Sunday, November 2, 2014

(#32-1) November 2 2014. If the internet is as important as many of us think it is, we have a serious problem with it in the U.S. To repeat myself, we no longer practice a free enterprise system. Monopoly—or close—is now the corporate American way. It is so much more comfortable—for corporations. As far as the U.S. consumer is concerned, it sucks. Readily evident consequences include high prices, lousy service, and huge user dissatisfaction. Functionally, we are no longer competitive internationally.





From about 1945 to about 1973, the U.S. economy boomed, productivity increased, and all of those involved—shareholders, management, workers, suppliers (otherwise collectively known as the stakeholders) shared the proceeds equitably.

“Equitably” doesn’t mean equally. It merely means that all parties concerned felt that the rewards were shared fairly. Productivity went up—but so did worker pay. The Middle Class prospered and expanded. In those days, the American Dream was a reasonable expectation.

That wasn’t to last.

From about 1973 onwards, caused by a variety of factors including a feeling by the ultra rich that the workers were getting too cocky, the American Business Model was changed (knowingly and deliberately) to focus on maximizing shareholder value—with all the other stakeholders  getting short shrift.

“Shareholder value” was a theory—based upon no academic data at all—that the only duty and purpose of a company’s managements was to maximize the return to the shareholders who provided the risk capital that enabled the business to be financed.

Though maximizing shareholder value was no more than a big lie, it provided a specious excuse for senior management to abandon any sense of obligation towards any but the shareholders—and, in the process, to enrich themselves. How so? By arranging to be largely paid in share options so that what was good for the shareholders was also good for management.

Here, it is worth noting that—thanks to Congress—capital gains are taxed at a substantially lower rate than conventional wages on salaries. Since the wealthy own most shares, this is an egregious advantage for the rich—though only one of many. The system, as Senator Elizabeth Warren has commented repeatedly is rigged.

It most certainly is. It is rigged by the rich (most members of Congress are wealthy—and become wealthier still in office) to favor the rich. It is about as unfair and un-democratic as you can get.

Thus commenced the corruption of the American Business Model and the decline of the U.S.’s international competitiveness. In fact, the decline of overall U.S. corporate effectiveness, since optimizing shareholder value became the mantra, is quite marked. That was of scant concern to the CEOs. Many of them became immensely wealthy.

Some of the many negative consequences:

  • The Middle Class—once the envy of the rest of the world—has been crushed and is in rapid decline.
  • Both the earning power in real terms, and the quality of life, of most Americans, is currently in decline.
  • Pay for most—except CEOs and senior executives—stagnated in real terms for decades. CEO pay climbed to 300 times (or more) that of the average worker.
  • War was declared on the unions—and largely won. The unions have been largely driven out of the private sector and are under serious assault in the public.
  • Environmental regulations were resisted ferociously—with predictable consequences.
  • Suppliers were squeezed. In many cases foreign suppliers were substituted. In numerous cases, American corporations actively trained our international competition (China in particular) to the point where we are unlikely to regain market share.
  • Factories were closed by the tens of thousands, communities were devastated, and jobs were exported by the millions.
  • Financialization became an ever greater component of the economy—with a culture of debt becoming endemic. In effect, most Americans are forced into debt because the economy is so structured that way. 
  • The political system, at every level, was bought. It remains bought.
  • Much legislation that was deemed contrary to the interests of the rich was repealed. Other legislation that favored them was passed.
  • Anti-trust laws were not enforced—particularly when Republicans were in control—and business became ever more concentrated. This was particularly the case in the financial sector where banks—too big big to fail—became dominant. They still are.
  • Business sector after business sector became monopolistic—or close—a situation which is largely the norm today and which is particularly evident where the internet is concerned.
  • It is hard to overstress the economic devastation—imposed, as a matter of deliberate policy, with no concern for the negative consequences by this country’s own largest corporations—that has ravaged the U.S. economy. In many cases—the culture of low pay being a notable example—it continues to do so.

    The justification put forward—such as there has been—has largely focused on the need to remain internationally competitive.

    Whether inflicting economic carnage on your home market helps international competitiveness is a debatable issue in itself. Moreover,, tellingly, many of our international competitors—whose workers are more highly paid than Americans—not only outcompete us, but add long vacations and improved working conditions as well. The arguments put forward by American management are specious.

    American management’s strategy of focusing on low pay, to the exclusion of virtually all else, has proved to be a disaster. It is hostile and de-motivating. Millions of American workers have voted with their feet and have found a wide variety of ways to opt out of the labor force. Disillusionment is rife.

    Meanwhile, our competition are getting superior results from encouraging a climate of cooperation. Look no further than the countries of Northern Europe for numerous examples of this. From Sweden to Switzerland, their businesses outsell us even though their workers do better.

    Meanwhile Congress has not just stood idly by, but has actively conspired in this holocaust by rigging the economy through tax breaks and other concessions to favor the rich and powerful. Why have they done this? Both parties are largely financed by corporate interests. Such corporate interests are largely owned by the ultra rich. They largely control both the financial and political levers of power

    These extraordinarily significant changes did not take place in the full glare of publicity. They mostly went unnoticed despite their scale and impact. This was scarcely surprising because the ultra rich own the media, the manipulation of public opinion has long been raised to a remarkably high level of effectiveness, and—conveniently—other events conspired to serve as a series of distractions. For instance—apart from the ever reliable distractions of sports and our celebrity culture—both natural disasters and international affairs are used to manipulate our focus away from the economic issues that really matter.

    Some examples from international affairs

  • 1973 – Vietnam War was being wound down and OPEC initiated an oil embargo because we had helped the Israelis.
  • 1975 – South Vietnam fell.
  • 1979 – The Shah of Iran was overthrown and the U.S. Embassy seized by the Iranians—thus initiating a long hostage crisis.
  • And so on day by day, week by week, month by month, year by year, decade by decade. Keep people entertained and distracted for long enough—and they will be conditioned to expect to be entertained rather than be informed.

    Our culture has long ago reached that point. We are neither a well informed nor an intellectually curious nation. Despite many notable exceptions—and pools of extraordinary talent—we are a nation sedated by myth, entertainment, distraction, prejudice, and ignorance.

    Suffice to say that the American public was kept distracted from full scale consideration of what was going on—and, largely still is, because, although information that all is not well is out there, most people still get their news from mainstream TV—which never gets into this stuff in adequate detail because its owners don’t want it too.

    Concurrently, our political system—both parties—has been largely bought by the ultra rich (largely through corporations and their lobbyists)—and appropriately muzzled.

    Our monopolistic and entirely unsatisfactory internet system personifies the corrupt American Business Model as it exists today.

    Here is what the New York Times’s Claire Cain Miller said in a story on October 30 2014:

    Downloading a high-definition movie takes about seven seconds in Seoul, Hong Kong, Tokyo, Zurich, Bucharest and Paris, and people pay as little as $30 a month for that connection. In Los Angeles, New York and Washington, downloading the same movie takes 1.4 minutes for people with the fastest Internet available, and they pay $300 a month for the privilege, according to The Cost of Connectivity, a report published Thursday by the New America Foundation’s Open Technology Institute.

    The report compares Internet access in big American cities with access in Europe and Asia. Some surprising smaller American cities — Chattanooga, Tenn.; Kansas City (in both Kansas and Missouri); Lafayette, La.; and Bristol, Va. — tied for speed with the biggest cities abroad. In each, the high-speed Internet provider is not one of the big cable or phone companies that provide Internet to most of the United States, but a city-run network or start-up service.

    The reason the United States lags many countries in both speed and affordability, according to people who study the issue, has nothing to do with technology. Instead, it is an economic policy problem — the lack of competition in the broadband industry.

    “It’s just very simple economics,” said Tim Wu, a professor at Columbia Law School who studies antitrust and communications and was an adviser to the Federal Trade Commission. “The average market has one or two serious Internet providers, and they set their prices at monopoly or duopoly pricing.”

    For relatively high-speed Internet at 25 megabits per second, 75 percent of homes have one option at most, according to the Federal Communications Commission — usually Comcast, Time Warner, AT&T or Verizon. It’s an issue anyone who has shopped for Internet knows well, and it is even worse for people who live in rural areas. It matters not just for entertainment; an Internet connection is necessary for people to find and perform jobs, and to do new things in areas like medicine and education.

    “Stop and let that sink in: Three-quarters of American homes have no competitive choice for the essential infrastructure for 21st-century economics and democracy,” Tom Wheeler, chairman of the F.C.C., said in a speech last month.

    The situation arose from this conundrum: Left alone, will companies compete, or is regulation necessary?

    In many parts of Europe, the government tries to foster competition by requiring that the companies that own the pipes carrying broadband to people’s homes lease space in their pipes to rival companies. (That policy is based on the work of Jean Tirole, who won the Nobel Prize in economics this month in part for his work on regulation and communications networks.)

    In the United States, the Federal Communications Commission in 2002 reclassified high-speed Internet access as an information service, which is unregulated, rather than as telecommunications, which is regulated. Its hope was that Internet providers would compete with one another to provide the best networks. That didn’t happen. The result has been that they have mostly stayed out of one another’s markets.

    When New America ranked cities by the average speed of broadband plans priced between $35 and $50 a month, the top three cities, Seoul, Hong Kong and Paris, offered speeds 10 times faster than the United States cities. (In some places, like Seoul, the government subsidizes Internet access to keep prices low.)

    The divide is not just with the fastest plans. At nearly every speed, Internet access costs more in the United States than in Europe, according to the report. American Internet users are also much more likely than those in other countries to pay an additional fee, about $100 a year in many cities, to rent a modem that costs less than $100 in a store.

    “More competition, better technologies and increased quality of service on wireline networks help to drive down prices,” said Nick Russo, a policy program associate studying broadband pricing at the Open Technology Institute and co-author of the report.

    There is some disagreement about that conclusion, including from Richard Bennett, a visiting fellow at the American Enterprise Institute and a critic of those who say Internet service providers need more regulation. He argued that much of the slowness is caused not by broadband networks but by browsers, websites and high usage.

    Yet it is telling that in the cities with the fastest Internet in the United States, according to New America, the incumbent companies are not providing the service. In Kansas City, it comes from Google. In Chattanooga, Lafayette and Bristol, it comes through publicly owned networks.

    In each case, the networks are fiber-optic, which transfer data exponentially faster than cable networks. The problem is that installing fiber networks requires a huge investment of money and work, digging up streets and sidewalks, building a new network and competing with the incumbents. (That explains why super-rich Google has been one of the few private companies to do it.)

    The big Internet providers have little reason to upgrade their entire networks to fiber because there has so far been little pressure from competitors or regulators to do so, said Susan Crawford, a visiting professor at Harvard Law School and author of “Captive Audience: Telecom Monopolies in the New Gilded Age.”

    There are signs of a growing movement for cities to build their own fiber networks and lease the fiber to retail Internet providers. Some, like San Antonio, already have fiber in place, but there are policies restricting them from using it to offer Internet services to consumers. Other cities, like Santa Monica, Calif., have been laying fiber during other construction projects.

    In certain cities, the threat of new Internet providers has spurred the big, existing companies to do something novel: increase the speeds they offer and build up their own fiber networks.

    VOR words 1,058

    Total words 2,050

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