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A Citizen’s Guide to the American Economy

Agriculture is only one sector of this sub-economy where hard questions must be asked if the public usefulness |of existing tax dollars is to be improved. The inflated contract and procurement practices of the government are another. Thanks to Senator Proxmire and others, the public has at least begun to learn of the waste and mismanagement in defense contracting, and the consequent multi-billion-dollar “cost-overruns” that have become commonplace—e.g., the $2 billion over-run paid Lockheed for the C5A. But who is looking into the waste in other government contracting—from the leasing of buildings at inordinate cost to the billions of dollars paid for research in “think tanks” and advice from private consulting firms such as A. D. Little, Booz Allen, and hundreds of lesser known outfits, not to mention the hundreds of studies done for HUD, HEW, DOT? Many of these studies are worthless, expensive, used mainly to delay policy decisions and to get the agencies who commission them off the hook. Others are wholly ignored.

If only the grossest forms of waste and corruption in federal, state, and local procurement practices were investigated and eliminated many billions of dollars would be saved and political life itself would get a badly needed shake-up, especially in local politics where procurement procedures are generally antiquated and enmeshed in the spoils system. Over a decade ago the Blatnik Subcommittee of Congress uncovered extensive corruption in highway building programs in states throughout the country; during the last two years officials in New Jersey were arrested for receiving kickbacks from construction contracts and the purchase of supplies. It would be hard to find a state in which similar (if sometimes less egregious) procurement practices involving bribery, campaign contributions, wasteful patronage, and corruption of officials are not costing millions to the taxpayers.

Some idea of how much money is being wasted in local procurement can be gained from a recommendation made to the states two years ago by the General Services Administration, the purchasing and housekeeping agency of the federal government. The GSA suggested that state and local governments cooperate in setting up systems of centralized purchasing direct from manufacturers, thus bypassing the 20 to 30 percent mark-up of the wholesalers. If they did this, they would save between $6 and $7 billion a year.

This recommendation was not followed, nor did the GSA pursue it. The wholesalers’ trade association immediately launched a campaign against it in Congress, and the Bureau of the Budget suppressed this somewhat unexpected display of good sense by the GSA. The wholesalers’ association has plenty of political muscle and uses it on all levels of government.

The great illusion of the public is that it is protected by the conscience of public officials, when in fact aggressive monitoring of these officials and those they deal with is constantly needed. Even tax funds used directly for medical care are funneled unscrupulously to prosperous doctors and drug companies, or to hospitals that use them for unauthorized purposes. Herbert S. Dennenberg, the Insurance Commissioner of Pennsylvania, stated recently that the “Medicare Program is resulting in the American people being overcharged billions of dollars a year”—a conclusion that has been confirmed by Congressional inquiries and independent studies.

5. Unlike the other aspects of the economy that have been discussed here, the compulsory consumption sub-economy is not part of any recognized system of economic exchange—but it has grave economic effects. I am referring to the compulsory consumption of environmental pollution and compulsory exposure to occupational health and safety hazards. These reduce the quality of the gross national product and thus diminish the value of the citizen’s dollar, even when they do not directly compel people to pay for medical treatment, for example. We are just beginning to calculate the billions of dollars that pollution costs in damages to health, in cleaning costs, and in damage to property, resources, and agricultural crops. Air and water pollution are each costing at least $14 billion a year. (The yearly damage to California crops alone from air pollution runs to $45 million a year.) The costs to the unborn, or to the environment in the future, have not even been estimated.

Safety and health hazards on jobs in factories, foundries, mines, and other work places are also a form of compulsory consumption. They now cause three times as many injuries as street crime: 15,000 sudden deaths last year, uncounted thousands of deaths resulting from occupational disease, 2.5 million disabling injuries, several million cases of less serious injuries and illness. (These figures are necessarily inadequate—how does one estimate when a case of black lung disease becomes bad enough to be included in the statistics of a given year?)

Clearly the forced comsumption of pollution—gases, chemicals, coal and cotton dust—is a silent and sometimes invisible form of violence which compels people to pay insurance, medical, and other costs, including the loss of wages. The polluting corporations inflict these burdens on workers when, for only a fraction of the money they force others to pay, they could have prevented much of the pollution in the first place. (This is patently true in the case of dust control in coal mines, textile mills, and foundries, for example, where a small investment would prevent brutal physical damage to workers.)

The power of corporations to pollute, in short, is far too great for them to exercise responsibly. General Motors, by virtue of the engines it designs and the plants it operates, has been responsible for over 30 percent of the estimated tonnage of US air pollution. Is there any city street where the citizen can escape the pollution of GM engineering when he breathes? Between 1967 and 1969 GM spent $250 million to change its slogan on billboards, dealers’ signs, and other promotional material to read “GM Mark of Excellence.” With the same funds it could have easily developed a workable non-polluting engine.

We may expect two developments to occur if certain industries in both the compulsory and the controlled sub-economies are successfully challenged in the market and by public protest. First, many industries would be displaced or diminished as superior technologies are invented and sold on their merits. Cleaner and cheaper sources of energy for cars and power plants, for example, will increasingly pose the threat of displacement to large industries. So will safer and more effective non-chemical methods of pest control eventually diminish the chemical pesticides industry.

Second, new services are already emerging to show businesses how to reduce telephone, utility, and insurance bills, for example. These services give advice that the big companies should be providing themselves. They also show how to avoid dealing with middlemen who now stand between the producer and seller of a product or service, thus reducing costs now passed on to the consumer. Recently a small company was started to give advice to users of Xerox machines on how to save money by buying ink, paper, and other items independently, rather than through the Xerox company; and on how to obtain the most efficient service with the best combination of reproduction machines, something the Xerox company itself fails to point out.

These, it should be said, are just the kinds of changes that are called for by the theory of capitalism; they are what Joseph Schumpeter, perhaps the leading theoretician of the capitalist economy, had in mind when he wrote of the “creative destruction” of inferior or obsolete industries under capitalism. But in fact, such developments are being discouraged and suppressed by politically entrenched corporate institutions.

6. The expendable sub-economy is composed mostly of poor people who are being excluded from the services of the economy at large. It is not simply that the poor pay more: they are not being allowed to buy. In Washington, Baltimore, New York, in fact in every large city, insurance and banking firms commonly “red line”—or refuse to do business with—people in the poor districts. What has happened is that Fortune’s Five Hundred largest corporations have decided that they have less and less need for the business of the poor. But by cutting off the funds needed for housing, for financing small business, and for municipal bonds in the low income areas of the cities, the banks and other lenders are causing the deterioration of the urban economy and injuring the well-being of millions of people.

The government, moreover, has become a willing partner in such discrimination. It provides fast tax write-offs for airplanes, computers, bulldozers, and trucks, causing loan money to flow in these directions and not toward loans to the poor and those who have more urgent needs. It provides tax inducements for slum landlords who are allowed to depreciate slum property at an accelerated rate and to pay capital gains taxes on profits from sales—a process which is quickly repeated by the next slum landlord.

The federal government artificially restricts the money supply in order to control inflation. It should ensure that all segments of the borrowing public be given equitable treatment so far as restrictions on borrowing are concerned. Several methods are available to accomplish this. One is to provide for different Federal Reserve Board requirements for different kinds of loans. Such reserve requirements specify the percentage of their demand deposits which banks must set aside at the District Federal Reserve banks. For example, the FRB could require a reserve requirement of 5 percent against residential loans and one of 20 percent against nonproductive corporate loans, such as loans to conglomerates to acquire yet another company. Reserve requirements can be used in this way to encourage loans to sectors of the economy badly in need of funds.

Another method would be to link certain kinds of deposits to certain kinds of loans. For example, savings and loan association deposits are now required by law to be used heavily for housing loans. Banks have similar deposits—so-called “time deposits” by individuals. In return for the benefits they receive from the federal ceilings on interest rates, as well as from other government programs, the banks could be required to make time deposits available when there is a shortage of funds for home mortgages and home construction.

Like so many of the other economic forces I have dealt with here, the banking system needs systematic surveillance and is not getting it. Banks in New York City, for example, often encourage industrial mergers which result in deposits being transferred to New York from regional or local banks all over the country. These regions find their local banks drained of funds, unable to extend credit, and the local economies suffer as a result.

Not long ago the large New York conglomerate called Teledyne Inc., a customer of the First National City Bank, bought up the Monarch Rubber Co. in Hartville, Ohio. The banks in Canton, Ohio, lost Monarch’s deposits and its $2.5 million pension fund to National City. Money that should have been available for local borrowing was siphoned off to New York. The usual solution in such cases is for the local businessmen to appeal to Washington to come to the rescue—at the tax-payer’s expense.

Apologists for the present corporate system will argue that the sub-economies I have described so generally here are justified because they support industries, create jobs, generate income. But it should be clear that their operations and the kinds of needs they satisfy are, to a great extent, neither desirable nor socially responsible; in many cases they are not legal. A safer traffic system would no doubt weaken the accident-injury industry, and that is as it should be. For most of this century there has been declared a national consensus in favor of competition, as well as numerous laws designed to encourage it, but both have been for the most part betrayed. When they have not, the benefits for the citizen have been dramatic.* Indeed each of the sub-economies I have described subverts values that are deeply rooted in American life.

What has been tragic is the general failure to understand how this has occurred. Fundamentally new ways must be found to make both government and corporations accountable. We should pursue the suggestion already made by some social critics for a “social accounts system” which would enable government and citizens to evaluate whether programs of education, medicine, and transportation, for example, were improving or deteriorating in quality. (The current inclusion of such activities in the gross national product has nothing whatever to say about their quality.)

Similarly computers should be made directly available to the citizen, and should be accessible both at shopping centers and by telephone. Such a cheap and simple source of information, which would give advice on the quality of products and of government and private services, could do much to squeeze the waste and deception out of the economy and give value to the dollar.

Senator Philip Hart has estimated that of the $780 billion spent by consumers in 1969, about $200 billion purchased nothing of value. By nothing of value he meant just that: over $45 billion was drained away by monopolistic pricing, for example, and over $6 billion by oil import quotas which drive up the prices of fuel oil and gasoline. His estimate, and it is only a preliminary one, shows how crucial is the need to evaluate how corporate and government wealth is being used—or misused—for individual and social purposes.

Such evaluations simply have not been made in our corporate political economy—not by our blinkered economists, certainly, and not by the government or the corporations themselves. Indeed the corporations have effectively blocked both the government and independent researchers from collecting and analyzing such information. Even the data on pollution must be fought for if it is to be extracted from corporations by government agencies and individuals bringing law suits. The task of the consumer movement now is to gather and analyze and disseminate this type of information by demanding it from the three branches of government and by mounting private actions by consumer groups to publicize it. Such information is the currency of economic democracy, the first tool for changing the perception of citizens and society itself.

  1. *

    Last year a new supermarket chain broke into the complacent food market of Washington, D.C., long dominated by three major chains. This episode and a detailed FTC report on monopolization of food prices in the Washington, D.C., area, according to an FTC report, saved Washington consumers $40 million in reduced prices in one year.

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