How Corporations Are Crippling U.S. Prosperity – Interview With Pulitzer Prize Winning Author David Cay Johnston_Featured_, Economy Tuesday, October 16th, 2012
A dearth of competition in major U.S. industries and a government that’s policy making has been severely corrupted by moneyed interests has led to depressed wages and stifled innovation, a Pulitzer Prize-winning journalist says in a new book.
In essence, you’re being ripped off, and those responsible are taking everyone’s money while assuming very little risk.
David Cay Johnston was awarded the Pulitzer Prize for reporting the inequalities and loopholes that exist in the U.S. tax code and exposing corporate tax evasion. His latest work, The Fine Print: How Big companies Use “Plain English” to Rob You Blind, examines his findings about how the U.S. economy has strayed away from capitalism and into “corporate socialism,” where the free market, its engine of prosperity, has stalled.
Some argue that globalization has caused a smoothing of salaries as developing economies grow. We asked Johnston to make his case about how the alleged subversion of competitive markets could actually be what’s responsible. Here’s our interview with David Cay Johnston:
SmartPlanet: Are our markets competitive or is the game fixed?
David Cay Johnston (DCJ): A growing number of industries are monopolies, duopolies and oligopolies even as they claim to be in highly competitive markets. Cable, Internet and telephone provide a good example of this. In most places you have one phone company and one cable company offering similarly slow, by world standards, Internet speeds and very similar prices. Computers make it possible for companies to match prices quickly, as airlines do in just a few minutes for millions of fares when one airline changes its pricing structure.
SP: Are we paying too much for goods and services?
DCJ: We pay four times what the French do for a triple play package of cable, Internet and telephone — and they get worldwide TV, not just domestic; their Internet is ten times faster and instead of two country calling, they get long-distance to 70 countries at no extra charge. All that for $38 compared to the U.S. average of $160 including taxes. By one measure we pay 38 times as much as the Japanese per bit of information on the Internet. In states where the electric utilities were broken up so power generation could be a competitive business prices did not fall. Instead since 1999 they rose 48% more than inflation, compared to just 8 percent in states that retained traditional regulation. Everywhere there is a lack of competition, or only the appearance of competition, we pay way too much.
SP: Which companies and industries owe taxpayers their success? Which are the biggest offenders?
DCJ: Wall Street and the Too Big To Fail Banks are, for now, by far the worst offenders. We put $14.7 trillion, the entire economic output of the nation in 2009, at risk under the George W. Bush administration bailout instead of letting these firms suffer the consequences of their own mismanagement. The 401(k) system has generated huge profits for investment firms even as many accounts shrivel, becoming what I call 201(k)s. We have pipelines earning as much as 55% annual profits on their assets, eight times the average for all business. And even though pipelines are exempt from the corporate income tax, they get to collect the corporate income tax in their monopoly rates, inflating profits. The telephone companies collected $360 billion in rate hikes to build an Information Superhighway, but all we got was a two-lane Irish country road where you have to stop now and then while the sheep graze, our Internet having fallen from first to 29th in the world.
SP: Why would big businesses attempt to escape the rigors of the free market, and what effect does that have on the economy and the standard of living?
DCJ: Big companies are escaping the rigors of competitive markets. When Adam Smith wrote about “the invisible hand” he was pointing out that it is competitive markets, which create efficiencies, innovation and economic growth. But Smith also warned us in The Wealth of Nations in 1776 about how business owners are always conspiring to raise prices and reduce wages, which makes them better off but undoes the benefits of capitalism and slows economic growth. This is a major reason the real median wage (half make more, half less) has been stuck at just over $500 a week since 1999. It explains why the bottom 90 percent had higher incomes in 1973 than now when you adjust for inflation — and back then most families with children had only one parent working outside the home. In 2010, the year after the Great Recession, the bottom 90 percent say their incomes decline. And of the increase going to the top 10 percent, 37 percent went to the top one percent of the top one percent.