America: Your benefactor is NEVER the state

The marketplace brings plenty; the state does the opposite. Yet not a day goes by when consumers, ignorant of the forces that feed, clothe, cure, employ, entertain them and innovate for them, don’t demand that those who’ve done nothing of the kind – the McCains, Obamas, Bushes, Clintons, Keith Alexanders, Lois Lerners, Eric Holders of the world – proceed with force against those who do nothing but.

ilana_nuut2Expect the anti-Wal-Mart jousting to begin, because Wal-Mart has done it again. To fill the need created by the Obamacare wrecking ball, Wal-Mart Stores, Inc., is venturing into the business of providing primary health care. For $40, the price of a copay (in an Obama-mandated, sub-par health-care plan), “you can walk into a Wal-Mart clinic and see a doctor.” It’s “just $4 for Wal-Mart U.S. employees and family members.”

Rejoice, Sandra Fluke! You can have a pregnancy test at Wal-Mart for … $3.

Via Market Watch:

On Friday, a Wal-Mart Care Clinic opened in Dalton, Ga., six months after Wal-Mart U.S., the retailer’s biggest unit, entered the business of providing primary health care. It now operates a dozen clinics in rural Texas, South Carolina and Georgia and has increased its target for openings this year to 17. … A typical retail clinic offers acute care only. But a Wal-Mart Care Clinic also treats chronic conditions such as diabetes. (Wal-Mart U.S. also leases space in its stores to 94 clinics owned by others that set their own pricing.) “It was very important to us that we establish a retail price in the health-care industry because price leadership matters to us,” said Jennifer LaPerre, a Wal-Mart U.S. senior director responsible for health and wellness, in an interview.

Hear, hear!

The argument against Wal-Mart presses its case with an impressive array of economic fallacies. Typically, the critic – an example is “The High Cost of Low Prices,” in The American Conservative – does nothing to trace the mysterious mechanism by which Wal-Mart is said to impoverish. By offering “the lowest possible prices all the time, not just during sales”? What precisely is the economic process that accounts for Wal-Mart’s ability to “expel jobs and technology from our own country”? Competition? Offering a product people choose to buy?

“Protecting the home market,” which is what The American Conservative’s writer advocates, is to the detriment of consumers. It forces them to subsidize less efficient local industries, making them the poorer for it. To keep inefficient industries in the lap of luxury, hundreds of others are doomed to shrink or go under.

Into the Cannibal's Pot

The writer also froths at the mouth over “the teenage girl in Bangladesh … forced to sew pocket flaps onto 120 pairs of pants per hour for 13 cents per hour.” It sounds dreadful. However, the economic reality is this: Wal-Mart is either offering higher, the same or lower wages than the wages workers were earning before its arrival in Bangladesh. The company would find it hard to attract workers if it were paying less or the same as other companies. Ergo, Wal-Mart is a benefactor that pays the kind of wage unavailable prior to its arrival. More materially, if the entrepreneur were forced to pay workers in excess of their productivity, he would eventually have to disinvest. What will the Bangladeshi teenage girl do once Wal-Mart departs?

Even the Hollywood “Idiocracy” is hip to the spontaneously synchronized order that is the free market. Just for a change, the menstruation lobby is moaning about the movies and its members’ representation therein. By Variety Magazine’s telling, “[Female] characters are still significantly under-represented on the big screen. … The numbers for minority females are even lower. African-American female representation on screen [has] climbed to 14 percent, from 8 percent in 2011, but [is] down from 15 percent in 2012.”

The presence of minorities in movies often signals a two-hour long, oppressive racial lecture. Most movie-goers are no more inclined to turn to “12 Years A Slave” for fun, than they are to subject themselves to Oprah Winfrey and her M.O.P.E. (Most Oppressed Person Ever) “Butler.”

Anti-man moaning notwithstanding, the general public must be on to this, because it is quite clear that Hollywood is giving viewers what they want to see: men in lead roles. If film executives listened to the loathsome Lena Dunham, rather than to the demands of consumers – the industry would go under.

Alas, most liberals (and that includes “conservatives” aplenty) are foolish enough to lump business with government as an eternal source of disappointment to Americans. Noodles Ron Fournier of National Journal:

“Steadily, over the past four decades, the nation has lost faith in virtually every American institution: banks, schools, colleges, charities, unions, police departments, organized religion, big businesses, small businesses and, of course, politics and government.”

As I type, I consume a plate of seven different fruits topped with nuts. Many of the ingredients on my plate are organic. These used to be exorbitantly priced; out of reach. But as demand for organic produce has grown, production has increased and prices have dropped dramatically.

Each day I give thanks to the businessmen who, against all odds, bring such abundance to market and provide such plenty. There is nothing in my home that comes courtesy of the blessings of bureaucrats. I guarantee that it’s the same in your home.

If you, like Fournier, fail to distinguish the blessings of the private economy from the blight of government – you deserve none of the former and all of the latter.

© 2014 by Ilana Mercer


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The network that runs the world

Science may have confirmed our worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.

The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making transnational corporations more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to many. But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”

“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

When this article was first posted, the comment in the final sentence of the paragraph beginning “Crucially, by identifying the architecture of global economic power…” was misattributed.

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

The New Scientist