America's poisonous monopoly economy

One of Trump's biggest lies is how "Mexico and China stole our jobs".
Mexico and China didn't steal our jobs.
They were given those jobs by the CEO's of America's companies.

I recall that back in the 70's politicians and pundits talked about economics and industry in terms of national security.
That stopped and was quickly forgotten under Reagan and neoliberalism.

So it is surprising to find this article in the American Conservative.

This story of lost American leadership and production is not unique. In fact, the destruction of America’s once vibrant military and commercial industrial capacity in many sectors has become the single biggest unacknowledged threat to our national security. Because of public policies focused on finance instead of production, the United States increasingly cannot produce or maintain vital systems upon which our economy, our military, and our allies rely. Huawei is just a particularly prominent example.
The erosion of much of the American industrial and defense industrial base proceeded like Lucent. First, in the 1980s and 1990s, Wall Street financiers focused on short-term profits, market power, and executive pay-outs over core competencies like research and production, often rolling an industry up into a monopoly producer. Then, in the 2000s, they offshored production to the lowest cost producer. This finance-centric approach opened the door to the Chinese government’s ability to strategically pick off industrial capacity by subsidizing its producers. Hand over cash to Wall Street, and China could get the American crown jewels.

The article focuses on the inability of the U.S. to manufacture its own weapon systems, and that is the most dramatic example.
What this country has lost goes far beyond that.

“The middle-class Americans who did the manufacturing work, all that capability, machine tools, knowledge, it just became worthless, driven by the stock price,” he said. “The national ability to produce is a national treasure. If you can’t produce you won’t consume, and you can’t defend yourself.”

The article then goes on to describe how the lust for oversized profits has translated into monopoly power.

It achieves these returns for its shareholders by buying up companies that are sole or single-source suppliers of obscure airplane parts that the government needs, and then increasing prices by as much as eight times the original amount. If the government balks at paying, TransDigm has no qualms daring the military to risk its mission and its crew by not buying the parts. The military, held hostage, often pays the ransom. TransDigm’s gross profit margins using this model to gouge the U.S. government are a robust 54.5 percent...
TransDigm was caught manipulating the parts market by the Department of Defense Inspector General in 2006, again in 2008, and finally again this year. It is currently facing yet another investigation by the Government Accountability Office.
Yet, Trandigm’s stock price thrives because Wall Street loves monopolies, regardless of who they are taking advantage of... It is no wonder our military capacities are ebbing, despite the large budget outlays—the money isn’t going to defense.

Probably the most interesting part of this article is that none of this is new.

n the 1920s and 1930s, the American defense industrial base was being similarly manipulated by domestic financiers for their own purposes, retarding innovation and damaging the nation’s ability to defend itself.

Back then the technology was the airplane, and the monopolists were being influenced by Nazi Germany.

And that's where the article ends.
Only looking at the defense industry and rival nations. It doesn't exam the fact that this is just one part of a multinational monopoly problem.
Just look at Monsanto.

Monsanto operated a “fusion center” to monitor and discredit journalists and activists, and targeted a reporter who wrote a critical book on the company, documents reveal. The agrochemical corporation also investigated the singer Neil Young and wrote an internal memo on his social media activity and music.

The records reviewed by the Guardian show Monsanto adopted a multi-pronged strategy to target Carey Gillam, a Reuters journalist who investigated the company’s weedkiller and its links to cancer. Monsanto, now owned by the German pharmaceutical corporation Bayer, also monitored a not-for-profit food research organization through its “intelligence fusion center”, a term that the FBI and other law enforcement agencies use for operations focused on surveillance and terrorism.


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I thought they were totally Laissez-faire.
I was just saying this to my wife today!
I used to work as an Industrial Specialist for the US Navy (NOT as a contractor, as a sworn civil servant). An industrial specialist does many things. One of the things we did was plan and setup repair facilities. My boss was an Industrial Engineer.
I told my wife that people who actually know how to design, stock, and layout an industrial operation are all old like me. Furthermore, the machinists, tool programmers, staff, and day to day mangers are all old men too. It will take a generation to rebuild, IF our Chinese masters let us. BTW, everyone thinks provisioning is easy, leading to nonsense like "just in time". It doesn't take much thought to understand that "just in time" means your operation stops for lack of parts half the time. Provisioning takes an understanding of failure modes and statistics (hint: everything is a not Gaussian distribution, the Poisson distribution is more relevant for discrete failures.) My old organization was disbanded in the '90s (Thanks a bunch, Bill!) and the operations farmed out to contractors with a vested interest in selling parts and extracting maximum cash from the Navy.

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thanatokephaloides's picture

@The Voice In the Wilderness

BTW, everyone thinks provisioning is easy, leading to nonsense like "just in time". It doesn't take much thought to understand that "just in time" means your operation stops for lack of parts half the time. Provisioning takes an understanding of failure modes and statistics (hint: everything is a not Gaussian distribution, the Poisson distribution is more relevant for discrete failures.)

And that's when provisioning patterns are either orderly (!) or Erisian chaotic enough to answer to any sort of mathematics at all.

Bottom line: maintaining inventory reserves of parts is an absolute necessity; "just in time" is a pipe dream and will always remain so.

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"I say enough! If Israel wants to be the only superpower in the Middle East then they can put their own asses on the line and do it themselves. I want to continue to eat."
-- snoopydawg

@The Voice In the Wilderness
of "efficiency," particularly in a financialized economy where every opportunity cost is carefully accounted for. It's expensive to maintain inventories, because there is an opportunity cost associated with the money that is tied up in the inventories, even if that cost is just the interest on your operating line of credit. Therefore, it's a more "efficient" use of your "resources" (finances) to run with the lowest possible inventories -- right up to the moment, as you note, when something goes wrogn. (ahem)

Such systems are fundamentally brittle and unstable. Engineers understand this. They intentionally design systems to be elastic and stable, by incorporating "hysteresis" into them. For example, if the thermostat on your furnace is set to 72 degrees, the control system doesn't kick in as soon as the temperature falls below 72 -- it waits until the temperature is 71 (or whatever -- nowadays, this is often configurable). Similarly, it might not turn the furnace off until it hits 73 -- thus, the temperature of the house oscillates between 71 and 73. If the control system kicked in as soon as the temperature fell to 71.99 and turned off as soon as it rose again to 72.00, your furnace would be turning off and on every 2 or 3 minutes. It would wear out sooner, and it would annoy the hell out of you while getting there.

Similar behavior is built into all sorts of engineered systems. We often read about computers representing information as ones and zeroes, but of course they don't -- they represent them as, for example, voltages across transistors. The circuits are designed so that the cutoff between "one" and "zero" is different in each direction. For example, suppose the "nominal" voltage of "one" is 0.7V and the "nominal" voltage of a "zero" is ... well, 0.0V. Well, transistors are physical devices, and they cannot switch directly between 0.0V and 0.7V -- they have to traverse the intermediate voltages. In order to keep everything stable, the circuits are designed so that if the circuit is switching up to 0.7, it won't become a "one" until it reaches, say, 0.4V, but if it is switching down to 0.0, it won't become a "zero" until it falls to, say 0.3V.

Yes, I just finessed a bunch of stuff there, including explaining what I mean by "become a one" or "become a zero", but that's all beside the point. The point is that the systems are, as I said, elastic and stable. If the switching point were the same in both directions, there'd be a danger that a circuit would wobble back and forth for a few nanoseconds (or more) and the behavior of the circuit would not longer be predictable (which it must be if the computer is going to compute what we want it to compute). That wobbling is both inefficient (it requires extra power) and BROKEN in terms of the necessary function of the system.

Oh, oh, here's another example: If your home's water is provided by a well, then you have a pressurized reservoir water tank in your basement. When the pressure falls below a threshold, the pump turns on and replenishes the water in the tank. When the pressure reaches the desired cutoff, the pump turns off again. One purpose of this system is to reduce the strain on your pump, by reducing the amount of cycling it must do. The pressure cutoffs might be set to something like 40 and 60 PSI. If you've got a 40 gallon tank, you might be able to draw 10 gallons starting at 60 PSI, before the pressure fell to 40PSI and your pump kicked on to refill the tank. This means the pump doesn't cycle every time you fill a pitcher of water or flush the toilet. That's a good thing, because replacing your well pump is expensive and inconvenient. It also means that if the power goes out you've got SOME water available, if not much. But what if the tank were going to cost you 10K to install in your home? Suddenly it would be very "inefficient" for you to do that, because of the financial cost of having 10K tied up in a water tank, and you'd be tempted to just put up with stressing your water pump. Which you would regret when it died in January, leaving you without running water.

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The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

We don't often agree totally, but for once, I think I may be even more radical than you!

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snoopydawg's picture

anymore huh? Having to rely on foreign countries for parts for the things that you do make has got to be the dumbest thing ever. The military doesn't even make lots of its clothing and relies on factories in China and elsewhere for it. Even our cute little American flags are made in China. All countries need to do is cut off whatever they supply us and down we go. Our only protection are the banks. Right? But countries are moving away from using the dollar now...

Boeing has to rely on aluminum from Russia and lol the government put sanctions on it making the costs even higher. If this country survives the next couple of decades and recovers historians will look back and ask what the hell people were thinking letting a small bunch of people hollow out the country.

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America is a pathetic nation; a fascist state fueled by the greed, malice, and stupidity of her own people.
- strife delivery

@snoopydawg I've been saying that for the last 30 years, when I first started working, and getting introduced to "economics/business".

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travelerxxx's picture

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lotlizard's picture

sported a union label.

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karl pearson's picture

It's no coincidence that soon after Reagan was elected in 1980, corporate lobbyists greatly increased their political activities.

The evolution of business lobbying from a sparse reactive force into a ubiquitous and increasingly proactive one is among the most important transformations in American politics over the last 40 years. Probing the history of this transformation reveals that there is no “normal” level of business lobbying in American democracy. Rather, business lobbying has built itself up over time, and the self-reinforcing quality of corporate lobbying has increasingly come to overwhelm every other potentially countervailing force.

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I had a small manufacturing business starting in 2010 and I saw my fellow owners move their manufacturing to China. The reasons were solid, the cost of production plummeted and no staff management headaches. They concentrated on design, marketing and distribution. You can even pay for the services to do any of those three things. Having lower manufacturing costs meant that you could either be more competitive or have higher profits, usually some combination. I did not go that route and went out of business.
This China solution was ideal for the US business model. Production is difficult, time consuming, and very expensive in the US. Labor management is the biggest headache for all small manufacturers, ask any of us. China allowed the US to concentrate on the "important" things, like finance, profits, capital accumulation, and company buy-outs. Manufacturing in the US had no where to go. "Economic rent" along with rising wages was increasing the costs. The US economy could not have moved forward without China. This was capitalism at its finest. No strategy, no planning no understanding of where we were going. it created a wealthy mercantile class and a totally stagnant median family income.

So here's my point. Going to China was necessary to move productivity forward. But with capitalism there was no understanding or planning for economic welfare of the people. The GDP skyrocketed but families were left economically stressed to the limit even with two wage earners. I think that we have boxed ourselves in and can never get out. We cannot manufacture efficiently in the US and will never get back a large, robust manufacturing base. That has enormous consequences as the US manufacturing engine was the only thing that we were exceptional at. Do we have a future as the world's financial center? Probably not.

China's economic development is truly staggering. Their real productive economic activity is about twice that of the US and still growing at 6.5% per year. They are a centrally planned economy at the top and free market at the bottom. They have more HSR track laid that the rest of the world combined and more EVs sold per year. They are constantly concerned about balancing development with family income. With our current form of Reagan capitalism its all about the welfare of the rich, no apologies. Lincoln freed the slaves - Reagan freed the rich. Same party.

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Capitalism has always been the rule of the people by the oligarchs. You only have two choices, eliminate them or restrict their power.

@The Wizard
with an ever expanding annual increase in wealth. Wealth and income limitation can make manufacturing more profitable than collecting economic rents AND supply humane wages.
We knw this because we used to do it before the New Deal was subverted and abandoned.

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@The Wizard

I think that we have boxed ourselves in and can never get out. We cannot manufacture efficiently in the US and will never get back a large, robust manufacturing base.

But it won't be easy.
First we'll need tariffs.

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@The Wizard
and complete disregard for human health, safety and wellbeing, as well as for the general ecological health of the planet, then yeah, I agree that we'll never be able to manufacture stuff efficiently.

Which is why efficiency is a really bad objective -- and thus, why market competition, which demands ever higher "efficiency" is a bad solution to most human problems.

10 users have voted.

The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

The US government assembles one rocket capable of reaching the international space station and putting satellites in orbit, the Atlas V. (There are private companies developing similar and, if NASA is sufficiently constrained, soon superior capabilities.)

The main engines that power the Atlas V are all purchased from Russia. So just how far can we go with sanctions.

The Atlas V is not certified to lift humans into space. US astronauts, and the astronauts of all other countries, are delivered to the space station in Russian vehicles.

WE'RE # 1, but at nothing that matters to you.

8 users have voted.