Rachel's Democracy & Health News #882  [Printer-friendly version]
November 23, 2006


[Rachel's introduction: We are all struggling to understand a world
that has changed almost completely in the last 50 years. What have
been the most important changes?]

By Peter Montague

Here we continue describing the new world that has evolved during
the past 50 years.

In the past 50 years, corporations have grown almost unimaginably
influential. Originally invented as a way for entrepreneurs to raise
capital from strangers, publicly-traded corporations have proven to be
extraordinarily successful and they have grown steadily, year by year.
In many cases, growing bigger has become their main purpose.

In the past 50 years -- between 1955 and 2004 -- large corporations
came to thoroughly dominate the U.S. economy. In 1955, sales of the
Fortune 500 corporations accounted for 1/3 of gross domestic product
(GDP). By 2004, sales of the Fortune 500 amounted to 2/3rds of GDP, a
major consolidation of wealth and power. [1, pg. 22]

Peter Barnes -- co-founder of the Working Assets Long Distance phone
company -- describes some additional changes that have occurred during
the past 50 years. In his must-read new book, Capitalism 3.0; A Guide
to Reclaiming the Commons, Barnes points out that, 50 years ago
capitalism entered a new phase. Up to that time, people had wanted
more goods than the economy could supply. After 1950, there was
essentially no limit to what corporations could produce. Their new
problem was finding buyers.

Others have remarked on this shift as well. In 1967 in The New
Industrial State, John Kenneth Galbraith observed that large
corporations require stability and so they must control both supply
and demand. To control demand, they manufacture wants. In 1950,
everyone's basic physical needs could be met, so to promote growth,
corporations had to learn to manufacture desire. Physical wants are
limited but, properly stimulated, desires can become infinite.

You might ask, given that the economy can now satisfy everyone's
physical needs, providing the basics of a good life, why do we need to
manufacture desire to stimulate growth? Because growth is what
provides return on investment.

The amount of money available for profitable investment expands
exponentially year after year. Therefore, it is essential to keep
demand (desire) growing apace -- to create new opportunities for
investors to earn a decent rate of return year after year. The U.S.
spent $263 billion on advertising in 2004, largely to stimulate
desire. Despite this, production continues to outpace effective

In his book, The Return of Depression Economics (1999), Princeton
economist Paul Krugman pointed out that inadequate demand (the flip
side of overproduction) is now a worldwide problem. He wrote, "What
does it mean to say that depression economics has returned?
Essentially it means that for the first time in two generations [50
years], failures on the demand side of the economy -- insufficient
private spending to make use of available productive capacity -- have
become the clear and present limitation on prosperity for a large part
of the world." (pg. 155) Overcapacity is chronic.

In the U.S., there have been two major responses to declining
opportunities for a decent return on investment. One solution has been
to invent new ways of manipulating money. As Peter Barnes points out,
today "the world is awash with capital, most of it devoted to

If we take Barne's word "speculation" to mean, loosely, the
manipulation of money itself for profit, then speculators have indeed
grown more important in the U.S. economy in the last 50 years.
Corporate profits of the financial industry in the U.S. in 1959 were
15% of total corporate profits; by 2004 the financial industry's
profits represented 36% of total U.S. corporate profits. In round
numbers, manipulating money now accounts for 40% of all corporate

The second major response to limited investment opportunities has been
"globalization" -- creation of a new set of rules that essentially
erase national borders, so that materials and capital are now free to
flow to wherever costs are lowest. Now if investors see an opportunity
to gain a decent return by, say, manufacturing toothpicks by cutting
down Indonesian rain forests, they are free to move their money there
instantaneously to take advantage of the opportunity. Within the U.S.,
this has worked out well for investors but it has not been quite so
beneficial for the working class or the middle class. As an editorial
writer for the New York Times pointed out in 2002, "Globalization
has been good for the United States, but even in this country, the
gains go disproportionately to the wealthy and to big business."
Globalization has been one of the factors that has consolidated wealth
in fewer and fewer hands in recent years.[2]

Globalization also helps explain another important feature of the new
world -- the expanding U.S. military. As New York Times columnist
Thomas Friedman pointed out in 1998 in an article about the global
spread of electronic inventions, "The hidden hand of the global market
would never work without the hidden fist. And the hidden fist that
keeps the world safe for Silicon Valley's technologies to flourish is
called the United States Army, Air Force, Navy and Marine Corps..."
The current U.S. military budget of $450 billion -- equal to the
military budgets of all other nations combined -- is another aspect of
the need to keep growth going, to create opportunities for investors.

As a result of these trends in the past 50 years, 5% of the U.S.
population now owns more private wealth than the other 95%.

Naturally, this 5% has gained outsized power to go with its outsized
wealth. No one begrudges the fortunate their fortunes (almost all of
us think it is better to be rich than not rich), but democracy assumes
that everyone has approximately equal standing. Our system of
governance is legitimized by the premise, one person, one vote, not
one dollar, one vote. Since money talks -- or, in the case of the top
5%, money screams -- we can no longer say we have even the pretense
of a democracy. Instead, we have a plutocracy -- rule by wealth --
and one wholly devoted to economic growth.

As economist Herman Daly observed not long ago, we now have a
"religious commitment to growth as the central organizing principle of
society. Even as growth becomes uneconomic we think we must continue
with it because it is the central myth, the social glue that holds our
society together."

So even though economic growth is shredding the biosphere, causing
more harm than good (which is what Daly means when he says growth has
become "uneconomic"), it is heresy to try to imagine a different way
of being on the planet.

This is a uniquely modern puzzle -- we have a deep religious
commitment to an idea that was once true, but is now false, and which
is destroying the future.

[To be continued but not next week.]


[1] Peter Barnes, Capitalism 3.0; A Guide to Reclaiming the Commons
(San Francisco: Berrett-Koehler, 2006) pg. 22.

[2] There is nothing wrong with international trade, and it can bring
substantial benefits. As the New York Times points out, "China,
Chile and other nations show that under the right conditions,
globalization can lift the poor out of misery. Hundreds of millions of
poor people will never be helped by globalization, but hundreds of
millions more could be benefiting now, if the rules had not been
rigged to help the rich and follow abstract orthodoxies. Globalization
can begin to work for the vast majority of the world's population only
if it ceases to be viewed as an end in itself, and instead is treated
as a tool in service of development: a way to provide food, health,
housing and education to the wretched of the earth."