In the first installment of this series, I argued that the “public” vs. “private” distinction was in large part meaningless because the similarity in organizational style of centralized, hierarchical, and bureaucratically managed institutions outweighed their nominal ownership by the government or by private business.
But there’s another sense in which the “private sector” is virtually meaningless, as well: the “competitive global marketplace” has become, to a great extent, an edifying fairy tale.
From the time of its founding shortly after WWII until its abolition in 2001, Japan’s Ministry of International Trade and Industry (MITI) acted as a sort of capitalist central planning industry for their corporate economy — not to the extent of setting actual production targets, as in the former USSR, but by allocating investment and R&D funding between firms and industries. It even allocated foreign exchange between Japanese enterprises, determining who was allowed to import foreign technologies.
In the Yugoslav economy, similarly, the principles of worker self-management and market relations between firms were limited in practice by the state bank’s ability to allocate capital investment.What we have on a global level is a nominally private version of the same thing, organized through investment cartels and interlocking directorates.
And this is new only in its global scale. In 1967, Power Elite theorist G. William Domhoff argued (in Who Rules America?) that the capitalist class exerted control of the American corporate economy, not by family share voting blocks in individual corporations, but collectively, through “‘interest groups’ centered around large banks and finance houses which contained a great many of the major corporations through minority ownership and legal device” (i.e. “intermarried families and social cliques who operate through holding companies, family trusts, and family foundations”). And Marxist Paul Sweezy reported a generation earlier that eight such “interest groups” dominated the American economy.
Not long ago, in 2011, a paper by Stefania Vitali, James B. Glattfelder, and Stefano Battiston found that a core of 1,318 transnational corporations with interlocking ownerships were able to influence tens of thousands of other transnationals. These 1,318, in turn, were dominated by a “super-entity” of 147 tightly knit corporations. Of the core of 147, the top ten were all banks, insurance companies, or investment funds.
So the global corporate economy is, to a large extent, directed by “a super-entity” of interlocking corporations, which is itself dominated by a handful of FIRE (Finance, Insurance, and Real Estate) economy firms which allocate investment capital.
Against this background, layoffs in the tech sector in recent weeks start to make a lot more sense. As Josh Berkus observed on the m6n.io Mastodon instance: “Folks are treating the recent tech layoffs as something spontaneous. They were not. Apparently the current layoffs were orchestrated by hedge funds.”
MarketWatch backs him up. Billionaire Christopher Hohn, manager of the TCI hedge fund (which owns a $6 billion share in Alphabet), wrote Alphabet CEO Sundar Pichai on January 20, arguing that recent layoffs of 6% of the workforce (while “a step in the right direction”) were inadequate, and 20% needed to be cut. In addition, with “competition for talent” having declined, Alphabet could get away with significant cuts in pay. Hohn is far from the only hedge fund manager issuing such demands. “A number of hedge fund managers investing heavily in tech stocks have recently called for sizeable cost reductions, including job cuts.”
Of course, as is usual in such cases of strip-shop capitalism, the cuts wind up being counterproductive and destroying real value. As Bernard Marr notes, hedge funds and other vulture capitalists have justified their calls for layoffs by pointing to “hiring sprees” and competitive salary offers during the first year or two of the COVID pandemic and the need to wind back such hiring policies. But on closer examination, the median level of experience for those laid off is 11. 5 years. “So, it’s not necessarily true that these are all junior workers with little experience who could be quickly replaced or possibly even have their roles automated.”
Marr tries to cushion the import of this fact by adding that 28% of all layoffs were from HR departments, which he argues might be justified on grounds that “if companies are laying off staff, they will also be cutting back on recruitment, and less recruitment means less need for HR staff,” and some HR functions are also being automated.
But that still means 72% of laid off workers, disproportionately coming from the most experienced part of the labor force, were not in HR. And the representation of HR staff in layoffs was not even consistent across the industry. “While HR and talent sourcing were most affected at Microsoft and Meta, at Google and Twitter, it was software engineers who took the brunt of the cuts.”So the tech industry layoffs, industry-wide, are just a somewhat less extreme version of the way Twitter has been hollowed out under the supervision of Dunning Kruger poster boy Elon Musk.
Anne Helen Peterson explains why layoffs, despite being the kneejerk prescription of investors in case of falling share values, are counterproductive.
What do layoffs do? First off, they cost money: in severance packages and unemployment insurance, but also reduced productivity and innovation. They also destroy trust, as Harvard Business School professor Sandra J. Sucher and research associate Marilyn Morgan Westner point out, and increase anxiety and disengagement. “Post-layoff underperformance” is very real.
This highlights yet another way in which the idea of a competitive marketplace is more myth than reality: when all the major firms in an oligopoly industry share the same internal cultures and best practices, and their senior managers have all picked up the same erroneous assumptions at business school, they’re really not competing in terms of efficiency. As Professor Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business, put it, management behavior takes the form of a social contagion, spreading through a network with one company mindlessly copying what others are doing. “I’ve had people say to me that they know layoffs are harmful to company well-being, let alone the well-being of employees, and don’t accomplish much, but everybody is doing layoffs and their board is asking why they aren’t doing layoffs also.”
So what we really have is an economy where most industries are dominated by a handful of firms that administer prices through a price-leader system and compete mostly in image and packaging rather than price, share the same institutional culture, and even share many of the same Directors. And they make many of their most important decisions on hiring and investment at the behest of a central core of FIRE economy corporations.And while these global corporations pretend to compete, the only real competition is between the workers who supply their labor, and the sweatshops that produce on contract for these corporations.
Meanwhile, right-libertarian polemics still justify non-existent “free trade” in obsolete terms like Ricardian “comparative advantage” — as if what they call “international trade” even were trade, and not simply internal transactions within global entities that are vertically integrated either through direct ownership, or indirectly through ownership of intellectual property. If libertarianism is to regain any credibility, it’s time to start talking about the real world.