Home Economics.

Author:Ezrati, Milton
Position:American economy as a corporatist system - Report
 
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It is no secret that Americans have rebelled. On both the left and the right, people have made clear their disgust with business-as-usual. For the Republicans, the Tea Party rebellion began to alter the established party, and the election of Donald Trump rendered the change nearly complete. A comparable rebellion against established practice has pulled the Democratic Party far to the left. Polls show a common complaint: that the system is "rigged" in favor of a self-serving business and government elite. While the public cannot identify exactly how the system is rigged, it is nonetheless correct: elites in business and government collude regularly to run the American economy to their own advantages and have increasingly done so for decades. Public disgust and resistance to this pattern is entirely understandable. Indeed, for all the disruption and frustration brought by this resistance, it is welcome.

Though collusion might usually spring from a conspiracy, the economy's movement in this direction seems actually to have developed with little malice and in many respects even unconsciously. When politicians, corporate executives, pundits, journalists, academics, and activists alike propose ways to make society more just or efficient or globally competitive, they invariably call for some kind of government-corporate cooperation. But the cooperation, once initiated, seems always to lead to collusion. The pattern has built over time so that a corporatist approach to economics has come to dominate this economy--to the detriment of all, except, of course, the colluders. Little wonder, then, that the public, whether leaning left or leaning right, has had enough. Given what is at stake, the struggle against this government-corporate elite promises to go on for a long time.

However innocently and naturally these collusive, corporatist arrangements have developed in the United States, there can be no mistake about their origins. The approach was pioneered in the 1920s and 1930s, first under Benito Mussolini in Italy and later in Germany under Adolf Hitler. Popular imagination immediately and understandably links fascism to government-sponsored violence and worse. America is free from such horrors, but the economic impulse nonetheless looks remarkably similar.

The fascists wanted control of their economies. Having rejected government ownership of industry--the means by which the communists and socialists achieved centralized control--Mussolini, and after him, Hitler, settled on something subtler. They allowed private ownership and acquired control by offering huge benefits to firms that cooperated with their agenda--government contracts, protections from foreign and domestic competition, freedom from certain regulations (even from the law), and help in calming labor disputes--effectively all the advantages of monopolies. It was a prize hard for managers and stockholders to resist. Fascist agendas were, of course, very different and far uglier from those of the United States, but that is a different matter from the means used to serve them.

Except in wartime, no U.S. government has ever insisted that business follow its lead. The only demand on businesses is that they follow the laws and rules made by the government. Obey these rules, and a firm can proceed by its own lights. That still goes for many companies, particularly smaller ones. But as our government has grown, it has developed three mechanisms central to a corporatist approach. First, it has acquired an increasingly explicit social and economic agenda. Second, government presence has become pervasive because of its control over extraordinary amounts of contracting dollars and an ever-increasing regulatory structure and body of business law. Third, it has reserved for itself considerable discretion in how it spends its funds and applies its rules.

Washington has come to press on all economic activity and also direct a great deal of it. Through its contracts in defense, research, technology, and many other activities, it decides revenue flows for much of the business community. By applying, more or less severely, the rules and regulations embodied in a federal regulatory code (which verges on 180,000 pages), it has exerted enormous influence on the profitability of all businesses and, consequently, on how they behave. Washington, for instance, recently gave Apple a partial exemption from the China tariffs. Other companies must pay in full. When the legality of collusion among automakers to comply with California's fuel economy standards came into question, Congress--for its own political reasons--objected so strongly that antitrust concessions for the automakers are now more than likely. In these ways, Washington, for decades now, has picked favorites and directed economic activity--often in directions contrary to market expressions of what people want.

Legally speaking, a business can choose to ignore government preferences and follow its own prerogatives--presumably market signals. But managers are neither blind nor stupid: they see what government wants and the benefits it offers to firms that cooperate. Government exemptions from difficult regulations have become commonplace, and they bestow on some firms a powerful competitive edge. Administrative decisions to stay anti-trust action have given favored businesses license to merge or expand in ways that less-favored businesses have not enjoyed. Over time, these government-business interactions have created a virtual merger of government and business power, something Mussolini described as the essence of fascism when he wrote, in the 1932 Enciclopedia Italiana: "Fascism should more properly be called corporatism, because it is the merger of state and corporate power." It may be just this association that prompted President Dwight Eisenhower to warn publicly on January 17, 1961, of what he called a "military-industrial complex."

When I label the present American economy a corporatist system, I do so without the enthusiasm exhibited by political radicals when they fling those terms around. My own feeling is one of sadness. I am a forty-five-year veteran of Wall Street and a conservative economist. I believe that an economy's strength lies in its ability to follow market signals about what people want, and not what political interests want. I have long understood that markets are far from perfect, but because I believe they do the best job of creating prosperity and getting people what they want and need, I long resisted evidence of our economy's reality. But I can no longer deceive myself. For me, the last straw was Washington's behavior during the 2008-09 financial crisis, in which the government ignored ways of proceeding equitably in favor of ad hoc measures that gave grants to favored firms, forced others into bankruptcy, and even took over the management of one.

It should then be no surprise that Americans, who in many ways are very different from each other, find the existing corporatist system so obnoxious. Collusive economics is certainly contrary to past American practice. From this country's beginnings, it has resisted the concentrations of power that typify the present system, whether in commerce or government. Our founders, of course, had little concern over commercial concentrations. Though Adam Smith's 1776 bestseller, The Wealth of Nations, warned about commercial monopolies and state-sponsored corporations, these were less of a threat in undeveloped America than in Great Britain. The United States, having just won independence from the British crown's abuses, worried mostly about concentrations of government power. James Madison, in The Federalist No. 10, made his concern about government monopoly crystal clear. If governments were administered by "angels," he wrote, people would have no need to worry about concentrations of power. The natural goodness of government administrators would serve as a safeguard against abuse. But because human beings administer governments, he saw a need for institutionalized...

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