- In Search of a Democratic, Egalitarian, Commercial Republic
On July 3rd and 4th 2010, the New York Times reported stories that provide a glimpse of fundamental injustices and deep structural faults in the American commercial republic. The first concerned the efforts of oil companies to combat a tax on petroleum production to pay for the cleanup of the massive oil spill in the Gulf of Mexico. Although they have piled up hundreds of billions of dollars in profits over the last decade, oil companies, this story reports, have nevertheless dramatically reduced their effective tax rate. This has been achieved by exploiting outdated tax breaks originally designed to encourage technological development for oil exploration, registering their oil rigs in foreign countries, and relocating their operations (in legal name at least) to small offices abroad. Oil companies have also employed a variety of accounting practices such as reclassifying the royalties charged by foreign governments to American oil drillers as taxes so that they can be deducted.
Abolishing these billions of dollars in subsidies and tax breaks or imposing new taxes, spokesmen for the oil industry predictably argue, would hinder corporations from investing in technology and lead to job losses, higher gas prices, and greater dependence on foreign oil. "These companies evaluate costs, risks, and opportunities across the globe," one spokesman for the industry argued. "So if the U.S. makes changes in the tax code that discourage drilling in gulf waters, they will go elsewhere and take their jobs with them." Government watchdog groups, however, countered that potential [End Page 119] profits for the oil industry were so high that abolishing subsidies would not substantially decrease their activities or lead them to relocate. "We're giving tax breaks to highly profitable companies to do what they would be doing anyway," one policy analyst concluded. "That's not an incentive; that's a giveaway." 2
The second story addressed the efforts of lobbyists and businesses to bypass the ban on earmarks for profit-making organizations passed by the House of Representatives in March, 2010. Following public outrage over the "Bridge to Nowhere" and other infamous non-competitive contracts by lawmakers, House Democrats banned earmarks to profit-making companies to prevent the possibility that they were being traded for campaign donations. As several skeptical opponents of the rule predicted, however, this ban has only led profit-making companies to refashion themselves as non-profits, to create non-profit wings of their companies, or to team with universities and hospitals in requests for earmarks. Speaking for many about the difficulty of reform, Arizona's Republican representative Jeff Flake observed that such efforts to bypass the new rule reminded him of the line from Jurassic Park that "Life will find a way." "When you have easy money like this," Blake quipped, "it finds a way, and members find a way to enable. And that is happening again." 3
The mobility of capital, the relentless efforts of corporations to avoid taxes, privatize profits, and pass costs off to the public, and the consistent ability of money to "find a way" in the American political system are only a few of the problems that together constitute a pathology of the American economic and political system. Over the last three years, the "Great Recession" has quickened, sputtering economic performance, further exacerbating already increasing inequality in wealth, and exposing massive public and private debt. Lucky American workers have seen their wages slashed, pensions terminated, and home values plummet. Unlucky ones have seen their jobs shipped abroad and face long-term unemployment.
Americans have dealt with recessions before and there is certainly nothing new about the effects of globalization. Still, the origins of this recession in the sub-prime mortgage crisis and the extent of the woes that it has wrought make it uniquely opaque and unjust. 4 Understanding its causes requires mastering a dizzying and arcane vocabulary of bond trading composed of "tranches," "derivatives," "credit default swaps," and "synthetic collateralized mortgage obligations." Those who parse the fog discover an unregulated shadow economy teaming with unqualified borrowers, deceptive lending agents...