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Tuesday, August 17, 2010

"Capitalist Myopia"

Maxine Udall on the "socially detrimental effects of capitalist myopia":

Capitalist Myopia, by Maxine Udall: In 1955, the song, Sixteen Tons, written by Merle Travis and sung by Tennessee Ernie Ford, alluded to the down side of company stores. What seems surprising is the popularity of a song about owing one's "soul to the company store" among a  workforce that by 1955 had generally benefited from re-emerging post-war economic growth and heightened union activity. That the workforce had become more "white collar" and  that many employees were not actually members of unions makes it all the more puzzling. 

The company store has been a well-known and near-archetypal feature of Appalachian culture since well before my time. Coal companies built homes for their workers in areas where there was coal, but where there was often no other commercial activity. It was necessary to have a town if one was going to have workers nearby to extract the coal. The houses tended to look the same and are built close together. They were rented to workers with leases that enabled companies to quickly terminate and oust troublesome (i.e., union supporting) or unproductive workers.

It was also necessary to have a store where workers could purchase the necessaries of life, so companies provided it. Sometimes rents and purchases were deducted directly from miner's paychecks. You would think the resulting reduction in transaction costs would result in lower prices, but you would be wrong. Rents and company store prices tended to be higher than prices in nearby competitive markets.

Another "innovation" was the use of company scrip instead of US currency to pay wages. Scrip was only good at the company store. This assured that mining companies recaptured through monopoly prices some of the wages they paid. It occasionally allowed them to raise wages without eroding their profits (since they could recover the wage rise through higher store prices and housing rents).

The growth of other sources of jobs and the growth and legal empowerment of unions gradually eroded mining company power. This link from the West Virginia Division of History and Culture provides credible evidence that concentrated mine company economic and political power led to abuses and to violence on both sides of the "dispute."

I think about company towns and company stores whenever someone starts bleating about government power; the sameness that would be induced by government control of the means of production; the two-tiered system that will evolve if government has too much power; the inefficiencies that will result from government regulation. All more or less true. But then I think of the sameness of company town housing, the two-tiered system of worker and management, and I think of the "inefficiencies" of unsafe workplaces and the "race to the bottom" that must necessarily ensue in the absence of a common standard for consumer and worker safety. And I conclude that economic and political power should not be concentrated excessively in anyone's hands, whether public or private, and that a government constituted to be of, by and for the people will almost certainly have to provide some countervailing force against excessive corporate economic and political power.

Finding the balance will always be the problem. Simple answers will almost never be right.

Company stores and company towns were a way for those with economic and political power to extract a few more dollars from the people doing a lot of the work and assuming a lot of the workplace risk. Like investment bankers who apparently couldn't come up with (as Joe Stiglitz put it in Freefall) a good mortgage product with "low transaction costs and low interest rates" that "would have helped people manage the risk of home ownership, including protection in the event their house loses value or borrowers lose their job," so some coal companies could not come up with a means of providing necessary housing and food to employees without also further impoverishing workers and enriching owners. That lack of creative, far-sighted innovation got them (and us) unions and excessive regulation. A communist plot? Hardly. More like capitalist myopia, something that seems to plague certain sectors of our capitalist economy in ways that doom them (and us) to repeat the past.

The socially detrimental effects of capitalist myopia continue today [in the financial industry]. ...

People do indeed want to have green pastures in front of them, not a company town, not a company store, not a wholly-owned company nation. They want an economic arrangement that leaves something extra for them and their children. It's an important component of the wealth of nations. ...

And, yes, there is strength in numbers, especially in a democracy (unless, of course, one can successfully distract the people with emotionally-laden issues like gay marriage, guns, race, abortion, undocumented workers).

"But wait!" you say, "Strength in numbers? This sounds suspiciously like the beginning of collective action. Egad, what's next? A union or a strike or, worse, class consciousness? Why we have only (gasp!) capitalists to blame for this!"

Ironic, is it not? Socialized investment banking, the result of unfettered self-interest in combination with unregulated conflicts of interest, may accomplish what generations of coal miners, steel and auto workers, teamsters, teachers unions, and union organizers could not. Unfortunately, collective action uninformed by virtue is unlikely to result in anything that is any better than that achieved by investment banking without virtue. It might even be worse.

That will be the true cost of capitalist myopia.

    Posted by on Tuesday, August 17, 2010 at 12:33 AM in Economics, Regulation | Permalink  Comments (55)


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