Ph.D. Octopus

Politics, media, music, capitalism, scholarship, and ephemera since 2010

Why Businessmen Won’t Support Financial Reform

with 3 comments

There has been a strange bout of head scratching coming from the liberal blogs about why businessmen don’t support financial reform and health care. After all, many industries would benefit from a more stable financial sector, and almost all would benefit from cheaper health care (except, of course, the health industry). It’s in their interest! What are they thinking?!

For some the problem is too much individualism. They blame the disconnect between the CEOs and the interests of their businesses. This argument says that while GM, for instance, might benefit from Wall Street regulation, the individual CEO who heads GM might not. Reasonable enough

Some see the opposite problem- too much collectivity!- and blame general class solidarity among the parasitic elite. You can imagine the fear and trembling in Greenwich CT: “First they came for the insurance profits, and I didn’t speak up, then they came for Wall Street bonuses, and I didn’t speak up, then they came for my capital gains, and no one was left to speak up for me.” (Besides Fox News, CNBC, the Wall Street Journal, George Mason’s Economics Department, etc…)

I’d say both of these have a bit of truth, but are based on a faulty assumption: that each major American corporation is a discrete independent firm whose interests lie solely in their own industry. Instead, it seems to me, the story of capitalism since the late nineteenth century, has been the steady blurring of lines between firms and industries.

Most importantly, there is the financialization of capitalism, which has been going on since the days of Morgan. Major corporations are not owned by some rich guy- à la Mr Burns- nor a wealthy family- à la the Bluths- but, by and large, by faceless institutional investors: private equity firms, investment banks, hedge funds, etc. In the early twentieth century, capitalism was often referred to as an octopus, with its head in New York or Chicago, and tentacles reaching out across America grabbing wealth. I remember learning this as a union organizer when we’d do research into who owned hotels in order to figure out whom to pressure. Short answer: it gets real complicated really fast. Hotels are often owned by private equity firms, who might only buy the right to franchise from a hotel chain. But even that name brand franchise is likely owned by some group of investors far removed from the actual day-to-day workings of the hotel. Point is, in our post-modern economy, the ownership of any given firm is separated from the actual production by any number of levels of ownership. It seems like there is a simple boss-worker relationship, when in fact the reality is far more multi-sided and complicated. The Octopus remains a good analogy, for when you trace things back far enough, you normally end up in financial institutions in New York or London, where the labor of workers across the world ends up.

And its not just ownership that matters. Many of the firms on the “productive” side of the economy are also deeply embroiled in the financial side of the economy as well. Take GM, that perfect representation of the old Fordist economy. Turns out its financial arm- GMAC- was dabbling in mortgages as well as speculative car loans. The decline in GMAC’s profits, back in 2007, presaged the collapse of GM itself. And Chrysler was owned, until recently, by the good neighborly folks at Cerberus Capital Management.

So to imagine that there is a productive sector of our economy that can be sharply delineated from the financial sector of our economy is to engage in the grossest of fantasies. But it is the classic fantasy of the timid liberal reformer who is pretty sure that all is well with our system if only slight reforms could be made to the bad part of the economy (the banks) while leaving in tact the good part of the economy (everything else).

The point of all of this is that attempts to recruit part of the business class in your fight against another part is poor strategy. It is rare that they will think of themselves purely as auto-makers or hotel owners, but rather will realize how invested they are in the other parts of the economy as well.

I’ll give Slavoj Zizek the last word here: “There is no way to separate the two: in the capitalist system, welfare on Main Street depends on a thriving Wall Street. …The relationship is nontransitive: while what is good for Wall Street is not necessarily good for Main Street, Main Street cannot thrive if Wall Street is feeling sickly, and this asymmetry gives an a priori advantage to Wall Street.”

He goes on: “Whereas financial meltdowns are obvious reminders that the circulation of capital is not a self-sustaining closed loop—that it presupposes an absent reality where actual goods that satisfy people’s needs are produced and sold—their more subtle lesson is that there can be no return to this reality, pace all the rhetoric of ‘let us return from the virtual space of financial speculation to real people who produce and consume.’ The paradox of capitalism is that you cannot throw out the dirty water of financial speculation while keeping the healthy baby of a ‘real’ economy.”

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Written by Peter Wirzbicki

March 17, 2010 at 14:44

3 Responses

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  1. Really good post.

    J

    March 17, 2010 at 21:09

  2. What J said, wizard. Also, thanks for that use of “embroiled.” “Presaged” got me rather hot and bothered as well. I imagine weiner is still coming down from the high occasioned by your use of that Standard Oil octopus. The boy really loves him some octopus.

    wotty

    March 18, 2010 at 11:01

    • I do love octopus, it’s treyf-alicious.

      weiner

      March 18, 2010 at 14:06


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