I have been reading a fascinating book by two economists, Daron Acemoglu and James A. Robinson, entitled WHY NATIONS FAIL-The Origins of Power, Prosperity and Poverty.
They have examined and traced just about every society since records have been kept. Their conclusion is that there are four conditions of crucial interest in every society. They have cute, academic names for each of them, but since I am not up for tenure, I will substitute simpler names. Two conditions are economic and two are political.
Closed Economies: In this condition, existing industries and sources of wealth are protected and new industries and sources of wealth are prohibited or discouraged.
Open Economies: This is Joseph Schumpeter's "Creative Destruction" in which new ideas, new industries, new sources of wealth are welcomed and encouraged even though they may well displace existing ones.
Closed Politics: In this condition, a very small group of elites control the entire government and use that power to enrich themselves out of all proportion.
Open Politics: Here, governance is widely shared by all members of the society and decisions are made that are in the best interests of everyone in the society.
Their conclusion is that when Open Economies are combined with Open Politics everyone benefits and the economy grows profitably. But Closed Politics always leads to Closed Economics and the society always becomes very poor, or there is a revolt, which may lead to Open/Open conditions, or it may simply change the members of the ruling elite.
Now here is the Issue Of Incredible Importance: As we speak, there is a still small, but influential group of people saying the America's days of prosperity and growth are behind us, and that your children, and grandchildren will not live as well as you do. Bill Gross, Paul Krugman and Robert Schiller are among that small group.
Following the analysis in Why Nations Fail would suggest that we are moving from an Open Economy/Open Politics to a Closed Economy/Closed Politics.
So what is the evidence here? Well, first of all there is Congress where 96% of the members who seek re-election win. Virtually all current Congresspersons are millionaires. Only a few were millionaires when they were first elected. Even most of those who chose not to seek re-election become lobbyists at million dollar salaries and they never leave Washington.
The CEO's of major U.S. Corporations are now paid staggering incomes in wages and options and bonuses. Not long ago, the CEO made 20/30 times more than the lowest paid employee. Now it is 300/400 times as much.
The top 1% of all U.S. households hold 40% of all the wealth in the entire U.S.
Does that sound like a small group of people have gained control of the U.S.?
Here is what a complete outsider has to say about this. This article appeared in the Sydney (Australia) Morning Herald.
The four business gangs that run the US
Illustration: Michael Mucci.IF YOU'VE ever suspected politics is increasingly being run in the interests of big business, I have news: Jeffrey Sachs, a highly respected economist from Columbia University, agrees with you - at least in respect of the United States.
In his book, The Price of Civilisation, he says the US economy is caught in a feedback loop. ''Corporate wealth translates into political power through campaign financing, corporate lobbying and the revolving door of jobs between government and industry; and political power translates into further wealth through tax cuts, deregulation and sweetheart contracts between government and industry. Wealth begets power, and power begets wealth,'' he says.
Sachs says four key sectors of US business exemplify this feedback loop and the takeover of political power in America by the ''corporatocracy''.
First is the well-known military-industrial complex. ''As [President] Eisenhower famously warned in his farewell address in January 1961, the linkage of the military and private industry created a political power so pervasive that America has been condemned to militarisation, useless wars and fiscal waste on a scale of many tens of trillions of dollars since then,'' he says.
These days, almost every US Treasury secretary - Republican or Democrat - comes from Wall Street and goes back there when his term ends. The close ties between Wall Street and Washington ''paved the way for the 2008 financial crisis and the mega-bailouts that followed, through reckless deregulation followed by an almost complete lack of oversight by government''.
Third is the Big Oil-transport-military complex, which has put the US on the trajectory of heavy oil-imports dependence and a deepening military trap in the Middle East, he says.
''Since the days of John D. Rockefeller and the Standard Oil Trust a century ago, Big Oil has loomed large in American politics and foreign policy. Big Oil teamed up with the automobile industry to steer America away from mass transit and towards gas-guzzling vehicles driving on a nationally financed highway system.''
Big Oil has consistently and successfully fought the intrusion of competition from non-oil energy sources, including nuclear, wind and solar power.
It has been at the side of the Pentagon in making sure that America defends the sea-lanes to the Persian Gulf, in effect ensuring a $US100 billion-plus annual subsidy for a fuel that is otherwise dangerous for national security, Sachs says.
''And Big Oil has played a notorious role in the fight to keep climate change off the US agenda. Exxon-Mobil, Koch Industries and others in the sector have underwritten a generation of anti-scientific propaganda to confuse the American people.''
Fourth is the healthcare industry, America's largest industry, absorbing no less than 17 per cent of US gross domestic product.
''The key to understanding this sector is to note that the government partners with industry to reimburse costs with little systematic oversight and control,'' Sachs says. ''Pharmaceutical firms set sky-high prices protected by patent rights; Medicare [for the aged] and Medicaid [for the poor] and private insurers reimburse doctors and hospitals on a cost-plus basis; and the American Medical Association restricts the supply of new doctors through the control of placements at medical schools.
''The result of this pseudo-market system is sky-high costs, large profits for the private healthcare sector, and no political will to reform.''
Now do you see why the industry put so much effort into persuading America's punters that Obamacare was rank socialism? They didn't succeed in blocking it, but the compromised program doesn't do enough to stop the US being the last rich country in the world without universal healthcare.
It's worth noting that, despite its front-running cost, America's healthcare system doesn't leave Americans with particularly good health - not as good as ours, for instance. This conundrum is easily explained: America has the highest-paid doctors.
Sachs says the main thing to remember about the corporatocracy is that it looks after its own. ''There is absolutely no economic crisis in corporate America.
''Consider the pulse of the corporate sector as opposed to the pulse of the employees working in it: corporate profits in 2010 were at an all-time high, chief executive salaries in 2010 rebounded strongly from the financial crisis, Wall Street compensation in 2010 was at an all-time high, several Wall Street firms paid civil penalties for financial abuses, but no senior banker faced any criminal charges, and there were no adverse regulatory measures that would lead to a loss of profits in finance, health care, military supplies and energy,'' he says.
The 30-year achievement of the corporatocracy has been the creation of America's rich and super-rich classes, he says. And we can now see their tools of trade.
''It began with globalisation, which pushed up capital income while pushing down wages. These changes were magnified by the tax cuts at the top, which left more take-home pay and the ability to accumulate greater wealth through higher net-of-tax returns to saving.''
Chief executives then helped themselves to their own slice of the corporate sector ownership through outlandish awards of stock options by friendly and often handpicked compensation committees, while the Securities and Exchange Commission looked the other way. It's not all that hard to do when both political parties are standing in line to do your bidding, Sachs concludes.
Fortunately, things aren't nearly so bad in Australia. But it will require vigilance to stop them sliding further in that direction.
Twitter: @1Ross Gittins