HoltesThoughts: Abusive Contracts and Privateering

Incomplete Contracts And Large Scale Swindles

I've been using the theme of piracy and privateering to describe our current economic system This is because at the heart of modern dysfunction is elitism and a "privateering spirit." There are people who actually normalize the swindling but it is a sick ideology whether you call it "neoliberalism", "conservatism" or "libertarianism." At heart these people are pirates. But they are a special kind of pirate. They use privilege to Grift, make themselves oligarchs and legalize theft and contract abuse, privateering.

I started this post back last September but I wanted to examine a bit of history and read the Nobel prize winning research on contract theory, and digest what I was reading.

Incomplete Contracts become Abusive Contracts

The scientists, Hart and Holmström, wrote on the "optimal" conditions of contracts. But their discoveries are a tool with multiple implications. They, like many economists focus on the positive spin. But the darkside of their discoveries is obvious:

Hart's discovery of the concept of "Incomplete Contracts" sheds lights on how asymmetrical knowledge about a task or process allows contracts to be written in a way that allows the more powerful (in information or economic/political power) to create contracts that are optimized for one party or faction over the other.

"Hart’s work has focused on an area of economics called “incomplete contracts,” the fact that agreements often don’t specify actions and payments for all possible contingencies."

Because contracts can't spell out every eventuality, the persons with control over execution have the power to use the "informativeness" (Holmström) of contract making gives power to employers to determine

when employees are not only rewarded with pay, but also with potential promotion;
when agents expend effort on many tasks, while principals observe only some dimensions of performance;
and when individual members of a team can free-ride on the efforts of others.

Thus Holmström and Hart give us tools that could be used to spell out optimal contracts for the greater good. They also demonstrate that:

“Contracts are just an incredibly powerful way of thinking about parts of economics. They’re just fundamental to the whole idea that trade is a quid pro quo and that there are two sides to a transaction,” [Hart & Holmström]

But the power of contracts is already well known by a mob of businessmen in their grifting, dealings and privateering. Savvy grifters prey on people using incomplete contracts. Too often people sign a contract they think will deliver something good and decent, only to find out they've sold their soul to someone. Contracts only deliver just results when both sides have transparency, equal economic power and the ability to back out without harm. Hart And Holstrom talked ideal contracts:

“relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions.” [Hart & Holmstrom]

Unfortunately, Grifters optimize for one party, not mutual benefit and believe that power is for the ambitious, powerful and connected. They are greedy elitists who believe in Social Darwinism and the law of the pack. Usually cloaked in faux piety and condemnation of the very Darwinism that motivates all their actions. and that the rest of us should know our place and accept being subjects to our "betters." Most American's, indeed most people, reject this spirit. The pirates use a number of tools to enforce their power. One of the most powerful of these tools is the power of contract. Abusive contracts are a tool of slavery, property theft and oppression.

Nobel Prize: https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2016/press.html

https://www.forbes.com/sites/katevitasek/2016/10/11/hart-and-holmstrom-win-nobel-prize-in-economics-for-contract-theory/#7acb9ba5343c

Contracts, The Devil and Daniel Webster

Indeed this discovery sent streams of history into my consciousness from that refuge container that is in my heart. There is a history of use of incomplete contracts to enslave people, literally or figuratively. This has been illustrated by the tradition of shanghaiing and impressing sailors, slaving and the abuses of contracts that were so pervasive that 19th century literature depicted the Devil as operating by contract; From the coerced "I sold my soul to the company store," to the legal theft of mineral rights that led to the destruction of so many settlements where valuable minerals (or oil) were to be found.

Privateering through contracts is not a new vice in the United States or the World. One of my childhood tales was "The Devil and Daniel Webster" where Daniel Webster represented someone who had sold his soul to the devil. The fact that someone can sell their soul to the devil, itself, indicates the perverse power of "contract" on our psyche.

A movie version of "The Devil and Daniel Webster" was made in 1941. One could say it is the ultimate form of abusive contract. Before our wealthy were abusing the 14th amendment (giving personhood to corporations) they were abusing contract law. The combination is almost irresistible.

Modern Pirates Write Contracts

The fact is that there is an asymmetric cold war on the psyche and pocket book of most people, waged too often by the very people we raise up to lead us. Information is dangerous to the soul, but even more so to those who lack it. Daniel Webster defended his client successfully, but most people don't have a chance when faced with a devil with a contract. They go willingly or are dragged into hell by constables on orders from a Judge. In the old days armies marched and loot was taken from anyone in the way of those armies, either because they were "living off the land" or because you were living in enemy territory.

Piracy and Modern Companies

Piracy started as a form of sea warfare that doubled as theft from strangers dumb enough to pass through the wrong parts of the ocean. The British Navy started as a pirate fleet preying on the Spanish. Only generations later, the descendants of pirates called themselves pirateers or Naval Officers. Privateers got contracts from the Government to prey on the enemy of the day. Later, at the beginning of the 1600s a group of British pirates got a contract to prey on the East Indies. They could raise an army, loot with impunity throughout the East Indies, and this was the model corporation for our modern people. It was known as the East India Company.

Loot and Contracts

They did all this with contracts, bribery (Quid Pro Quo) and extortion.

The East India company used a new tool to loot. Indeed our word "loot" comes from India. The East India company won a contract from the Moghuls to collect taxes in Bengal! They destroyed Bengal. Half of it now is in India and the other half a struggling miserable place. And a large part of that started with the overt looting of the Moghuls but finished with the sneaky contract driven, systematic looting of the East India company. The modern company does the same thing to their own countries unless they are strictly regulated. Companies like Exxon, Shell, ITT, etc... all carry on the East India company tradition!

All this goes back much further. Piracy, privateering and systematic exploitation and looting go back to at least the Bronze Age. But we've updated the techniques to modernity.

Modern pirates operate through the use of contracts, courts and information and power disparity. Armies are still needed because the pirates inevitably alienate people as they loot, divide and distract, and exploit them.

For more on the East India Company:: https://holtesthoughts.blogspot.com/2017/08/pirates-loot-and-east-india-company.html

An Ideology of Privateering

I call it "The Ideology of Privateering" because it's not Actual Capitalism, but a whole system of cons, swindles and tools for parting people with their wealth. Privateering takes many forms; Legal piracy with a "letter of marquee", Freebooting, filibustering (private war), Privatizing Government functions, even our present day corporate form has part of its origins in sea-dogs seeking to protect their ownership of their ships, sometimes used for piracy. The model for the modern multinational company is starting to look like the example of the East India Company.

As long as the pirates dominate Wall Street, the boom and bust cycle will continue to be a means for enriching the few while impoverishing the many. The methods were developed by privateering companies like the East India Company that used contracts and usurpation of function, trickery and outright warfare to usurp properties and self governing functions from target peoples. Those methods were scaled up by Anglo-European Countries to build up a colonial empires around the world. Those same methods for extracting wealth, were ultimately self destructive. But they are so tempting that successor movements have wound up using the same techniques for making people miserable.

Further reading on the Ideology of Privateering: http://holtesthoughts.blogspot.com/2017/12/an-ideology-of-piratical-banking.html; http://holtesthoughts.blogspot.com/2015/09/tory-or-privateering-economics.html; http://holtesthoughts.blogspot.com/2015/11/third-way-and-fraud-of-privateering.html

Privateering as Bad Business -- An alternative!

Those two economists, Hart & Holmstrom, won the noble prize writing on "contracting as an Art Not a Science", noting:

“relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions.” [Hart & Holmstrom]

Their study provides an alternative to privateering, that is more likely to be ignored for 90% of the world than applied. For pirates, the basic rules of how to win a contract still apply. But the goal is maximizing one side's advantage. Hart & Holstrom's list will be studied, and those parts necessary to the con will be used. It will be used where the pirates think they have equal power and a balance of forces. They teach that contracting should be win/win. Pirates do not believe in win/win. In their universe business is win/lose with the losers as likely to be made to "walk the plank" as be left penniless. But this is their list:

Outsourcing is a continuum, not a destination.
Develop Contracts that create “Mutuality of Advantage.”
Understand the Transaction Attributes and their Impact on Risk and Price.
The Greater the Bilateral Dependencies, the Greater the Need for Preserving Continuity.
Use a Contract as a Framework – Not a Legal Weapon
Develop Safeguards to Prevent Defection.
Predicted Alignments can minimize Transaction Costs.
Your Style of Contracting Matters; Be Credible.
Build Trust; Leave Money on the Table.
Keep it simple.

Tools of the Swindle

On the other hand, For the pirates The rules are pretty clear, well tested and reward the pirates.

Source to whoever can be forced to work for the least reward.
Develop Contracts that “Take Advantage of the law.”
Understand Transaction Attributes and their Impact on Risk and Price.
The Greater the Bilateral Dependencies, the Greater the Need for Pushing Risk onto one's marks.
Use a Contract as a Legal Weapon
Develop Safeguards to Prevent Defection.
Predicted Alignments can minimize Transaction Costs.
Your Style of Contracting Matters; Be Credible.
Build Trust; then take everything!
Keep it simple unless you are bedazzling your targets.

The tools are:

Abusive Contracts:
Abusive Government

The West, have benefited from these kinds of piracy. Countries like Britain, France and their successors at the IMF and World Bank dominated the whole world on the pretense that they were promoting free speech, free markets and were "helping people" -- while they made abusive loans and enforced abusive contracts and treaties.

I've got more to talk about but that is enough for this post.

HoltesThoughts

Saturday, December 30, 2017

Abusive Contracts and Privateering

Incomplete Contracts And Large Scale Swindles

Incomplete Contracts become Abusive Contracts

Contracts, The Devil and Daniel Webster

Modern Pirates Write Contracts

Piracy and Modern Companies

Loot and Contracts

An Ideology of Privateering

Privateering as Bad Business -- An alternative!

Tools of the Swindle

Further Reading and Previous Posts

John Locke Posts

Our Common Plank Ideas

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