KEVIN PHILLIPS AND PETER DRUCKER

Along with such writers as Bill Moyers, Paul
Krugman and Peter Drucker, Kevin Phillips
remains one our most important social ana-
lysts. His 1990 book, The Politics of Rich and
Poor is the decisive summary of the grim con-
sequences of the Reagan years. Those conse-
quences, for the working poor, are drama-
tized and illustrated by the valuable personal
experiences reported in Nickle and Dimed, by
Barbara Ehrenreich.

Now Phillips has a new book out, Bad Money:
Reckless Finance, Failed Politics, and the
Global Crisis of American Capitalism. There is
a good recap of his central thesis in an op-ed by
him in the 5/27/08 Oregonian. It is titled: "The
End Game of American Ascendancy?" In this
recap he writes (in part): "In the United States,
the financial services sector passed manufactu-
ring as a component of the GDP in the mid-1990s.
But market enthusiasm seems to have blocked
any debate over this worrying change: In the
1970s, manufacturing occupied 25 per cent of
GDP and financial services just 12 per cent, but
by 2003-06, finance enjoyed 20 per cent to 21
per cent and manufacturing had shriveled to
12 per cent.

The downside is that the final four or five per-
centage points of financial-sector GDP in the
1990s and 2000s involved mischief and self-
dealing: the exotic mortgage boom, the reck-
less bundling of loans into securities and
other innovations better left to casinos. Run-
amok credit was the lubricant. Between 1987
and 2007, total debt in the United States
jumped from $11 trillion to $48 trillion, and
private financial-sector debt led the great
binge.

Washington looked kindly on the financial-
sector throughout the 1980s and 1990s,
providing it with endless liquidity flows and
bailouts. Inexcusably, movers and shakers
such as Greenspan, former treasury secre-
tary Robert Rubin and the current secretary,
Henry Paulson, refused to regulate the in-
dustry."

Follows is a letter to the editor of the Ore-
gonian that I wrote in response to Phillips'
op-ed quoted above: "Lack of regulation
described by Kevin Phillips ("The End Game
of American Ascendancy?") that allowed
casino-type gambling with our economy was
noted 15 years ago by Peter Drucker in Post-
Capitalist Society: "We have no social, politi-
cal, or economic theory that fits what has al-
ready become reality," he wrote. He was re-
ferring to the transition (then well-along)
from finance capitalism to what he called
"pension-fund capitalism."

Seeing that the bulk of corporate stock is now
owned by pension funds and institutional
investors, he also recognized that: "Pension-
fund capitalism is also capitalism without
'capital.' The money of the pension funds
(PFs)---and their siblings, the mutual funds ---
does not fit any known definition of capital;
and this is not just a matter of semantics.
Actually, the funds of the PFs are deferred
wages (as in the case of PERS). They are being
accumulated to provide the equivalent of wage
income to people who no longer work. . .In
pension fund capitalism the wage earners
finance their own employment by dererring
part of their wages. Wage earners are the
main beneficiaries of the earnings of capital
and of capital gains."

But when these are risked recklessly, without
effective regulation at all, we courting the kind
of disaster that Phillips warned of so ably. There
is a lack of needed regulation because there is
little understanding of what is actually happening.
And in fact, finance capitalism is obsolete, along
with its myths and shattered theories, as Drucker
has explained. We need a top-to-bottom re-
assessment of corporate structures, functions
and responsibilities, before it's too late!