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Acton Commentary

Welcome to the new corporatism

    To state that Americans are deeply disillusioned with their political masters, whatever their party, is surely the understatement of 2013. A recent Pew survey, for example, indicated that just 19 percent of Americans trusted the federal government “to do what is right just about always or most of the time.” That’s an all-time low since polling began on this issue in 1958. It’s especially telling that the same survey informed us that Congress is even more unpopular than the IRS! Indeed, as the study’s authors write, “A record-high 74 percent of registered voters now say that most members of Congress should not be reelected in 2014.”

    Such polling should always be taken with ample pinches of salt. The incumbent reelection rate in America, for example, is extremely high. That’s partly explainable by gerrymandering. But it also owes something to many Americans’ willingness to exempt their particular representative from more general condemnations. “All members of Congress are you-know-whats … except mine.”

    That said, the sense that elected officials today aren’t especially concerned with the common good or — more basically — simply can’t be trusted is palpable throughout America. Obviously, elected officials don’t help themselves when they make significant promises that are later disregarded. Leaders who say, for instance, that they just aren’t into nation-building (but then try to manufacture Western-style democracies in Middle-Eastern Islamic countries), or who claim that “if you like your plan, you can keep it” under the Affordable Care Act (only to see millions of Americans now losing the health insurance they liked), don’t help to build confidence between the governed and government.

    There is, however, another dimension to this problem that’s now receiving more attention. This is the emergence over the past two decades of what the 2006 Nobel Laureate Edmund Phelps calls in his new book, Mass Flourishing, the “new corporatism.” This is a set of political and economic arrangements, Phelps maintains, that’s crippling economic growth while simultaneously creating a new set of “insiders” and “outsiders” in America — with most politicians being firmly in the “insider” category.

    To be clear, Phelps doesn’t have in mind the fascist corporatism that characterized economies such as Mussolini’s Italy. Nor is he speaking of the “neo-corporatist” institutions established in many Western European countries after World War II in an (ultimately dysfunctional) effort to try and unify societies shattered by war and intense ideological divisions. The “new corporatism,” Phelps argues, is more “tacit and finely articulated.” In his view, it has two primary features.

    First, the new corporatism means using the state to radically limit freedom in particular segments of the economy (healthcare and higher education being good examples) while presenting oneself as market-friendly. Think, for instance, of the lengths to which some have gone to present Obamacare (“Welcome to the Marketplace!” proclaims the malfunctioning website) as not being what in fact it is: yet another command-and-control healthcare system.

    The second dimension of the new corporatism is the way, Phelps writes, it has facilitated “the creation of a parallel economy” that exists alongside — and feeds off — the market economy. So, what does this parallel economy look like? For Phelps, it primarily consists of those “lethargic, wasteful, unproductive and well-connected firms” that are propped up by what he calls a “tripartism” of government, organized business, and organized labor (the third being the weaker of the three in America) at virtually any cost.

    For those who want evidence of the parallel economy, Phelps underlines just how great the costs of this new corporatism are. Among other things, they include: the bailing-out of dysfunctional corporations and banks; the low economic growth associated with shifting incentives away from entrepreneurial risk-taking and towards lobbying politicians; governments trying to borrow, tax, and spend their way towards the impossible-to-realize goal of economic-security-for-all via state fiat; and, especially worryingly, the “increasing concentration of wealth in the hands of those connected enough to be on the right side of the corporatist deal.”

    Phelps is especially scathing of the manner in which the new corporatism aids the growth of regulations that, he suggests, owes much to legislators’ willingness to cater for special interests in return for electoral and financial support. Sometimes, however, the corporate welfare assumes more insidious forms. A recent Mercatus Center report, for example, suggested that politically connected banks received larger bailouts from the Federal Reserve during the financial crisis than those financial institutions that spent less or nothing on lobbying and contributions to political campaigns. Likewise, in a study analyzing the allocation of TARP funding, two University of Michigan economists found a strong correlation between receiving TARP assistance and a company’s degree of connectedness to members of congressional finance committees.

    It’s these trends which increasingly infuriate Americans, but especially conservatives. This was underscored in a recent Wall Street Journal article by the political philosopher and former Clinton administration official William Galston. According to Galston, recent studies of Tea Party adherents (who, incidentally, turn out to be overwhelmingly socially conservative, pro-life, middle-class, mostly Christian, family-orientated individuals with above-average educational qualifications, rather than wild-eyed anarchists) illustrate that many Tea Party supporters “are small businessmen who see taxes and regulations as direct threats to their livelihood.” For many of them, the parallel economy symbolized by Obamacare is a clear and present danger to anyone who wants to take risks and create wealth rather than be assimilated by, and subjected to, the new corporatism.

    In a way, however, we’re been here before. One of the American Revolution’s underlying causes was the colonists’ knowledge that many of the British government’s economic policies, such as its imposition of import and export duties upon the colonies, owed much to a widespread collusion between many British officials and MPs on the one hand, and British merchants on the other.

    As was pointed out at the time by the most economically astute of the signers of the Declaration of Independence, Charles Carroll of Carrollton, many British merchants were terrified of competition from their American counterparts. Why? Because economic freedom threatened the government-licensed monopolies they had secured though their close (and very well-greased) relationships with government ministers and parliamentarians. To Carroll’s mind, however, even worse was that this “ministerial influence and parliamentary corruption,” as he described it in a 1765 letter, indicated that Parliament had forgotten “they are the guardians of sacred liberty, and of our happy constitution.”

    And that perhaps is what’s so disturbing about the new corporatism in America. It’s not just the Tammany Hall-like political shenanigans or the economic Detroitification which it facilitates. The new corporatism’s most worrying aspect is that it suggests that large swaths of America’s political class (and their legion of enablers that stretches far, far beyond the Beltway) isn’t, deep-down, especially interested in freedom and opportunity for all, and perhaps hasn’t been for some time now.

    In 1765, Charles Carroll informed one of his correspondents in Britain that “the Americans … are not yet corrupt enough to undervalue Liberty, they are truly sensible of its blessings, and not only talk of them as they do somewhere else, but really wish their continuance.” In light of the new corporatism, however, the question facing us is whether enough Americans, 248 years after Carroll penned these words, can really say the same today. 

    The article first appeared at The American Spectator.

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    Dr. Samuel Gregg is an affiliate scholar at the Acton Institute, and serves as the the Friedrich Hayek Chair in Economics and Economic History at the American Institute for Economic Research.

    He has a D.Phil. in moral philosophy and political economy from Oxford University, and an M.A. in political philosophy from the University of Melbourne.

    He has written and spoken extensively on questions of political economy, economic history, monetary theory and policy, and natural law theory. He is the author of sixteen books, including On Ordered Liberty(2003), The Commercial