Saturday, September 15, 2007

Laws Benefit Corporations

In a previous post, I mentioned that Steven LaTullipe wrote that the nation is a "carefully concealed oligarchy".

Laws have continually been enacted, to benefit large corporations, and to "encourage" citizens to be good little taxpaying corporate employees.

FSK has written on a related phenomenon, "It's hard to start a Business":
One of the things he said is that many of the costs of running a business associated with government regulation, penalize the small business owner or a small corporation, more than a large corporation.

Below I will list a few examples of laws and acts that benefit large corporations.

The 401k
The 401k was not created to benefit employees. It originally benefited company executives, until the IRS ruled it could apply to ordinary employees in 1979. 401k's are more expensive to administer for smaller companies and small business.

From the PBS website:

And from Wikipedia:
A primary reason for the explosion of 401(k) plans is that such plans are cheaper for employers to maintain than a pension a pension for every retired worker.

The HMOs (and the HMO Act of 1973)
Here's a good history of the HMOs and managed health care:

A result of the HMO Act of 1973, was the illogical coupling of employment with "discounted" health care. Just try to get the same coverage as your employer can get you, and it will cost you twice as much. It's an incentive to work for a large corporation.

I've heard the argument to this as "if you join an HMO with 100 fellow employees, you are pooling your risk with the 100, and so the risk as seen by the HMO is smaller than if you join by yourself". This is completely illogical; and it's another argument for you to work for a corporation. This would be true if you were the first, or the first 100 customers of the HMO.

If an HMO had 1 million existing customers, and you then join them by yourself, you ARE POOLING RISK WITH THEIR 1 MILLION OTHER CUSTOMERS. If you joined at the same time as 100 fellow employees, the difference in the pool of risk is statistically insignificant, as you are still pooling risk with thier 1 million other customers.

Regarding Health Care...

Why should it make financial sense to me to buy health care that pays for every little doctor's visit, yet doesn't cover catastrophic events such as requiring an organ transplant?

Would you like to buy car insurance that covers routine maintenance but which doesn't cover being totalled by a drunk driver? "Oh sorry, you're not covered because you didn't disclose a pre-existing condition that your neighbor is a habitual drunk driver"

It makes WAY more financial sense to be covered for events UNLIKELY but FINANCIALLY CATASTROPHIC. That is exactly what insurance is supposed to be for.

I would like to buy some health care program that covers say, the first 6 family doctor visits (for prevention, which saves money) a year and then only covers anything over say, $5,000 per year. $5,000 of expense in a year would sting, but wouldn't bankrupt me. A $200k operation, on the other hand, would.

As far as I know, such a product doesn't exist; it ceased to exist after the HMO Act of 1973.

Lastly, there has not been much talk about addressing the spiralling cost of health care. You can't have ANY kind of sensible health coverage IF the costs are out of control. (This is another topic altogether)

The Sarbanes-Oxley Act
The Sarbanes-Oxley Act was a backlash against the Enron scandal. (It's a bunch
of new accounting rules). People think it's to reign in "corporate malfeasance".

  • It wouldn't have prevented what happened at Enron, because the accounting firm and Enron colluded, and the new rules wouldn't have done anything about it
  • What happened at Enron already broke a lot of existing laws
  • Enforcement of existing laws would have prevented Enron
  • The new rules make preparing accounting statements for companies hugely more expensive, giving much, much more business to accounting firms (THERE's the beneficiary of the act)
  • The new rules were drafted by, guess what - accountants
  • The additional costs to companies, don't scale with size - they are much more punitive to small companies than large ones.
It's a classic case of government regulation again favoring the giant corporations (and a special interest group).

The Patent System
The Patent system was originally intended as a means of rewarding inventors. Today getting a patent is expensive for an inventor working by himself. Not just that; a patent is only worth it if you can afford to defend it. Defending a patent means filing a patent infringement lawsuit, which is hugely expensive, even for corporations.

The patent system has been perverted. One company (typically a larger one), sues another for infringement, and the punitive damages go way beyond what a fair or typical licensing agreement would have cost. It is often used as a weapon to kill competitors. And of course, larger companies can more easily afford lawsuits than smaller ones. Sometimes the lawsuit is for infringing a patent that a smaller company is unknowingly violating, that is unrelated to their core product. Despite this, damages are huge enough to bankrupt the victim.

Sometimes a patent holder will seem to wait for a company to start making some serious money, then pounce with a lawsuit, instead of seeking out a royalty agreement early on. By waiting, the victim will have more money to confiscate.

Withholding tax
The law that says you get taxed before you get your paycheck, of course, means that if you work for a corporation, you will be a good little taxpaying citizen. Not to mention, most people overpay their tax, and get a "refund", which makes some people happy. What a joke. You just loaned your money to the IRS interest free. And if you underpay and have to pay a balance by April 15, you will likely have to pay a fine, and interest.

Can you imagine what would happen today, if instead of being taxed automatically, people had to write a check every month to the IRS? They would probably suddenly realize just how much the government takes in taxes and there would be a taxpayer revolt.

I'm not saying corporations should be dissolved - they have their place. Witness the technology that's been developed by corporations - such as the Hard Disk Drive, the improvements in Digital Cameras, Microprocessors, and Solid State Memory.

But, this relentless march toward Corporatism must be stopped. Laws being passed that favor corporations at the expense of the consumers and the middle class, must be stopped.


Anonymous said...

I disagree corporations are bad. Hard Disks and other such technology has only made Centralized State and Corporate Control and Regulation more real.

Much of the computer technology innovation is built on war anyway. Corporations like IBM received welfare payments from the government for their research and development during and after the Cold War.

redpillguy said...

I didn't say corporations are bad. I'm saying CORPORATISM is bad. Mussolini has purportedly said that Fascism is more aptly called corporatism. Corporatism is when government and the corporations get in bed together; because power corrupts, that alliance will tend to pass laws and regulations that benefit themselves, usually at the expense of free market competition, and thus the consumer and the middle class.

FSK said...

Actually, corporations are bad. They are artificial creations of an abusive government.

Limited liability corporations allow management to do bad things without accountability or responsibility.

In the example of Enron, suppose management and shareholders were held accountable for the losses? That would encourage more responsible behavior.

redpillguy said...

You are correct. Corporations as they are today, are bad. Lack of accountability is one feature that's bad, another is the way corporations can own stock in another company, as a means of having layers of ownership, in order to hide the true owners and stockholders, is another.

FSK said...

On further reflection, there is another key point you are missing.

It is pointless to say "Laws benefit corporations." A corporation is an abstract entity. You cannot help or hurt an abstract fictional character.

A more accurate statement is "Laws benefit the wealthy people who control corporations." The same wealthy people write the laws and control all large corporations.

Similarly, it is wrong to say "The government raised taxes." It is more accurate to say "The wealthy people who control the government raised taxes." The government is an abstract fictional entity, just like a corporation.