The Myth of the Free Market

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The mythology of capitalism and the market economy that it has spawned have been successfully invoked by critics to emasculate unions and to compromise the ability of workers in the private and public sectors to demand higher wages and better working conditions. Yet that mythology continues to exert a bizarre intellectual stranglehold over so many Americans who should know better. 

The question that needs to be asked about this orthodoxy - as with all other orthodoxies - is, does it, in fact, explain existing social reality? If the markets for goods and services, absent public regulation, naturally seek to move into equilibrium, as advocates of unbridled market economics assert, why then have the annual median incomes of Americans, as of 2018, fallen precipitously since 1999?  

Why have "fair trade" policies, despite increasing levels of education in the U.S., caused a net migration of millions of U.S. jobs overseas during the past four decades, while the U.S. has continued to accumulate ever increasing balance of payments deficits caused by ever increasing purchases of foreign-made goods that were previously made and still could be made in this country?  

  Charles Duhigg and Keith Bradsher reported in the New York Times that nearly all of the 70 million iPhones, 30 million iPads and 59 million other assorted products sold by Apple sold in 2011 were manufactured overseas, primarily in China by third-party vendors with whom Apple contracted for services and products. Apple employs only 43,000 people in the United States and 20,000 overseas but, as a result of its exploitation of workers through third-party 
vendors, Apple made a profit of $400,000 per each of its actual employees, a sum greater than that made by Goldman Sachs, Exxon Mobil and Google. 

Despite the hyperbole, there is one question that is rarely asked in the popular media.  Is Apple, Inc. a model of corporate efficiency and success that should be praised and emulated in business schools throughout the U.S., or is it a corporate pariah that should be roundly condemned and criticized for its unconscionable greed?

      At a White House dinner in February of 2011, President Obama reminded the late and much heralded Apple CEO Steve Jobs that, once upon a time, Apple boasted that its products were made in America and he asked, "Why can't that work come home? Mr. Jobs's reply, according to other guests present, was terse. "Those jobs aren't coming back," he replied.
 That same year, Apple earned in excess of $400,000 in profit per employee - a sum that was vastly greater than the per employee profits of Goldman Sachs, Exxon Mobil or Google.

             In March of 2013, Apple announced that it held $40.4 billion in untaxed earnings outside of the United States as of September 29, 2012, and should it repatriate that cash, the company estimated it would owe $13.8 billion in taxes, or slightly under the federal 35 percent tax rate.

  The company also disclosed a worldwide annual revenue in 2013 in the amount of  $171 billion. In addition, during the five quarters prior to March 1, 2014, Apple officially reported total acquisition investments of $11.12 billion, in addition to the $1.02 billion in cash "business acquisition" payments.

  All of these grim statistics were called to mind again in the light of a fawning and uncritical article by Rebecca Ruiz that appeared in the Business Section of The New York Times on March 4, 2014.  The purported news story informed readers that Peter Oppenheimer,  Apple's senior vice president and chief financial officer, announced his plans to retire this coming in September, after an 18-year career with Apple.

            Ruiz's article was effusive in her characterization of Oppenheimer's performance as senior vice-president of Apple. She noted that "As chief financial officer for the last decade, Mr. Oppenheimer, who started in 1996 as controller for the Americas, helped oversee a shrewd global financial strategy, with Apple garnering record profit and building a significant pile of cash."

            Ruiz also found it a sign of Oppenheimer's business acumen that "As part of the strategy, Apple set up a web of subsidiaries around the world, allowing the company to legally avoid billions of dollars of taxes in the United States. In 2013, Apple raised $17 billion to fund a shareholder payout, a move that potentially helped the company save on taxes."

            Ruiz quoted Lawrence Isaac Balter, chief market strategist at Oracle Investment Research, who stated that Oppenheimer's "done a fantastic job building the war chest," and repeated a statement by Timothy D. Cook, Apple's current chief executive, who credited Mr. Oppenheimer with "managing the company's finances during a period of significant international expansion and revenue growth."

            At the end of Ruiz's column, we discovered that in fiscal year 2012, Mr. Oppenheimer was lavishly rewarded for his success in having helped to devise Apple's multifarious and ingenious schemes for corporate tax-evasion, and in his having enabled Apple to garner obscene 
profits for its shareholders on the backs of an exploited third work-force: Oppenheimer earned $68.6 million in total compensation package. Not surprisingly, Mr. Oppenheimer stated "I love Apple and the people I have had the privilege to work with and after 18 years here, it is time for me to take time for myself and my family," and it was announced that he had been named to the board of Goldman Sachs.

Apple is only one example of why the United States is no longer a net-exporter of goods and services. U.S. trade and tax policies since the 1970s have incentivized the out-sourcing of goods and services. By the end of 2017, China's trade surplus with the United States rose to a record  $347 billion deficit. The U.S. trade deficit with Canada amounted to $11 billion; with Mexico, a $63 billion deficit; with Japan, a $69 billion deficit; and with Germany, there was a 
$65 billion deficit. The data showed that the U.S. imported $2.2 trillion. Automobiles, petroleum, and cell phones were the largest categories. 

The U.S. is a consumption-driven economy. For that reason, in the long run, the migration of jobs to China and other third-world countries will prove to be self-defeating: An increasingly impoverished middle class here in the U.S. will eventually be unable to purchase the high-end goods that out-sourced manufacturers such as Apple and other U.S. based corporations import and try to sell to domestic consumers.

Inevitably, over time, as economic inequality continues to grow and purchasing power erodes, the life-styles of perhaps a majority of Americans will be reduced to that of most Chinese and Indians today. The problem is that, by and large, entrepreneurs and the boards of directors of corporations don't care about the long-run consequences of their behaviors, no matter how 
ill-advised or self-defeating. Perhaps they have accepted too blithely, as a corporate credo, John Maynard Keynes' observation that in the long-run we will all be dead.

            The sole goal of most corporations is to maximize profits to please their shareholders. In distinct contrast to their own employees, almost all of whom as at-will employees may be discharged from employment for no reason or any non-discriminatory reason at all, the shareholders' interests are protected by the boards of directors and, unlike employees, have a seat at the corporate table. To further protect the interests of shareholders,  the laws of the fifty 
states and the federal government  impose a fiduciary duty upon corporations to their  shareholders. 

An increasing body of evidence suggests that the traditional model of the market economy no longer behaves in the way that its most ardent proponents have predicted. As competition has given way to consolidation, and equal opportunity to plutocracy, the anomalies have now begun to overwhelm the paradigm. Whatever comes next, more of the same is not the answer. Given a mindset that sincerely believes that the pursuit of self-interest is somehow a public good, entrepreneurs and the other vaunted Masters of the Universe remain utterly uninterested in problems such as poverty and pollution, and they have no idea of how to reconcile basic principles of social justice with their desire to make a living.

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