true free market capitalism, companies compete to produce and sell a product. Profits are competed away relentlessly so that only the most efficient producers survive. A few prosper. Most go broke or sell out to their competitors. In the end, only a few survive.
In time the small group of survivors get together to form an oligopoly. An oligopoly is a small number of firms that control the market in a particular good, whether it is cars, computers, movies, video distribution, or television programming, just to name a few familiar to all.
In the process of forming these oligopolies, very large corporations are created. Both Ford and GM, for example, sell enough cars each year to equal more than 1% of our national GDP. Hewlett Packard’s computer and printer sales are also more each year than 1% of our GDP. So are the sales of General Electric. Walmart’s sales in the last year were nearly 3% of GDP – 3% of all the goods and services sold in our entire economy, from Honolulu to Maine, from Alaska to Miami.
It is fascinating to note that all the companies I named above, with the exception of Walmart, are aggregates – extremely large companies that got that way by buying and assimilating smaller companies. Oldsmobile, Buick, and Pontiac, for example, were once independent companies. They became part of General Motors through a process of aggregation. This is the usual practice in American capitalism. One company buys a competitor either willingly or unwillingly, reduces competition, and thereby better regulates production rates and profits. It is exactly the same idea we observed with the Texas Railroad Commission, OPEC, and Federal Price Supports for Agriculture, but it is accomplished through private initiative, usually with the assistance of one of the large investment banks in New York. Hewlett Packard, for example, bought out Compaq computer in 2002, forming the largest computer company in the world.
When a company grows as large as 1% of the entire economy, its bankruptcy would threaten the entire economy. The collapse of GM and Chrysler in the fall of 2008 threatened to throw millions of Americans out of work and devastate the economies of every state that had significant production facilities. Just the demise of the car dealers associated with these two firms would have thrown hundreds of thousands out of work in all 50 states. The resulting economic devastation would have fed on itself, and contributed to another Great Depression.
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