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The Great One, Two Punch

Socialize Costs, Privatize Profits

by DAVID ROSEN

There’s a truism about the U.S. political-economy, one being shared by an increasing number of people from all walks of life and political persuasions: the game is rigged!

There are two aspects to the rigged game.  One involves the privatization of public services, the outsourcing of public needs to private contractors.  Parallel to privatization has been a second con, one more hidden and far more insidious, the rigged roulette – the privatization of profit — that ensures that corporations win and the public get’s stuck with the consequences, the long-term bill.

Privatization is brilliantly simple and has been working efficiently for generations.  The ordinary U.S. taxpayer gives up a portion of his/her take-home pay in the form of taxes, whether at the job or at the pump.  Like a great vacuum cleaner, “government” at every level of the state apparatus sucks up these dollars.  In turn, it doles out the dollars to private contractors who, like pigs at the trough, never stop sucking-up the dollars.

Parallel to the privatization scam is a con that has long been hidden yet is far more insidious.  Under this version of Russian roulette, corporations have easily gotten away with the consequences of their deeds.  Land was cheep, air and water unlimited, minerals abundant, workers expendable, a sucker was born everyday and you always had friends in government to bail you out when the house of cards collapsed.  Who cared about industrial waste, polluted groundwater, ill workers or failed banks, everything was replaceable.  Someone else will foot the bill.

In Washington, DC, political insiders – along with their media consorts — are acting out assigned roles in a grand Noh theatre performance, dancing the sequester minuet.  They take their positions, move in well-orchestrated patterns, give their well-rehearsed speeches and scheme how to cut the budget to best serve their corporate backers.  And in the mean time, the ordinary American gets screwed.

* * *

In the 19th century, as Howard Zinn reminds us, government subsidized the building of canals, the establishment of a merchant marine and the laying of the nation’s first continental railroad system, giving away 100 million free acres — often land once belonging to the native inhabitants — to the railroad tycoons to sweeten the deal.

A generation earlier, the noted historian Charles Beard found a not dissimilar alliance of business interests and government entities in collusion to appropriate taxpayer dollars for private gain.  The construction of roadways, public buildings, navy yards and army posts was outsourced to private contractors.  When asked who was behind all the public-funded infrastructure construction, he replied: “Business men and farmers who want lower freight rates.”  “There is not a chamber of commerce on any Buck Creek in America that will not cheer until tonsils are cracked for any proposal to make the said creek navigable.”  These companies not only had infrastructure built to improve their businesses, but had the taxpayer, their customers, pay for it.  The game remains rigged.

The privatization scam involves real money.  PolitiFact estimates that in 2009 the combined federal and state/local governments sucked up $3.4 trillion.  The fed took in the largest portion, some three-fifths ($2.1 trillion) in revenues, compared to the states/localities that collected an estimated $1.3 trillion in taxes.  In 2009, the U.S. GNP was $14.1 trillion.  Do the math; follow the money.

The classic example of the privatization scam involves the military-industrial complex.  In his legendary farewell address, President Eisenhower warned, “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”  In the half-century since his telling observation, it’s only gotten worse.

The Stockholm International Peace Research Institute (SIPRI) estimates that, in 2010, the U.S. spent $235 billion on arms.  It identifies the top 5 contractors as:

#1 — Lockheed Martin = arms sales: $35.7 billion, profit: $2.9 billion;

#2 — Boeing = arms sales: $31.4 billion, profit: $2.9 billion;

#3 — Northrop Grumann = arms sales: $28 billion, profit: $2 billion;

#4 — General Dynamics = arms sales: $24 billion, profit: $2.6 billion;

#5 — Raytheon = arms sales: $23 billion, profit: $1.9 billion.

“Privatization” has become the new holy grail of corporate greed, promoted from prisons to schools to sports stadiums.  Looking at the sports industry, Judith Grant Long, a Harvard professor of urban planning, argues “the costs of land, infrastructure, operations and lost property taxes add 25 percent to the taxpayer bill for the 121 sports facilities in use during 2010.”  She estimates this to be about $10 billion more then the original forecast.  Guess who picked up the tab?

The second form of privatization involves companies pursuing private gain without regard to the social consequences, often involving significant health and environmental costs.  Those days are ending.

People now recognize, if only intuitively, that things have consequences.  A factory or mine that pollutes or genetically-modified food products farmed will likely leave a footprint far longer then the company is in business.  The management will walk away fat and happy, the workers, neighbors and consumers bearing the scars.  Like Appalachian coalminers, the day-to-day tragedy of digging in a dark hole was nothing compared to the suffering they and their families faced above ground with pneumoconiosis cancer.  Coal dust still hovers in Appalachia.

The classic example of the rigged roulette game of socializing costs and privatizing profits is the cigarette business.  Evidence that cigarette smoking was linked to cancer was first raised in the mid-1920s and, over the next quarter century, the issue gained traction.

At a now famous meeting at New York’s Plaza Hotel on December 14, 1953, CEOs of six of the seven largest tobacco manufacturers met to orchestrate – “collude” in — a counterattacked.  They crafted a well-financed, sophisticated astroturf campaign including smart advertisements, corporate-funded scientific “white papers” and influence peddling with the media and in the halls of Congress.  This campaign effectively dragged out legal scrutiny for another quarter century.  Profits mounted as more and more smokers got sick and died.

On April 14, 1994, seven tobacco company executives (known as the Seven Dwarves) swore before a Congressional hearing that nicotine was not addictive.  In 1998, the attorney generals of 46 states finally signed the Master Settlement Agreement with four of the largest tobacco firms.  The deal required the tobacco companies to pay annually a minimum of $206 billion over the first 25 years of the agreement.  However, according to one estimate, between 2000 and 2004, smoking continued to cause more than $193 billion in annual health-related costs, including smoking-attributable medical costs and productivity losses.

The most recent version of the rigged-roulette privatized profit scam is the Troubled Asset Relief Program (TARP) bank bailout.  Many have raised serious questions about the program, none more so then Neil Barofsky (the former TARP Inspector General and author of Bailout) and Elizabeth Warren (former chair of the TARP Congressional Oversight Panel and now Senator, MA).  One estimate places the total amount of the U.S. government bailout at $16.9 trillion, including expenditures by the Treasury, Federal Reserve and other agencies.

The most egregious expression of maximizing social costs for private gain is the extraction of coal, oil and gas sectors.  The associated costs of doing business in the energy industry are nearly impossible to calculate.  These companies get subsidies, tax breaks and historically walked away from the messes they left behind.  However, as President Obama weighs his decision regarding the Keystone pipeline and Governor Cuomo decides about fracking in New York State, one would only hope that they consider the human, environmental and economic consequences of their decisions.

A 2009 NIH report, “Mortality in Appalachian Coal Mining Regions: The Value of Statistical Life (VSL) Lost” (you have to love bureaucrat speak), found that “annual age-adjusted deaths in coal mining areas ranged from 3,975 to 10,923 … .  Corresponding VSL estimates ranged from $18.563 billion to $84.544 billion … .”  To this day, the human costs of coal mining, including mountaintop removal, are not included in the real cost of coal.

Another indicator of the real cost of coal is suggested in a 2011 report by the Annals of the New York Academy of Sciences, “Full Cost Accounting for the Life Cycle of Coal.”  It places the environmental costs caused by what it terms “all the aspects of coal’s life cycle” at roughly $500 billion annually.  In addition, it notes that environment damage adds up to $0.17/kWh to a user’s bill.

Shedding more light on the complexity involved in calculating the social costs of the extraction industries, findings from a 2008 National Academy of Sciences report, “Climate change and health costs of air emissions from biofuels and gasoline,” are alarming.  “For each billion ethanol-equivalent gallons of fuel produced and combusted in the US, the combined climate-change and health costs are $469 million for gasoline, $472–952 million for corn ethanol depending on biorefinery heat source (natural gas, corn stover, or coal) and technology, but only $123–208 million for cellulosic ethanol depending on feedstock (prairie biomass, Miscanthus, corn stover, or switchgrass).”  Guess who pays the costs?

In the wake of the Newtown, CT, shootings and the one-year anniversary of the killing of Trevon Martin, attention is being directed to the social costs of firearms.  IBIS World, a research firm, projects that in 2012 the guns and ammunition industry will hit $11.7 billion in sales and have $993 million in profits.

The social costs resulting from gun violence are difficult to calculate.  The University of Chicago Crime Lab estimates it annually at $100 billion.  The Pacific Institute for Research and Evaluation (PIRE) estimated the cost of gun violence in 2010 at $174 billion in terms of work lost, medical care, insurance, criminal-justice expenses and the victim’s pain and suffering.

Still other business sectors take advantage of socialized costs to fatten their bottom line.  The food industry consists of the inter-linked network of agriculture, packing, retail and fast-food companies that feed the nation.  Last year Reuters ran a damning exposé on the social costs associated with obesity.  It reported that 34 percent of the public was obese and 6 percent were extremely or “morbidly” obese.  Further findings included: the U.S. spent $190 billion annual on medical costs associated with obesity; the Mayo Clinic spent more than four times more for health care on an obese worker ($5,530) — i.e., with a body mass index or BMI of 40 – then a smoker ($1,274); the airline industry spends $5 billion annually for additional jet fuel needed to fly heavier Americans; and drivers spend $4 billion annually more for gasoline so cars can carry heavier passengers.

Similar calculations can be developed for still other industry sectors.  Product packers know little of the requirements of the waste disposal industry, yet landfills are clogged, municipalities overwhelmed by garbage and consumers swamped in a sea of non-recyclable plastics.  The nuclear industry could find backing from neither private capital nor insurance companies; no wonder, it is a federal insured and subsidized private industry.  Guess whose paying for it?

A final example is the telephone companies. It illustrates how social costs can hard the nation’s communications infrastructure and very economic future.  They’ve pocketed an estimated $360 billion through questionable rate increases, subsidies, tax breaks and overcharges.  Instead of building out the “information superhighway” promised by Al Gore two decades ago, they directed the money to building-out 2nd-rate wireless businesses, overpaying their executives and rewarding stockholders – and all at the customer’s expense.  As a result, the U.S. has become a 2nd tier communications nation, ranked 15th in broadband.

* * *

The great con of modern capitalism, one dimension of what the Situationists called the spectacle, is the ability by the ruling class to expropriate social wealth for their private gain.  One of the ways it artfully does this is by fleecing the state’s coffers.

The twin cons of privatization and the privatization of profit reveal the inherent crisis of capitalism.  Without public subsidies through a zillion well-orchestrated scams, what would be the real costs of true free-market, predatory capitalism?  Could private capitalism survive without Americans paying twice, as consumers and taxpayers, to subsidize it?

David Rosen writes the column, Media Current, for Filmmaker and regularly contributes to AlterNet, Huffington Post and the Brooklyn Rail, check out www.DavidRosenWrites.com; he can be reached at drosennyc@verizon.net.