Since the 1980s computer technology has been promoted as democratizing leisure by lowering the production costs of knowledge and culture. Consumers were promised more free time, yet a quarter or even a third of family income for the low- and middle-income brackets now goes to pay debt service, leaving insufficient revenue available for the promised leisure society. Culture traditionally was a luxury, often the first item cut from in lean times. In these times, however, we’re told consumption is patriotic, something that should be maintained even during national emergencies. Curiously, when it comes to cultural products like music, prices come down but quality is sacrificed. Anyone who knows how “live” recordings on LP records sound fuller, despite the occasional hiss or click, than music on a CD understands that technological improvements do not always accompany improvements in quality.
Somewhat analogous is the way television and radio suffered after large corporations began to undermine the Communications Act of 1934. Commerce Secretary Herbert Hoover staunchly advocated that the air waves remain in the public domain, free of commercials, serving the public interest. When the federal government auctioned off airwaves leases not only did it do so at unreasonably low prices, but cultural production became the purview of fewer and fewer companies.
Television and radio never approached their potential to raise consciousness in the way that publicly sponsored cultural events had for eons. Commercials disrupted the integrity of the programming. In discussing the financialization of culture, Prof. Hudson elaborates on the relation between technological innovation, the role of public and private financing of culture historically, and their more recent role of promoting consumption.
How debt is foreclosing cultural as well as technological advance
SS: Let’s begin with the recent breakthroughs in consumer technology. Is all the new hardware and internet access opening up new horizons for cultural advance, or are we “entertaining ourselves to death”?
MH: It would be a mistake to assume that technology elevates culture just because it has the ability to open new horizons for people by freeing them from the mind-numbing drudgery of manual labor. Culture seems to have been trumped by the economic dynamics that over-layer today’s technology. Privatization of the media in particular has replaced the old-fashioned cultural forms with new, more synthetic ones that have a different content and social function.
In the beginning the common aim of culture, along with religion, was to promote altruistic rather than narcissistic values. One finds this objective even in the case of table manners and the etiquette of group meals, as well as in the design of public monuments and of the public sections of cities. Classical drama, for instance, was all about hubris and the destructive effects of egoistic self-seeking. This ethic helped society survive in an epoch when most gain-seeking tended to be at the community’s expense.
Ever since antiquity, and in fact from time immemorial, civic bodies have financed music, drama and culture in general. This meant the wealthy families in one form or another, either directly as philanthropic good works, or indirectly as taxpayers. In Athens the richest property owners were designated to serve as the chorearchs to outfit and lead the chorus for public dramas. Rather than trying to avoid such taxation they competed with each other for excellence–and the prestige that went with it.
The golden age of musical tradition from ancient and medieval times down through the early 19th century is now being marginalized. Live music in these centuries was sponsored by royal patrons, city bodies and especially the church, often on ceremonial calendrical occasions. The privatization of culture has made music one of the casualties of economic change, along with classical drama and even art.
SS: You are talking mainly about public performances in which most citizens participated.
MH: Yes. The context and purpose was different. The mode of access to music, drama and art has changed to reflect their new functions. The new role is not to inspire group solidarity or patriotic feeling. Art forms have been transformed into commodities, and in the 20th century into vehicles to sell products. The mass media’s designated role is now primarily to attract peoples’ attention to commercials.
This line of development was not anticipated when radio began in the 1920s and television a few decades later. The ability to broadcast and reproduce classical drama and music was expected to spread it to a much broader audience than could be reached by live performances. But this phenomenon was surprisingly short-lived, at least in the United States as compared to Europe.
One of the most notorious examples has been the phasing out of symphonic and chamber music on radio. When I moved to New York City in 1961, most small offices run by their own proprietors, from book stores to butcher shops, had a classical music station on–WNYC, WBAI, WNCN, or even the then-modestly commercial-laden WQXR. These stations have now gone out of business, except for heavily commercialized stations. And small businesses have been replaced by conglomerates with innocuous canned background music at best.
For years radio stations across the country carried the Saturday afternoon opera sponsored by Texaco, but the oil company is now pulling out as culture no longer adds enough to its bottom line. Non-profit and public radio stations have not picked up the slack. After staging a fund-raising drive to buy New York City’s own public radio station, WNYC, the new management announced they were stopping 90 percent of its classical music programming. They said that classical music drove their audience away to talk-show stations, and that most of their contributors preferred talk shows.
The situation has become even worse for live music. Orchestras throughout America are faced with near-bankruptcy for lack of civic funding. In past years real estate interests promoted them as a way to increase property values around such sites, as if culture somehow could be absorbed by propinquity. But today such planning is deemed too long-term to be attractive.
The cutback in income taxes for the highest brackets has played a major role in this. Given the tax cuts over the past twenty years, the tax benefits from philanthropy no longer are anywhere near what they once were. So the traditional patrons have stopped contributing, forcing orchestras to cut back their budgets. Jobs for musicians are getting scarcer. Without hope of employment, how can prospective musicians be persuaded to undertake the training and long-term study needed to carry on a tradition that has taken many centuries to develop? It looks like a few countries such as Finland have moved almost alone to fill the void.
SS: More listeners are getting classical music through CDs. Do they end up with as much music, but via reproduced performances?
MH: The problem has a number of dimensions. One is the commoditization of music associated with the star system. The record companies sought to market personalities, making them the commodity rather than the music. The effect has been to turn a few musicians into brand names.
The vast majority of young musicians need to pay for their own debuts, so the system weeds out most performers who do not inherit enough money to finance their careers. Many are reduced to the drudgery of teaching. Music has survived primarily as a hobby, although an important one in shaping the creative abilities of teenagers and others.
SS: A similar star system exists in the fine arts.
MH: Painting and literature also have become vehicles for celebrities–not so much the artists themselves as their patrons and collectors. The criteria held by the major collectors I’ve met regarding the artists they promote are more commercial than inherently artistic. First of all, the artist has to be prolific enough so that most of the major collectors can buy an example of his or her work for their collections. The guiding obsession is much like postage-stamp collectors who want to get a complete profile of stamps for the countries they collect. Second, the serious art collector has to be able to buy a dozen or preferably two dozen of the art works to put in the warehouse. This principle works well with anonymous art if it is a “style” like American Indian art or Indian or Tibetan paintings and bronzes, as well as op art, pop art and other recent fashions.
Having taken their position in this way, the collectors arrange to bid up a high price for one or two of the pieces at auction, and then donate the pieces to a museum, getting a tax write-off at a multiple of what they paid. They actually end up with more money through the taxes they save on such transactions. Meanwhile, they let late-comers buy into the artist or style. The basic strategy is much like venture capitalists getting favorable stock prices and options early, making latecomers pay much more. The principle begins to approach that of the emperor’s new clothes turned into a chain letter or Ponzi scheme by the time you get to celebrity art such as Andy Warhol and banal “conceptual” art.
I’ve known a number of such collectors, and at one time helped arrange tax deals for them. They’re quite proud of the killings they’ve made in the art market. Meanwhile, patronage of cultural institutions has become a social trophy for wealthy individuals, while tax breaks enable them actually to make money by contributing to tax and music.
SS: Some critics argue that this situation has reduced the content to the same simple, inoffensive imagery as that found in the mass media. Has it changed the content and how so?
MH: You now have art without the iconographic or social context that gave it a deeper meaning in the past. You do not even have the bourgeois figurative “art of everyday life,” but nonfigurative fads that lack either the personal or visibly ideological dimension of symbolic meaning, such as op art and pop art, which merges naturally into celebrity art because there is little other standard of judgment.
SS: Thorstein Veblen coined the phrase “conspicuous consumption” to describe a leisure class spending money on luxuries that attest to their immunity from everyday toil. Do you think this is true, say, in literature?
MH: Art and also rare books have been turned into gift shopping and trophies. This has happened especially with rare books. Dealers concentrate increasingly on first editions, not on books that actually are to be read by the buyers. The book jackets often are as expensive as the books themselves, conveying the idea of pristine purity–which of course means sterility as far as the cognitive content of the book is concerned, because the less read it is, the more valuable it becomes to collectors.
SS: What role has finance played in transforming culture into mass culture?
MH: Commercial radio, TV and other media have transformed culture not just in the sensory ways that Marshall McLuhan pointed out a generation ago, but in a specifically economic way associated with commercialization of the air waves. The broadcasting spectrum has been monopolized as the vehicle for disseminating radio and television in order to sell space on it. The way to make the highest profit is to turn the content of broadcasts into a vehicle to sell goods.
This aim has been decoupled from the promotion of traditional cultural values. In fact it is antithetical, by spurring consumption and opportunism while not addressing political and social problems.
SS: Wouldn’t defenders of today’s media describe it as being more democratic, because it is market-oriented? In decrying the loss of classical culture don’t you run the danger of being snobbish like the ill-tempered Prof. Alan Bloom of the University of Chicago?
MH: The sense in which I refer to classical culture is almost diametrically opposite to that of the Chicago Boys. Denouncing government, they have been in the forefront of privatizing culture just as much as for public utilities, Thatcher-style. They see commercialization as efficiency. Bloom describes Athenian culture as promoting individualism. What he misses is the radical reformist character of the 6th century under Peisistratus, his sons, and subsequent opponents of the oligarchy. They standardized equality, and at the end of the century it was Cleisthenes that created the key urban reform of dividing Athens into equal “deme” units. The American equivalent would be county townships or school districts.
In Ancient Society the great anthropologist Lewis Henry Morgan treated this reform of the old aristocratic units as the key breakthrough not only for Athens but for civilization. Marx and Engels agreed. City planning became a vehicle for political and cultural equality, based on standardization of rights rather than hereditary inequality. But to Bloom and the Chicago libertarians, what was great about Athenian individualism was its room for inequality. Chicago School economics has no constraint on economic polarization being made perpetual through abolition of the inheritance taxes and what opponents of Vladimir Putin call “managed democracy” via Russia’s media, even as Bush’s FCC appointee Powell abolishes regulation that had aimed at preventing monopolization of the media.
How the media extract economic rent from the communications spectrum
SS: Robert McChesney and Ed Hermann have described how large corporations gained control of what started out looking like it would lead to a public broadcasting system. We ended up with commercial networks rather than developing along the lines of the BBC in Britain. Should anyone have foreseen this?
MH: McChesney’s and Hermann’s account of how corporate conglomerates took over the air waves and popular press parallels the land grants to the railroads in the mid-19th century. One of the best descriptions of these giveaways is Gustavus Myers’ History of the Great American Fortunes, originally published in 1907 and reprinted widely ever since. Its first publisher was Charles H. Kerr, best known for publishing Marx’s Capital. The similarity is worth noting in order to see the tactics at work.
Myers wrote at a time when socialists were inspired by Henry George’s idea of taxing land rent, and by logical extension natural resource rents and monopoly rents as representing unearned income. Industrial profits were smaller, because the value of capital equipment, machinery and buildings was far less than the value of land and mineral resources. The same is true with the broadcasting spectrum and other assets. For this reason, European and other foreign governments kept them in the public domain until the 1980s.
SS: Can you clarify the parallel between the railroad land grants and the giveaway of the TV and radio spectrum? Most people think of the broadcasters as earning profits, not as gaining rent and rising property values.
MH: The land grants were supposed to enable the railroads to provide transportation and freight services so that the government would not have to undertake, plan and pay for them. But the cost of privatization ended up involving a giveaway to insiders who gained control of the economy’s commanding heights, much like Yeltsin’s kleptocrats did in the 1990s in Russia.
The land grants made the railroads the nation’s largest real estate companies. Their financial managers were interested in supplying transportation only to the extent that it helped increase the value of their stocks and bonds, which dominated the securities markets by the late 19th century.
The two functions–public service and private financial values–did not go well together. By the 1970s, Penn Central abandoned its transport functions altogether when financial raiders from Philadelphia, the Butcher brothers, spun off its real estate into one set of companies and left the money-losing transport activities as a residual. They then let the railroad functions go bankrupt, abandoning the obligation to provide passenger and freight service.
Penn Central’s bankruptcy left the Eastern Seaboard of the United States limping along with Amtrak. The government eventually had to take back the railroads to provide transportation, just as has been the case with Railtrack in Britain. But by now the public lands had been privatized and sold off. Penn Central’s real estate included Grand Central Station in New York City and other prime properties. These were sold, dividends were paid, and then the raiders took their capital gains and bailed out.
A parallel development has occurred with the broadcasting companies, which have all but abandoned the public-interest dimension of the bargain originally envisioned in the 1920s. The difference is that they have not yet officially bought their frequencies, but are still nominally leasing them from the government for merely nominal sums, much like mining companies and paper companies lease mineral, oil and timber lands out west.
What the government gives up by not charging the full economic rental value is taken by the companies, which then turn around and pay out to their bankers and bondholders who have advanced the credit to buy up these property and leasing rights.
Like the railroad land grants, most of the media deals for positions on the radio and TV dial were insider arrangements. This is a common denominator of privatization in almost every country throughout history. What is important to recognize is that the major insiders pulling the strings are the banks and financial companies, which have merged in a symbiosis with the privatizers and rent-seekers. The financial sector has ended up with the lion’s share of the gains through its management fees, insider stock dealings, underwriting fees, and of course the notorious stock waterings through which the great railroad barons–basically, Wall Street manipulators–built fictitious costs into their railroad charges. Today’s counterpart would be stock options for management, diluting stock ownership. At least in the 19th century, they had a culture in which it was possible to try to reign in these abuses with the creation of the Interstate Commerce Commission (ICC) and other regulatory agencies intended to govern pricing for public monopolies.
SS: This all legal though. You’re saying the insider dealing is built into any system based on privatization?
MH: The corporations managed to steal these rights fair and square by writing merely nominal obligations and regulatory constraints for into the laws. Just as today, the laws passed based on campaigns contributions. In the 19th century this was done so openly that the insiders did not need think tanks to put a rhetorical veneer on their maneuverings. It didn’t matter much what people thought, once grabbing the public domain could be made a fait accompli.
It was not necessary actually to take ownership of the domain. In cases where the government retained nominal ownership, as in the national forests and in much of the land’s subsoil rights, exploitation licenses were obtained for only a slight fee, nowhere near the real rental value of these properties for the government.
The effect was to turn the public lands into a giveaway, and this is what happened with the air waves in the 1920s. Broadcasting frequencies and radio stations were leased out for five-year intervals, at low rates in return for the stations’ promise to devote some of their programming to serve the public interest. In exchange for this business opportunity, stations would bear some costs for public programming. That was the idea, anyway. In Britain, they same idea led to user-fees on radios and later TV sets, although there consumers directly bore the cost.
In the case of the railroads, these giveaways created a gap between commercial promises and reality, one that foreshadowed the Reagan-Thatcher era. Governments have let the networks and other broadcasters rent the spectrum at rate less than the use value it would have under a well-run government. The broadcasters then turn around and rent the spectrum to advertisers at profits proportional to the degree that the advertiser can still make it money as well.
SS: So the radio and TV spectrum is like land in the sense that it yields a rent.
MH: That’s right. Culture needs a vehicle. TV and radio need airwaves just as cinema needs theaters and journalism needs newspapers and magazines–and space on newsstands. All these vehicles may be thought of as sites. A good location on the radio or TV dial is the equivalent of a good geographic location for a retail store. In this analogy cable TV would be something like a strip mall.
SS: That sounds like what is going on with internet sites. How did this problem develop?
MH: There were two policy failures. The first one was that the profits from leasing out the air waves–technically, their rental charge–should accrue to the public domain. This is where the frequencies lie, after all. But the government made no attempt to increase charges to reflect their rising value.
SS: These huge networks still pay 1920s prices?
MH: Essentially.
SS: What is the second policy failure?
MH: The second policy problem is that commercialization ends up almost antithetical to what the public interest would require for radio and TV to be used as the cultural medium originally envisioned.
It did not initially seem likely that radio would follow the newspapers in becoming advertising vehicles. The first serious effort to sell air time to commercial interests–“toll” broadcasting–was initiated by AT&T’s station WEAF in New York City, but was unable to make much headway at first. In his now-classic survey of Telecommunications, Mass Media, and Democracy: The Battle for the Control of U.S. Broadcasting, 1928-1935, Robert W. McChesney reports that in 1924, AT&T “attempted to support its activities by having WEAF solicit listeners for direct donations to subsidize the programming. . .
Indeed, commercial advertising in the modern sense of the term was almost nonexistent prior to 1928. In 1925 the advertising representative of General Mills called upon twenty large broadcasters and was unable to purchase time from any of them. In 1927 the American Newspaper Publishers Association (ANPA) even assured its members, ‘Fortunately, direct advertising by radio is well-nigh an impossibility.’ The toll broadcasting of AT&T restricted the firms that purchased airtime ‘to giving their name and the name of their product,'” much as now occurs on National Public Radio and TV stations.
As television programming got under way after World War II, prospects looked rosy for a while. By the early 1950s, television appeared as a dramatic medium that might reach much larger audiences than was possible through live theater performances, while becoming a “complete medium” by providing the visual dimension that radio had lacked. Just as radio had brought operas and symphonic music into millions of homes, the hope was that TV might promote classical and contemporary drama, historical docu-drama, investigative journalism and public education. A group of “live drama” TV playwrights, including Paddy Chayefsky, Rod Serling, Abby Mann and Reginald Rose, sought to develop serious television work (with leftward political leanings, to be sure), but ran up “against the clout of sponsors who sought to avoid anything that might be considered even slightly controversial or downbeat. The Holocaust was out; sit-coms and westerns were in. As Mr. Serling once noted, ‘How can you put on a meaningful drama when every 15 minutes proceedings are interrupted by 12 dancing rabbits with toilet paper?'” Each hour of commercial TV time breaks up attention spans with commercials totaling 15 to 20 minutes.
Mr. Serling’s response was to shift to producing the successful science fiction show Twilight Zone as a means, he said, of having “Martians saying things Democrats and Republicans could never say.” So much for the promised new art form!
By 1961 the situation grew so bad that Newton Minow, chairman of the Federal Communications Commission (FCC) accused network television of having become a cultural wasteland. Speaking before the National Association of Broadcasters, he asked them to provide a quid pro quo. On the one hand, they received from the government the right to operate on the air waves for a merely nominal charge. Licensing rates were set so low that TV channels multiplied immensely in value as advertising revenues increased.
The air waves are a natural monopoly. Minow reminded the stations of their obligation to maintain public-interest standards. High on the list was earmarking a certain amount of broadcast time for educational programs, above all Saturday morning television for children. Minow imposed no formal regulations. That would have smacked too much of censorship. Public television received a partial grant (with listeners adding their own contributions), but “the market” was left to make its own “choice.” The barometer turned out to be the Neilsen ratings. Programs with the largest audiences won out in the competition for advertising dollars. Looking back in 1995 in their book Abandoned in the Wasteland, Minow and his co-author Craig LaMay found that TV had become “an instrument of child exploitation and abuse . . . principally by salesmen, animated assault artists and leering talk-show hosts.”
SS: Is the problem with today’s media that they have become passive vehicles for entertainment, or do they actively promote a superculture that has problems of its own?
MH: Companies profit from the right to sell their channel time to advertisers. Advertisers gained control of TV programming just as they earlier wielded control over newspapers, magazines and the radio. This hardly is surprising. Just as newspapers became less politically partisan as their economic basis turned to advertisers, TV became political neutered, although by no means politically neutral.
Although America led the process, the situation is by no means limited to the United States, Of New Zealand, Jane Kelsey wrote: “The historically weak New Zealand press and broadcast media were blunted further after 1984 by the privatisation and concentration of ownership, commercialisation and Americanisation of programming, self-censorship of editorial content and journalistic style . . .” She cites another media critic, Joe Atkinson describing “the ‘morselisation and depoliticisation’ of television news content as stories were dissected into saleable segments and packaged into a tabloid format. Hard stories on domestic politics and foreign and defence policy gave way to emotionally and visually appealing items on human interest, disasters and crime. . . Analysis of complex issues became structurally impossible. By 1992, more than three-quarters of all interviews had been reduced to ten-second sound bites.” This applies to United States or most other countries.
SS: It’s clear that no analysis of complex issues is possible in the mass media. No sound bite can account for the intricacies of healthcare coverage in the US. But how can anyone measure the value of cultural loss? Doesn’t that fall outside the realm of economics?
MH: It is just like with pollution. National income accounts do not include any assessment charge for what the public interest has lost in the process of letting industry pollute water sources. Such cleanup costs are considered “externalities”. Cleanup charges have to be accounted for–in this case for the noise pollution of commercials that clog up one-third of the time, 20 minutes of every hour. Instead this commercialization counts as an economic gain.
I suppose that one could take the economy’s average wage rate, multiply it by the number of hours people watch radio and TV, and divide the balance by the proportion of time (a third) spent being subjected to commercials, multiply by size of the population. After all, economists have estimated the overhead of telemarketing disturbances to the nation’s consumers. Why not extend this idea and its methodology to commercials in other media?
SS: The reason may be that people voluntarily turn on their TV or radio stations. Some even claim to enjoy the commercials.
MH: But they don’t necessarily want the commercials. TV and radio commercials probably are less desirable than those in newspapers. As for enjoying the commercials, perhaps one time there is something funny, but you don’t see it just one time. This is why the “mute” button was developed.
SS: At this point in the interviews, it is clear you’re most concerned with long-term effects. What public benefits are we missing out on most?
MH: The rents charged for airwaves rise as economies grow and monopolies siphon off the fruits of this growth by levying an access charge. In times past such charges would have accrued to governments as a user fee. This could still be the case for the broadcasting stations. Like the land or other preconditions for production, these frequencies are not “factors of production,” but pressure points to charge fees for access. The resulting rental charges do not represent payment for any investment input from the broadcasters themselves. Like public land, water and the air itself, these frequencies are in the public domain.
SS: Monopolies claim to be creating wealth for stockholders as prices for their shares rise. By commercializing the value of the frequencies, isn’t wealth being created, at least in the stock market?
MH: If this is called “creating wealth,” it is wealth in the form of a zero-sum activity in which the monopolist’s gain (economic rent) is the customer’s loss.
SS: We’ve discussed before the inadequacies of evaluating the economy in terms of productivity despite all the emphasis placed on it during the bubble. How is the productivity of a broadcasting company measured? Can you properly say they produce a product?
MH: Much like that of newspaper publishers, in the case of TV and radio news broadcasting. The economics are similar. Reporting the news is an expense, to be minimized as much as possible. But without providing news coverage the papers will not have readers. And without readers they will not attract advertisers. So newspapers hire reporters and editors, along with advertising salesmen.
To the reader, much of this advertising is just visual noise, to be skipped over, although there is to be sure some benefit, and some read for the various kinds of ads. But in the case of broadcasters, commercials are more intrusive because listeners cannot simply “speed through” by turning the page over.
The networks have news writers, but either try to minimize spending on news gathering or (most recently) turn broadcasts into celebrity entertainment. Content is lost in either case.
SS: What you’re describing is a perversion of market forces. Viewers think of themselves as a market. They like to believe that if more people wanted real news, then stations would scramble to provide it because it would increase their market share, and thus their advertising prices. But actually, viewers aren’t the actors in this market. Viewers don’t compete with other viewers to dictate what ends up on TV. Instead, broadcasters compete for advertising dollars and thus create content scarcity. In free market theory, competition should create abundant quality. In this case, competition (between broadcasters) creates a surplus of attention-grabbing drivel. The medium is the message, as Marshall McLuhan might say. Most viewers don’t realize that they’re not really there to watch what they want, but to be told what they want.
MH: Society’s drive for self-understanding has run into the problem of the least common denominator. In this case it is the most impressionable audience, composed mostly of teenagers (THAT BRANCH THAT CAN RESIST LEASTI think you should say something like this because at the end you recall “path of least resistance”the symmetry is off-slightly, the connection not quite as clear). This leaves the rest of society underserved, and that part of the bell-shaped curve includes many of the most active and thoughtful people.
Once adults come to feel disenfranchised and lose faith in their ability to influence their society, they become alienated and tune out. So what appears at first to be an economic democracy degenerates into an autocracy as people feel economically victimized by the government–not seeing the private interests that stand behind the government to paralyze its support of popular development.
Governments are supposed to determine the public interest and defend it. Their sovereign duty is to protect their citizens against the private appropriation of the public domain–essentially, opportunities for rent extraction–to be taken over. This problem becomes especially important in view of the fact that the financial sector’s objective is to disable the government’s sovereign power and its threat of regulation.
The effect is to derail economic growth into rent-taking. This is the financial sector’s own path of least resistance to appropriate resources whose revenue can be converted into interest payments. It is what makes financially controlled policy-making so destructive.
SS: So we are brought back to the financial influence over national cultural policy and the media.
MH: The financial sector’s rent-grabbing dynamic has backed commercialization and virtually locked it in as a financial imperative of broadcasting.
Finance is inherently rent-seeking. It searches out all the areas of the economy that can siphon off the fruits of economic growth as a monopoly charge. These are the best opportunities for lending money, because so many buyers want to obtain rent-yielding resources because their price rises as population and prosperity grow.
Land is the prime rent-yielding asset, because all real estate needs a land site. That is why 70 percent of bank lending in the United States and Britain take the form of mortgage loans. Most of the remaining bank loans are for rental sites or monopoly positions of one form or another. This explains the financial sector’s interest in lobbying for their privatization. The air waves are a prime example.
The effect on culture–on TV and radio–is indirect, but major. Under privatization these sites will be sold to the highest bidders. And the highest bidders are those who will rent these sites for commercials or for mass-market media. Noncommercial culture cannot compete on price, because it is not selling anything. So it is outbid. In fact, the aim of culture through the ages has been to minimize personal self-indulgence and to promote altruism, just the opposite personality characteristics promoted by the commercial media. Society loses culture, and gets nuisance value of commercials instead.
SS: Should broadcasting be returned to the public domain?
MH: At least the rents from the air waves should be fully collected, just as they should be for logging and minerals extraction. Subsidies can be given for public-service broadcasting, or the government could operate its own stations, as long as it did so along pre-commercialized lines rather than simply emulating the commercial broadcasters as the BBC has begun to do in Britain and the CBC in Canada.
SS: Can you spell out how the privatization of the broadcasting spectrum affects culture?
MH: To the extent that music, drama and literature are disseminated through these media, they need sites. They have to pay an access charge for these locations. This access charge is their rental price.
These sites are still legally in the public domain, much like the public land, subsoil mineral rights and forests which the government has leased out since the 19th century at only a fraction of their economic value. Most of these leases reflect insider deals that go way back in time–in the case of radio and TV, to the 1920s.
The media are like department stores. They need a good location to sell their products. In this case the location is a place on the radio and TV dial for a particular space of time. The effect has been to turn the radio and TV spectrum into an opportunity to charge rent for specific frequencies at specific time slots that represent space in the public’s attention.
Somebody needs to write a new history of how the great American fortunes of the 20th century were formed. You would find that they came largely from insiders grabbing rent-yielding activities from the public domain.
Economic rent is a kind of super-profit. It is best thought of not as profits that are earned by producing output, but are a free ride simply from charging more for natural monopolies. Finance has promoted privatization and provided loans to buyers, recognizing that this is its major market, after real estate mortgage lending. Over the past century the financial sector has raised the money to enable outsiders to buy up the most lucrative monopolies, as well as real estate, creating a symbiosis between Finance, Insurance and Real Estate–the FIRE sectors.
Bankers and bond investors realize that corporate raiders and indeed, buyers in general are willing to pay out all the income taken by monopolies (or apartment buildings or other assets) as interest in exchange for the money to buy them. So the financial lobby has backed the monopolies in urging deregulation of the checks and balances put in place from Teddy Roosevelt to Franklin Roosevelt during the first three decades of the 20th century. The more monopoly rent can be extracted (or real estate rent, for that matter), the more revenue can be pledged as interest to creditors putting up the money to buy these assets. The financial sector thus has led the attack on regulation, on government ownership, and of course on the taxation of rental income and capital gains. The financial objective is to lend money to companies against their flow of income–all the better if it is monopoly income rather than seeing the government tax this revenue.
In effect, the financial sector has become the deregulator and planner, taking over what most people expected to become public-sector functions in the 1920s and ’30s. All the better if money can be lent to broadcasters with a right-wing, anti-government perspective. Via “talk radio” and slanted news broadcasts, Clear Channel, FOX and CNN, along with the major newspaper chains, promote an anti-government view that in effect is pro-financial while pretending to be populist.
SS: You are still talking about the mass media and how it uses public airwaves, but what about the industries that actually set the particles moving across those airwaves. Don’t the same principles extend to the telecoms?
MH: Yes, and that brings up an interesting point. In the 1990s the largest telecoms asked their governments to auction off the communications frequencies for all-cash. Their aim was to price these so high, and on such hard credit terms, that only the very richest conglomerates could afford to buy into these frequencies. Paying this higher price meant that what they really were buying was not a use value but a monopoly right. The high payment ensured that the rights would be held so closely and narrowly that the frequencies could be monopolized and extortionate rack-rents charged.
This was the essence of privatization. On easier credit terms–or on a rental basis of leasing the frequencies for, say, ten-year intervals–smaller companies would have been able to bid. They would have bid what they could have rented out the frequencies for to retail users. But the large conglomerates wanted to obtain a super-profit–technically, what economists call an economic rent–by controlling these frequencies and benefiting from their scarcity in the face of growing demand for use.
The would-be monopolists ran into a problem, however. In their attempt to lock up the frequencies, they paid for what these would be worth in the future rather than what they were worth in the present on the basis of current cash flow. They did this with borrowed money, and the interest charges exceeded the current revenue. This meant that current revenue would not cover the debt charges, and the money had to be earned elsewhere. However, the telecom companies were not earning enough to cover the capital investment charges of putting in their new transmission capacity and marketing costs. So they fell into insolvency.
SS: What is the moral?
MH: Privatizing the air waves has decoupled broadcasting from traditional culture and its educational functions, promoting cultural values that are opposite from those traditionally held. The object of TV and radio programs is to serve as a vehicle to attract an audience to commercials. This is achieved more by absorbing attention than by engaging the mind. The cultural effect of this media and data overload is a spread of Attention Deficit Disorder (ADD). This particular form of alienation is thus a byproduct of privatization.
The effect is for the audience–that is, the population–to respond frenetically without really thinking. The distinction between fame and notoriety is compressed into superficial the idea of “celebrity.” Free-enterprise advocates claim that this reflects the morality of individual fulfillment, but it trivializes the ability to think coherently about how the world is being shaped politically and economically. To watch the media today one would think that the criterion for success is a one-dimensional measure–net worth, not the manner in which it is obtained. At the end of this process, monopolists such as Microsoft’s Bill Gates head the list of “most admired men,” along with Donald Trump and even Citibank’s Sandy Weil. I guess Enron’s Ken Lay used to be on this list. Even more confusing, they are admired as industrialists, not as exploiters whose main achievement was to get something for nothing.
Less widely seen is the financial motivation underlying this inversion of traditional attitudes toward the public utilities and the responsibilities of government. The key is to be found in the degree to which financial institutions have raised loans for the moguls who have bought the broadcasting companies with borrowed funds, and then find that they need to turn around and carry their debt by selling as much air time as possible to commercial buyers. Banks and brokerage underwriters have long seen that privatization creates a market for buying public enterprises and assets to be financed on credit. The more the broadcasting frequencies and monopolies are deregulated, the more their frequencies will be worth, and hence the more money will be borrowed to buy them–or indirectly to obtain them by buying out the companies that control the rental rights to these frequencies.
As long as the government controlled and operated the airwaves and other infrastructure and utilities in the public domain, it did not need investment bankers and stockbrokers. It did not need to pay interest, dividends, underwriting fees and management fees. Also, public media do not provide an opportunity for the private sector to make capital gains as they raise their rent charges for their broadcasting frequencies. Precisely because they are not financed by debt, the large financial institutions have little interest in promoting their success. The public interest was not seen as being maximized by using the airwaves simply as media for commercials.
To drum up popular support for getting governments out of regulation and operation of broadcasting and other public enterprises, the financial sector’s spokesmen–led by the Chicago School–spearheaded a campaign asserting that governments cannot run enterprises efficiently, and depicting public enterprise as imposing the equivalent of burdensome taxes rather than charging user fees.
Where government enterprises are run inefficiently, it is largely the result of financial or ideologically monetarist constraints being imposed arbitrarily and with the intent to cripple public efficiency. One of the most notorious examples occurred in Britain after 1975. To prevent public enterprises from modernizing, the IMF and other monetarists succeeded in blocking these enterprises from raising money to modernize. All investment by such enterprises was counted as part of the public sector’s overall budget deficit, and hence deemed to be inherently inflationary–and was blocked on this ground. The tacit implication was that investment by borrowing money from private creditors would have a different, inherently less inflationary effect. There was of course no basis at all for this, as John Kay and other British critics of privatization have demonstrated for two decades now.
At the lowest end of the intellectual spectrum, privatization is promoted as a way of raising money that enables governments to avoid taxing people–mainly the wealthiest classes. At the end of this process the financial sector gains control, because the winning bidders for privatized enterprises or assets such as the air waves are obliged to borrow in order to outbid their rivals.
The essence of matters is that private enterprise in today’s economic environment means debt-financed enterprise. One of the favorite projects for which banks will lend money and brokerage firms will underwrite stocks is the purchase of public monopolies. This enables their new private owners to charge rent as an access charge for whatever is monopolized. In the case of culture this is the airwaves, which are like land sites, literally frequency sites on the radio and TV spectrum.
In the 1920s most governments recognized that society’s objectives would be best served by the government renting out these sites to broadcasters on the condition that their stations provide public-interest programming. But this turned into a dead letter as the definition of “public interest” was trivialized as compared to countries that kept an active government broadcasting presence, such as Britain with the BBC and Canada with the CBC.
Finance Capital’s Victory and Cultural Alienation
SS: Neoliberals argue that classical culture is still available, but people just have to pay for it. How do you respond to their argument that culture doesn’t need public financing, on the ground that someone will provide it if there really is a demand for it? People can buy CDs or tickets to the symphony.
MH: The rhetorical sleight of hand here is the word “demand.” To economists this word doesn’t mean desire or need, but actual spending. The result is circular reasoning. Attributing the decline of classical culture to a “lack of demand” simply means that there is an insufficient market. That is like saying that the railroads are being dismantled because of a lack of demand. All this is a euphemism for Thatcherizing culture simply by not financing it. The “market” for culture, like that for transport and most public utilities, hitherto was served by government.
The fact is that classical music and the related classical culture isn’t being provided. That means that nobody is buying it, by definition. But what does this really mean? It masks the fact that throughout history, symphony orchestras never have been self-supporting from ticket sales. Culture is just one of the spheres that the public sector traditionally has been charged with supporting out of tax revenue. Even in the case of philanthropy, it has long been tax breaks that induce the wealthy to give to museums. Other philanthropy of course is either a form of social trophy-collecting (board memberships on prestigious cultural or medical institutions) or guilt-assuaging sanctimony.
The reductionism of “market demand” to mean only “user costs,” as distinct from public patronage, would have precluded most of history’s cultural achievements. On this basis, by the way, there also would have been no armies or navies, or public health, education or even transport or other sectors customarily in the public domain, along with most scientific research and religion.
The idea that all “users” should pay for the costs of what they “use” flies in the face of the idea of governments providing services on the basis of what society needs. The less affluent need medical care, if only to prevent pandemics from spreading. Society is better off with culture whose costs fall on the government as defrayed by taxes on wealth. This has been the case for thousands of years, and the idea of privatizing hitherto public functions is a much more radical position even than socialism, to say nothing of the idea of a mixed economy in which governments shape market incentives.
SS: In essence, you are saying that wealth has divested itself of its traditional responsibilities to support public-sector activities.
MH: The urban financial crisis resulting from Pres. Bush’s tax cuts for the wealthy (including his slash in capital-gains taxes) has drastically reduced local funding for the arts and culture. Less noticed is a parallel development, the deterioration of social responsibility felt by wealthy families for cultural philanthropy. Now that it pays less, they have little economic or social incentive to finance the arts.
In countries spanning the world from time immemorial, anthropologists have found a precondition of wealth to be a spirit of open-handedness. As society’s surplus, wealth has been associated with a fiduciary aspect to manage the economy in the interest of long-term growth. The breaking of this responsibility is what is so radical about today’s economic privatizers and the financial interests behind the anti-government doctrines of free enterprise. Even the 19th century’s great robber barons believed they had an obligation to subsidize culture. Andrew Carnegie and John D. Rockefeller endowed rich foundations. Although they made the working lives of their employees miserable and degraded their living conditions, at least the leading magnates of most cities could be depended on to fund the local symphony orchestra and art museum or “palace of culture,” as well as a wing of the municipal hospital or, on the national scale, medical research foundations.
This no longer is the case. The traditional pattern of giving has yielded to commercial sponsorship promoting a mass consumer culture. Instead of people drawing their thoughts and vocabulary from dramas involving the highest human ideals, many parrot the phraseology of commercials. Advertising jingles replace music, and the frenetic visual montage of advertising and computerized movies replaces the leisurely pacing of the classic drama and cinema.
The mental condition analogous to global warming is an “attention-deficit” culture based on commodity addiction. Attracting and absorbing an audience’s attention is best done by making it nervous or worried. The pacing of modern films is much faster than older ones, more frenetic, largely because the new directors come out of working on TV commercials. There is so much information to be digested that it appears as a raw mass of facts with so little context of cause and effect that the only relationships that most people are able to see are simple correlations. They often get cause and effect backward, a state of affairs that allows politicians and special interests to manipulate voters and propose solutions to problems that only make them worse.
The same tactic is reflecting in the saying that “defense lawyers pick juries.” Lawyers exclude the most highly educated and trained members of the jury pool, preferring people they think can be most easily manipulated and distracted from the actual character of the crime or law suit, and most subject to character assassination. Just as lawyers hire professional “profilers” to help them anticipate the responses of jury members, commercial sponsors hire accountants to take polls. The idea is to aim mass culture at the age group most susceptible to marketing–teenage boys and girls, and young adults. Cinema and other profit-seeking culture now aims at the teen market, not to shape them into adults but simply to play on their ideas of conformity to persuade them to buy products.
With this tendency is a policy of avoiding contentious issues so as not to offend potential customers. A few years ago Proctor and Gamble received publicity for pulling out of sponsoring a TV rerun that dealt with the topic of gun control. The company feared to have its name associated with anything controversial, worrying about a consumer backlash or even a boycott.
The problem here is that any kind of regulation is controversial–the abusers being regulated always have what the media call “their side of the story.” Both sides are presented as if they are equally viable, just as in court the guilty party always has a lawyer presenting his or her side of the story. But one side almost always is lying, exaggerating, misrepresenting or diverting attention from the real issue. The media should help people see through the rhetorical cover stories and false logic. Instead, they tend to present narrow perspectives without helping to clarify the big picture.
SS: It doesn’t help that the media is right wing. Even a conservative like Pat Buchanan admits that no one who is serious can truly believe the media is liberal.
MH: It is no secret that the large communications monopolies are right-wing. This is only natural, as their main threat is government regulation or the enforcement of the public-interest legislation which remains on the books. This alone would give a right-wing slant to network news, as it has given to radio hate-talk shows.
The political power of advertising to be mobilized to promote right-wing political doctrine was demonstrated recently by the Republican campaign to mobilize “consumers” to write CBS to oppose its docudrama on Ronald Reagan. If the political right does not think that treatments of its heroes and policies are suitably hagiographic, it brings pressure on the commercial sponsors to withdraw. This forces the networks to cancel the show. In that was organized Republicans, masked as consumers, have brought pressure.
The upshot is that the fight for a public service component of the media and the fight for democratic news policies is being fought now on the local level, just as the fight for financial regulation is being fought by the New York and Massachusetts Attorney Generals rather than by the SEC and other federal government bodies. Locally, listeners can intervene to ask that radio licenses be cancelled if their owners have not lived up to the public-interest commitments that remain on the books.
It is as if the federal government is being stripped down, left only with its obligation to pay interest to bondholders, to bail out savers (that is, speculators) and to lobby for the large campaign contributors. The fact that this basic change is not being discussed in the major public media themselves attests to the powerful economic force behind this dropping of traditional ideas of the role of government and the public sector.
This is just the inverse of what culture traditionally promoted. The function of culture traditionally has been to deal with the most important spheres of life, that of creating personal values (including mobilization for war, to be sure). It dealt with basic socialization issues to shape personality, and specifically to promote altruism. That is why so much art was linked to religion. Instead of seeing a moral, active personality actuating itself through labor, the mass consumer personality is that of passive conformity and escapism. Today’s mass consumer culture encourages consumption and narcissism and promotes self-indulgence. There is a tendency to dumb down culture to the most common denominator in order to turn audiences into extroverted brand-name consumers.
Classical ego satisfaction took the form of achieving excellence in service. What Veblen called the Instinct of Workmanship, Abraham Maslow described as the highest need of humans for self-expression. This requires self-reliance rather than extroverted dependency on others for one’s values. Its standard of success is different from that which is valued in terms of monetary value or brand names.
Classical education was a vehicle to create total personalities. Modern education has become more technical, mainly to train students for jobs. A broader cultural foundation would make students less patient and hence more dissatisfied with the narrowness of today’s employment opportunities.
SS: What do you propose as an alternative?
MH: Imagine how TV might work without commercial sponsorship. Without TV ads its shape might be analogous to Britain’s green belt, whose rules prohibit billboard advertising in the countryside. Instead of programs being vehicles to promote consumer goods, the content of TV programs would be more cultural and cognitive.
Take news broadcasts, for instance. One would think that the most logical sequence would be to rank news reports in terms of their importance and hence the intrinsic interest in their content. Turning the news into a sales and entertainment vehicle inverts matters. The new idea is to hold the potential consumer’s attention through the commercials. So announcers throw in teasers for people to watch through the sales pitch, being told the topic that will be coming up without saying just what the news is. The broadcast is turned into an obstacle course making viewers and listeners wade through an underbrush of ads in order to get to hear what they want to learn about the news.
Behind these dynamics lie the economics of privatization, which the World Bank and IMF have demanded since the 1980s. Thatcherist privatization policies are now a condition for loan rollovers. Governments that refrain from privatizing their telecom and other sectors are threatened with chronic financial crises.
SS: We had better leave this for our future interviews on Britain and on privatization in general.
Professor Michael Hudson is an independent Wall Street financial economist. After working as a balance-of-payments economist for the Chase Manhattan Bank and Arthur Anderson in the 1960s, he taught international finance at the New School in New York. Presently, he is Distinguished Professor of Economics at the University of Missouri (Kansas City). He has published widely on the topic of US financial dominance. He has also been an economic adviser to the Canadian, Mexican, Russian and US governments. His books include Trade, Development, and Foreign Debt (Pluto, 1992, 2 vols.). He is the author of Super Imperialism.
STANDARD SCHAEFER is an independent economic journalist, a cultural historian, literary critic, poet and short-story writer. He teaches at Otis College of Art and Design. He is the non-fiction editor of the New Review of Literature. He can be reached at ssschaefer@earthlink.net.
©2004 Hudson and Schaefer, from book-in-progress.