Even before the hearing, Wall Street had already begun another bonanza year. In 2010, Goldman Sachs doled out $15.3B in pay and bonuses to its staff. It added 3.2K more employees.
Politicians won office by promising voters benefits that the countries could not afford but had nonetheless been financed thanks to too-loose lending practices engineered by big banks — practices that, for example, enabled countries like Greece to overborrow by keeping some debt off their balance sheets.
The Chinese feel that they won the financial crisis. Their growth didn’t really suffer. They grew stronger while other major powers struggled. And perhaps most important, the American system was revealed to be profoundly corrupt and dysfunctional.
American criticisms of China’s management of its economy and society were deflated. In other words, while America was trying to persuade China to devalue its currency, we were the ones who got devalued — politically and, more important, in terms of the role we had played since the end of WW2 as an example to the world.
People around the world once admired us for our economy, and we told them if you wanted to be like us, here’s what you have to do — handover power to the market. The point now is that no one has respect for that kind of model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us.
We have since gone from a battle between capitalism and communism to something even more complex: a battle between different forms of capitalism in which the distinction between each lies in the relative role and responsibilities of public and private actors.
And make no mistake about it, history demonstrates that when the power of states is reduced, with alarming regularity, it does not benefit average citizens so much as it does big private actors well positioned to swoop in and take best advantage of the opening.
He had described the railroad as “the galloping monster, the terror of steel and steam, with its single eye, Cyclopean, red, shooting from horizon to horizon… the symbol of vast power, huge, terrible, flinging the echo of its thunder over all the reaches of the valley, leaving blood and destruction in its path; the leviathan, with tentacles of steel clutching into the soil, the soulless Force, the iron hearted Power, the monster, the Colossus, the Octopus.”
Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.
The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group.
The first of these is that democracy and free markets are somehow 2 sides of the same coin, both not just promoting but institutionalizing opportunity for the average citizen. While both have undeniably vital and complementary roles to play, this assertion goes too far. The reality is that markets promote efficiency, which in turn rewards scale, which in turn leads to a concentration of economic and therefore political power. (Indeed, the term “markets” implies a degree of organization or social purpose that is regularly offered as a cover for activities that amount to little more than the narrow, sometimes rapacious pursuit of self-interest in ways that harm rather than benefit the greater population.) The second distortion is that striking a blow against the allegedly “overreaching” power of government is a victory for personal freedoms, when in fact it often simply clears the way for power to accrue elsewhere, to private institutions that are less accountable than governments and whose interests do not align with most people’s.
Other elements of this liberalization have included opening the door to waves of financial “innovation” that have had massive unintended consequences, from the financialization of core commodities that enables speculators to push higher the price of basic foodstuffs and energy, to the proliferation of derivatives that have swamped all other forms of value-bearing instruments of the planet including, many times over, government-issued money itself.
Within this altered international system, some states are so diminished they hardly measure up to old ideas of what a state is supposed to be or do. They are now just semi-states. And the reality is that this category of diminished actors is so large that it encompasses perhaps 70-80% of all the countries on the planet. At the same time, private actors have grown so large that perhaps 2K of them are more influential than those 70-80%.
I asked Summers whether the recent economic crisis had produced a political sea change that would reverse the more market-friendly trends of the last 30 years.
He shifted in his seat and didn’t answer for a bit. “You know, I think that’s why I would have made a terrible journalist. While I understand the impulse to see every development as a watershed, as a big turning point, I tend to see things more in a longer-term historical context, as a product of slower-moving fundamental trends.” I remember thinking this was the kind of attitude that might lead to actually missing watersheds when they happen.
Studying these organizations closely, you begin to wonder whether they themselves are actually the alpha organisms on the planet, the life forms that rule here on earth and of which we individuals make up only the temporary and replaceable working parts — much like the giant interconnected families of honey mushrooms, can grow to cover thousands of acres and live for millennia.
Our time here is limited, and unsurprisingly, this unfortunate twist in the rules of nature has weighed heavily on us. Almost all human societies have cooked up higher powers that we define as higher first and foremost because they are immortal.
To that group of political scientists who call themselves “realists,” this idea undercuts a central tenet of their world view. Of course, one must always be skeptical of groups that give themselves a name that implies that only their adherents “get it” and that everyone else is by definition out of touch with “reality.” Because while realism is purposely built around the study of power, “realist” theory suggests that international power is solely concentrated in the hands of states. Private actors don’t really have a role in the realist cosmology. This despite the fact that today private organizations often and obviously wield power in ways that once only countries could, and in some cases in ways that many countries no longer can.
Countries once derived power from their ability to print money, but now most can’t or don’t or have ceded the power to set the value of the currencies to markets. In fact, most of the value-bearing instruments in today’s financial markets are actually created by private organizations, traded in private markets, and only very lightly if at all regulated or understood by governments. And recently governments have concluded that the fate of private financial institutions is so important that to the well-being of society that when those institutions falter, it is incumbent upon states to prop up the private entities even as private entities have from time to time propped up states.
As in many ways the Catholic Church was really the world’s first global “private” enterprise and, as we shall later see, the Reformation was in many ways the first nationalist backlash against globalization.
As the Reformation arrived and many of the most prominent of Europe’s monarchs began to assert their primacy over a church that had overreached, grown corrupt, and threatened to impose its “universal” laws over their national ones, a similar story was unfolding in Sweden.
The rulers of the day were, for the most part, noble in name only. In fact, one of the comforts of reading history is that the leaders of the past make their flawed successors today look benign in comparison.
Mercantilism was the dominant economic school of thought in this period, and nation-states that had recently consolidated themselves protected their new prerogatives by introducing protectionist policies that discouraged imports and actively promoted exports. The Age of Empires was one consequences of mercantilism, since countries sought to expand their domains in search of resources they needed for growth.
What they were doing is what the people of every era do: they were single-mindedly and often ruthlessly pursuing their narrow self-interest.
They draped their greed and their ambition in some glorious ideas, and once they had accumulated enough wealth, they ensured that the bards and chroniclers and artists and tapestry weavers of the day told their stories as if they had nobler objectives. Some framed their goals in political terms. Others chose to characterize their work as service to the deity or to virtue itself. Some — those who rose particularly high and were particularly deft or particularly craven or both — claimed both sorts of elevated justifications for their brutality, thievery, and worse.
And it’s worth noting that throughout all the battles that follow between church and state, it is the right to land and revenue that drives the actions of the main actors. We talk about the political organization of Europe, but what we mean is the economic divvying up of the Continent by those with enough power to make any sort of claim on any source of wealth at all.
The “Dark Ages” that followed the fall of Rome in AD 410 an be seen as a period of what might be called political entrepreneurism. Other than the Catholic Church, there were few enduring strong national or international institutions. Consequently, a feudal system emerged in which those who were strong enough claimed as much as they could defend, although even then there were often overlapping claims among competing families and between such families and the church. Despite the differences in their “callings,” both local feudal lords and their clerical competitors were chosen and survived through political intrigue, the sword, the bribery, and the taxation of common citizens. Wherever weakness was perceived, one of these figures would scramble to fill the void. In this respect, the period was much like the current global era in which there are few effective international institutions and large private enterprises seek to take advantage of institutional and legal voids.
Of course, at the time, no one saw the implicit problems that this bold step raised. Leo had elevated his protector to a status that left Charlemagne feeling as though he were Europe’s highest authority in any practical sense. At the same time, Chalemagne had not only strengthened the papacy at a critical moment, but he had also reaffirmed the idea that only the pope could grant legitimacy power to a secular leader. Thus, while the alliance proved beneficial in the short term, it raised manifold problems associated with the dual and competing nature of all thrones.
At the heart of the king’s endeavor lay an attempt to obtain sole control over the resources within his domain and to expand the area of that domain. This clashed with the church’s claim of jurisdiction over all clerical affairs and of ultimate superiority over rules on secular matters as well.
He conceived of Christendom as an undivided state, of a state as a polity dominated by a sovereign; of a sovereign as a ruler who must be either absolute or useless. And who, he asked, but their heir to the Prince of the Apostles could presume to claim a power so tremendous?
Denying emperors the right to appoint bishops also meant that the control of all the church’s land and revenue went straight to the pope. The issue therefore went well beyond a question of prestige or legitimacy. It went to the bottom line.
Gregory responded by excommunicating Henry, releasing all his subjects from allegiance to him, and forbidding anyone to serve him as king. The excommunication wasn’t just rhetoric: it was all that some of Henry’s insubordinate subjects needed in order to justify rebellion against an emperor that their infallible spiritual leader said they simply could not heed. Henry’s back was against the wall, and he blinked first.
That would have been the end of the story had Henry actually meant any of it. But it was all politics, the latest melodramatic episode in the history of the central rivalry of the age. Once threats of rebellion had been quashed, Henry resumed appointing bishops. Furthermore, the German nobility were alienated when the pope forgave the emperor — which was a problem for Gregory when he tried to excommunicate Henry again 3 years later. Without the support of the German princes, the move was a political dud. Seizing the moment, the emperor marched on Rome and oversaw the election of a new pope, who placed the imperial crown on his head. Gregory, in turn, was forced to flee, and he died a year later in the city of Salerno, his last words being, “I have loved justice and hate iniquity, that is why I die in exile.”
At the core of these reforms was the idea of common law: laws applicable to all citizens throughout England. The common law system was more transparent, more centralized, and a great source of revenue as a consequence of the penalty fees imposed on criminals, which were transferred directly to the royal treasury. The problem was that those penalties used to be collected by the nobility or the church, each of which administered its own system of justice, or some facsimile thereof.
Those who had been the beneficiaries of these customary legal systems, now superseded by Henry’s courts, were angered. They had lost both money and the prerogative of power.
As is the way with most forms of giving birth, the advent of the modern state not only took what it seemed to be an excruciatingly long time but was also a bloody mess. Virtually all issues were resolved with violence or the threat of it. Any hint of weakness was a invitation to further mayhem.
While they were unsuccessful, and periodically and predictably excommunicated by the popes they threatened, their disregard for the popes as anything other than rival princes — workaday warlords with a little extra religious mojo — is revealing.
In his Clericis Laico, he asserted that kings could only tax the clergy with the permission of the pope, and he automatically excommunicated any who disobeyed.
In 1302, he convened the First Estates Assembly, at which he addressed an audience that introduced not only nobles and clergy but also prominent townspeople. This was a watershed because it introduced the “third estate” — the rising class of merchants, freehold farmers, and tradesmen — into the political equation. King Philip recognized that to stand up to the eternal power of Rome, he had to marshal all available sources of temporal authority.
Cloth and paper production were utterly transformed by the ability to perform repetitive tasks using the mechanics of a mill rather than backbreaking human labor. This was a direct threat to a feudal system built on the advantages accrued by lords who held sway over armies of serfs. In fact, there have been few more destabilizing developments in history than the transfer of power from those whose edge was in marshaling massive human resources to those who could use the combination of capital and technology to achieve similar outcomes.
At the same time, the rising classes of merchants produced economic change and important political shifts. They moved away from traditional strongholds of feudalism into new towns, or “newburghs” — hence the name by which many members of this class were known: burghers. These towns became trading centers and sources of new revenue that didn’t fit into the old system.
He would effectively nationalize the church and make it a tool of his kingdom.
Men and nations behave wisely once they have exhausted all the other alternatives.
The successor rivalry between public and private power followed a similar trajectory, even if the means of conflict were often subtler and the need for collaboration has remained much stronger.
By the mid-17th century, the notion of empires or religions possessing universal power was supplanted by the idea of a world of separate and equivalent sovereign states. By the mid-18th century, the concept of sovereign rulers was undercut by the idea that the true wellspring of sovereign power was the people themselves.
In the end, Gustav Vasa knew, success as a king was as much linked to economic fortunes as it was to cunning or ruthlessness or wisdom.
Some battles were framed as personal. Some were portrayed as historical grudge matches. Some were draped in religious explications and justifications. It hardly mattered. The system for determining who was in charge — which means the system for determining who got what — was unstable. Europe was swept up in economic, religious, and political tides of change, and the result was great swirling uncertainty and looming catastrophe.
It would be several years after an investment was made before it was known which outcome fate had offered up. To offset these risks, it made sense for investors to come together to form corporations whose shareholders could collectively insulate each other from the downside and share the upside of their endeavors. Better still, risk could be offset in yet another way if such ventures could exist over an extended period and thus cover more than one expedition.
The authorities in turn saw these enterprises not only as a source of revenue but as a mechanism to finance their international ambitions, extending their reach in a new form of public-private partnership. As a consequence, some of the earliest companies were endowed with very nationlike powers, including the ability to raise armies, wage war, seize territory, and even govern. In fact, it has often been observed that these early companies bear a striking resemblance to many of their multinational successors of today.
The anticipated duration of the company’s existence was 15 years; it would exist for 274 years, during which time it would field one of the world’s largest militaries and rule the Indian subcontinent.
Just as the overseas holdings of the British East India Company became what is modern-day India, so too did the spice island holdings of the Dutch Company become what we now know as Indonesia.
Philip responded by sending troops, but at the time, Spain was engaged in wars with the English, the French, the Turks, and the Portuguese as well as its overseas military enterprises in the Americas and Asia. This overreach led Philip’s treasury to declare bankruptcy 3 times during his reign despite the huge flows of resources that were pouring in from the New World. No money in the treasury meant no money for troops, and in 1596, unpaid Spanish troops mutinied and the rebels gains the upper hand.
By 1609, the 2 sides agreed to a 12-year truce. It wasn’t exactly and acknowledgment of independent, but it amounted to much the same thing, with only a handful of the southern provinces of the Netherlands remaining in Spanish hands (these would later become Belgium).
Of the Dutch Republic’s GNP, 5% came from the arms trade and the same amount came from the trading ventures of the East India Company, which soon became the first joint-stock company to have its shares traded on the open market. An exchange bank was founded in Amsterdam in 1609 that soon made that city Europe’s leading financial center — which in turn enabled the Dutch to gain access to capital on much better terms than could their chronically financially strapped adversaries.
With the great dark pit as the origin of his army’s strength in terms of copper, weapons, and hard currency, Gustavus entered the European war with special advantages his adversaries lacked, well served by his creative mind.
Mercenaries representing an early and enduring manifestation of private power and applying the spirit of entrepreneurship to meet the demands of the times.
Sensing victory, a major contingent of the imperial army followed in pursuit. Tilly moved to reinforce the gap left by these troops, and in so doing he spread his army too thin. Gustavus charged the weakened center of the imperial lines. The imperial armies began to break and retreat. Two-thirds of Tilly’s hitherto undefeated army was gone.
Gustavus was succeeded by his extraordinary daughter, Queen Christina, who he had ordered should be raised as a prince - that is, with all the skills a young man would have been taught. She was trained in fencing and shooting; was tutored in religion, philosophy, Greek, Latin, and the great languages of modern Europe.
She knew that Sweden’s gains during the war could not be maintained without ever-increasing output — a fact that led them ultimately embrace unsustainable practices. “Sweden stands or falls with the Copper Mountain.”
Spain faced revolts in Catalonia and Portugal, and soon after, the citizens of Naples and Sicily were similarly inspired to challenge Madrid.
The Spanish surrendered and d’Enghien led his army to the gates of Vienna by 1645, thus sending the unmistakable message to both branches of the Habsburg clan that it was time to seriously negotiate the peace.
Not surprisingly, the peace negotiations that led to the conclusion of the many conflicts that comprised what is today known as the Thirty Years’ War were as complex, fitful, protracted, and momentous as the conflicts themselves.
The half-decade-long negotiations were extraordinary in many respects. In terms of the sheer number of participants, they were a mirror onto the Europe whose future they sought to resolve.
The simple act of convening so many different actors in a secular conference, sponsored not by the church but by political actors treating one another as equals, was revolutionary, and it proved to be a model for virtually all European peace conferences that have taken place in the centuries that followed. For centuries, hierarchy had been a central organizing principle of European society, but at Westphalia, as a practical matter and a step reflecting broader social and political changes that were taking place, all participants, regardless of the size of the entities they represented, were to be referred to as “Excellency.”
The idea of authority or organization above the sovereign state is no longer. What takes its place is the notion that all states form a world-wide political system, or that, at any rate, the states of Western Europe form a single political system. This new system rests on international law and the balance of power, a law operating between rather than above states and a power operating between rather than above states.
While the only acknowledged choices were Catholicism, Lutheranism, or Calvinism, the principle that was established — making the leaders of each state sovereign in all political and theological matters — forms the basis for most modern theories of political science.
That point was essentially made moot by the fact that the official position of the Vatican throughout was to avoid any concessions to the Protestants.
Practical men, who believe themselves to be quite exempt from intellectual influences, are usually the slaves of some defunct economist.
On the contrary, Jefferson was, as he was on many of the central causes of his life, swept up in a view that was increasingly mainstream. He was in fact seldom a lone wolf on anything, but rather a master interpreter of trends. Even his most famous revolutionary act, drafting the Declaration of Independence, was in his view not so much a presentation of new ideas as a restating in a contemporary voice of existing views. As he wrote shortly before his death, “Neither aiming at originality of principle or sentiment, nor yet copied from any particular or previous writing, it was intended to be an expression of the American mind, and to give that expression the proper tone and spirit called for by the occasion.”
Jefferson was shaped primarily by English and French philosophers and politicians such as Locke, Rousseau, and Montesquieu, who grappled with the newfound powers of their states, their kings, and the institutions that were created to counterbalance royal authority.
The British East India Company played a substantial if utterly unintentional role in triggering the movements that ultimately led to the creation of both the world’s largest democracies - the US and India — and the consequent downfall of the empire it was formed to help support.
It also made the case for an economic approach that advocated leaving critical decisions to markets and individual economic actors, in much the same way that the Declaration asserted that as a matter of natural law, important natural decisions should be left to the people. While there is much in harmony between these views of bottom-up governance, there is also a fundamental tension between them when the question emerges as to which set of decision makers take precedence when the interests of those who vote with ballots are at odds with the interests of those who vote with their money. Smith wrote that when individuals were free to pursue their economic interests, the public interest was advanced as if through the workings of “an invisible hand.” Yet history has shown that often that hand has been more than invisible, it has been absent. And sometimes history has also shown the alternative: an iron fist wrapped in an invisible glove.
Thanks to the work of political philosophers such as Plato and Aristotle and later to the embracing of Greek ideas by the Romans in their own republic, the basic idea of governments founded on the principle of inclusion and broad representation of views achieved a level of refinement that would not be equaled again for more than a thousand years. The fall of Rome and the Middle Ages did not see ideas about representative government disappear in the West, but certainly the core concepts were set back by a dependency on monarchical rule, rule by force, and underlying economic systems such as feudalism, which elevated landowners to the central position within an agrarian society that controlled the primary mechanisms for subsistence and wealth creation.
It wast first convened in AD 930 as a place for local leaders to set rules for society and resolve conflicts. The chairman of the gathering was called the lawspeaker (from which the modern term for the “speaker” of a parliamentary body is derived). One of this individual’s responsibilities was actually to speak the law, to read out all the laws currently in effect or recently agreed.
The roots and evolution of these words suggest that property rights hold a privileged position among all laws, more ancient and more fundamental than many others, with the concept of ownership and by extension economic matters being among the earliest concerns of Western legal systems.
While the fertility celebration focused on those who possessed wombs, the political proceedings were open to all those who possessed weapons. This fact — that political participation was limited to those who could provide the force needed to secure or project the will of the group — ties to another core dimension of what makes states states: the ability to legitimate project force.
If Westphalia set new international laws focused on the sovereign state, the next order of business was to set rules within those states regarding the true nature of sovereign power — in terms of both its extent and the limits placed on it. Critical to all these movements was the spirit of the ancient lawspeakers, that kings served at the pleasure of the people and within the limits of the laws established by those people. But just as some kings would continue to argue for over a century that, like the popes, theirs was an authority that was paramount because it flowed from the heavens.
Locke saw issues concerning wealth and ownership and the business of life as central drivers of the development of human rights and laws. He asserted that although the world was shared among all when it was given to men by God, soon, for reasons of practicality, men began to own what they harvested or captured for their own survival. In this early state, ownership is not a threat because abundance is a natural condition. Later, as agricultural society developed, constraints that men should own no more than they could cultivate guided, but then all such rules were distorted and inequality entered into the picture when men adopted systems of money. It was largely to regulate such inequality that Locke saw the reason for the creation of civil government.
India in 1750 was responsible for almost a quarter of the world’s manufacturing output, and its people had a standard of living that approached that of those in England (a fact that would change as a result of the East India Company’s 200-year despoiling of the subcontinent).
The industrial revolution could not have happened in Britain had it not been for the loot that came in from India.
While England faced the challenges of building an empire, Sweden was suffering the burdens of having an empire it could not afford to maintain. Wars had sapped the treasury and the will of the people to tolerate the ambitions of their kings.
Charles had many opportunities to settle the war on favorable terms, but, eager to extend his reach to Poland (given old animosities), he passed them up, and when he did settle with the Poles in 1706, he received no compensation and the financial state of the country was damaged further.
The statement not only frames war in the context of its purpose for states, but it also gives a hint of how commonplace it was as a political mechanism, like any other in regular use. It is interesting to think of the dictum in the context of the wars of the East India Company or other national enterprises, in which case it might be paraphrased as stating that war is sometimes just a continuation of business by other means (or in the imperial and mercantile sense, perhaps it is just as accurate to say that business is just a continuation of war by other means).
The post-Westphalian reality for nation-states was not much more peaceful than that which preceded it.
Smith felt this approach was unfair: “to prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind.”
Of the greater part of the regulations concerning the colony trade, the merchants who carry it on, it must be observed, have been the principal advisers. We must not wonder, therefore, if in the greater part of them, their interest has been considered more than either that of the colonies or that of the mother country.
The father of modern economics certainly was not a man for taxation without representation. In fact, he recommended that the colonies be represented in proportion to those tax revenues, and he predicted that within a century the American colonies might end up exceeding Britain in their tax revenue generation, at which time he believed that “the seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defense and support of the whole.”
While Lee’s resolution and the resultant effort that would less than a month later produce the American Declaration of Independence are seen primarily as a watershed in political thinking, they had a very pragmatic component. The revolutionary colonists were concerned that the British had them outgunned, and they knew what happened to British colonies that confronted the empire. They needed assistance from other nations. They also knew that, given the nature of European politics, the French and the Spanish might provided just such assistance. But they couldn’t do it if the colonies were not seen to be an independent entity. This was a consequence of Westphalia. Sovereigns could deal only with other sovereigns.
The focus on the legal core of the declaration — to assert sovereignty, to base that sovereignty on the free choice of individuals by asserting their right to make such a choice, and to define the legally described role of the state — is more than a political nicety. It is a further step toward establishing the idea that laws exist above all entities and actors. Nations are under the law. Kings are under the law.
Following a list for 5 that dealt with “war atrocities,” the Declaration affirms the separation and asserts, no doubt with the hope of minimizing the rift, tha the new entity would view the British “as we hold the rest of mankind, Enemies in War, in Peace Friends.”
For the first few months after the Declaration was issued, it looked as though the statement would be nothing more than a footnote in history, the aspiration of a handful of men who would soon be crushed by the world’s greatest army.
By achieving victory, Washington did what was necessary to begin to give Jefferson’s views global resonance. It was not just America’s philosophy but its success that made the words of revolutionary thinkers even more famous than those of the antecedents from whom they borrowed.
While Jefferson warned about the power of corporations, the new country saw a burgeoning of new chartered enterprises with men like Hamilton at its helm. From 1790 to 1800 the states and the federal government chartered 328 corporations, almost 10 times the number chartered in the previous decade.
The miners themselves, realizing the importance of professionalism and science in the spirit of the age, began to require technical training for the master miners that would help shape the innovations of the company, enhance its efficiency, and position it to seize the opportunities of the next great era of revolution to come.
Historians and students of history who like their story lines simple look for bright lines that divide epochs. But as we have seen, while history produces notable turning points, most great transitions are evolutionary. Furthermore, as if the world were an inattentive student of progress, key episodes must seemingly be repeated over and over again until they overcome the seductive familiarity of the past and true transformations can take root.
As striking as the concurrence of all those changes is, it is just as striking that many of them represent the continuation of ancient struggles to resolve core issues about the shape and nature of society.
It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.
Convened as the latest in a series of attempts to restore stability in Europe in the wake of the thrusts and parries of the Napoleonic wars, the Congress of Vienna, where the treaty was hammered out, brought together representatives of more than 200 states and principalities from across Europe. While historians have characterized the gathering as a harbinger and a model for the peace conferences and international gatherings of the 20th century, it is hard not to see the similarities to the bustling, messy political bazaar that was Westphalia. Not only was the purpose of the conference to redraw the map of Europe, it was seen by its architects as an opportunity to redefine the nature and relations of states, addressing some of the questions about states that had arisen during the preceding century or so. It was thus also a hugely complex diplomatic symphony that could very easily have produced useless or even counterproductive cacophony had it not bene guided by skillful hands.
In particular, the passionate but extremely messy French emulation of the American experiment in democracy made those traditional powers whose roots stretched deep back into Europe’s feudal past extremely uncomfortable.
At first, many felt that the return to stability in France that came in the person of Napoleon Bonaparte might be a healthy development. Soon, however, they saw that even if he did in no uncertain terms put his foot on the throat of any remaining democratic stirrings, he also sought to rechannel his country’s emotions outward.
When alliances among governments threatened by Napoleon finally turned the tide against him it was time to remake the map of Europe and determine reparations, Metternich and his sponsors sought to do so in a way that would restore the monarchy and the Westphalian ideal of nation-states in balance with one another as the antidote to both liberalism and nationalism.
The Industrial Revolution would change what was necessary to create wealth, make it more fungible, make it tied to location, and also create new and different relationships among the business leaders it economically empowered and those who depended on them, whether for employment or for financial support of one kind or another.
Not only was the US industrializing, but it was also a country in which there was so much land available that the ownership of a commodity that had already been the primary source of power in Europe for centuries was revalued as an empowerer of the many rather than the few.
Tocqueville expressed his concerns for the American “depraved taste for equality, which impels the weak to want to bring the strong down to their level and which reduces men to preferring equality in servitude to inequality in freedom.”
The workers — who had essentially no political clout, no rights, no vote, and zero representation in government — were left with no other choice but to strike.
Metternich, Guizot, and their confreres were children of the upheavals of the late 18th and early 19th centuries and saw it as Europe’s good fortune that of the Continent’s 5 great powers, 3 were absolute monarchies and 2 were constitutional monarchies. What democracy there was offered suffrage to only a small percentage of the population. But the stability that this system had once seemingly offered had suddenly grown suspect. Said Tocqueville before his fellow deputies: “I believe that right now we are sleeping on a volcano … can you not sense, by a sort of instinctive intuition … that the earth is trembling again in Europe? Can you not feel … the wind of revolution in the air?
The French uprisings may have failed to produce a lasting government, but they did offer an enduring legacy: the end of the idea that the state’s principal purpose was to maintain peace and order even if the people starved. “After 1848 the workers acquired a new status in the community. Never again could a politician suggest that the men in the factories and the workshops should accept their lot with humble resignation.”
Whereas in France much of the pressure came from the working class, in Austria there was also considerable resentment among the best-educated citizens — lawyers, teachers, custom officials — who felt that the aristocracy saved the best civil service positions for themselves.
In so doing, it gave many in the empire their first taste of political life that in turn fueled the desires of many groups within the multiethnic empire for their own states and the right of self-determination. While it would be years before these desires would be fulfilled, the cracks that appeared in the edifice of the empire in 1848 ultimately fractured it completely within less than a century.
Whereas once the central tension in public life had been between church and state, by 1848 it had become between the public and private sectors. And because increasingly important public actors were earning rather than inheriting their roles, the lines became blurred further. Whereas once inherited land and titles conferred political power, now earned income and capital did so. Ideas of property and its role in the social order were being radically changed.
By stripping property away from the state, private ownership also reduces the power of the state.
These laborers, who must sell themselves piece-meal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuation of the market.
It’s hard to be surprised by the fact that Marx was asked to leave his home country.
Both saw the core issue as being the more equitable distribution of property. Both saw the feudal state as a failure in this regard and the redistribution of power to the masses as the answer. And as history would develop, both would end up carrying their ideas to the point that rather than eliminating the wealth concentrations of the feudal world, they would produce their own concentration of wealth and power — in one case in the hands of government ministers and ruling parties, and in the other hands of the most successful capitalists. Property rights were the crowbar with which the treasure chest of kings was opened up, but they soon became a blunt instrument used by the successors of those kings on behalf of those closest to them.
The UK enjoyed comparative stability. There was no massive political street violence, not insurgents; and there was a sense of political soundness that did not seem out of place in a capital that was at the time the seat of power of the largest empire the world had ever known. The calm was also due in part to the fact that the British government was almost certainly already the most liberal in Europe at that time. However, this stability was a facade. Britain was metaphorically as well as geographically an island. Within its own empire, England had stability, but at a price — one that was paid by its colonies. The empire not only afforded England a place to exile and imprison potential domestic political threats, it also offered vital economic resources.
The Whig government while keep a wary eye on developments in Europe, focused on a well-practiced sleight of hand in their intra-imperial affairs. They were able to maintain the support of Britain’s growing middle-class my promising to lower taxes. However, since they needed resources to maintain the military might that held together the empire, they unflinchingly taxed their colonies to make up the difference. when maintaining the vast overseas military proved too costly, they brought troops home and replaced them with cheaper indigenous mercenaries.
For all practical purposes, the company had effectively become India’s government.
Company officials were utterly insensitive to the concerns of these employees, and the uprising in the summer of 1806 resulted in the death of 200 members of the British garrison. While the East India managers in India mobilized their troops and swiftly crushed the mutineers, they shrugged off some of the most important lessons that could have been learned from the experience. Although adjustments were made to take cultural concerns into consideration, they were spotty, and the wounds were regularly reopened.
They found gold, and within months, people from every corner of the globe began pouring into California to seek their own fortune and stake their own claim.
The railroads led this business revolution. They not only facilitated transcontinental commerce but also led to the creation of new forms of management and corporate finance, new methods of competition, and new phases in the relationship between business and government.
The demand for that kind of capital helped fuel the growth of Wall Street as an important financial center. New financial instruments — stocks and bonds — were produced as never before to fund new railroads, the building of new track, and the purchase of new locomotives.
Andrew Carnegie systematically built a steel empire — largely on the back of railroads and the urban expansion they enabled — that when unified into US Steel in 1901 was worth more than $1B. That’s hundreds of times larger than most of what would have been considered “large businesses” when he started working in 1848.
It might be easy to overlook, given everything else that was happening in 1848, but that was the year Sweden passed limited liability laws for the first time.
“The economic idea of capitalism, the politics of government or authority, and the theological idea of the Church are 3 identical ideas, linked in various ways. To attack one of them is equivalent to attacking all of them. What capital does to labor, and the State to liberty, the Church does to the spirit.” His conclusion was that the power of anyone over others in society was an infringement of their rights and should be eliminated. Following these beliefs to their logical conclusion, he became the world’s first self-professed anarchist.
If the watershed associated with Westphalia and 1648 had to do with defining the rights and roles of states, and the liberal reforms associated with 1776 and 1848 had to do with asserting the rights of individuals, it might be argued that the most significant trend since then has had to do with asserting the relative rights and roles of private enterprises. The change in those rights has come by marrying the legal concept of the business corporation — an idea originally asserted to define the origins and limits of state power. Whereas the battle between church and state was a battle between 2 sets of “lawgivers,” the subsequent tug-of-war between public and private power centers has turned on the revolutionary idea that more important than the laws states could make were the laws that limited and defined the origins of state power — an approach to law-making that traces its roots to the Magna Carta and the US Constitution.
Medieval Europeans inherited from Rome the idea that an entity or an institution could incorporate and be granted the status of a legal person. An entity could request corporate status from the king, and the king would, if he chose, grant this status, creating an artificial legal person of the corporation. Importantly, the monarch would also retain the right to withdraw the privileges he or she had bestowed. Corporations existed at the pleasure of the state and thus clearly to serve the purpose of the state.
Hamilton was an advocate for a US version of the Bank of England, which he saw as an essential engine of British growth. He felt a US central bank would increase capital availability, enable the government to gain financing when necessary, and allow for the issuing of banknotes that could facilitate payment of taxes. In his view, such a bank would best serve the public interest if it were privately incorporated and thus immunized from being buffeted by public opinion.
Marshall used common law principles to create a universal definition of the corporation in American law, which had the effect of preventing state courts from developing separate understandings of what constitute a corporation (a first step toward the precedence of federal law that would later lead to decisions that would help create a national market and economy and thus corporations of continental scale).
While the Magna Carta was essentially a document designed to preserve the interests of other nobles, Locke and others built on the ideas within it to assert that the individual was the ultimate authority, that the only legitimate powers of the state were those that existed in service of the individual. In both instances, property rights were of primary importance. Wealth, to whatever degree it existed, was seen as the foundation of individual independence and influence. Guaranteeing life and liberty without guaranteeing the right to property was essentially politically irrelevant.
This would open the door to the gradual accumulation of other rights and prerogatives by corporate “fictional persons” that had only recently been won by real people. The concept of property rights, which was originally developed to preserve an individual’s rights to property, would as a direct result of this decision be used to grant individual rights to entities that were themselves a form of property.
US states were naturally unsettled by the Dartmouth decision and tried for a number of years to work around it by either limiting the duration of charters or obligating companies to have a public purpose.
Less than 0.5% invoked it in protection of the Negro race, and more than 50% asked that its benefits be extended to corporations.
Corporations were creatures of the state, figments of the legal imagination of the public sector. It is quite clear that they were not seen as part of the society of individuals that the US Bill of Rights or its British forebears were meant to protect. If anything, they were seen as quasipublic extensions of the state among the kind of potentially corrupting forces from which the framers of US law sought to protect the people.
This was consistent with a prevailing reluctance to overempower the federal government and a tendency to defer regulatory matters to the states. This preference was not only rooted in the original concept of the US government in which sovereignty resided within the states, but was also due to a perception that taking a state-by-state approach to such matters impeded corruption. Justice Brandeis would later write that he was skeptical of regulation at the federal level because he thought it might “lead to capture of the national legislature by the industry, but that the insurance industry could never capture every statehouse.” While his fears would later be borne out, it should have been fairly clear that if “capturing every statehouse” was what it took, then that’s precisely what companies would attempt.
Government regulations of this era differed from those of earlier eras in the 20th century because they had more expansive social goals (such as environmental protection, consumer protection, and employee health and safety), were conducted largely on the federal level, were arguably more intrusive and systematic, and covered virtually all sectors of the economy.
This sort of high-paid alliance on behalf of the interests of business illustrates yet another way in which the scales of justice are balanced somewhat differently when it comes to corporate citizens rather than mere individuals with much more limited means. If this results in an uneven application of the laws or more protections for those who can afford to assert them, then the law is once again being used as a tool to advance the interest of the few in ways that reasonable critics may see as antithetical to at least its asserted purpose within “just” societies.
Court of Appeals found that the Pentagon’s decision to prohibit a dairy company from selling to the military because an audit found it had been “irresponsible” and lacked “business integrity” was a violation of the dairy’s “liberty rights” in its reputation.
The majority’s argument went on to include a statement arguing that favoritism and influence are unavoidable in politics and that corruption does not automatically exist just because certain groups give a politician a lot of money and he or she ultimately votes in a way that is consistent with the interest of those group.
Nowhere is that clearer than with the idea that money is speech. One of the evils of the Fourteenth Amendment was conceived to eliminate was poll taxes that required certain groups of voters to pay for the right to vote. But in the context of modern American politics, if candidates cannot run unless they raise millions then there is a new form of poll tax in which the people who select the candidates are the ones who have the ability to make the donations that will determine who will run and who will not.
Even as the case is made that the state still maintains “coercive” powers — the ability to enforce the laws — the reality is that modern states are shaped by the influence of their most empowered citizens and that “persuasive power” often takes the upper hand because it is able one way or another to direct those with the “coercive” capabilities.
“Globalization” has many definitions, of course. Joseph Stiglitz calls it “the removal of barriers to free trade and the closer integration of national economies.” Left-wing social scientists who clearly have an ax to grind dub it “the present worldwide drive toward an economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or governments.”
If undercuts the national identity that knits together peoples and has formed the basis for political unions throughout time. How can one speak of “self-determination” without having a clear sense of what “self” means?
These actors further use globalization to undercut the state; once corporations, for example, are truly global in their operations, they have the ability to “venue-shop” and play countries against one another to win better legal, regulatory, or tax treatment. They gain leverage by “floating above” nations.
The obligations of subjects to the sovereign is understood to last as long, and no longer, than the power lasteth by which he is able to protect them.
It is estimated that just the top 300 companies control over a quarter of the earth’s productive capacity.
At the same time, the world has seen the number of countries grow from 57 in 1900 to more than 200 today.
From the beginning of time through the middle of the 19th century, the economic formula was fairly simple: land plus people equaled wealth. While this equation was in place, calculating global wealth and power was a straightforward task. Throughout this period, the 2 most populous countries were number 1 and number 2 in terms of their economic output.
Branches spread across Europe, Asia, Africa, and Latin America. Soon vice presidents were installed in each branch to ensure that “neither sickness, death, nor any other circumstances may interfere with the smooth workings of the business to any great extent.” The Singer Sewing Company grew in search of new markets and also to achieve economies of scale; this made Singer a first mover among modern multinationals. Within a few decades, other big US companies such as Ford, Kodak, GE, and Gillette were emulating Singer’s management approaches as well as the company’s strategy of using international expansion to seek favorable tax treatment and lower material and labor costs while using their clout as direct investors to win political influence with governments far from their “home” market.
Rockefeller, son of a snake oil salesman from upstate NY, was all business. But that did not mean he was not deeply involved in the politics of his day. Indeed, Rockefeller recognized that managing politicians was as important as his attentive, even obsessive, management of his refineries.
When an Ohio court found against Rockefeller, he simply dissolved operations in that state and reorganized as a combination of 20 companies known as the Standard Oil Interests, theoretically separate but all operated out of the same location at 26 Broadway in NY, then subsequently run as a holding company organized in NJ after state legislators there were persuaded to pass legislation allowing one corporation to hold stock in another. The American system of government and law did not control Standard Oil. It sometimes inconvenienced it, but typically, the law was bent to the needs of the company.
What is said during a campaign and what is actually done are often 2 different things, and that was true in this instance as well. The newly elected president, McKinley, had talked tough about dealing with the trusts but brought about only 3 antitrust suits.
The legal proceedings were as gargantuan as their target, involving 444 witnesses, 1371 exhibits, and almost 15K pages of transcripts. At issue was whether Standard was a monopoly.
Standard Oil of NJ became Exxon. Standard Oil of NY became Mobil. The California company became Chevron. Standard Oil of Ohio became an important part of BP.
These issues posed, and continue to pose, a real dilemma for US policymakers. For example, both Siemens and Toyota employ tens of thousands of US citizens. Are they US companies? Their profits are repatriated to Germany and Japan, but they are helping Americans in many cases much more than US competitors based here. Further, their shareholders often include large US institutional and individual investors.
Echoing Black, who asserted that IBM was not supporting evil but was rather operating in a completely values-free, allegiance-free way, Bakan writes: “Corporations have no capacity to value political systems, fascist or democratic, for reasons of principle or ideology. The one legitimate question for a corporation is whether or not a political system serves or impedes its self-interested purposes.”
Bakan concludes that companies are “singularly self-interested and unable to feel genuine concern for others in any context.”
When Standard Oil of NY made agreements to do business in Iraq after WW1, the company had to worry about 2 sources of law: the US and British-owned Iraq. Now when Exxon does business in a foreign country such as Malaysia, it not only has to worry about making sure its activities comply with American and Malaysian law, it also has to consider international human rights treaties for which it can be found liable in American courts, relevant WTO provision under which any country whose trade privileges are being infringed can bring a complaint and seek binding enforcement, regulations on global public health, the law of the sea, international labor agreements, or violations of any investment treaties signed by the US or Malaysia.
A logical assumption might be that such a web of interlocking and overlapping legal obligations would be a great burden to international corporations and a real constraint. While the regulations are a burden and require hiring armies of lawyers and compliance officers, the reality is rather different than it was during, say, the era of trust-busters and tough enforcement of national laws. International law is a patchwork quilt of disaggregated institutions and legal regimes that do not and cannot coordinate their attempted regulation of corporations. This situation enables companies to systematically analyze the legal playing field and use their resources to devise strategy by which they regularly score victories that make them considerably freer to operate on the global stage than they were when they were limited to activity within the ambit of a single sovereign.
Frustrated that Kodak had only a 10% market share in the Japanese film market, much lower than it enjoyed in similar markets elsewhere in the world, Fisher lobbied the US government to step in and act on its behalf. When that did not produce the desired result, Fisher did what any corporate CEO would do: he hired a very big, high-priced law firm full of former senior US government officials to develop a petition under section 301 of US trade law requesting that the trade representative’s office pursue a case against the Japanese.
Gaming the system is what companies do. They shape it through lobbying, influence it through their lawyers, and use it much the same way that sailors passing through a port treat the local girls they will never see again. They even dress themselves up prettily in national uniforms, but their motives are purely personal in nature. Companies with clever lawyers can use the WTO or thousands of bilateral investment treaties to structure their approaches so that if they don’t get the judgments or support they want from one government or multilateral entity, they can press forward in multiple forums in the hopes of getting the desired outcome.
Give me control of a nation’s money and I care not who makes her laws.
The fact was that Obama himself rode into office on the largest wave of donations from the financial community in history; he brought with him many with a firmly Wall Street frame of mind and related biases, and if anything, the US Congress had been even more corrupted by a campaign finance process that made it totally dependent on donations from the companies it was supposed to regulate.
That any nation ever truly could control its money supply is one of those myths. This is because the underpinnings of the idea of money are independent on public perception of what is valuable, and thus on a wide range of external variables ranging from the value of commodities to factors that affect that value such as the weather and wars and other conditions influencing the health of national economies.
Most early societies started out with “commodity” money, units of exchange that were seen to have intrinsic value — gold pieces, shells, a predetermined amount of grain. But over time, states switched to “representative” currencies, types of money that were deemed to have value based on the word of the government that they would be backed up or redeemable in some way by the state. Later, they would switch to “fiat” currencies, which do not imply convertibility to the commodity in question but are seen to have a value primarily because either the state or the market asserts they do.
States have always required money to support their functions, and in fact it was the concentration of reserves in a treasury that was one of the founding sources of a state’s power, because those funds could be applied to build fortifications, hire armies, and create the coercive power needed to enforce the law, including the collection of taxes, which completed the circle of power, feeding into treasuries.
Part of this buildup of military capabilities and expenses was due to the reality that maintaining and expanding control over land or sea lanes was the only way nations could enhance or protect their economic well-being. Armies were economic tools that demanded economic strategies, and the period of the 16th and 17th centuries saw European states develop much more organized approach to budgeting, taxation, borrowing, and money policies.
This focus on finance and the need for the organized underpinnings to help fuel required wealth creation accelerated the development of capitalism, which actually started during the 12th and 13th centuries as an alternative to the comparatively disorganized, intensively rural, inefficient economics of feudalism.
In Spain, the punishment for illegally exporting gold and silver was death.
Voltaire made the case — later echoed by Smith — that the pursuit of wealth through market activity and the consumption of wealth were bot politically and morally desirable. In words that would be echoed through the centuries that followed, in the writings of those from Hayek to Friedman, he wrote that “the individual’s self-regarding propensities were the basis of social order, rather than the threat to it that Christian and civic moralists have imagined.”
Seeking personal gain was a rational motivator in the eyes of this ultimate rationalist, whereas the real danger lay with religion.
Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion, and reserve the name of infidel to those who go bankrupt.
It is important to note, however, that many of Smith’s and Voltaire’s views were based on an idealized view of commerce among small enterprises, none of which had the power to distort pricing or market dynamics giant corporations might. In Smith’s eye, the potential distorter was the state.
The nature of early banking was based in part on the weight and value of gold, silver, an other treasures that needed to be stored safely and were risky to transport. To facilitate commerce, banks would establish branches that allowed deposits in one place to be withdrawn in another or that allowed those with deposits to issue checks that were essentially IOUs for the treasure that was safely stored in the banks’ vaults.
Through its accumulation of riches it became a vitally important lender to popes and kings. This was a double-edged sword. The Medici became rich and powerful, and ultimately they produced 2 popes. They also won important trading concessions that added to their wealth. However, because everyone loves their banker when they are lending but no one loves them when they come collecting, the relationships was precarious. Periodically the Medici would be put in the position of seeking repayment from monarchs and other nobles at just the time that the monarchs were least able to pay and, not surprisingly, not in the best spirits.
In good times, the Medici played an essential role in supporting rulers. But when these rulers fell on rough times, they would play rough, resisting repayment, threatening to withdraw special concessions on which the Medici depended, coercing them into not lending to their enemies, and, as a consequence of all such measures, undoing the banks in London and Bruges and ultimately the Medici banking empire.
But, as history has also shown, where one banking empire leaves off, another picks up, because the demand for lending and facilitating commerce is essential to the functioning of both states and economies as a whole.
While the influence and business of the family grew during the 18th century through the support of many ventures taking part in the expansion of the early industrial economy, the most striking example of how a private financial enterprise could influence a state is illustrated in the events surrounding the Napoleonic Wars, which fueled the rise of the Rothschild family to the point that its members ultimately ended up holding aristocratic titles from England to the Austro-Hungarian empire.
Napoleon was bringing an industrial-era efficiency to conquest, pioneering the art of “total war.”
One of the reasons leaders had, through the ages, chosen to use Jewish banking networks was that, merits aside, the low regard in which Jews were held helped checked the bankers in check.
Government was on the verge of being permanently marginalized, forced into the role of part-time referee, part-time coach, and part-time helper of market and little else.
At a meeting of the G10 in London, Connally explained what America expected of the world in trying to turn its deficit around: “We had a problem and we’re sharing it with the world — just like we shared our prosperity. That’s what friends are for.”
A year later, the Europeans let the Americans know that they would all let their currencies float together. What this meant was that markets now ruled, as never before, the setting of the value of money.
The total value of the world’s derivatives is estimated at $791T. That’s not only almost 100 times the currencies, it is also about 14 times the global GDP. Derivative instruments are by far the world’s largest pool of instruments of value. Few people understand them, they are not regulate din any meaningful way, and it is impossible to know what they are truly worth, not only because their value is contingent on future conditions but also because factors such as the risks associated with the counterparties of each instrument are utterly opaque.
Other than derivatives, the total value of securities in the world today includes approximately $82.2T in worldwide debt securities and $36.6T in equity value (the total value of all the world’s stock markets combined). Not only does the total value of these securities dwarf all the currencies of the world, but al these securities have something in common. They were conceived, issued, and valued by the market, and they will be settled, or undone, by the market. The lifeblood of the world’s markets, the repositories of all the world’s value, are financial instruments — often complex, certainly stateless, constantly swirling above and beyond the reach and comprehension of virtually any government officials, all created, controlled, and influenced by a comparatively small group of private actors.
Turning Americans into homeowners not only had the benefit of creating a big market in mortgages and mortgage-backed securities, but the more home buyers there were, the more homes were thought to be worth, and the more people felt they could borrow or invest — a boon to finance at every turn. In 1997, the total value of real estate owned by US households was $8.8T; by 2006, the figure was almost $22T. During most of the 1980s and 1990s, the ratio of the average American home price to the median household income had hovered around 3 to 1. By 2006 it was almost 5 to 1. In SF and LA it was around 10 to 1.
Whereas some might observe that today’s banks must be less powerful because they are not the ones bailing out government as Morgan did, the reality is the reverse. These institutions — by virtue of lobbying, of the influence bought by donations, of the influence bought by having their people in senior positions — pushed around a series of regulatory reforms that promoted an idea that would be laughable in any other industry: that they could self-regulate. Then, when that consequence of their exercised power put them in a tough position, they were able to go back to the government and argue that they — champions of free markets and reduced government intervention — were “too big too fail” and that the government had to bail them out. And when the crisis began to pass and they no longer needed the government’s funds, they returned them and demanded that the government get out of their hair again.
GE’s tax department is known as the “world’s best tax firm,” and over the course of the last decade the company spent $200M lobbying to push for changes in US tax law. This approach has proved an embarrassment to the Obama administration after it appointed GE’s chairman as the chairman of its effort to stimulate US competitiveness and job creation.
That sense of privilege was on display to the world when Goldman executives rudely shrugged off the questions of Congress during hearings and again when soon after the crisis they resumed awarding themselves enormous bonuses, bonuses they could not have enjoyed without the intervention of taxpayers. During 2008, however, the company paid only $14M in taxes on $1.4B in earnings, a 1% rate.
In other parts of the world, the American capitalist system, while it was still widely regarded as the world’s most effective engine of growth, was seen to be flawed in substantial ways. Those offering other models saw their systems as having a revitalized appeal, from European governments that had long held that the public sector must partner with business, to those in Asia to whom that partnership was something even closer, more symbiotic, and who still saw companies as serving a national as well as a narrow shareholder-focused purpose.
A state is a human community that successfully claims the monopoly of the legitimate use of physical force within a given territory.
Of all forms of power, perhaps the greatest is arbitrary power, because it asserts the will of an actor independent of any other influence; it is the ability to set oneself above a system that allows a ruler to be the defining force within that system. Similarly, for great states, the ability to impose their will without regard for the views of those on whom it is imposed is the ultimate standard of power. Throughout history, the linchpin of such power has been force — the ability to either personally or on behalf of a tribe, a city, or a state, bend others to one’s will. Whether it was the destructive force of an army or the more limited tools required to enforce the law and preserve the peace, in the interests of “order” and the “public good” the state claimed the sole right to apply and carry out threats to the life, well-being, or freedom of others.
“The right of nature” was every man’s right to do whatever he needed to preserve himself even to another’s body. So long as this condition was maintained, security was impossible, and since that was intolerable, men were willing to give up the right of nature in order to ensure their own well-being. Each therefore agreed to concede so much liberty against other men as he would allow other men against himself. This social contract require an enforcer, some coercive power to compel men equally to the performance of their covenants and to make good that propriety which by mutual contract men acquire in recompense of the universal right they abandon: and such power there is none before the erection of a commonwealth.
Readers of this book need only think back to the stories of the army of the British East India Company to realize that the idea of states having a monopoly on power is a comparatively recent one. Indeed, for much of history, armies were largely made up of mercenaries, or they were groups with an affiliation not to any political entity but to individual, a family, a region, a church, or even a guild.
Mercenaries had been common throughout Europe since the decline of feudal armies in the 13th century. As towns and cities increased in importance, their rulers and elites would hire privately organized military units. These units, called “free companies,” would travel around the Continent offering their services to those with a battle to fight and a treasury to finance it.
In 1362, France’s king John II the Good tried to wipe out the free companies by raising a feudal army, but the companies banded together and defeated the king’s soldiers. They were considered such a threat by subsequent rulers that the next few French kings launched wars against neighboring kingdoms just to get the mercenaries out of France.
The need to maintain such large forces played a role in accelerating the rise of the nation-state as the primary actor on the global stage. Whereas there had once been well over 100 political entities in Europe at the time of the Thirty Years’ War, there were just over 20 by 1900.
As is often the case in human behavior, it takes a crisis to produce real change. Or rather, it typically takes more than one crisis.
In the UN Charter, the rule of force is outlawed explicitly several times, and, where it is deemed acceptable, the right to use it is limited to the UNSC.
The Reagan administration shrugged off the decision, first arguing that the court lacked jurisdiction and then simply refusing to play the required billions in reparation to the Nicaraguans. Later, the US pressured a new Nicaraguan government to drop the case in exchange for continued aid payments.
International institutions can therefore be said to have been successful in constraining the impulse to use force by nations, but only by some of them — the smaller ones. As it turns out, of course, that didn’t actually make smaller nations safer than large ones; quite the contrary.
Those 15 countries are really the only countries on the planet that can be considered to have a serious military capability, the ability to successfully project force for any period of time. Even among them, the ability for most is extremely limited. The total defense spending of the remaining 175 countries accounts for only 18% of all defense spending.
In an era in which giants do not fight, smaller conflicts gain in profile and relative importance.
We live in a world in which no one is as strong as us but in which virtually everyone is equally vulnerable.
Clark stated that he believed the company should share with the law enforcement officials it was training every bit of knowledge it had, while Prince argued that that was a business loser because it meant the officials would have no incentive to come back for more training.
Contracts often call for the contractors themselves to monitor the activities of their subcontractors as the only, or at least the primary, means of ensuring the fulfillment of the government’s requirements. Needless to say, this too leads to undeniable conflicts of interest.
We can’t let little countries screw around with big companies like this — companies that have made big investments in the world.
We live in a time when people are losing confidence in the ability of government to solve problems. But at Wal-Mart, we don’t see the sidelines that politicians see. And we do not wait for someone else to solve problems.
Whether or not there was ever a truly Westphalian moment when the system of nation-states defined international relations, certainly the new picture is both messier and more dynamic than the conventional view that the Westphalian order took hold for a time.
The false choice between “big government” and “free markets” is a distraction that echoes the zero-sum Manichean battle between communism and capitalism, left and right. If there is one thing that history conclusively shows, it is that unlike some dimensions of the battle between church and state, which was in fact over ultimate supremacy and could not end in a tie, the public and private sectors are — when properly balanced — complementary halves of a whole. They may often be rivals, but they are also essential to each other and to the well-being of everyone.
We must come to understand and accept that the mix of the world’s most influential players is one of major countries that can still act largely as countries are expected to act; semi-states that have seen the pillars of their sovereign power undermined and their ability to serve their constituents undercut; supercitizens that are private actors with narrow, self-interested, primarily (but not exclusively) economic agendas; and the rest of us, just citizens, the governed, who at least in theory are to empower those who lead us through our consent and who as signatories to the social contract expect the powers that organize society to provide us with certain basic rights and conditions.
The fact that power is abstract, relative, and as changeable as a teenager’s moods has not stopped generations of academics and pundits from trying to quantify it, classify it, and wok out its recipe. There is a cottage industry among political scientists in trying to develop power metrics for states. Single-variable metrics are so simple as to be meaningless, but they are regular bruited about.
It differs from GNP in that, while GDP looks at what is produced within certain borders, GNP looks at what is produced by the people living within those borders, by the enterprises they own.
GDP is really a kind of a statistical blunt instrument that fails to capture many aspects of a society’s condition or progress. GDP does not tell you anything about whether income is distributed equitably within a society. It doesn’t measure quality of life. It doesn’t measure whether what’s being produced is new or duplicative or better or worse than what was produced before.
America outstrips the world by many measures but lags, sometimes shockingly, in many others. Countries that could hardly hope to outperform the world in any category are far ahead of the US when it comes to things that matter more to average people. Choosing metrics to measure our performance as a society is not a value-free process. As a country, America has consistently relied on indicators that keep us focused on the interests of business, financial institutions, or the defense industry, whereas equity, quality of life, and even social-mobility metrics are played down.
Listening to the news, you might be forgiven for thinking that stock-market performance was linked to reality. But markets are oceans of teeming emotions that make the average hormone-infused high school look calmly rational, and much of the “data” that moves markets is just bunk.
A country that overemphasizes GDP growth and market performance is likely to focus its policies on the big drivers of those — corporations and financial institutions — even when, as during the recent past, there has been little correlation between the performance of big businesses or elites and that of most people.
It took us decades to agree upon what to include in GDP, and it is still far from a perfect metric.
Our definition of a semi-state is a state that, while legally sovereign, is not practically sovereign. It may claim control over its territory and assert all the rights and privileges appertaining to statehood, but more than one of its 4 key pillars of statehood has been so compromised as to be little more than a symbol. Those pillars are the ability to make and enforce its laws; to control its borders; to manage its finances through monetary, tax and fiscal policies; and to project force or at least effectively defend itself. A 5th characteristic of a true state that may be a useful metric is whether its citizens believe that a state can effectively meet the terms of its social contract with them: Can it keep them safe, bring order to their lives, preserve their basic rights to life, liberty, property, and happiness?
Stable, high-functioning, prosperous, secure, financially at least fairly independent, these candidates for full-state status include, from the next 20 or so countries on the GDP list, Taiwan, Norway, Austria, South Africa, Denmark, Finland, Singapore, Israel, and Chile. Of the next 20, who? Almost certainly New Zealand and Vietnam.
Using annual sales as a criterion, the 1000th-largest company in the world ($7B) would still be larger than a third of all the world’s countries.
One final note is worth inserting here about the GDP-to-sales comparison. Those who do not like it argue that since GDP is a value-added measure, it does not reflect the total “sales” of a country, thus putting the state at a disadvantage in such comparisons; but such an analysis cut both ways. First, much of what is counted against GDP is private revenue that quickly leaves the country one way or another. Further, the resources available to a state are of course limited to what is in a budget or a treasury or can be borrowed. National budgets typically constitute a fraction of GDP, most of what is in a budget is in many cases not discretionary spending. Whereas companies have much greater control over the allocation of sales revenues.
Finally, and importantly, GDP represents the aggregated output of disaggregated producers: the people, companies, government, and other actors in a complex national economy. It is not an expression of a coherent economic activity. Unlike a company’s economic plan, virtually all the activity is unconnected, undirected, and difficult even to nudge in one direction or another except in very small, comparatively homogeneous economies.
Exxon has 2.5M shareholders, of which 2K are institutional and represent the retirement savings of millions who are thereby also linked to the company’s fate. Exxon’s budgeted expenditures exceeded $400B. Sweden’s were less than one-third of that amount.
“POTUS rejected Kyoto in part based on input from you.” Sweden had a veto and used its leverage cannily. But ExxonMobil, as it turned out, had a veto.
Today’s corporation often conduct something very much like their own foreign policy, and it is not uncommon for former senior diplomats, generals, or naval flag officers to be hired by corporations to interface with governments and to shape international strategies.
The fruit wasn’t well known in the US, but it was cheap to grow and easy to ship, and Costa Ricans were happy to give him the unused jungle land for a pittance in exchange for his railroad building. Soon the principal cargo of the railways was the bananas and following the merger of his Tropical Trading and Transport Company with the Boston Fruit Company to become United Fruit, Keith was centrally involved not only in building extensive elements of the region’s transportation, port, and telegraph infrastructure, but also in building the export industry for which the region would come to be known for decades.
As a consequence of repeated incidents of this nature, in which political leaders were lifted up and brought down and national governments operated essentially as a support organization for a big foreign investor, the companies gave the region something else: a nickname. The countries would henceforth be known as “banana republics.”
Despite repeated public statements to the contrary, it is clear that the coup was enabled through the support of the US government with blessings at the highest level. Kissinger himself is quoted as saying just days after the coup, in a conversation with Nixon: “In the Eisenhower period we would be heroes.”
You read a book from beginning to end. You run a business the opposite way. You start with the end, and then you do everything you must do to reach it.
Pickard had boasted that the Nigerian government had “forgotten” that “Shell had seconded people to all the relevant ministries and Shell consequently had access to everything that was being done in those ministries.”
Here again we see the recurrent historical paradox: governments gave birth to companies, but today it is the private sector upon which governments must depend for approval and support, whether these come in the form of good credit ratings, demand for debt offerings, or flows of foreign direct or indirect investment that are essential to maintaining growth and political stability. Indeed, it has come to the point that many current and prospective government leaders feel they serve 2 constituencies. One votes in polling stations in the elections within their countries. The other votes with their money in a global referendum that takes place 24 hours a day on every continent.
During our conversation, he got a call from the DPM of Russia, who also served as finance minister. The two talked for about 5 minutes and then the banker, an old friend, hung up the phone. “It’s crazy. It’s short-term debt. They can’t get enough of it. It’s how they pay their army, how they pay their bills. They’re like crack addict.”
“Well, if they are addicts, what does that make you?”
Currently BlackRock runs tens of millions of risk models a day. On each of these, computers continually run through an ever-changing number of potential risk scenarios, some 200M of them per week — everything from what happens if the US starts defaulting on its debt to what happens if China stops buying it. This type of analytical power is what sets BlackRock apart.
Tharman spoke in the wake of the 2008-2009 financial crisis, saying, “We have seen the defects in Anglo-American capitalism. We have seen some of the challenges associated with Eurosocialism. We certainly know that communism has failed. There is a place now for a different view, a different balance… and it is one we have cultivated for a long time here in Singapore.”
When pressed as to his meaning, Tharman said: “Our view is that the role of government is to empower people to be able to seize their own opportunities. We must provide the education, the infrastructure, and the climate in which they can then succeed for themselves.”
Similar ideas are seen throughout the system, such as the utilization of an interdepartmental charging system that “makes use of the market concept to impose incentives and discipline on both the providers and consumers of internal government services.” More efficient ministries are rewarded with more resources. Health care, housing, and education services are all provided via user-pay market mechanisms with prices determined by demand.
Singapore is the best managed company in the world.
UAE is not a country, it’s a venture capital fund.
The Abu Dhabi Investment Authority is the largest sovereign wealth fund in the world, with $627B worth of assets under management.
The Singapore-like spirit of development in the UAE is not an accident. The Emiratis have studied Singapore’s story carefully.
Today, Israel has the highest number of startups in the world per capita. Israel has more tech companies listed on the NASDAQ than does all of Europe combined.
The Vikings were also known as “Rus,” and they founded Kevian Rus, which later became Russia.
Perhaps foremost among these is that time and time again, when either public or private actors gain too much influence over the other or over society as a whole, the public at large suffers, sometimes grievously. Government overreach as embodied in Soviet communism crushed the economic life and spirit out of a great nation, while market overreach as embodied in America’s recent reign of unchecked financial and corporate greed can send even the world’s richest nation hurtling toward fiscal crisis, social division, and diminishing influence on the global stage.
Other than students of political science or philosophy, few people today spend too much time thinking about how societies ought to be organized. Fewer still ask why we even organize them in the first place.
The US will lose its status as the superpower of the world financial system. This world will become multipolar.
Clearly, it is my view that a look to history provides better answers to what the long-term trends are, the forces that are in play, and the questions that need to be addressed than does listening to campaign rhetoric, scrolling through blogs, or reading opinion columns.
If there is a lesson to the historical study of these issues, it is that even as financial marketplaces accelerate to such a pace that major actors make hundreds of millions of assessments and decisions a day and commercial marketplaces are rapidly evolving to suit a complex global reality, the marketplace of ideas moves much more slowly.
In the run-up to the 2012 elections, the incumbent US president’s advisers have told him that he will have to raise $750M to $1B to hold on to the office he already has.
Germany has outperformed not only all the other major countries of Europe but all the world’s leading developed economies in the swiftness of its recovery from the economic crisis of 2008-09.
Despite its reputation for austerity, Germany has been far more willing than the US to use the power of government to help its economy. Yet, it also has been more ruthless about cutting wasteful parts of government.
Nothing has undercut the influence of American unions like the collapse of American manufacturing. And while some might say that it was the unreasonable demands of unions that brought about that collapse, it could just as easily be argued that efforts to roll back the government’s ability to keep America’s education system, infrastructure, and other competitive factors up to global standards played as great or a greater role in that respect.
The Germany government has also been unhesitating, like the government in virtually all the other examples cited here, to promote its businesses internationally.
Germany spends roughly 30 times as much as the US promoting exports and similar amounts seeking FDI.
Not much could have seemed more passe than the Swedish model of social welfare back in the 1990s when American capitalism was humming along.