Why Business Hates Obama

In browsing different blogs on both sides of the political spectrum, a common theme I've seen on the right is to accuse Obama of being a socialist or a communist. While there might be some merit to applying one of these labels to him I actually think he is more in favor of what some call crony capitalism. Or maybe a more appropriate term is fascism of some sort. According to Wikipedia, “Fascists seek to organize a nation according to corporatist perspectives, values, and systems, including the political system and the economy. ... Fascists believe that a nation is an organic community that requires strong leadership, singular collective identity, and the will and ability to commit violence and wage war in order to keep the nation strong. They claim that culture is created by the collective national society and its state, that cultural ideas are what give individuals identity, and thus they reject individualism.”

The last sentence in the Wikipedia entry captures what I think is a common denominator shared by socialism, communism, fascism and crony capitalism: an antipathy towards individuals. I think it also shouldn't be surprising that small businesses have been suffering under the Obama administration's attempts to "fix" the economy. Many small businesses represent the embodied dreams of entrepreneurs, of a man or woman who create a business on their own instead of working in the corporate world.

Joel Kotkin's article explains why small businesses, which normally lead the economy out of a recession, are staying hunkered down.

Obama’s big problems with business did not start, and are not deepest, among the corporate elite. Instead, the driver here has been what you might call a bottom-up opposition. The business move against Obama started not in the corporate suites, but among smaller businesses. In the media, this opposition has been linked to Tea Parties, led by people who in any case would have opposed any Democratic administration. But the phenomenon is much broader than that.

The one group that has fared badly in the last two years has been the private-sector middle class, particularly the roughly 25 million small firms spread across the country. Their discontent—not that of the loud-mouthed professional right or the spoiled sports on Wall Street—is what should be keeping Obama and the Democrats awake at night.

Small business should be leading us out of the recession. In the last two deep recessions during the early 1980s and the early 1990s, small firms, particularly the mom and pop shops, helped drive the recovery, adding jobs and starting companies. In contrast, this time the formation rate for new firms has been dropping for months—one reason why unemployment remains so high and new hiring remains insipid at best.

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It’s not hard to see the reasons for pessimism. Entrepreneurs see bailed-out Wall Street firms and big banks recovering, while getting credit remains very difficult for the little guy. In addition, many small businesses are terrified of new mandates, in energy or health, which makes them reluctant to hire new people. Small banks—not considered “too big to fail”—fear that they will prove far less capable of meeting new regulatory guidelines than their leviathan competitors.

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Among businesses of all sizes, there is now a pervasive sense that the administration does not understand basic economics. This is not to say they believe Obama’s a closet socialist, as some more unhinged conservatives claim. That would be an insult to socialism. Obama’s real problem is that he’s a product, basically, of the fantastical faculty lounge.

For the most part, university professors do not much value economic growth, since they consider themselves, like government workers, a protected class. Many, particularly in planning and environmental study departments, also embrace the views of the president’s academic science adviser, John Holdren, who suggests Western countries undergo “de-development,” which is the opposite of economic growth.

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.

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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.