Tuesday, December 23, 2008

Corporatism: The Wave of the Present

David Boaz of the Cato Institute penned an article titled “Bush and Obama Opt for Corporatism Over Freewheeling Capitalist Economy” for the Investor’s Business Daily December 17 edition. It starts with the following.

Is Barack Obama a socialist? Not really. Is George W. Bush a free marketer? Not hardly. In fact, right now they both seem to be pursuing policies that are neither socialist nor laissez-faire but rather corporatist.

The Bush administration has spent close to a trillion dollars to keep the managers of big companies in the driver's seat. Instead of a free-market policy of letting the market determine winners and losers, the administration says Bear Stearns, AIG, Citigroup and other big Wall Street firms are "too big to fail." They can take dramatic risks and the taxpayers will cover them.

Corporatism was seen as an alternative to both the egalitarianism of the French Revolution and the laissez-faire economics of Adam Smith, with the state working closely with the different elements of society, especially labor and business.

As the Nobel laureate Edmund Phelps wrote: "The fundamental corporatist idea was to retain the private income, private wealth and private ownership of firms that (were) so central to capitalism (and found in avant-garde examples of market socialism too) but to remove the brain of capitalism — to curtail and to modify the mechanism of experiments and discoveries undertaken by unorganized entrepreneurs and financiers on which capitalism relied. . . . Corporatism sought to interpose the interests of the whole society in a range of decisions affecting the directions taken in the business sector."

We've always had some elements of the corporate state in America — subsidies, tariffs, monopoly privileges, regulatory cartels — but we've prospered because of the freewheeling entrepreneurship and creative destruction that characterizes most of our economy.

I think the most interesting part of this excerpt is Phelps’ comment about corporatism wanting to “remove the brain of capitalism.” By this Phelps means that capitalism is able to provide the endless flow of goods and services because entrepreneurs, managers and employees apply their creative forces to answer the challenges of competing against other enterprises for the customer’s business. Corporatists believe that the wisdom of government bureaucrats can replace these undirected creative, messy forces while still providing the same results.

I’d describe the corporatist’s position somewhat differently than Boaz. The corporatist wants to replace the many minds working independently with one mind, theirs. To modify Adam Smith’s “invisible hand” description of the free market, the corporatist wants to replace the independently operating invisible minds of the free market with the one visible mind of the bureaucrat who omnisciently pulls the levers of the economy.

Phelps (who won a Nobel Prize in 2006) shows in his writings that the record of corporatism fails to supports the claims of its proponents. (See the Wikipedia entry and his own web site.)

A second part of the Phelps quote stands out: “Corporatism sought to interpose the interests of the whole society in a range of decisions affecting the directions taken in the business sector.” Therefore, corporatists believe not only that bureaucrats can steer the economy better than the undirected free market but also they have the moral imperative and the right to steer the economy to better serve our “true” interests.

I agree with Boaz that corporatism is neither socialism (in which “the people” own the means of production) nor capitalism but a hybrid in which they want to harvest the benefits of the free market while giving it a lobotomy. They want to reap the effect while severing the cause.

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