THE RIGGED GAME

Montreal/New York/London

THE RIGGED GAME

Corporate America And A People Betrayed

John Hively

Copyright © 2006 BLACK ROSE BOOKS

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Black Rose Books No. II343

National Library of Canada Cataloguing in Publication Data

Hively, John

The rigged game : corporate America and a people betrayed / John Hively

Includes bibliographical references and index.

ISBN: 1-55164-281-6 (bound) ISBN: 1-55164-280-8 (pbk.)

(alternative ISBNs 9781551642819 [bound] 9781551642802 [pbk.])

1. United States--Economic conditions--2001- 2. Big business--United States.

3. Corporate power--United States. I. Title.

HC110.15H58 2005 330.973 C2005-902393-7

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TABLE OF CONTENTS

Acknowledgements ..........................................................................................vii

Chapter One

Introduction ....................................................................................................1

Chapter Two

The Bakers Of Financial Debauchery ................................................................7

Chapter Three

Inflation: The Illegal Drug Of Choice Of The Corporate Economic System .......24

Chapter Four

Anatomy Of A Parasite ..................................................................................38

Chapter Five

Hard Traveling During The Great Depression (1929–1940) ............................47

Chapter Six

The Age Of Financial Equality (1946–1972) ...................................................64

Chapter Seven

The Near Corporate Self-Liquidation And The Age Of Financial Inequality ......80

Chapter Eight

The Race To The Bottom On The Road To Serfdom ........................................116

Chapter Nine

Betrayal Of The People: The U.S. Corporate Plutocracy ................................144

Chapter Ten

History Of The Corporate Economic System ................................................164

Chapter Eleven

The New American Revolution .....................................................................186

Appendix A .................................................................................................207

Index ...........................................................................................................210

ACKNOWLEDGEMENTS

The beginnings of this book can be traced to the many writings of the late

economist, Thorstein Veblen (1857-1929). In his book, Theory of Business Enter-

prise (1904), he argued that all recessions begin in the financial markets. He did

not actually provide any theoretical premise from which to proceed. The eco-

nomic points he argued, however, made sense to me, and my curiosity running

wild, I proceeded, slowly at first, to conduct research into this area. I continued

to read everything I could that had been written by him. His ideas were abso-

lutely fascinating, at least to me. For example, in 1919, he boldly forecast the

coming of the Great Depression. It was at least ten years away he proclaimed. He

was the only person of note to see the coming of the economic disaster. Veblen’s

prediction made me realize more than ever before that he knew exactly how the

economy actually functioned, more so than anyone else, and by a wide margin.

I entered the Ph.D. program in economics at the University of Tennessee,

Knoxville in 1994. I wanted to study other theories about how the economy actu-

ally functions. It took less than a semester for me to recognize that I didn’t believe

what I was being taught. It was a waste of my time. Veblen’s theory had me

hooked. I left the program to pursue other interests, and now and then I continued

to research this issue. By 2001, I felt the time had come to write the book.

Critical input and feedback into the writing of this manuscript was provided

by Rick Anderson, Shirley Andrade, Peter Forsyth, Ron Green, Anita Hively, Mi-

chael Hively, Lois Poole and Michael Sloan.

There were times when I thought about giving up this project, but one of the

above would say something, now and then, that would keep me going. There were

other times when I took a break from researching and writing it, and then some-

one else, like a friend named Greg Margolis, said something to inspire me. I was

also stirred to continue by stories of people who succeeded against great odds, in-

cluding Fanny Lou Hamer, Ella Baker, U.S. Grant, Woody Guthrie, Myles Horton

and so many others. So I persevered by relying heavily on all of these other people,

some dead and some alive. Many thanks to my publisher Black Rose Books, and es-

pecially to Linda Barton, for just knowing they were interested in publishing it

helped to keep me going.

dedicated to

Michael and Opal Hively

to

Lorraine Cavener

Anita Hively

and to the memory of

Thorstein Veblen

Chapter One

INTRODUCTION

Are you working more and earning less than five, ten or twenty years ago?

Does it seem that what you earn every year doesn’t quite keep up with the

yearly rate of inflation? Even if you are doing better today than ten or twenty

years ago, do you sometimes worry that economically something is not quite

right for the citizens of the United States? Do you fret about your children’s fu-

ture? Are you suspicious that what the experts have told you all of your life

about how the economy functions does not seem quite right? Is the financial re-

turn from your college education getting to be worth less and less today than ten

years or more ago? Does it appear as if our political and business leaders lie to us

quite often, but sometimes you just can’t figure out exactly how or why? Has

your engineering or computer programming job been shipped overseas? What

about your customer service job? Has it been shipped overseas, as well? Have

your health benefits, wages, salaries and retirement packages been reduced or

eliminated during the last ten to twenty years? Do you wonder how and why

the wealthy folks throughout the world have gotten richer while the poor and

middle classes have seen their real income and wealth drop during the last thirty

years? Do you wonder how all of these issues have arisen during arguably the

greatest twenty-five years of prosperity in U.S. history? It probably won’t sur-

prise too many people to discover that the U.S. economic system, heavily domi-

nated by publicly traded, limited liability corporations, has been built to achieve

all of the above. And this is precisely why the general trend is for more and more

people around the globe to work more and earn less.

The autumn of 2003 found Bill, a forty-two year high school graduate, tak-

ing another two-dollar an hour pay cut to add to the cutback he had been forced

to swallow the year before. His health care premium jumped by double digits

again that year, and this time the corporation he works for isn’t picking up the in-

crease, although its profits are on the rise. Bill paid for the growth of his health

care insurance right out of his own wallet. He is a highly skilled mechanic in a

steel fabrication shop. Bill has been a journeyman mechanic and welder for

twenty years. He complained to me that things aren’t what they used to be. His

years of work experience count for nothing as they are generating less personal

income than ever before, especially when measured against the forces of ruth-

lessly growing inflation. His property taxes have gone up, as well as his monthly

electricity bill. He pays the highest electricity rates in the state of Oregon to Port-

land General Electric (PGE), a subsidiary of the bankrupt and disgraced Enron Cor-

poration. “My standard of living is definitely in decline,” he lamented, “I don’t

know why.” But Bill is hardly alone. In fact, this appears to be the trend for the

bottom 98 percent or so of income earners throughout the world.

Over the past thirty years, the super-rich have improved their percentages

of income and wealth, while the vast majority of people throughout the world

have seen their percentages reduced.1 During these years, a transfer of income

and wealth has been occurring from one group to the other. Ultimately, you

just have to follow the money in order to discover how this has been achieved. It

should come as no surprise that affluent people have created an economy in

which they can acquire more and more income and wealth as easily as is possible

than ever before. Along with the interrelated political markets, corporations and

the financial markets were created to accomplish this goal.

Because of how they are structured, especially relative to the financial mar-

kets, the major corporation’s of the world possess insatiable appetites for income

and wealth similar to a never-ending and famished swarm of locust that just

happen to come across a wheat field ready for harvest. The insects eat most of

the crop ensuring the farmer receives a diminished reward for his or her efforts.

The following year the swarm of locust returns just a little bit larger than before

and consumes just a little bit more, reducing the living standard of the farmer

even more so than the previous year. This process continues year after year and

leaves the farmer in increasing poverty. Like the swarm of locust relative to the

helpless farmer, the corporate economic system–something completely different

from a competitive capitalist economy—is rigged to ensure a continuous un-

equal distribution of income and wealth in favor of the most affluent consum-

ers, and at the expense of the vast majority of the world’s citizens, and there is no

end in sight.2 Because of this, just like the farmer above, people will increasingly

continue to work more and earn less as long as the current system is in place.

— 2 — THE RIGGED GAME

The proof of the pudding is in the eating, and likewise the evidence is con-

stantly mounting as working people continue to experience declines in their stan-

dards of living from the middle class suburbs of North Carolina to the rain soaked

streets of Portland, Oregon, from the central highlands of China to the far away

tropical forests of Central and South America, across the Atlantic to mineral rich

yet impoverished Africa, to the deserts of central and northern Mexico, to the sub-

urbs of New York City, and all the way to France and Germany. Citizens all

around the world are paying the price for having a world-wide economy domi-

nated by large scale corporations and their allies in political offices.

In the spring of 2003, Time Magazine reported that “Shrinking paychecks are

the new reality for many Americans.” The magazine provided plenty of examples.

Over the past year, steel worker Eugene (Lou) Costello has endured

pay cuts of 15%, 10% and 12.8%, plunging his annual income base

pay from about $50,000 down to about $33,000. “I feel like a mara-

thon runner who sees the finish line but when he gets close, his coach

holds up a sign that says he has 25 more miles to go,” says Costello,

61, who works for Wheeling Pittsburg Steel in Mingo Junction, Ohio.

“I’m going to have to work until I die.” Costello chose to work in steel

mills rather than the coal mines where his father toiled because he be-

lieve steel jobs were more secure. Now he is scrapping plans to build a

long-planned retirement house and says he will not be replacing his

13-year-old pickup truck anytime soon. “You have to make choices,”

he says, “between a house payment, a car payment or medicine.”

Costello was not alone in his predicament. In the autumn of 2003, Saul was a

worried pest exterminator. He was at the top of his company’s pay scale, but he

heard his job might be eliminated because the corporation he works for can hire

someone for half of his pay. In the year 2002, unionized custodians for the Port-

land School District of Oregon lost their jobs and were replaced by a company

paying its employees considerably less. The same school district saw its teachers

work ten days for free as part of their new contract, effectively reducing their pay

in the spring of 2003. A Microsoft mid-level executive earning $100,000+ experi-

enced the elimination of his job. An office manager of an investment firm saw her

working hours dramatically increased when several disgruntled employees quit

and were not replaced for many months. Despite the extra hours she worked, her

salary was not increased, effectively cutting her pay. She worked more and earned

INTRODUCTION — 3 —

less. This is becoming commonplace in the United States, as well as throughout

the world, and increasingly so when compared with past decades.

It is normally assumed by the alleged experts that Costello and others are

victims of an economic system going through an evolutionary transformation

from a manufacturing to an information based economy. Time Magazine re-

vealed that nothing could be further from the truth. High paying jobs in engi-

neering and computer programming are going overseas, and they are not

coming back. According to the article in Time,

Michael Tucker, 49, fumes when he thinks about computer program-

mers overseas working for $20,000 a year—“and to them, that’s good

money.” He was making $80,000 a year at a programming job in

Chapel Hill, N.C., before Temtec USA laid him off last October in a

broad cost-cutting move. He has been unable to land a regular pay-

check, despite sending resumes to 300 U.S. tech firms. Now with un-

employment benefits running their course, he’s trying his hand at

commissioned sales for a human-resources company in his home-

town. He says he is finished with tech and moans that “computer pro-

grammers are the textile workers of the future.”

Highly paid computer programmer jobs are the heart of the information age,

since computers and the Internet represent the foundation, if not the entire pack-

age, of any information based economy. Intel and hundreds of other corpora-

tions are moving highly skilled information based jobs overseas, including

engineering positions. With the exception of the position of CEO, no corporate

job is safe anymore from becoming an export. A business manager located in the

United States can easily access information about a corporate plant in Russia,

Pakistan, China, Mexico or Vietnam. The ability to obtain such information

makes it convenient for corporations to shift any and all jobs overseas where the

price of labor, environmental standards, health and safety laws, and the stan-

dard’s of living are considerably less than what is generally allowed by law, so-

cial awareness and social pressure to exist in the United States. Time noted that a

“call-center employee” for a U.S. corporation receives $20,000 a year in the U.S.,

hardly a great sum, but in India the person doing the same job earns only

$2,500 each year. Michael Tucker lost his job because somebody else was willing

and capable of doing the same thing for one-fourth the pay, and most likely

with little or no benefits, as well. Among other white collar industries, Time re-

— 4 — THE RIGGED GAME

ported that between the years 2003 and 2008, “financial-services firms” planned

to transfer 500,000 jobs from the USA to foreign countries.

This long-term race to the economic bottom is not just a phenomenon of

the United States. Even as Time reported that millions of Americans were discov-

ering “shrinking wages,” other people throughout the world were also experi-

encing declines in their standards of living. The Oregonian newspaper reported

on May 8th, 2003 that the already bleak economic situation in Venezuela had

worsened. Since 1998 poverty had grown roughly 10 percent there, meaning 68

percent of the population lived in unimaginable poverty. People there reside in

houses made of cardboard and corrugated tin, but it would be a mistake to as-

sume this depth of poverty is a product solely of Venezuela. Hundreds of thou-

sands of people work for U.S. corporations in the North of Mexico, and they and

their families live in exactly the same dire poverty on the U.S. side of the border,

principally in Texas.

When U.S. corporations export jobs, they reduce the standards of living

provided by these positions, and often compel people to live in horrible poverty,

as well. The management of Hershey’s of Pennsylvania decided to export pov-

erty when they closed a packaging plant in the United States, and then moved it

to Guadalajara, Mexico, placing it firmly within the Maquiladora free trade zone

established by the Mexican and U.S. governments in 1965. One of Hershey’s

lay-off victims, Denise Brightbill, had earned $25,000 a year working on a pack-

aging line. This was hardly an astronomical sum. It was not even possible to

purchase a house in many places in the United States with such low pay, nor

even rent a decent apartment. Ms. Brightbill visited Mexico to see just what had

become of her former $25,000 a year job. She met Margarita Curiel, who was

performing the same work for Hershey, but earning only $2,871 per year. Ac-

cording to the Reverend Philip Wheaton,

Margarita lives with her mother, father, two sisters and three children

in an extremely crowded house with only three rooms plus an outdoor

kitchen. To make it, the Curiels must combine Margarita’s income with

those of her father and sister. Yet Hershey’s continues to sell its candy

products for the same price; by firing Denise and paying Margarita only

survival wages, Hershey’s has vastly increased its profit margin.3

Margarita and her family live in extreme poverty by any measurable standards.

The job in which Denise once earned a lower class living in the U.S. now pays a

wage that is 87 percent less.

INTRODUCTION — 5 —

In the Maquiladora zone, there were roughly 1.2 million jobs provided by

mostly U.S. based corporations in the year 1999. Depending on whose estimates

are used, 25 to 40 percent of those jobs were lost from 1999 to 2003. Many of

them were shipped to Vietnam and China where the new holders of these posi-

tions will earn about one-tenth of the pay as the former employees in Mexico,

who recollect, received only about one-tenth of what Americans formerly

earned while toiling at these jobs. Why were jobs exported to Mexico, and then

exported to Asia where the workers toil in even greater poverty? What are the

forces continuously compelling these jobs to pay less and less? Aren’t living

standards supposed to improve for the vast majority of people working in a free

market economy?

The justification for the establishment of capitalism was its theoretical prom-

ise of a rising standard of living for all of those who participated in the production

of goods and services. The mounting evidence suggests theories justifying this

economic order were all incorrect in their assessments of its promise. The system

is failing. Why does Margarita do the same job Brightbill once performed, but

only earn about 13 percent of her former wages? Why are Bill, Michael Tucker

and Denise Brightbill, along with hundreds of millions of other people throughout

the world, working more and earning less? Conversely, why does a tiny minority

of affluent and politically powerful people experience a rising tide of prosperity?

The answer to these trends ultimately, as well as the solution, can be found

in the financial markets and the structure of publicly traded, limited liability cor-

porations. Although economists are often unwilling to admit the obvious, major

corporations are managed differently than competitive businesses such as local

coffee shops, local manufacturers, auto repair shops, barbers and hairdressers,

local contractors and retail stores. It is not rationale to assume a similarity exists

between a competitive owner-operated business and a major corporation whose

owners take no part in its day-to-day operations. Therein hides a dirty little se-

cret that helps account for the rising tide of the mal-distribution of income and

wealth in favor of the most affluent of citizens.

Notes1. See appendix one for details.

3. Income is money that is acquired. A limited list includes wages, salaries, interest and dividend in-

come. Wealth is comprised of what you own. Your total assets are your wealth. This includes

houses, cars, savings, stocks and bonds.

2. Wheaton, Philip E., Unmasking the Powers in Mexico: The Zapatista Prophetic Alternative to the New

World Order, EPICA: Washington D.C., 1998, p. 10.

— 6 — THE RIGGED GAME