Responses to "The Other Economy"-III
MANYA, VINOD & CANTERBERY, E. RAY & WHITNEY, SIMON N. & GRUENBERG, GLADYS W. & BROWN, MARK L. & HOLLMAN, KENNETH W. & DITTRICH, OLDRICH & MEYERS, A. HOWARD & MOORE, EDGAR
Responses-III Below we present the third section of responses to our special issue, "The Other Economy: America's Working Poor" (ML, May 8); additional sections will appear in the coming weeks. A...
...Incidentally, what makes people suffer psychologically is their relative poverty and that will forever be present...
...The Federal Trade Commission reports that the largest 200 industrials increased their share of assets from 48 to 61 per cent in the period 1948-68, and the phenomenon has not been reversed in the last decade...
...If a bank through its trust department owned 5 per cent, the task would be no easier...
...I think it should be noted that much of the income of the rich is reinvested to maintain and expand production rather than spent on consumption, so that the redistribution possibilities are limited...
...The Committee finds that 49 banks hold a total of 768 interlocking directorships with 286 of Fortune's 500 largest industrial corporations...
...The Patman Committee found that reporting financial institutions hold 5 per cent or more of the shares in nearly three-quarters of these banks...
...972 and H.R...
...The other is that the inheritance tax laws, combined with the desire for a less risky form of investment for old age, cause small companies to sell out to big ones...
...A rejoinder by Gus Tyler, the author of the study, will conclude the final section...
...7. If Tyler will check the figures, he will find that under Nixon's controls industrial prices charged by big corporations were very much affected, whereas wages went ahead with little change...
...Some suppliers, like United Technology, have made every effort to reduce their percentage of sales in defense areas...
...The Federal government's token challenge of the movement through antitrust suits can do nothing to subsidize the increased costs of small business...
...Now I expect to spend at least 20 per cent of the time available presenting and discussing questions Tyler raises...
...Instead of being the solution, government is part of the problem...
...Since it is almost impossible to make structural changes in our economy that will reduce the maldistribution of wages and salaries, greater equity can only be achieved through a fair tax system...
...E. Ray Canterbery Professor of Economics Florida State University I have come to think of our economy as "dual" in the sense of having a concentrated sector and a competitive sector, and also in the sense of having a large number of poor or near-poor (a few paychecks away from poverty) alongside the nonpoor...
...This is an average of almost three directorships for each corporation board on which the banks are represented...
...I would suggest the following: 1. A negative income tax sufficient to eliminate abject, absolute poverty (as measured by the official poverty indices) should be immediately implemented...
...Oidrich Dittrich I am sorry to say that even if Gus Tyler's arguments appeal to some form of justice, they are wrong...
...All of which suggests that the financial sector, a largely neglected area in describing competitive conditions, is becoming increasingly important in the economic system, and by inference, in the present distribution of power among industrial elites...
...2. Tyler should somewhere have taken account of the substantial decline in corporate profits relative to employee compensation since 1965 (see Economic Report of the President, 1978...
...I do not think capitalism will allow reforms that would interfere with its natural process of the accumulation of capital in the hands of the few...
...He deals with alternatives that retain the basic form of our capitalist society...
...While most workers and consumers applaud the multitude of protective legislation passed by Congress in this decade, small business finds itself at a progressive disadvantage in the competitive market...
...The money supply is a public good and there is no economic or social justification for a small number of individuals earning quasirents on a public good...
...Tyler's concept of the dual economy is much more drastic, more compelling and calls for more fundamental rethinking and policy formulation...
...they believe the profit-risk ratio is better elsewhere...
...8. The suggestion on the closing page of "The Other Economy" that corporations should be made to charge lower prices and pay higher taxes in order to prevent the pile up of reserves in "select" hands, is rather wildly wrong...
...In particular, previously very little attention was paid to the "poverty" of small businessmen...
...This trend is less the result of the predation of big business than market reaction of the so-called free enterprise system...
...6. Tyler's apparent approval of the Swedish model notwithstanding, when Sweden decided to raise the income of low-wage groups, the move set off a wave of strikes by higher paid groups determined to restore their differentials, and the net result was a wave of inflation...
...Many big corporations have done poorly as regards profits, and many small entrepreneurs have done very well...
...To name the source of some of the biggest fortunes, I would not call Getty Oil, Ford Motor Co., Johnson & Johnson (drugs, etc), or the Hughes Tool Co...
...Tariff proposals where the competition is from foreign sources is one possibility...
...And any program to improve the position of the working poor, needless to add, cannot be discussed apart from a negative income tax or a guaranteed minimum income proposal...
...I noticed, however, that he made no mention of the Small Business Development Center bills now before Congress (S...
...One is that technology and management science have shown how to produce and distribute at lower costs on a larger scale in many areas of the economy...
...Tax reform, therefore, should be given the highest priority by the leaders of the working poor...
...His new calculation of the labor market by the use of an "Inadequacy Index" brings the problem of the poor into real focus...
...The Patman Committee reports concerning 210 of the top 300 banks indicate that nearly 60 per cent hold more than 5 per cent of their own shares...
...Tyler's study is a touchstone for that purpose...
...I had hoped he would be an architect for the future...
...however, all of these facts are being Po-temkinized so that the social malaise does not show through...
...Hence in considering possible methods for improving the lot of small business, some deferment of the impact of regulatory legislation for employers with 50 or fewer workers may be a valuable tool in remedying maldistribution...
...It is when Tyler comes to solutions that he is weak...
...3. William S. Comanor and Robert H. Smiley's definition of "monopoly" is far broader than I would accept...
...For one thing, government deficits for military and transfer payments to big industry, as well as transfer payments to the working and the jobless, are the primary cause of inflation...
...If they fail, maybe they fail with a smile...
...If they choose, let them...
...It appears to me that they have allowed their members to be brainwashed by vested interests...
...Edgar Moore Assistant Professor of Economics Ohio State University "The Other Economy" presents information about the American economic system that economists and many politicians would have us believe working people are incapable of understanding...
...If there were such a thing as a "should read" list for the working poor, I would have it on that as well...
...Small business, on the other hand, cannot afford such luxury and is willing to let the large firm absorb this cost by merger or selling out when the going gets too tough...
...When a management loses control, the reason is that its performance is not good enough to keep the confidence of the directors (and behind them the majority of stock voted), not that some 5 per cent owner has decided to replace it...
...So why worry...
...Although exemption of small firms from much of the regulatory legislation would create a kind of no-man's land, such a double standard is justified at least until the legislation is well in place...
...It also has advantages over the use of a minimum wage, because a higher minimum wage increases unemployment among the young...
...Vinod P. Manya Chairman, Economics Department Christopher Newport College Gus Tyler's superbly written special issue on "The Other Economy" vividly documents the true extent of the poverty of America's working class...
...When Senators pointed out to the business lobby that few small businessmen were represented, there was a sudden pilgrimage of "Ma and Pa" employers to Washington through the courtesy of multinational jets...
...When I received the special issue I was in the planning stage of a class called "The Labor Movement In Jeopardy," to be taught at the Ohio AFL-CIO Summer School in August...
...Financial intermediaries, in turn, exercise power over the major industrial corporations...
...Moreover Tyler's vivid description of "own boss" hopefuls "flocking to the gates of entrepreneurial paradise" suggests that the hopefuls are not concerned about the justice of the end result, but rather about the justice embodied in the process of free choice...
...His defense of social payments should be read by every Right-winger, who may then not be so anxious to pull down the shoring that keeps capitalism from going into crisis...
...These bills differ in their wording and in the amount of help they will offer to small businessmen, but they embody the same concept: the creation, through universities and colleges, of a mechanism that would deliver management assistance and continuing education services to small businesses...
...I hope Tyler will be able to offer alternative strategies for securing tax reform, and for labor's stepped-up involvement in the quest for increased equality in our society...
...No one policy can redress the imbalance of income, wealth and power in the American economy...
...I think "The Other Economy" should be required reading for all union leaders...
...These interlocks have the power to set and, to a large extent, indirectly dictate important policies of the other financial intermediaries...
...It promises one of the most efficient and least expensive methods of promoting the sound growth and maturity of small business in our country...
...A revision of the tax laws would help change this, but there are still bound to be some areas with large efficient companies plus large inefficient ones, and other areas with small companies lacking the economies of size plus other small ones that compensate for this by entrepreneurial ability...
...11445...
...Any reform that attempts to do so will run up against human nature: Both the wealthy and workers who are well-off will find ways to get around it, or else the reform will improve the condition of the unskilled enough to make those who take the trouble to acquire skills more of a minority and hence able to command higher returns in the market...
...Many demagogues who are really the champions of the rich have become the leaders of the middle class tax-revolt movement...
...All mergers should meet the test of industrial efficiency by plant size, rather than in terms of financial economies of scale...
...Small business hovers around conglomerates like satellites, being dependent on handouts in the form of subcontracts and service arrangements...
...The inequities in the Other Economy could not survive such a program...
...More important, to say the reserves are "denied to the nation's economy," shows a most regrettable ignorance of the fact that these reserves are reinvested to sustain and increase production...
...As of the end of 1964, the 100 largest commercial banks held nearly one-half of all the deposits in the 13,775 commercial banks in the United States...
...This approach is superior to the administrative nightmare of grants based upon proven needs...
...5. Why say suppliers of military wares have "assured" profits...
...An income tax credit for retained profit at a small qualifying concern, or payroll tax credits to offset higher wages, are another possible aid for competitive industries and trades...
...I would also like to see him explore the ramifications of our adapting the Swedish model...
...I think serious efforts need to be made to explain to the majority of Americans that their tax burden is so great precisely because the tiny minority that controls the largest percentage of the nation's income and wealth does not pay its share of taxes...
...In addition, these 49 banks hold an average of 5 directorships per insurance company on whose boards they are represented...
...2. While antitrust policy cannot restore anything near perfect competition, it can be used to stop the conglomerate merger movement...
...They do not do this through their stock ownership...
...Although I do not doubt that the solutions he proposes may postpone the demise of capitalism, I suspect our system will lose the race with time...
...Tyler appropriately emphasizes the extreme degree of industrial concentration today, but his argument can be extended even more strongly in the direction of financial concentration...
...That is why it will not be acceptable to the corporate-government complex...
...If they win, more power to them...
...Though supposedly competing, the top 300 banks are tightly interwoven through common stock ownership and interlocking directorates...
...Fortune reports that the top 500 industrials account for some 65 per cent of sales and 75 per cent of profits and employment in the U.S...
...His description of the control exercised by mergers through credit and interlocking directorates is refreshingly honest...
...Louis University The "trickle down" theory in economics has its implementation from big to small business as well as from wealth to poverty...
...A combination of policies is required...
...For example, from July 1971, the month before controls, to January 1973, when the looser Phase III began, hourly earnings rose slightly faster than in the preceding 18 months, while both industrial wholesale prices and nonfood consumer prices slowed down...
...Repealing much of the legislation that gives excessive power to big unions would in my view also help equalize matters...
...Courses of action to improve the position of employers unable to obtain capital or make long-range plans need to be explored...
...Five per cent ownership is usually considered sufficient criteria for a controlling interest...
...The costs of legal services, accounting services, engineering services, and various other consulting services to comply with the ever-expanding number of regulations can be absorbed by big business and are an additional saving resulting from economies of scale...
...As for the inequality of personal incomes, this has always existed and probably always will...
...Certainly it's worth a try if we are really serious about the return of the "Horatio Algers" Gus Tyler talks about in his chapter on "The Two Economies...
...There have been large losses in this field...
...Beyond my general observations, I would like to make brief comments on the following specific points raised by the special issue...
...Although the trend toward managerial control of the major corporations is still increasing, as Galbraith contends, the Patman Committee reports that the emerging situation also involves bank minority control...
...After such a brilliant analysis, I expected the last chapter to be a bugle call for a real solution and a new world...
...Such dependence is in fact perpetuated by government through its various regulatory agencies, which control entrance to various markets and/or require the kind of record-keeping and reporting that restricts direct bidding...
...Simon N. Whitney Professor of Economics lona College Gus Tyler may be right in saying that ours is a "dual economy," but I can see so many exceptions that I am not yet convinced the title of his special issue is informative rather than deceptive...
...Mark L. Brown Assistant Professor Department of Labor Studies Pennsylvania Stale University If ever there was a confirmation of the Marxist analysis of our economic system, it is "The Other Economy: America's Working Poor": The rich are getting greater control, eliminating the middle class or small entrepreneurs, and the poor are grow ing...
...1. Arthur M. Okun and others are quoted on income inequality...
...Without that there is no reversing the present course...
...In 1977, for example, Fortune's 500 industrials earned only 4.6 cents per dollar of sales, so that a change of 1 or 2 per cent in prices and taxes would have knocked out their incentive to produce...
...Relatively brief, the study obviously had to limit its discussion and examination by focusing on the differences and disparities between those industrial and service firms that are market controlled by competitive forces and those able to control market forces by their oligopolistic and financial strength...
...Most significantly, the degree of open coordination between the elites of the banking sector and those of the other industries is great...
...If an outside group bought 5 per cent of a company's stock, it would have an uphill job to get a majority of voting stockholders to assist it in taking control...
...He notices the financial hardship of small business...
...This kind of help could do much to improve the management capabilities and financial conditions of independent entrepreneurs...
...For another thing, approximately 20 per cent of the actively employed are in the public sectors...
...the experts will have to think of something new...
...In general, financial institutions hold an inordinate amount of bank stock in 275 of the 300 major banks...
...He does not notice that a shortage of talent to run these enterprises is the major cause of their failure...
...most enjoy a security of income and benefits that the privately employed working poor do not, but still pay for by taxes...
...Inflation, in turn, is an indirect tax on the consumer...
...Of course, the continuing immigration from very poor countries keeps adding to the bottom —a factor I don't think Tyler mentions...
...Like payroll taxes, it is regressive and especially harsh on the employed, who benefit little from the transfer payments to the jobless and the underemployed workers...
...4. The private banking system should be nationalized...
...This little publicized fact became clear in the most recent lobbying effort in connection with the labor reform legislation...
...But there are other factors that seem pertinent to the maldistribution of labor returns...
...The situation is better today than in the past: Instead of a pyramid with a few big incomes at the top and most people at the bottom, we have a diamond with a few large earners, most in the middle, and a few small ones...
...The financial sector overlaps with the industrial sector in terms of its own concentration as well as contributing to industrial concentration...
...4. I cannot accept that "control of only 5 per cent of the stock can often mean complete say in the running of a company...
...When that happens we should know where we have made mistakes in the past and not repeat them...
...It is a tragic irony that the working poor, who include the so-called middle class, are being led to believe their predicament is mainly due to the welfare state that has emerged in recent years...
...It has always saddened me that the labor unions in the United States have not been in the forefront of the battle to bring about the measures which can reduce the maldistribution of wages and salaries as well as wealth...
...it cannot be legislated away...
...Kenneth W. Hollman Department of Economics University of Mississippi Gus Tyler has significantly highlighted several features of the American economy that seem to escape the attention of most economists...
...The expressed hope of drawing together experts in search of reforms is reasonable, but all the approaches cited in the final chapter of the issue seem to have fundamental defects...
...I can see two major factors that tend to favor bigness...
...3. Given the application of (2), I would endorse Galbraith's idea of granting small businessmen general exemption from all prohibitions in the antitrust laws against combination to stabilize prices and output...
...Indeed, those economists whose vision of perfect competition becomes most acute when they are examining oligopoly will not endorse a program of this kind either...
...Tyler's critique of the true state of affairs is brilliant and devastating...
...Gladys W. Gruenberg Professor of Economics and Industrial Relations St...
...As is his custom, Tyler sets out this material in a straightforward manner in language easily accessible to the layman...
...A. Howard Meyers College of Business and Public Administration Florida Atlantic University Gus Tyler's "The Other Economy" provides a provocative analysis of the unequal distribution of income and wealth—an imbalance that has persisted despite both government and private efforts to alter the situation...
...In most big corporations the managers pretty much run the company, and they also choose their successors...
...monopolies...
Vol. 61 • July 1978 • No. 16
