Murstein Gets What’s Been Coming To Him For Years Of Committing Securities Fraud!!

A Medallion Financial (NASDAQ: MFIN) investor is suing Murstein and several board members for failing to fulfill their fiduciary obligation to shareholders.

Defendants on the board include Hank Aaron, formerly a baseball hero and Lowell Weicker, the formerly respected Governor and Senator from Connecticut.  Weicker was the first Republican senator to call for Nixon’s resignation before using his name to make a few bucks.

Sarah Frigo, fashion model cum investor relations expert, is also named in the action.

Among thousands of investors, the long-suffering, Murstein-screwed, MFIN stockholder brought the action against Murstein, his crony enablers and profiteers:

“…for breaches of fiduciary duties, unjust enrichment, aiding and abetting, and violations of law. These wrongs resulted in hundreds of millions of dollars in damages to Medallion’s reputation, goodwill, and standing in the business community. Moreover, these actions have exposed the Company to millions of dollars in potential liability for violations of section 17(b)of the Securities Act of 1933…SEC Rule 10b-5…”

“…Section 17(b) of the Securities Act makes it unlawful for any person to tout stocks for consideration without fully disclosing the consideration. Because defendant Frigo failed to disclose her compensation (and her identity), her articles and posts were materially misleading statements and she attempted to increase the Company’s share price, in violation of…SEC Rule 10(b)-5…”

The author of the filing is kind to cite as the first mention of Murstein’s security fraud, my November 18, 2016 blog post titled: “Jayme Stanley Outed as MF1N Tout”.

Post 2: Murstein Gets What’s Been Coming To Him For Years Of Committing Securities Fraud!!

However, my article resulted from a tip from “DeepResearch707” published two days earlier on November 16, 2016 in comment-73632260 cited in the link below. He is a very talented researcher and Seeking Alpha contributor.

Post 3: Murstein Gets What’s Been Coming To Him For Years Of Committing Securities Fraud!!

Readers also please note: a much, much more thorough article was published on February 6, 2017 by “Permabear”, also a talented and very articulate Seeking Alpha contributor. “Permabear” may or may not be the same person as “DeepResearch707”.

Post 4: Murstein Gets What’s Been Coming To Him For Years Of Committing Securities Fraud!!

The lawsuit specifically cites the Board’s failure to prevent Murstein from hiring Sarah Frigo, an inexperienced and uneducated fashion model, with no financial training or expertise, to pen putatively independent financial articles under a false name, and getting those articles placed in various online publications in an effort to promote the stock.

The content of Frigo’s articles, allegedly had to come from the company, given her lack of experience in the subject matter. Those articles suggested the very real problems plaguing the company’s operating and stock price performance were overblown, and the company, in turn, provided links on its website to the Frigo articles.

As noted above, promoting a company under false pretenses – using a pseudonym and implying expertise not actually present – without disclosing payment from the company itself, CONSTITUTES SECURITIES FRAUD, as is the company knowingly touting the misleading articles.

The lawsuit alleges the credibility of the company crashed when these facts came to light, exacerbating the very real problems posed by the emergence of Uber and Lyft, causing significant damages in the form of a falling stock price.

As extensively documented online since 2014, several other authors committed securities fraud in a conspiracy with Murstein, his profiteering cronies and others benefiting from the MFIN scam.

Members of the media, potential MFIN stockholder litigants and cowardly, willing-to-roll-over-witnesses (including Lawrence “Larry” Meyers) should contact Federal and State law enforcement and:

Thomas Amon Law
Securities Counsel
156 West 56th Street
11th Floor
New York, NY 10009
(212) 810-2430


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Thomas Ricks On The New American Civil War

Will we have a 2nd Civil War? You tell me.

Foreign Policy
MARCH 7, 2017

What are the chances of another civil war breaking out in this country in the next 10 to 15 years?

Definition: By “civil war,” I don’t necessarily mean set-piece battles and Pickett’s Charge. I do mean widespread political violence with parallel (though not necessarily connected) efforts to reject current political authority in certain legal domains or physical spaces.

I asked a group of smart national security thinkers that question the other day over my wild boar burger at Austin’s Dai Due. I was surprised that the range of answers ran from “five percent” to “95 percent.” I would say the consensus was about 35 percent.

What do you think are the chances? Please email me or answer in the comments. I will try to keep track of the consensus number.

Speaking of the Civil War, Capt. Decimus Et Ultimus Barziza, nicknamed “Pinney,” was a Texan who fought for the Confederacy in Pickett’s Charge, during which he was taken captive.

Will we have a civil war? A SF officer turned diplomat estimates chances at 60 percent

Foreign Policy
MARCH 10, 2017
By Keith Mines
Best Defense guest respondent

What a great but disturbing question (the fact that you can even ask it). Weird question for me as for most of my career I have been traveling the world observing other countries in various states of dysfunction and answering this same question. In this case if the standard is large scale violence that requires the National Guard to deal with in the timeline you lay out, I would say about 60 percent.

I base that on the following factors:

— Entrenched national polarization of our citizenry with no obvious meeting place. (Not true locally, however, which could be our salvation; but the national issues are pretty fierce and will only get worse).

— Press and information flow is more and more deliberately divisive, and its increasingly easy to put out bad info and incitement.

— Violence is “in” as a method to solve disputes and get one’s way. The president modeled violence as a way to advance politically and validated bullying during and after the campaign.  Judging from recent events the left is now fully on board with this, although it has been going on for several years with them as well — consider the university events where professors or speakers are shouted down and harassed, the physically aggressive anti-Israeli events, and the anarchists during globalization events. It is like 1859, everyone is mad about something and everyone has a gun.

— Weak institutions — press and judiciary, that are being further weakened. (Still fairly strong and many of my colleagues believe they will survive, but you can do a lot of damage in four years, and your timeline gives them even more time).

— Total sellout of the Republican leadership, validating and in some cases supporting all of the above.

Events that could spark it:

— Impeachment of the president or his fall from office.

— Major terrorist attack and sense that the establishment can’t manage security — vigilantes, etc.

— Opaque call to action by a failing president. (Consider Haiti’s Aristide.)

— Economic downturn, with blame placed on certain groups by the President and his people. Self-protection begets militias on both sides.

— Racial event that spirals out of control.

— A war gone really bad that polarizes the country, with blame apportioned in such a way that groups start to lash out.

Here’s other interesting scenarios to consider:

— Military coup. I can easily see a scenario in which a wartime decision is so bad it has to be disobeyed, and in the course of consolidating the refusal to carry it out, the only real recourse is to remove the president.

— Breakup of the republic. I was thinking about what it would take for things to start to break apart. This is much more than 15 years out, but some of the above could spark it, where we realize we are just different peoples and fundamentals divide us so strongly on core issues that it no longer works. I could see six states — California and the West Coast, the Rockies, the Heartland, the South, and the Northeast.  Texas gets its own gig.

— Precipitous decline. Could be defined in a number of different ways, and I guess we are already in it. But certainly internationally it could happen very quickly, and I think the results are very unclear. A large ship (the international order) losing its anchor (America) in a storm, could lead to all sorts of consequences.

All this makes me think of Hackett’s 1985, which as I understood it, was written to warn off the decline of Western military power that was in play, and spark the needed reforms and new systems. Perhaps we should be writing also about what it would take now to stave any of this off.

And it reminds me of Pericles’ funeral oration, which I was reviewing recently for a book I am working on. We once, of all the nations of the modern age, embodied this; we would find it nearly incomprehensible now.

“If we turn to our military policy, there also we differ from our antagonists. We throw open our city to the world, and never by alien acts exclude foreigners from any opportunity of learning or observing, although the eyes of an enemy may occasionally profit by our liberality; trusting less in system and policy than to the native spirit of our citizens; while in education, where our rivals from their very cradles by a painful discipline seek after manliness, at Athens we live exactly as we please, and yet are just as ready to encounter every legitimate danger.

“…the palm of courage will surely be adjudged most justly to those, who best know the difference between hardship and pleasure and yet are never tempted to shrink from danger. In generosity we are equally singular, acquiring our friends by conferring, not by receiving, favours.”

They loved Athens, because she first loved them. They sacrificed for her, because she was worthy of sacrifice. To us, it all about the spoils.

Keith Mines served as a special forces officer in Central America and Grenada and has served with the Foreign Service in El Salvador, Haiti, Mexico, Hungary, Afghanistan, Iraq, Darfur, and Israel. The views expressed are solely his own based on years of observing political transitions.

What are the chances of a second American Civil War? (A Best Defense update)

Foreign Policy
JUNE 28, 2017

Last time out, in early March, when we discussed this, the consensus number for national security experts was at about 30 percent, with some outliers at 60 percent and even 95 percent. The informed public (that is, the rest of Best Defense readers) were about 18 percent. Since then I have received several notes saying that number may be too low.

What number are you at now on the possibility of the United States going through a period of large-scale political violence? Either email me or post a comment, and I will compile results.

You say you need a definition? Ok, here is one from Correlates of War database:

“Civil War: The classification of civil war was built on three dimensions: internality, types of participants, and the degree of effective resistance. In general, a civil war was defined as any armed conflict that involved; (1) military action internal to the metropole of the state system member; (2) the active participation of the national government; (3) effective resistance by both sides; and (4) a total of at least 1,000 battle-deaths during each year of the war.”


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Bannonism Failed Implementation Under Trump — However Beware For The Future

Excerpted from:

Devil’s Bargain: Steve Bannon, Donald Trump, and the Storming of the Presidency
By Joshua Green
Publication Date: July 18, 2017
Penguin Publishing Group. Kindle Edition.
p. 204 – 208 

By now, Bannon’s term for his politics, and Trump’s—“ nationalism”— was already in wide circulation in the political press. But the term’s meaning was (and remains) confusing and has never been fully explicated. While Trump’s embrace of “America first” nationalism was chiefly due to its resonance as a campaign slogan, Bannon’s attraction to it had a far deeper and more complicated lineage.

From an early age, Bannon was influenced by his family’s distinctly traditionalist Catholicism and tended to view current events against the broad sweep of history. Though hardly a moralizing social conservative, he objected bitterly to the secular liberalism encroaching upon the culture. “We shouldn’t be running a victory lap every time some sort of traditional value gets undercut,” he said in 2015. While he was still in the Navy, Bannon, a voracious autodidact, embarked upon what he described as “a systematic study of the world’s religions” that he carried on for more than a decade.

Taking up the Roman Catholic history first instilled in him at Benedictine, his Catholic military high school, he moved on to Christian mysticism and from there to Eastern metaphysics. (In the Navy, he briefly practiced Zen Buddhism before wending his way back to Tridentine Catholicism). Bannon’s reading eventually led him to the work of René Guénon, an early-twentieth-century French occultist and metaphysician who was raised a Roman Catholic, practiced Freemasonry, and later became a Sufi Muslim.

There are many forms of traditionalism in religion and philosophy. Guénon developed a philosophy often referred to as “Traditionalism” (capital “T”), a form of antimodernism with precise connotations. Guénon was a “primordial” Traditionalist, a believer in the idea that certain ancient religions, including the Hindu Vedanta, Sufism, and medieval Catholicism, were repositories of common spiritual truths, revealed in the earliest age of the world, that were being wiped out by the rise of secular modernity in the West. What Guénon hoped for, he wrote in 1924, was to “restore to the West an appropriate traditional civilization.” Guénon, like Bannon, was drawn to a sweeping, apocalyptic view of history that identified two events as marking the beginning of the spiritual decline of the West: the destruction of the Order of the Knights Templar in 1314 and the Peace of Westphalia in 1648. Also like Bannon, Guénon was fascinated by the Hindu concept of cyclical time and believed that the West was passing through the fourth and final era, known as the Kali Yuga, a six-thousand-year “dark age” when tradition is wholly forgotten.

The antimodernist tenor of Guénon’s philosophy drew several notable followers who made attempts during the twentieth century to re-enchant the world by bringing about this restoration. The most notorious of these was Julius Evola, an Italian intellectual and the black sheep of the Traditionalist family. A monarchist and racial theorist who traced the descent of the Kali Yuga to interwar European politics, Evola, unlike Guénon (a pious Muslim chiefly interested in spiritual transformation), took concrete steps to incite societal transformation. By 1938, he had struck an alliance with Benito Mussolini, and his ideas became the basis of Fascist racial theory; later, after he soured on Mussolini, Evola’s ideas gained currency in Nazi Germany.

The common themes of the collapse of Western civilization and the loss of the transcendent in books such as Guénon’s The Crisis of the Modern World (1927) and Evola’s Revolt Against the Modern World (1934) are what drew Bannon’s interest to Traditionalism (although he was also very much taken with its spiritual aspects, citing Guénon’s 1925 book, Man and His Becoming According to the Vedanta, as “a life-changing discovery”).* Bannon, more synthesist than adherent, brought to Guénon’s Traditionalism a strong dose of Catholic social thought, in particular the concept of “subsidiarity”: the principle expressed in Pope Pius XI’s 1931 encyclical, Quadragesimo anno, that political matters should devolve to the lowest, least centralized authority that can responsibly handle them— a concept that, in a U.S. political context, mirrors small-government conservatism.

Everywhere Bannon looked in the modern world, he saw signs of collapse and an encroaching globalist order stamping out the last vestiges of the traditional. He saw it in governmental organizations such as the European Union and political leaders such as German chancellor Angela Merkel, who insisted that countries forfeit their sovereignty, and thus their ability to maintain their national character, to distant secular bureaucrats bent on erasing national borders. He saw it in the Roman Catholic Church, whose elevation of Pope Francis, “a liberal-theology Jesuit” and “pro-immigration globalist,” to replace Pope Benedict XVI so alarmed him that, in 2013, he established Breitbart Rome and took a Vatican meeting with Cardinal Raymond Burke in an effort to prop up Catholic traditionalists marginalized by the new Pope.

More than anywhere else, Bannon saw evidence of Western collapse in the influx of Muslim refugees and migrants across Europe and the United States— what he pungently termed “civilizational jihad personified by this migrant crisis.” Expounding on this view at a 2014 conference at the Vatican, Bannon knit together Guénon, Evola, and his own racial-religious panic to cast his beliefs in historical context. Citing the tens of millions of people killed in twentieth-century wars, he called mankind “children of that barbarity” whose present condition would one day be judged “a new Dark Age.” He added, “We are in an outright war against jihadist Islamic fascism. And this war is, I think, metastasizing far quicker than governments can handle it.”

Bannon’s response to the rise of modernity was to set populist, right-wing nationalism against it. Wherever he could, he aligned himself with politicians and causes committed to tearing down its globalist edifice: archconservative Catholics such as Burke, Nigel Farage and UKIP, Marine Le Pen’s National Front, Geert Wilders and the Party for Freedom, and Sarah Palin and the Tea Party. (When he got to the White House, he would also leverage U.S. trade policy to strengthen opponents of the EU.) This had a meaningful effect, even before Trump. “Bannon’s a political entrepreneur and a remarkable bloke,” Farage said. “Without the supportive voice of Breitbart London, I’m not sure we would have had a Brexit.”

For all his paranoid alarm, Bannon believes that the rise of nationalist movements across the world, from Europe to Japan to the United States, heralds a return to tradition. “You have to control three things,” he explained, “borders, currency, and military and national identity. People are finally coming to realize that, and politicians will have to follow.” The clearest example of Traditionalist political influence today is in Russia. Vladimir Putin’s chief ideologist, Alexander Dugin— whom Bannon has cited— translated Evola’s work into Russian and later developed a Russian-nationalist variant of Traditionalism known as Eurasianism. Bannon initially thought restoration lay in a rising political generation still some years off: figures such as Frauke Petry, of Germany’s right-wing Alternative für Deutschland, and Marion Maréchal-Le Pen, niece of Marine, whose politics he approvingly described as “practically French medieval,” adding: “She’s the future of France.”

It took some time for him to realize that in Trump (whose familiarity with French metaphysics, we can be certain, is no more than glancing) he had found a leader who could rapidly advance the nationalist cause. In the summer of 2016, Bannon described Trump as a “blunt instrument for us.” But by the following April, Trump was in the White House and Bannon had raised his estimation of him to pathbreaking leader. “He’s taken this nationalist movement and moved it up twenty years,” Bannon said. “If France, Germany, England, or any of these places had the equivalent of a Donald Trump, they would be in power. They don’t.”

When he took over Trump’s campaign in August, Bannon did indeed run a nationalist, divisive campaign in which issues of race, immigration, culture, and identity were put front and center. This wasn’t by accident or lacking in purpose, even if the candidate himself didn’t care to understand its broader historical context. By exhuming the nationalist thinkers of an earlier age, Bannon was trying to build an intellectual basis for Trumpism, or what might more accurately be described as an American nationalist-Traditionalism. Whatever the label, Trump proved to be an able messenger.

End of excerpt

Keeping in mind Bannon synthesized ideas from the two authors cited above rather than being an adherent, more information with many links can be found within their Wikipedia entries.

René Guénon
The Crisis of the Modern World (1927)

Julius Evola
Revolt Against the Modern World (1934)













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Medallion transfer values for Q2 2017 are now in for New York, Chicago and Boston.

The value of Boston taxi medallions reached a new low of $50,000 for the quarter ending June 30, 2017.

Boston medallion #711 was transferred on May 16, 2017 by Larisa Pogreb, as S L CAB, INC, to Navjit Singh, as JATT CAB, INC, in an all cash deal for $50,000. Pogreb’s husband and business partner is Mikhail J. Deychman. She can be reached at (617) 553-0824.

Pogreb’s loan from Brookline Bank (NASDAQ: BRKL) was paid in full on June 6, 2017. In a previous disclosure BRKL reported $36,000,000 in taxi medallion loans. For more information, you can contact Carl Carlson, Chief Financial Officer,, (617) 425-5331.

Since the peak price of $700,000 in spring 2014, Boston medallions have dropped 93% in value to $50,000.

As of December 31, 2016, MFIN reported to the SEC a portfolio value based on a Boston price of $300,000. Marking to market as of June 30, 2017 requires an 83% drop in the value of their Boston portfolio over the 6 months.

Since the peak price of $1,050,000 for an individual medallion in spring 2014, New York medallions have dropped 87% in value to $150,000.

As of December 31, 2016, MFIN reported to the SEC a portfolio value based on a New York price of $500,000. Marking to market as of June 30, 2017 requires a 72% drop in the value of their New York portfolio over the 6 months.

Since the peak price of $375,000 in spring 2014, Chicago medallions have dropped 88% in value to $45,000.

As of December 31, 2016, MFIN reported to the SEC a portfolio value based on a Chicago price of $60,000. Marking to market as of June 30, 2017 requires a 25% drop in the value of their Chicago portfolio over the 6 months.

The 10Q for the quarter ending June 30, 2017 will be published during the first week of August 2017.

The values of New York, Chicago and Boston medallions used to report the balance sheet by Andrew Murstein, MFIN management and MFIN’s Board of Directors MUST REFLECT A 70% LOWER weighted average of ACTUAL MARKET PRICES as of June 30, 2017 compared to the wildly inflated values they used for December 31, 2016.

If medallion values used to estimate the sickness of the balance sheet are not used, then Murstein and his cronies are lying to you and have committed securities fraud.


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4 Concrete Proposals for Economic Justice

Progressive FB Friends:

Part of the movement to #resist Traitor Trump is to agree on a SPECIFIC and POSITIVE agenda for all Americans, whether or not they voted for Trump. Trump is the enemy, NOT 37% of our fellow Americans.

4 Concrete Proposals for Economic Justice

  1. Establish a permanent direct job creation program, meaning either jobs created by the government or publicly subsidized private employment
  2. Expand the earned-income tax credit into the working class
  3. Increase the minimum wage to $15 in all 50 states
  4. Provide a universal child allowance: of $250 a month per child

Progressives will be playing defense for many years to come. But let’s also make sure we’re ready to roll with a true progressive agenda when our time comes.

Please share this article below

Is There an Emerging Democratic Agenda?

The New York Times
JUNE 5, 2017

While Donald Trump and his Congressional majority continue to push a harsh, hard-right ideology, so far they’ve been a legislative failure. And for good reason: For years, all they did was oppose Barack Obama and the Democrats, without bothering to develop an actual governing agenda of their own. Democrats must not make the same mistake. Playing defense is necessary, but it is not sufficient.

In fact, under the surface tension, a robust, highly progressive agenda has been coming together in recent months, one with the potential to unite both the Hillary and Bernie wings of the party, to go beyond both Clintonomics and Obamanomics.

These ideas come from the left wing of the party, but I’ve noticed more and more centrist Democrats, along with establishment donors, who increasingly recognize the need, in both substantive economic and electoral terms, to get outside the old boxes and go bold.

One of the boldest ideas coming down the pike is a universal child allowance: a monthly stipend for all families with children. International data show that child poverty in America remains at 20 percent — twice the rate in Germany and seven times the rate in Denmark.

Those countries, and most other advanced economies, provide regular payments to families with children based on the recognition that investing in children is an essential public good. Yet here in the United States, though we have a patchwork of programs, the lowest-income children often get no income support, while children in wealthy families benefit from generous tax deductions.

A child allowance of $250 a month per child would cost about $190 billion a year, though half of those costs could be offset by consolidating existing, less-efficient policies. It would cut child poverty by 40 percent and deep child poverty by half, while providing middle-income families raising children with a baseline level of stable income.

Next, even as we close in on full employment, there are parts of America where job growth and labor force participation are well below the national average. Historically, public policy tries to help such left-behind areas through place-based tax credits, but their track record is dismal. If we want to help places with too little labor demand, we must implement direct job creation policies, meaning either jobs created by the government or publicly subsidized private employment.

Infrastructure build-outs can help, but what’s really needed is a permanent, scaled-up version of a subsidized jobs program that worked well in the last recession. The program helped create about 250,000 jobs, many of which were in the private sector, by subsidizing wages for a fixed time period. One careful study from Florida’s version of the program found that, relative to a control group, participants’ work and earnings went up not just during the program, but after it as well.

While direct job creation will help achieve the necessary job quantity, we also must boost job quality. A strong idea in that regard is an expansion of the earned-income tax credit into the working class. The tax credit is both broadly popular and very successful: In 2015, it lifted 6.5 million people, including 3.3 million children, out of poverty.

A recent analysis asked: What would it take for the earned-income tax credit to offset the damage done to low- and moderate-wage earners by the forces of inequality that have steered growth away from them in recent decades? The answer is a $1 trillion expansion in the wage subsidy over the next decade. A family of four making $40,000 would get a tax credit of about $6,000 instead of its current benefit of about $2,000.

Even in Washington, $1 trillion is real money, but I like the way one tax expert, Chuck Marr, put it: “For less than one-fifth of the cost of the Trump tax plan, we could improve the lives of millions of working-class people.”

A higher minimum wage is yet another idea drawing broad liberal support.

Remarkably, the federal minimum wage is still $7.25, though most states and many localities have their own higher version of it. Still, 21 states remain on the federal level, and the “fight for $15” has been an important and successful movement by and on behalf of low-wage workers. One new estimate finds that 41 million workers would get a boost from this policy. More of them have college degrees than are teenagers. In other words, the devolution of low-wage work in America means that families often depend on a minimum-wage earner.

Some job displacement is possible given an ambitious increase like this, but a new proposal from congressional Democrats doesn’t get to $15 until 2024, giving employers time to adjust.

Though Democrats have written bills for most of these ideas, no one expects them to go anywhere in this Congress. What’s important is that such ideas, once the domain of the party’s left wing, now face a diminished resistance from centrists, who once viewed them as too expensive and too interventionist. The bold minimum wage increase has 152 supporters in the House and 31 in the Senate.

Progressives will be playing defense for many years to come. But let’s also make sure we’re ready to roll with a true progressive agenda when our time comes.



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In Uber Era, Chicago’s Taxicab Industry Disappearing, Study Finds

A new study details the problems faced by Chicago’s taxi drivers. | Sun-Times files

The American Federation of State, County and Municipal Employees Local 2500 represents hundreds of cabdrivers and is continuing to organize the others.

To bolster its case, the union asked statistician James Bradach of Nonprofit Data and Applications to analyze countless pieces of information disjointedly made available in on the city’s data portal.

His report, “Run Off the Road: Chicago’s Taxi Medallion Foreclosure Crisis,” shows a surge in medallion foreclosures and a precipitous drop in both taxicab trips and driver income in the three years since City Hall created an unlevel regulatory playing field between taxis and ride-hailing.

The study’s findings include:

  • 227,033 ride-hailing vehicles registered with the city as of April competing with 6,999 taxi medallions.
  • The number of “monthly taxi trips” on the streets of Chicago has dropped by 52 percent over the last three years — from 2.3 million to 1.1 million.
  • 774 medallions have been “surrendered to the city at some point,” with 579 more receiving foreclosure notices and 107 lawsuits filed since October.
  • 2,940 taxis or 42 percent of the city’s 6,999 taxi medallions were classified as “inactive” in March after having failed to pick up a single passenger in the previous month. That means those licenses face “imminent foreclosure in the coming months,” the study says. In March, 2014, 16 percent of medallions were inactive.
  • Average monthly gross income for every one of the city’s active taxicab medallions has fallen over the last three years — from $5,276 to $3,206.
  • Cabdrivers who were eking out a $19,000 annual living after expenses in 2013 are now operating $4,000 in the red. That’s because their $44,000 in annual expenses have remained the same while business has plummeted.
  • 39 percent of the city’s taxicab medallions are owned by small business with four or fewer licenses.

To keep a shrinking taxicab industry from disappearing altogether, AFSCME Local 2500 is demanding what it calls “comprehensive reform.”

Specifically, the union wants the City Council to: Eliminate the vehicle age limit so long as the cab can pass inspection; waive the ground transportation tax for struggling drivers; and eliminate the medallion license renewal fee.

The union is further demanding that City Hall: “Enact protections for lease drivers in the event of a fleet bankruptcy; reinstate the lottery for city-owned medallions to reduce operating costs for lease drivers; strengthen foreclosure protections in the city medallion owner rules; and eliminate “regulatory barriers” standing in the way of a “driver-to-passenger taxi ehail app” that competes with Uber and Lyft.

Ald. Anthony Beale (9th), chairman of the City Council’s Transportation Committee, said the AFSCME study underscores his biggest fears.

“I’ve said all along that the system was stacked against the cab industry and that allowing Uber and Lyft to come in unregulated put the entire cab industry at a disadvantage,” Beale said.

“In five to seven years, you’re gonna have autonomous vehicles and no people working. All you’re gonna have left is driverless vehicles,” he said. “We need to fight for jobs and keep people employed. If we allow technology to put people out of work while the fat cats at the top make millions, the whole economy as we know it is gonna collapse. The road we’re going down is going to eliminate hundreds of thousands of jobs that people are out here trying to make a living. You see it happening.”

John Aikins is one of those people.

He and his wife own two medallions, one of them purchased for $330,000 just five years ago, when cab licenses were still a “hot commodity.”

When the bubble burst, they couldn’t find a dependable driver for the second medallion and fell behind on their loans. After failing in their attempts to seek a loan modification, the lender filed suit to foreclose against them. With three children, the couple had no choice but to file for bankruptcy.

“Things are really bad. If you don’t go to the airport and wait three hours to get a fare, it’s very difficult to find fares in the city because there are so many ride-share cars. I’ve driven all the way from Belmont to Chestnut downtown and nobody flags me down,” Aikins said Thursday.

“I have three college-age children. One is thinking of moving from the dorm next semester,” he said. “Once the bankruptcy goes through, it’s going to be very hard to get any student loans for him. Fortunately, his school is not too far from where he live. So he can commute until things stabilize.”

He added, “I don’t blame Uber or Lyft for coming in. But the city has been so unfair, it’s beyond belief. Ride-sharing companies come in and the city didn’t do anything [while] we are following the same stringent rules and regulations and taxes.”

Veteran cabdriver Gilbert Uranta purchased his medallion in 2006 and still owes more than $260,000. But he hasn’t been able to make a payment on the loan for six months.

While waiting for the ax to fall in the form of a foreclosure lawsuit, the father of three has finally scheduled the knee replacement surgery he has been putting off because it will sideline him for three months.

“I’m not saying they shouldn’t have Uber. But there are too many of Uber. When you have more than 200,000 Ubers competing with 7,000 cabs, it’s difficult to make money. I start work at 4 a.m. By 7 p.m, I’m still on the street. I can’t can’t make enough money if I work 10 hours,” Uranta said.

“Things are not like what they used to be. I can’t take my kids on vacation like I used to,” he said. “I just have to make sure we survive by working extra hours. My own self with my wife — there are so many things we cannot do. We have to put the kids first.”

Earlier this year, the U.S. Supreme Court dealt the struggling taxicab industry what appeared to be a final blow.

By refusing to hear the taxi industry’s appeal, the nation’s highest court let stand a federal appeals court ruling last fall that snuffed out an attempt by the cab companies to level what they called an uneven playing field that favors Uber, whose investors include Mayor Rahm Emanuel’s brother.

The appeals court ruling essentially said that the business models between taxis and ride-hailing services are different and, therefore, they can continue to operate under different sets of rules in Chicago.

That decision validated a 2014 City Council ordinance that let Uber and Lyft operate in the city without taxi medallions, city-regulated fares, fingerprinting or other standards cab companies and their drivers must follow.

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The New Class War

The New Class War

The Cold War has been followed by the class war. A transatlantic class war has broken out simultaneously in many countries between elites based in the corporate, financial, and professional sectors and working-class populists. Already this transnational class conflict has produced Brexit and the election of Donald Trump to the American presidency. Other shocks are likely in store.

None of the dominant political ideologies of the West can explain the new class war, because all of them pretend that persisting social classes no longer exist in the West. Neoliberalism—the hegemonic ideology of the transatlantic elite—pretends that class has disappeared in societies that are purely meritocratic, with the exception of barriers to individual upward mobility that still exist because of racism, misogyny, and homophobia. Unable to acknowledge the existence of social class, much less to candidly discuss class conflicts, neoliberals can only attribute populism to bigotry or irrationality.

Like neoliberalism, mainstream conservatism denies the existence of classes in the West. Along with neoliberals and libertarians, conservatives assume that the economic elite is not a semi-hereditary class but merely an ever-changing, kaleidoscopic aggregate of talented and hard-working individuals. Meritocratic capitalism is threatened from within by a “new class” consisting of progressive intellectuals—professors, journalists, and nonprofit activists—who are said to be vastly more powerful than CEOs and investment bankers.

Marxism at least takes classes and class conflict seriously. But classical Marxism, with its secularized, providential theory of history and its view of industrial workers as the cosmopolitan agents of global revolution, has always been deluded.

Fortunately, there exists a body of thought that can explain the current upheavals in the West and the world very well. It is James Burnham’s theory of the managerial revolution, supplemented by the economic sociology of John Kenneth Galbraith. Burnham’s thought has recently enjoyed a revival among thinkers of the center and center-right, including Matthew Continetti, Daniel McCarthy, and Julius Krein. Unfortunately, Galbraith’s sociology, along with his economics, remains out of fashion.

In their politics, Burnham and Galbraith could hardly have been more different, despite their shared friendship with William F. Buckley Jr. The patrician Burnham was a leader in the international Trotskyist movement before becoming zealously anticommunist and helping to found the post–World War II conservative movement. Galbraith, in contrast, was a passionate liberal throughout his life.

Yet both believed that a new ruling elite had displaced the old bourgeois and aristocratic estates. Burnham, following Adolf Berle and Gardiner Means’s The Modern Corporation and Private Property (1932), coined the term “the managerial elite” in his worldwide bestseller The Managerial Revolution (1941). Later, in The New Industrial State (1967), Galbraith called the same group the “technostructure.” In his memoir A Life in Our Times (1981), Galbraith wrote: “James Burnham, partly because he was a stalwart right-winger well out of the political mainstream and partly because he was not a certified academician, never got full credit for his contribution. In early editions of The New Industrial State I was among those in default.”

In his essay “Second Thoughts on James Burnham,” George Orwell provided a succinct summary of Burnham’s thesis:

Capitalism is disappearing, but Socialism is not replacing it. What is now arising is a new kind of planned, centralized society which will be neither capitalist nor, in any accepted sense of the word, democratic. The rulers of this new society will be the people who effectively control the means of production: that is, business executives, technicians, bureaucrats and soldiers, lumped together by Burnham, under the name of “managers.” These people will eliminate the old capitalist class, crush the working class, and so organize society that all power and economic privilege remain in their own hands. . . . The new “managerial” societies will not consist of a patchwork of small, independent states, but of great super-states grouped round the main industrial centers in Europe, Asia and America. These super-states will fight among themselves for possession of the remaining uncaptured portions of the earth, but will probably be unable to conquer one another completely. Internally, each society will be hierarchical, with an aristocracy of talent at the top and a mass of semi-slaves at the bottom.

The thesis of this essay is that the theory of the managerial elite explains the present transatlantic social and political crisis. Following World War II, the democracies of the United States and Europe, along with Japan—determined to avoid a return to depression and committed to undercutting communist anti-capitalist propaganda—adopted variants of cross-class settlements, brokered by national governments between national managerial elites and national labor. Following the Cold War, the global business revolution shattered these social compacts. Through the empowerment of multinational corporations and the creation of transnational supply chains, managerial elites disempowered national labor and national governments and transferred political power from national legislatures to executive agencies, transnational bureaucracies, and treaty organizations. Freed from older constraints, the managerial minorities of Western nations have predictably run amok, using their near-monopoly of power and influence in all sectors—private, public, and nonprofit—to enact policies that advantage their members to the detriment of their fellow citizens. Derided and disempowered, large elements of the native working classes in Western democracies have turned to charismatic tribunes of anti-system populism in electoral rebellions against the selfishness and arrogance of managerial elites.

This essay will conclude with speculation about the possibility of new cross-class settlements among dominant managerial minorities and subordinate working-class majorities in developed nations. These new settlements, if they emerge, will have two characteristics. Like the older settlements, they will be negotiated at the nation-state level, not at the transnational level. And just as the older social settlements were influenced by the world wars and the Cold War, so future cross-class settlements among managers and workers will be influenced by whether the geopolitical context is one of great-power peace or great-power rivalry.

The Managerial Elite: Past and Present

While Burnham and Galbraith included engineers and scientists in the new elite, they were not describing a technocracy run by PhDs. The most important managers are private and public bureaucrats who run large national and global corporations and exercise disproportionate influence in politics and society. Some are independently wealthy, but most are salaried employees or fee-earning professionals. Most of today’s billionaires were born into this upper-middle class, and their descendants tend to disappear back into it in a generation or two. Actual hereditary aristocrats who survive in the modern West are anachronisms who, for the most, part avoid ridicule by disguising themselves as hard-working professionals and managers.

To many in the 1940s and since, Burnham’s description of New Deal America, Nazi Germany, Imperial Japan, and the Soviet Union as variants of the managerial society seemed outlandish. But since the collapse of Communism, in democratic and authoritarian states alike, the global norm in both developed and developing countries has been some version of the mixed economy with substantial private and government sectors.

How big is the managerial elite? A rough surrogate is higher education. Only around a third of Americans have bachelor’s degrees. But many of these are degrees from low-ranked colleges whose holders are best understood as belonging to the upper strata of the working class. Using professional and graduate degrees as a surrogate for membership in the managerial elite would make it no more than ten or fifteen percent of the population.

Are the managers a class as well as an elite? In a purely meritocratic society, the ranks of the managerial elite might be refilled completely by upwardly mobile individuals in each generation. In the United States, however, the majority of American college students come from the minority of families in which one or both parents have college degrees. In other Western democracies as well, membership in the managerial class appears to be mostly hereditary, though partly open to talent from below.

Whatever you call this post-bourgeois elite—the managers or the technostructure—its power base is in the core of what Galbraith called “the bimodal economy”—capital-intensive, science-based, high-tech industries like manufacturing and the business and financial services which they rely on. Increasing returns to scale produce a tendency for immense size in these industries, which tend therefore to be dominated by efficient oligopolies or monopolies. Galbraith called this “the planning system,” referring to the private planning done within huge corporations that partly replaces markets with internal administration. Something like the older economy of small, owner-operated businesses and competitive local markets continues to exist around the managerial-industrial core, in what Galbraith called “the market system.” The economic historian Alfred D. Chandler Jr. confirmed Galbraith’s analysis, using the terms “core” and “periphery” for Galbraith’s planning and market systems. For Galbraith and Chandler as well as for Burnham, industrialization changes the landscape forever, like the eruption of a volcano in the middle of a plain filled with small villages.

The managerial theory of society is an elitist theory, not a pluralist one. In Burnham’s words:

From the point of view of the theory of the ruling class, a society is the society of its ruling class. . . . Political history and political science are thus predominantly the history and science of ruling classes, their origin, development, composition, structure and changes.

The private, public, and nonprofit sectors in modern developed nations do not have separate and distinct elites that can be counted upon to check each other. Instead, the private sector tends to dominate the public sector through campaign finance, and the nonprofit sector through donations. Even in the absence of these methods of elite coordination, the fact that almost all of the personnel of elite institutions of all kinds belong to the managerial-professional class and have similar educations and shared outlooks produces a common mentality, tending toward Orwellian groupthink among corporate executives, investment bankers, elected politicians, civil servants, and nonprofit leaders. Managerial dominance is reinforced by lateral mobility at the top levels of society. Diplomats become investment bankers, investment bankers become ambassadors, generals sit on corporate boards, and corporate executives sit on nonprofit boards.

Neither Burnham nor Galbraith believed that the managerial elite was innately evil or illegitimate. Indeed, both thought that dynamic, large corporations and competent bureaucracies were necessary for technological innovation and economic growth. And they did not believe that managers formed a single global ruling class, any more than capitalists and feudal landlords had in the past. Both Burnham’s managerial elite and Galbraith’s technostructure were rooted in particular nation-states, even if those acted merely as springboards for the geopolitical and economic ambitions of particular groups of managers.

While neither sought to reverse the managerial revolution, both Burnham and Galbraith worried about the concentration of wealth, power, and prestige in the new elite. As realists, they believed that the power of the managerial class could only be checked by what Galbraith called “countervailing power” and what Burnham, following the Italian theorist Gaetano Mosca, called “the juridical defense.” Both phrases refer to actual social balances of power, not merely the paper checks and balances of written constitutions.

National Industrial Consolidation

The replacement of entrepreneurial capitalism by large-scale modern managerial capitalism took place relatively rapidly in North America and Western Europe around the turn of the twentieth century. In the United States, the prohibition of cartels combined with a permissive attitude toward mergers and acquisitions produced what historian Naomi Lamoreaux has called the first great merger movement of 1895 to 1904. In a single decade, 1,800 enterprises—most of them in the manufacturing industry—were consolidated into only 157 firms.

Following the wave of consolidation, the structure of the American economy was remarkably stable between World War I and the late twentieth century. In both 1917 and 1973, 22 of the largest 200 firms were in the petroleum industry, and many of them were the same firms. Likewise, in both 1917 and 1973, 5 of the biggest 200 corporations were in the rubber industry, and 4 were the same (Goodyear, Goodrich, Firestone, and Uniroyal). Machinery companies—many of them the same—accounted for 20 of the 200 biggest firms in 1917 and 18 in 1973. In transportation equipment and food products there were similar continuities. Even John D. Rockefeller’s Standard Oil lived on, in the guise of various “baby Standards” created from the court-ordered breakup of the company in 1911, including some like ExxonMobil that grew into global Leviathans.

A 1972 study showed that the level of industrial competition was still similar in all mature industrial economies. In Britain, for example, between 1909 and 1970 the share of all net manufacturing output of the hundred largest firms grew from 16 percent to 45 percent.

This global pattern cannot be explained in terms of the peculiarities of American corporate law or politics. When Chandler studied 379 manufacturing companies with more than twenty thousand employees in 1973, which were then divided roughly equally between the United States and abroad, he discovered that the ratios were amazingly similar: 22 transportation equipment companies in the United States and 22 abroad; 20 electrical machinery companies in the United States compared to 25 abroad; 24 chemical companies in the United States compared to 28 abroad; and 14 petroleum companies in the United States compared to 12 abroad. All of this demonstrates that, in every modern economy, firms in Chandler’s “center” and Galbraith’s “planning system” that are characterized by increasing returns to scale tend to be both large and, if successful, long-lasting, compared to the smaller firms in Chandler’s “periphery” and Galbraith’s “market system,” in which size produces few or no competitive advantages.

National Political Settlements during the Cold War

From the emergence of managerial capitalism through World War I and the Great Depression, the societies of the North Atlantic were rocked by clashes among corporate elites on the one hand and angry workers and family farmers on the other. The bloodiest labor violence was in the United States, where the armed forces repeatedly crushed strikers. In the 1921 Battle of Blair Mountain in Logan County, West Virginia, state officials used planes to bomb armed strikers from the air.

To obtain social peace and mobilize national populations during World War II, the United States and its allies like Britain brokered business-labor pacts and promised welfare benefits to veterans. In the ensuing Cold War, every major industrial democracy devised some kind of “settlement” or compromise among business and labor interests within the nation.

The postwar settlements were a combination of employer-specific welfare capitalism and universal or means-tested, social-democratic welfare states. In West Germany, welfare capitalism took the form of “codetermination,” or union membership on corporate boards. Japan, following intense labor conflict after 1945, developed a system of corporate paternalism and lifetime employment for many workers. Organized labor was weak in the postwar United States, but the “Treaty of Detroit” negotiated among automobile companies and unions was a successful example of informal business-labor corporatism. Low levels of legal and illegal immigration, and social pressure on married mothers to exit the work force to become homemakers, strengthened the bargaining power of mostly male workers by creating tight labor markets.

These corporatist systems of welfare capitalism made the welfare states of the period from the 1940s to the 1970s much smaller than they would have been otherwise. Wage compression brought about by unions in the welfare-capitalist system made it easier for payroll taxes to fund entitlements like public pensions, which in turn were smaller than they might have been because of the widespread existence of private employer pensions.

The post-1945 settlements in the West and Japan demonstrate countervailing power and juridical defense in action. The result was the golden age of capitalism from the 1940s to the 1970s, combining high growth with a more equal distribution of its rewards than has ever existed before or since.

Multinational Corporate Consolidation

Following the fall of the Berlin Wall in 1989, the national settlements brokered by government among managers and labor in Western nation-states were shattered by the emergence of a new pattern of global industrial production and corporate organization.

What the economist Peter Nolan has called “the global business revolution” of the 1990s and 2000s, producing oligopolistic transnational corporations, was the equivalent of the great merger wave of the 1900s that produced oligopolistic national firms. In Capitalism and Freedom(Anthem, 2008), Nolan observes:

By the early 2000s, within the high value-added, high technology, and/or strongly branded segments of world markets, which serve mainly the middle and upper income earners who control the bulk of the world’s purchasing power, a veritable “law” had come into play: a handful of giant firms, the “systems integrators,” occupied upwards of 50 per cent of the whole global market. The top two firms accounted for 100 per cent of the entire global market for large commercial aircraft and 70 per cent of the carbonated soft drinks market; the top three firms accounted for over 80 per cent of the gas turbine market and for 70 per cent of the farm equipment market, for over 60 per cent of the mobile phone market, and over 50 per cent of the market for LCD TVs; the top four firms accounted for over 60 per cent of the elevator market; the top five firms accounted for over 80 per cent of the digital camera market; the top six firms accounted for over 70 per cent of the auto industry market and the top ten firms accounted for over 50 per cent of the pharmaceutical market.

By the time the Great Recession began with the financial crash of 2008, many global industries were dominated by a few large corporations. Ninety-five percent of microprocessors (chips) were manufactured by four companies: Intel, Advanced Micro Devices, NEC, and Motorola. Two-thirds of the glass bottles in the world were made by only two firms, Owens-Illinois and Saint-Gobin. Half of the world’s cars were made by four companies: GM, Ford, Toyota-Daihatsu, and DaimlerChrysler. In business services, Microsoft dominated 90 percent of the market for personal computer operating systems. In 2007, the top two firms controlled 86 percent of the global market in the financial information industry and 77 percent in electronic games, while three firms dominated 71 percent of legal publishing and 62 percent of the global market for artificial joints.

Below the level of transnational corporations, now called “original equipment manufacturers” (OEMs) or “systems integrators,” a similar process of consolidation took place at the level of suppliers. On the verge of the Great Recession in 2008, three firms—GE, Pratt and Whitney, and Rolls-Royce—dominated the world market for jet engines. Sixty percent of tires were made by three multinational corporations: Bridgestone, Goodyear, and Michelin.

The emergence of global oligopolies as a result of expansion, mergers, and alliances corresponded to a trend toward transnational production. From one-third to one-half of trade was intrafirm trade or transnational production by a multinational enterprise with suppliers in multiple nations. The Apple iPhone became an iconic product with components from all over the world. Apple iPhone 5S and iPhone 6 models included components from China, the United States, Japan, South Korea, Taiwan, Germany, France, Italy, the Netherlands, and Singapore.

While supply chains were regional or global, most major multinationals continued to be rooted in a single nation-state—most often the three largest developed industrial nations, the United States, Japan, and Germany. In the developing world, most weak nations were assigned low-value-added production on the terms imposed by North American, European, and littoral Asian firms and investors. China, India, Brazil, and other populous developing countries, however, were able to use control of corporate access to their large internal labor forces and consumer markets to pressure foreign capital into promoting projects of national industrial development, by means including local content requirements and technology transfer agreements.

The Economics of Global Arbitrage

It is widely assumed that globalization since the 1990s is responsible for unprecedented productivity growth. In fact, productivity growth has been much lower in the era of post-1989 globalization than it was in the post-1945 era characterized by less integrated national economies and far lower levels of immigration. One reason may be that, in the era of globalization, the new transnational oligopolies have pursued profits by methods other than technology-driven productivity growth. The most important of these corporate strategies have been selective arbitrage and selective harmonization.

Global arbitrage has come in two forms: labor arbitrage and tax-and-subsidy arbitrage. Labor arbitrage includes both relocation of industrial production from high-wage developed nations to low-wage developing countries, and large-scale immigration of both unskilled and skilled workers to the global North. Such labor arbitrage does not encourage, and may even retard, technological progress, which involves the substitution of new technologies or new techniques for expensive labor or natural resource inputs. There is no incentive to make production technology more efficient when profits can be increased merely by closing factories in high-wage areas and locating them in low-wage areas, be they poor, anti-union Southern states in the United States or foreign nations like Mexico and China.

Tax-and-subsidy arbitrage is the practice whereby firms take advantage of differences in tax rates and subsidies in different countries in order to similarly boost profits without boosting productivity. Companies that evade taxation by incorporating in tax havens like the Cayman Islands, Panama, or Ireland do nothing to increase productivity. Neither do transnational companies that relocate to China to enjoy not only low-wage, unfree labor but also ample subsidies of various kinds, including subsidized electricity and tailor-made infrastructure and worker education programs.

Perhaps the iconic product of the era of globalization is the Apple iPhone. According to Konstantine Kakaes in MIT’s Technology Review, producing every single component of the iPhone in the United States, in addition to assembling it in the United States, would at most add $100 to the cost of the device. But Apple’s profit margin would be much smaller than is the case with its present production of the iPhone in six factories using unfree, low-wage labor in China (plus a factory in Brazil, a concession to Brazilian import substitution policy).

In addition to illustrating global labor arbitrage, Apple has mastered the arcane art of tax-and-subsidy arbitrage as well. According to the European Union, the government of Ireland allowed Apple to channel profits from several-dozen nations through two Irish companies, one of which was a “head office” with no employees. As a result, according to the European Commission, Apple recorded profits of around €16 billion, of which only €50 million were taxable in Ireland, giving the company €15.95 billion of untaxed profit.

The Politics of Global Arbitrage

Even as they have exploited opportunities for international labor and tax-and-subsidy arbitrage, firms in the post–Cold War era of globalization have promoted selective harmonization of laws and rules, when it has been in their interest to do so. In the second half of the twentieth century, successive rounds of negotiation under the auspices of the General Agreement on Tariffs and Trade (GATT) and, more recently, the World Trade Organization (WTO) effectively reduced most traditional tariff barriers. By 2016, when the WTO effectively terminated the failed Doha Development Round of global trade talks, the United States and other leading industrial nations had shifted the emphasis from removing barriers restricting the cross-border flow of goods to harmonizing laws and regulations through “multiregional trade pacts” like the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP), in the interests of transnational investors and corporations reliant on transnational supply chains.

The areas chosen for arbitrage and harmonization reflect the interests not of national working-class majorities but of the managerial elites that dominate western governments. Harmonizing labor standards or wages would undercut the labor arbitrage strategy, while transnational crackdowns on tax avoidance would thwart the strategy of tax arbitrage by transnational firms. Instead, the emphasis in harmonization policy has been on common industrial standards, the liberalization of financial systems, and intellectual property rights, including pharmaceutical patents. These kinds of harmonization benefit transnational firms, investors on Wall Street or in the City of London, and the holders of intellectual property rights in Silicon Valley and the pharmaceutical industry.

In many cases, this kind of regulatory harmonization makes sense—standardizing product safety measures, for example. But the new regulatory harmonization agreements produce a “democratic deficit” in two ways.

First, they remove whole areas of regulation from the realm of ordinary legislation, replacing it with “legislation by treaty.” Favorable laws and regulations that corporate lobbyists are unable to persuade national democratic legislatures to enact can be repackaged and hidden in harmonization agreements masked as “trade” treaties. These treaties, often thousands of pages long, tend to be drafted in secret by committees involving corporate lobbyists and may be ratified by legislatures without careful scrutiny.

Worse, most of these contemporary regulatory harmonization agreements include “investor-state dispute settlement” (ISDS) provisions that allow individual corporations to sue national governments that change the rules in their countries after the passage of the treaty in private tribunals, dominated by corporate lawyers, with no appeal mechanism. If Congress enacts a statute that adversely affects the interests of Acme Inc., then Acme has few options, other than paying lobbyists and making campaign donations. But if Congress ratifies a treaty, and later changes a provision by passing a new law, Acme can sue the federal government for financial damages. The United States has yet to lose a case to ISDS, but other countries have, and some believe that the prospect of corporate lawsuits has a chilling effect on new laws and regulations of which particular corporations disapprove.

None of this is to imply that the transnational managers of the West and littoral East Asia who control the new global oligopolies are more selfish or less public-spirited than the managers of national corporations during the Second Industrial Era. On the contrary, in personal terms, today’s managerial elite is for the most part less bigoted and often quite philanthropic. The point is simply that the American, German, and Japanese corporations of half a century ago were constrained by kinds of Galbraithian countervailing power and Burnhamite/Moscian juridical defenses that have crumbled. Thanks to globalization, itself a voluntary policy choice enabled but not required by new technology, today’s transnational firms have much more bargaining power in their dealings with workers and democratic nation-states.

Globalization: Hobson’s Imperialism?

That the post–Cold War pattern of globalization has been chiefly motivated by opportunities for international arbitrage and tax-and-subsidy manipulation—rather than compelled by the logic of modern technology or the pressure of free-market forces—is suggested by the fact that a strikingly similar pattern of globalization was envisioned by the British social philosopher John A. Hobson more than a century ago, when technology was quite different. In Imperialism: A Study (1902), Hobson speculated that, if the Western industrial nations refrained from military conflict with one another, they might collaborate on the common project of the economic development of Asia in general, and China in particular.

Western capitalists, Hobson suggested in the racialist language of his time, might buy the acquiescence of Western working classes in the transfer of manufacturing from Europe and America to Asia by allowing them to share in the rents obtained by the exploitation of impoverished Chinese labor:

In a word, the investors and business managers of the West appear to have struck in China a mine of labour power richer by far than any of the gold and other mineral deposits which have directed imperial enterprise in Africa and elsewhere; it seems so enormous and so expansible as to open up the possibility of raising whole white populations of the West to the position of “independent gentlemen,” living, as do the small white settlements in India or South Africa, upon the manual toil of these laborious inferiors. . . . Such an experiment may revolutionise the methods of Imperialism; the pressure of working-class movements in politics and industry in the West can be met by a flood of China goods, so as to keep down wages and compel industry [of Western workers], or, where the power of the imperialist oligarchy is well set, by menaces of yellow workmen or of yellow mercenary troops, while collaboration in this huge Eastern development may involve an understanding between the groups of business politicians in the Western States close enough and strong enough to secure international peace in Europe and some relaxation of militarism.

Hobson’s lurid prediction of “yellow mercenary troops” being used to suppress Western workforces, like similar turn-of-the-century Yellow Peril prophecies, has not materialized. But his other predictions, translated into modern language, have come to pass. The claim of neoliberal ideologues that Western industrial workers who lose their jobs to offshoring in China and other low-wage countries would obtain new and better jobs in the “knowledge economy” was precisely a promise that, in the postindustrial West, most workers would share the intellectual property rents of the knowledge economy, rather like “independent gentlemen,” while Asian proles and peasants labored in factories. In the pages of the Economist and other propaganda organs of the managerial oligarchy, the claim that the lower prices of Chinese consumer goods outweigh the harm done to the Western working class by partial deindustrialization is routinely repeated, more than a century after Hobson’s prediction.

Hobson envisioned a dystopian future for a deindustrialized West ruled by a class of transnational managers and investors:

We have foreshadowed the possibility of an even larger alliance of Western States, a European federation of great Powers which, so far from forwarding the cause of world-civilisation, might introduce the gigantic peril of a Western parasitism, a group of advanced industrial nations, whose upper classes drew vast tribute from Asia and Africa, with which they supported great tame masses of retainers, no longer engaged in the staple industries of agriculture and manufacture, but kept in the performance of personal or minor industrial services under the control of a new financial aristocracy.

Hobson further warned: “The greater part of Western Europe might then assume the appearance and character already exhibited by tracts of country in the South of England, in the Riviera, and in the tourist-ridden or residential parts of Italy and Switzerland, little clusters of wealthy aristocrats drawing dividends and pensions from the Far East, with a somewhat larger group of professional retainers and tradesmen and a large body of personal servants.” The “little clusters” of rich rentiers and their professional retainers and menial servants bring to mind today’s increasingly stratified “global cities” like London, New York, and San Francisco, embedded in nation-states with large tracts of derelict, former industrial zones.

Immigrants and Oligarchs

As we have seen, in the late twentieth century, Western managerial elites, by means of transnational corporations, were able to escape from their mid-twentieth-century social contract with national workers by offshoring production, or threatening to do so. Purely domestic companies, like hotels, restaurants, and construction companies, did not have this option. But they could benefit from immigration, because loose labor markets weaken the bargaining power of workers, just as tight labor markets weaken the bargaining power of employers. That is why, throughout most of history in the United States and other countries, organized labor has usually opposed large-scale immigration of any kind, while capitalists and corporate managers have often welcomed it.

Some Western countries have had formal policies of encouraging unskilled, low-wage immigration, like West Germany with its Turkish Gastarbeiter (guest workers). But for the most part, unskilled immigration has been the incidental result of other policies in particular nations. In the United States, most legal, unskilled immigrants have been low-income Mexicans and Central Americans who come on the basis of U.S. family reunification laws, in addition to the twelve million or so illegal immigrants, mostly from the same nearby countries. In Europe, asylum laws and refugee policies are the chief source of unskilled immigration. And some European countries have privileged immigration from former colonies. Whatever the particular regime, in every Western country the immigration issue pits the managerial elite against the working-class, native majority.

Scholars debate the economic effects of immigration to the United States. A recent National Academies of Sciences, Engineering and Medicine report tried to put a positive spin on its findings, but they were sobering: lower wages “for immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills,” and the reminder that “first-generation immigrants are more costly to governments, mainly at the state and local levels, than are the native-born.” The benefits of low-wage immigration, according to the report, go chiefly to the affluent consumers of labor-intensive services, while the costs fall on low-wage workers and taxpayers. The American media reflect the interests of managerial and professional elites in low-wage employees and cheap domestic servants, so the bad news was buried in mainstream reporting. “Immigrants Aren’t Taking Americans’ Jobs, New Study Finds,” declared the New York Times on September 21, 2016.

The real but limited negative impact of immigration on low-income workers and stressed government budgets might have been a minor issue in politics, but for two other factors. One is the combination of relatively high birth rates among some immigrant groups, like Latin Americans in the United States and Muslims in Europe, with low and declining native birth rates, which means that relatively small amounts of immigration can dramatically change the ethnic composition of a country in a few generations. Even if, in the long run, immigrants assimilate and merge with the native population, rapid ethnic change is disruptive and frequently viewed as a threat by natives.

The other factor is the modern welfare state. On both sides of the Atlantic, it was created in a period of low immigration and high native fertility after World War II. National welfare states take different forms, but they are all based on the principle of solidarity among members of the nation, who agree to work and be taxed to help their fellow citizens in order to be eligible for that same help in sickness or old age.

The incompatibility of the welfare state and mass immigration was noted by the libertarian economist Milton Friedman: “If you have a welfare state, if you have a state in which every resident is promised a certain minimum level of income, or a minimum level of subsistence, regardless of whether he works or not, produces it or not. Then [free immigration] really is an impossible thing.” His ideological opposite, Paul Krugman, agrees. Because “modern America is a welfare state” and “low-skill immigrants don’t pay enough taxes to cover the cost of the benefits they receive,” Krugman concluded that the “political threat that low-skill immigration poses to the welfare state is more serious” than its other consequences. For his part, Friedman welcomed illegal immigration as a good thing because illegal immigrants are ineligible for welfare: “But it’s only good so long as it’s illegal. . . . Make it legal and it’s no good. Why? Because as long as it’s illegal the people who come in do not qualify for welfare, they don’t qualify for social security, they don’t qualify for the other myriad of benefits.”

While using legal and illegal means to promote mass immigration, in order to discourage unions, suppress wages, avert inflation caused by tight labor markets, and to provide a buyer’s market in nannies and gardeners, the managerial elites of North America and Europe also champion “diversity,” which reduces the likelihood that workers of different ethnicities will unite in a common front against economic elites. In a letter in 1870, Marx wrote:

Owing to the constantly increasing concentration of leaseholds, Ireland constantly sends her own surplus to the English labor market, and thus forces down wages and lowers the material and moral position of the English working class.

And most important of all! Every industrial and commercial centre in England now possesses a working class divided into two hostilecamps, English proletarians and Irish proletarians. The ordinary English worker hates the Irish worker as a competitor who lowers his standard of life. . . . His attitude towards him is much the same as that of the “poor whites” to the Negroes in the former slave states of the U.S.A. . . . This antagonism is the secret of the impotence of the English working class, despite its organization. It is the secret by which the capitalist class maintains its power. And the latter is quite aware of this. (Italics in the original.)

Similarly, Hobson (with his characteristic racist rhetoric) speculated that the economic elite might engineer mass immigration:

Lastly, it is conceivable that the powerful industrial and financial classes of the West, in order better to keep the economic and political mastery at home, may combine to reverse the policy which has hitherto been gaining ground in the United States and in our white colonies, and may insist upon the free importation of yellow labour for domestic and industrial service in the West. This is a weapon which they hold in reserve, should they need to use it in order to keep the populace in safe subjection.

Because Hobson envisioned something very similar to the post–Cold War pattern of offshoring, transnational production, and mass low-wage immigration in the age of railroads, steamships, and telegraphs, today’s pattern cannot be viewed as the predetermined result of new technologies like the Internet, global wireless telephony, and container ships. A number of different global economic orders are compatible with modern technology, just as numerous alternatives were compatible with the technology of Hobson’s era. The technology needed for something like present-day globalization existed in the 1900s. But between 1914 and 1989, a necessary but not sufficient condition for this kind of managerial globalism was lacking: great-power peace.

From Super-Imperialism to Bloc Wars

Hobson’s vision of a pan-Western syndicate of industrialists and investors exploiting the industrialization of China and the rest of the non-Western world was similar to Karl Kautsky’s idea of a “super-imperialist bloc” of capitalist nations that would set aside military rivalries in the interest of shared profits from investments in developing countries. Whether sovereign great powers, absent the pressure of military compulsion, would ever volunteer to merge to that degree may be doubted. Today’s transnational blocs emerged only in the shadow of two world wars and the Cold War.

In The Managerial Revolution, Burnham predicted the division of the postwar world among three “superstates” based on the United States, Germany, and Japan—inspiring Orwell’s Oceania, Eurasia, and Eastasia in his novel 1984. Instead, following World War II, West Germany and Japan became semi-sovereign protectorates of the United States, while Britain and France, shorn of their colonial empires, became American dependencies as well. Bipolarity rather than tripolarity structured world politics from the 1940s to the 1990s.

Neoliberal globalization was possible only in the decades immediately following the Cold War, when the United States was the “sole superpower” and no credible “peer competitor” had yet emerged. In the 1990s, the United States and its European allies, along with Japan, South Korea, and Taiwan, functioned like the pan-capitalist blocs of Hobson and Kautsky, right down to the offshoring of much of their manufacturing to China. However, the rise of China is bringing that ephemeral moment to a close—and with it, almost certainly, an end to the present structure of global industry.

Hobson, in his bigoted style, acknowledged the possibility of the rise of a powerful industrial China and a consequent protectionist backlash in the West:

Again, China, passing more quickly than other “lower races” through the period of dependence on Western science and Western capital, and quickly assimilating what they have to give, may re-establish her own economic independence, finding out of her own resources the capital and organising skill required for the machine industries, and . . . may quickly launch herself upon the world-market as the biggest and most effective competitor, taking to herself first the trade of Asia and the Pacific, and then swamping the free markets of the West and driving the closed markets of the West to an ever more rigorous Protection with its corollary of diminished production.

Populist Rebellions and Their Limitations

If I am correct, the post–Cold War period has come to a close, and the industrial democracies of North America and Europe have entered a new and turbulent era. The managerial class has destroyed the social settlements that constrained it temporarily in the second half of the twentieth century and created a new kind of politics, largely insulated from popular participation and electoral democracy, based on large donors and shifting coalitions within a highly homogeneous coalition of allied Western elites. Following two decades of increasing consolidation of the power of the managerial class, the populist and nationalist wave on both sides of the Atlantic is a predictable rebellion by working-class outsiders against managerial-class insiders and their domestic allies, who are often recruited from native minorities or immigrant diasporas.

Will the result of the contemporary class war among managers and workers on both sides of the Atlantic be a revival of fascism? In some countries in Europe, populist nationalist parties have emerged from tiny fringe fascist parties, or have attracted their supporters. But talk about Weimar America or Weimar Europe is based on a misunderstanding of history, which blames fascism on populism. In reality, despite their populist trappings, most interwar fascist movements were favored by military and economic elites as a way to block social democracy and communism.

It is not the Weimar republic but the banana republic that provides the most likely negative model. In many Latin American countries, politics has traditionally pitted oligarchs versus populists. A similar pattern existed in many Southern states in the United States between the Civil War and the civil rights revolution.

When populist outsiders challenge oligarchic insiders, the oligarchs almost always win. How could they lose? They may not have numbers, but they control most of the wealth, expertise, and political influence and dominate the media, universities, and nonprofit sectors. Most populist waves break and disperse on the concrete seawalls of elite privilege.

In the American South, most populist politicians gave up or sold out. In some cases, like that of Texas governor and senator W. Lee “Pappy” O’Daniel, a country music singer, they were simply folksy fronts for corporate and upper-class interests all along. The few populists who maintained some independence were those who could finance themselves, usually by corrupt means. Louisiana governor Huey Long could battle the ruling families and the powerful corporations because he skimmed money from state employee checks and kept it in a locked “deduct box.” In Texas, anti-Klan populist governor James “Pa” Ferguson, along with his wife Miriam “Ma” Ferguson, who was elected governor after her husband was impeached on the slogan “Two Governors for the price of one,” sold pardons to the relatives of convicted criminals. As billionaires who could finance their own campaigns, Ross Perot and Donald Trump could claim, with some justification, to be free to run against the national establishment.

Those who believe in liberal democracy can look on this kind of political order only with dismay. Most of the time, coteries within a nepotistic elite run things for the benefit of their class. Now and then, a charismatic populist arises, only to fail, sell out to the establishment, or establish a personal or dynastic political-economic racket. Formal democracy may survive, but its spirit has fled. No matter who wins, the insiders or outsiders, the majority will lose.

Alternatives to Populism

Is there an alternative to a Latin American or Southern future for the West, an endless clash of oligarchs and populists? If there is, it will take the form of a settlement like that of the post-1945 social contract in its spirit, though not in its details.

One possible new cross-class compromise between the managerial elite and the working-class majority in Western nations would take the form of the radical renationalization of industry. This seems to be what many populists on both right and left have in mind when they want politicians to “bring the jobs back”—that is, well-paid manufacturing jobs. But this would sacrifice benefits from supra-national economies of scale, which are real in industries like manufacturing, even if the recent pattern of offshoring has been driven by manipulative policies like labor arbitrage rather than a focus on productivity.

Because of the multiplier effect on the larger economy in which manufacturing is embedded, it is important for countries to acquire or maintain high-value-added manufacturing, even if only a minority of the workforce is formally employed in the sector. But most American workers are already employed in the nontraded domestic service sector. Their jobs and wages can be threatened by mass immigration but not by offshoring.

Radical de-globalization and the restoration of something like the largely autarkic national economies based on vertically integrated national firms of the 1950s and 1960s, then, would not be desirable, even if it were possible. At the other extreme is the fantasy of a new global settlement, with global labor unions and global government (or “governance”) checking global corporate and financial oligopolies. Post-national global governance that promotes the shared interests of a transnational working class is even less likely to happen than radical renationalization.

This leaves two options for a new settlement, which might be called “neoliberalism plus” and a new developmentalism.

Neoliberalism plus, also called “inclusive capitalism,” is the preferred response of the transatlantic managerial class to the populist revolts in Europe and America. Essentially, neoliberalism plus is Reagan-Thatcher-Clinton-Blair neoliberalism with more subsidies to the “losers” of globalization. The disempowerment of non-elite citizens by the oligarchic capture of politics and the destruction of unions would not be altered. But the masses would be bribed into acquiescence by means of higher wage subsidies, like the Earned Income Tax Credit (EITC) in the United States, or perhaps a universal basic income providing every citizen a poverty wage.

While something like this will undoubtedly be tried in many Western countries, the economics do not work. Bribing workers who have stagnant or declining incomes with new welfare subsidies requires an economically dynamic sector of the economy to make the bribes affordable. The neoliberal donor class, concentrated in elite rentier enclaves, assumes the permanent existence of high intellectual-property rents flowing from the rest of the world to tech tycoons, along with global financial rents flowing to money managers. These rents, it is assumed, will be so high and sustainable that the tycoons and money managers will gladly share them with the rest of the population in the nation-states in which they happen to reside.

But global innovation rents quickly disappear, as a result of lapsing patents, intellectual property theft, foreign success in indigenous innovation, and the commoditization of former cutting-edge industries. As for taxing financiers to subsidize far larger welfare states, this may work in cities like New York and London, but it cannot possibly work on the scale of nation-states, including continental nation-states like the United States, with a third of a billion inhabitants.

Nor can advanced manufacturing pay for the massive redistribution from the few to the many required by the neoliberalism plus strategy. High productivity in manufacturing and services is incompatible with neoliberal trade policies that allow the offshoring of both high-value-added production as well as low-value-added activities by corporations and tolerate the devastation of domestic high-value-added industries by subsidized imports from mercantilist countries like China. Even worse, in the nontraded domestic service sector, flooding the low-end labor market with poorly paid and poorly educated immigrants reduces the incentive of service industries to boost their productivity by investing in labor-saving technology or reorganizing their business models to minimize labor.

In other words, neoliberal economic strategy itself, because of its bias in favor of business models relying on cheap labor at home and abroad, tends to undermine the productivity growth needed to pay for the massive redistribution that, it is hoped, would align the interests of workers and managerial elites.

It is no coincidence that Reaganism-Clintonism and Thatcherism-Blairism coincided with prolonged asset bubbles, or that their most ardent proponents tend to be located in the City of London, Wall Street, and Silicon Valley. For a time, it is possible for stock-market booms, real estate frothiness, and other bubbles to fund redistributive taxation. But overbuilt welfare states that assume perpetual booms instead of slow, steady, and difficult productivity growth are destined to become insolvent.

Unlike the ephemeral innovation rents of the so-called knowledge economy, financial, property, and resource rents actually can become permanent. In earlier generations, successful merchants and industrialists often became bankers or aristocrats. If the children and grandchildren of today’s IPO billionaires become landlords and moneylenders, they could transform into a new aristocracy in a kind of high-tech Western feudalism.

David Ricardo believed that in a three-way struggle among landlords earning rent, capitalists earning profits, and workers earning wages, landlords might eventually prevail. In an economy with low or no productivity growth, landlords, bankers, and other rentiers might displace the managers of the industrial sector as the dominant class. Just as managerialism succeeded bourgeois capitalism and feudalism, so managerialism in an age of technological and economic stagnation might give way in turn to what Peter Frase in Four Futures: Life after Capitalism (Verso, 2016) has called “rentism.”

New Developmentalism

The term “developmental state” was first used by scholars like Chalmers Johnson and Alice Amsden to describe the post-1945 regimes of Japan, South Korea, Taiwan, and Singapore, which relied on export-oriented strategies as part of programs to industrialize and catch up with the West. But the concept of the developmental state deserves a far broader definition.

As the economists Erik Reinert, Ha-Joon Chang, and Michael Hudson, among others, have demonstrated, the mercantilism of Renaissance and early modern Western city-states, kingdoms, and empires was a version of the developmental state. From the Tudor era until the adoption of economic liberalism in the 1840s, England (the United Kingdom after 1707) was a classic mercantilist state, seeking to help its industries by providing them with a seller’s market in high-value-added manufactured goods and a buyer’s market in industrial inputs like commodities and labor. The British empire promoted this industrial strategy by forcing its Irish, North American, and Indian subjects to specialize in exports of raw materials to British manufacturers, who in turn enjoyed monopolies on the sale of finished goods to the colonies.

After Britain pioneered the Industrial Revolution, the United States and Germany successfully caught up with and surpassed the UK by means of import-substitution policies that protected their national markets for national firms. Not until the aftermath of World War II, when the United States briefly enjoyed industrial hegemony in a shattered world and lacked foreign competition, did Washington abandon its policy of infant industry protectionism.

A third variant of developmentalism was devised by Japan and “the Little Tigers” (South Korea, Taiwan, and Singapore) during the Cold War. Prevented from using tariffs by “unequal treaties” with Western nations before World War II and by the General Agreement on Tariffs and Trade (GATT) after 1945, these East Asian mercantilist nations used various nontariff barriers to preserve domestic markets for their national champions, while reaping the benefits of scale by exporting to far more open Western consumer markets. The catch-up strategy of post-Mao China is a version of this East Asian pattern.

Developmentalism has taken quite different forms, in Colbert’s France and Walpole’s Britain, Hamilton’s and Lincoln’s America, Bismarck’s Germany, and contemporary East Asia. While methods vary, a constant has been the understanding of global trade not as a rule-governed arena in which firms should compete for customers with no regard for borders but as a zero-sum competition for global market share in high-value-added industries among rival states.

In liberal economic ideology, questions of trade and questions of national security are unrelated. But from the perspective of developmentalism, relative industrial capacity is the most important basis of relative military power. Great powers, if not lesser states, must constantly worry that the augmentation of the industrial strength of other blocs will also increase their relative military power. Even in periods of peace among great powers and the blocs they lead, each power must prepare for the possibility, however remote, of conflict with the others. Within a tightly integrated bloc of allied nations, transnational liberalization may be the order of the day. But relations between blocs are likely to be guided by the zero-sum logic of cautious, suspicious, military-inflected developmentalism.

With these dynamics in mind, we can speculate about the future of the world economy and its implications for new domestic settlements among managers and workers.

First, the rise of China, followed perhaps by the rise of India, is likely to produce a world order by 2050 in which most of the global GDP is produced inside the borders of China, India, the United States, and Europe—three colossal nation-states and one politically divided region. To update Orwell, the future blocs may be Eastasia, Southasia, Oceania, and perhaps Europa. The world will be truly multipolar.

In a world of competitive great powers and great-power blocs, the most familiar version of developmentalism (the East Asian export-oriented industrial strategy) will be impossible for political reasons. The United States tolerated one-sided trade with its East Asian satellites and Germany (whose mercantilism is real but more subtle) only because it needed their support in the Cold War and their economies were much smaller than America’s. It will make no sense for the United States to tolerate similar mercantilist trade policies at the expense of American industries, particularly those relevant to defense, carried out by China—the only “peer competitor” the United States will face in the foreseeable future in the military realm.

Even before the election of Donald Trump, the United States was already acting as a declining post-hegemonic power with a reawakened sense of strategic economic nationalism. The failed TPP was sold to the American public as a way to defeat China in competition for markets in Asia, the counterpart to the Obama administration’s “pivot” toward de facto military containment of China. The TTIP, which would have deepened Euro-American integration without Chinese participation, was motivated in part by a desire to balance the rising geoeconomic influence of China.

If the United States is growing less willing to act as “the patsy” (Martin Wolf’s term), offering unreciprocated access to its markets for the goods of mercantilist states at the expense of its own producers, and if no other major nation or bloc is willing to be a similar “patsy,” then the kind of parasitic export-oriented strategy pursued by Japan, the Little Tigers, China, and Germany cannot succeed. At the same time, classic import substitution strategies, like the radical renationalization strategy discussed above, are also rejected by the major economic powers, because they seek markets for goods and services beyond their borders to reap the benefits of scale in increasing-returns industries. By default, then, the economic system in a world of multiple great-power blocs is likely to resemble that of the European colonial empires.

There are differences, to be sure. The old colonial hierarchy, with industry monopolized by the metropoles and commodity production in the colonies, would be replaced by a new hierarchy, in which the metropoles reserve the higher links of transnational value chains for themselves while lesser allies and protectorates are ceded lower-value-added production.

Within the dominant nation in a military-economic bloc, it would be wise to design a new cross-class social settlement to reinforce rather than undercut the long-term productivity growth both of the nation and the bloc it leads. There would need to be two strategies, one for traded-sector industries like manufacturing with potential foreign markets, and one for nontraded domestic industries that can only be performed in situ, like nursing care and other personal services.

A new developmentalist strategy for traded-sector industries, by means of a mix of incentives and compulsion, should discourage corporations from seeking to boost profits by labor arbitrage, tax arbitrage, and financial machinations like stock buy-backs and corporate inversions. In times of great-power peace, a considerable amount of trade among the great powers might be permitted, but each great power would intervene rather than permit market forces or foreign industrial policy from eliminating critical industries, particularly those relevant to the military.

In the nontraded domestic-service sector, a new developmental state, in the spirit of Hippocrates, would emphasize doing no harm—no harm, that is, to the all-important high-value national traded sector. Tight labor markets for domestic service workers, achieved by immigration restriction, work-sharing, shorter workweeks, or other means, should be looked on favorably by policymakers, for several reasons. Higher market wages for service workers would mean a larger domestic market, a true mass market capable of supporting large-scale industries at home as a base for foreign expansion. At the same time, higher market wages in the domestic service sector would encourage automation and other kinds of labor-saving strategies, boosting service-sector productivity and perhaps increasing domestic demand for labor-saving machinery and software that can be produced in the nation or the bloc. If high wages lead to the replacement of fast-food workers by kiosks, the manufacture of the kiosks could become a new, capital-intensive, high-technology industry.

Competition and Countervailing Power

The decline of the liberal globalism that flourished briefly in the passing phase of post–Cold War American hegemony, as a result of the inevitable transition to multipolarity, may be dreaded by managerial elites, but the working classes of the West and the world may benefit.

History demonstrates that ruling classes of any kind are reluctant to share power with the ruled unless they are afraid of the ruled or afraid of rival ruling classes. The former—fear of the ruled—is a weak motive. Popular revolts seldom turn into revolutions, without the support of dissident members of a ruling class or of a foreign elite, like the French monarchy that bankrolled and supported U.S. independence for its own purposes.

The need to mobilize the population for war, or at least the need to obtain social peace in wartime, has been far more important as a source of democratizing reforms. From the Greek city-states to the Swiss cantons, citizen-soldiers have been able to use their contribution to defense to demand rights and representation. In the United States, the Emancipation Proclamation and the GI Bill were both wartime measures.

Following the end of the Cold War, the abolition in most Western countries of conscription and the shift by the United States and other countries to professional soldiers, mercenaries (contractors), and foreign proxies has reduced the importance of the citizen-soldier, even as offshoring and mass immigration reduced the bargaining power of the citizen-worker. Mass conscript armies are as unlikely to be restored in the United States and similar countries as mass-production assembly lines that can be crippled by strikes. And the kind of low-level warfare that the United States has engaged in since 9/11 requires little sacrifice on the part of most Americans, who conversely cannot use their sacrifice to demand a greater share of power and wealth.

Nevertheless, great-power competition, even in the form of limited cold wars, is likely to reward nations whose economic model is based on developing productive technology and raising the incomes of domestic worker-consumers, rather than engaging in labor and tax arbitrage, regulatory harmonization, and other schemes that boost profits without increasing productivity. In cold wars and trade wars, even if no blood is shed by the contenders, countries and blocs with empowered and patriotic workers are likely to do better than rival nations crippled by immiserated workforces and selfish, nepotistic, oligarchic elites.

In a geopolitical contest between the developmental model represented in different ways by Japan and China, minus their current “export-über-alles” mercantilism, on the one hand, and, on the other hand, the rentier-dominated oligarchic model represented by Brazil and Mexico, it would be foolish to wager on the latter. North American and European democracies cannot and should not emulate modern East Asian developmental states in every detail. Still, it should be a cause for concern that, since the Cold War, the United States and Western Europe have been moving along the spectrum, as it were, away from Asia toward Latin America.

Managerial elites are bound to dominate the economy and society of every modern nation. But if they are not checked, they will overreach and produce a populist backlash in proportion to their excess. By a misguided policy of suppressing wages and thus throttling mass consumption, unchecked managerial elites may inadvertently cripple the technology-driven productivity growth responsible for their rise and accidentally cause the replacement of managerial society itself by a kind of high-tech rentier feudalism.

Managerial society works best when there are not only concessions to national working-class economic interests—the bribes to the “losers” of neoliberalism—but also genuine economic bargaining power and political power wielded by the many. Far from undermining managerial regimes, Burnham’s “juridical check” and Galbraith’s “countervailing power” make them more legitimate and sustainable.

And as long as geopolitical conflict does not escalate into the horrors of world wars, restrained rivalry among great-power blocs is a price worth paying to preserve a politically diverse world. In the words of Hobson in 1902: “The hope of a coming internationalism enjoins above all else the maintenance and natural growth of independent nationalities, for without such there could be no gradual evolution of internationalism, but only a series of unsuccessful attempts at a chaotic and unstable cosmopolitanism.”

This article originally appeared in American Affairs Volume I, Number 2 (Summer 2017): 19–44.
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