Defenders of capitalism are quick to remind us that contemporary capitalism is not the economic system that Marx and Engels wrote about a century and a half ago. In one ironic sense, they are right. Marx and Engels wrote of the exploitation of labor as the nexus for capital accumulation, but they never envisioned how profoundly accumulation – profit-making – would press beyond the boundaries of wage-exploitation towards out-and-out theft, corruption, and wasteful, unproductive activity.
The mainstream media skirts the edges of this cesspool of corruption, deception, and wholesale robbery when they sensationalize the abundant frauds that are perpetuated by Madoff and others of that ilk. While they make for great entertainment, these schemes tend to deflect from the day-in-and-day-out, systemic corruptions that account for entire occupational sectors. By focusing on the most outrageous thievery, the media distracts attention from those living comfortably on the table scraps of capitalism, old-school connections and graft. For a system heralded for hard-work, creativity, and productivity, there are a lot of the most “successful” in the capitalist hierarchy who seem to sidestep these values.
Take Harvey Miller, for example. As the lead attorney for Weil, Gotshal, and Manges LLP, Miller has labored 795 hours over the last 4 1/2 months representing the interests of the bankrupt Lehmann Brothers financial firm. Miller has averaged more hours than that of a normal working day to assiduously defend the interests of his client for a meager $950 an hour, according to The Wall Street Journal (4-16-09). Weil, Gotshal, and Manges LLC submitted a record setting bill to the bankruptcy judge for $55.1 million. If things go well for the firm, they are set to recoup $200 million in fees from the corpse of Lehmann Brothers – a figure surpassing the previous record (also held by Weil, Gotshal, and Manges LLC) of $159 million billed from the Enron bankruptcy.
But Miller doesn’t get all of this money, nor does he do all of the work. Defending the Lehmann Brothers interests engaged 100,000 billable hours from September 15 to the end of January, an amount that would require 139 attorneys to labor a 40 hour week for the entire billing period – a truly Herculean task. But even dedicated attorneys need sustenance: the firm billed $200,000 for business meals. Assuming that they were not McDonald’s value meals, the hard working attorneys ate rather well with their business colleagues – at, say, $100 per meal, 2000 meals in 4 ½ months should go along way towards restoring the vigor of hard-pressed attorneys.
When the attorneys were not eating, they had to travel to and from their business meetings. These obviously necessary business lunches and other meetings required travel: local travel – buzzing around the Big Apple – cost our bankruptcy lawyers $115,000. Undoubtedly, they did not employ their subway Metrocards, otherwise they could have taken 57,500 rides at $2.00 each. But lawyers favor cabs and limousines.
Defending the interests of defunct Lehmann Brothers required Weil, Gotshal and Manges LLP to bill $439,000 for research and $287,000 in photocopies at 10 cents per page. The 2,870,000 pages of documents allegedly generated would require diligent attorneys to read 287 pages of documents every hour of the 100,000 hours billed. Yes, that’s one page every thirteen seconds.
Before Weil, Gotshal, and Manages LLP, along with other law firms, finish picking over the carcass of Lehmann Brothers, experts estimate that legal fees may total over $900 million, topping the legal fees of the Enron bankruptcy ($756.6 million) and WorldCom ($620.4 million). Of course lawyers get the first taste of the assets of bankrupt firms.
This variety of vulture capitalism survives and thrives because bankruptcy judges are compliant and the other vultures have a vested interest in avoiding exposure in this lucrative field.
The innocent-sounding occupation, “placement officer”, masks another rapacious, parasitic job description that operates in the dark recesses of the investment world. As reported by the intrepid Wall Street Journal (4-17-09), it works like this: A hungry executive of an investment firm meets with a placement officer well connected to a pool of public funds, for example, an employee pension fund. The placement officer spells out his or her connections to the fund, suggesting strongly that for a generous fee, assets can be directed for investment to the executive’s firm. Hands are shaken and when the funds show up in the investment house, a handsome finder’s fee finds its way back to the placement officer. While this may look like a kick-back scheme, it only becomes one when the Security and Exchange Commission or aggressive Attorneys General, like Andrew Cuomo, catch them with their hands in each others’ pockets.
The Journal’s sources suggest that Steven Rattner, now a public servant heading the Obama administration’s auto task force, may well be tainted by a recent investigation. Quadrangle Group, a firm co-founded by Rattner, is under investigation for kicking back $1.1 million to a placement officer who delivered a nice slice of the $122 billion New York State Common Retirement Fund. Allegedly 20 investment firms made similar finder’s payments for their portions of the Retirement Fund. The New York scheme takes on comic tones when the SEC complaint details monies extorted for the production of a vanity movie project. Only Coppola could do justice to the Godfather-like intrigues surfacing from the investigation.
Follow up investigations (Wall Street Journal 4-2-09) show that the placement business involved in the New York scheme, Searle and Company, sought to connect investment firms to public assets in California, New Jersey, Connecticut, NYC, and New Mexico.
As with the bankruptcy hustle, one must assume that these practices are widespread in the “placement” industry. Moreover, on might speculate that other competitive firms have refrained from “ratting” others out because the business is so easy and lucrative. What could be better than getting paid on both ends: advising the public fund and extracting finder’s fees from the investment firms? The only loser is the public.
The fixer industry is not limited to retirement funds, but connects with every aspect of public funding from bond issuance to development projects and public-private partnerships. Where there is a fee to be grabbed, there’s an investment banker or consultant to suck the public dry. In many - if not most - cases, the kick-back is campaign monies for public officials.
Consultancy, a now deeply entrenched practice, constitutes one of the most wasteful activities of contemporary capitalism. Comedians joke that everyone today is a consultant – an expert in some area that fills a real or imagined need in social or economic affairs. No doubt some consulting projects pass the test of delivering more benefit than costs, but most merely cover up the incompetence, redundancy, or irresponsibility of management, particularly in the public sector. At their best, in the public sector, a consultant’s work covers decisions that public administrators are afraid to make because of narrow political considerations. Administrators hide behind the curtain of “fact-based” or “evidence-based” decision-making to implement policies that may be controversial. That may not be a bad thing if we want to encourage a breed of cowardly, responsibility-fleeing administrators. At their worse, consultants bring the cash-nexus into the arena of the common good. Administrators engage consultants to provide services that should fully fall within the skill-set of public-sector managers. More often than not, they also bring corruption - kick-backs, favoritism, business relationships, and costly and needless change – along with their fees. More often than not, the money trails loop back to the campaign financing of elected officials who urge the use of consultants in the first place. Right-wingers who, along with the talk radio gasbags, scream about wasteful public-sector studies on the sex lives of butterflies conveniently overlook this wasteful, unproductive drain on the public treasury. I’m reminded of the quote from business guru Peter Drucker: “There is nothing as useless as doing efficiently that which should not be done at all”. Nothing describes the role of consultant better.
Of course these examples only scratch the surface of monopoly-capitalism’s waste and excess. Paul Sweezy and Paul Baran in their important, but flawed study, Monopoly Capitalism (1966), brilliantly document the extraordinary societal irrationality and squander of advertising, branding, and product change, especially in their chapter on “The Sales Effort”. Contemporary capitalism offers a fertile field for further Marxist exposition of its corruption and absurdity.