The Consequences of Living in an Economic Free-For-All

Editor's note: The following is an excerpt from The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future by Larry Elliott and Dan Atkinson. Excerpted by arrangement with Nation Books, a member of the Perseus Books Group. Copyright © 2009.

Our inspiration for understanding the respective roles of government on the one hand and large-scale business, finance, and industry on the other is Theodore Roosevelt, U.S. president from 1901 to 1909 and cousin of Franklin Roosevelt, whom we quote at the head of this chapter. Teddy Roosevelt --  a Republican and an imperialist -- was about as far from being a dangerous leftist as it is possible to be, but he had this to say:

The vast individual and corporate fortunes, the vast combinations of capital which have marked the development of our industrial system, create new conditions and necessitate a change from the old attitude of the state and the nation toward property...More and more it is evident that the state, and if necessary the nation, has got to possess the right of supervision and control as regards the great corporations which are its creatures. (Quoted by Edmund Morris, Theodore Rex, Random House, 2001.)

In his presidential message to Congress on December 3, 1901, Roosevelt declared,

“It is no limitation upon property rights or freedom of contract to require that when they receive from the government the privilege of doing business under corporate form...they shall do so upon absolutely truthful representations...Great corporations exist only because they are created and safeguarded by our institutions and it is therefore our right and duty to see that they work in harmony with those institutions.” (Morris, Theodore Rex.)

In other words, we made you and we can break you. In that spirit we offer our suggestions, not in the spirit of establishing yet another international quango sitting in agreeable premises in New York, or Geneva or Paris, monitoring, consulting, surveilling, and early warning, headed by the very able chap who used to be deputy to another very able chap who has been tipped as the next head of the Bank for International Settlements, or the IMF, or similar. Britain’s New Olympians are never happier than when comparing themselves to the salty merchant adventures of the nation’s past, and no after-dinner speech in the city or glossy magazine article about London’s dominance as a financial center is complete without some reference to the swashbuckling traders whose galleons plied the seven seas and whose DNA has somehow been passed down to the bankers, dealers, and asset-strippers of the modern Square Mile.

The reality is that the investment banks, hedge funds, and others are creatures of our law, incapable of existence without life support from our legal system, entirely dependent on the juridical and political systems they effect to despise, just as the moon astronauts were utterly dependent for life itself on the items they had brought with them from earth, to which they were effectively attached by a sort of invisible umbilical cord.

It is we, through our elected representatives, who have created the limited liability company (which allows corporations to enjoy all the rewards of their successful activities while passing on much of the losses of their failed ones to society at large), the fractional reserve bank (which allows banks to create new money out of thin air), and the trust (which conveniently allows assets to own themselves).

The limited company is not only an extraordinary mechanism for privatizing profit and socializing losses, but allows shareholders and executives to escape much of any bad consequences of their behavior: In Britain, corporate signatures end in ‘Itd’, that means ‘limited liability’. The Latins are more poetic and descriptive: they use ‘SA’ -- Sociedad Anonima, or Society of the Nameless. It all adds up to the same thing: when the cops come, there’s nobody home. . . . This legal anomaly has led to all sorts of aberrant corporate behaviour. (Robert Townsend, Up the Organisation, Coronet, 1971.)