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Location: St. Louis, Missouri, United States

Tuesday, February 07, 2012

Economic Federalism

Timothy Birdnow

In an article at Canada Free Press I quoted G.K. Chesterton:


"Capitalism is that form of Communism in which the organising officials have a very large salary. That is the difference; and that is the only difference. Both presuppose property not personal, but Worked from a centre and distributed as wages. There is a third ideal; or rather a second. It is that individuals should own and be free."

Chesterton was in no way a socialist or against free market principles. Chesterton saw a difference between what is called capitalism and free markets. What Chesterton was decrying is now called Corporatism. It is the partnership of business and law. It actually rejects free markets by imposing barriers on ownership and on engaging in economic activity. And it is the filling station on the highway to socialism.

The Communists understood this, and so were, well, not exactly pleased, but willing to accomodate the Nazi takeover of Germany "First Brown then Red". They wanted Germany to become a corporatist state, then it could be moved into the realm of "scientific socialism".

One of the more puzzling things to Conservatives is the baffling tendency of big industrialists to be very liberal in their politics. It seems counter-intuitive, and many elaborate explanations involving guilt and other psychological interpretations have been proferred. The reality is more mundane; big business, the really rarified heights, profit from quasi-socialistic policies. Corporatism, or crony capitalism, if you prefer, kills competition. It cements the position of the insiders. It steers huge sums of money toward the business with the governmental ear. It keeps the poor downtrodden, thus perpetuating the power and privilege of the wealthy. (How, you ask? The poor do not go out to small family-owned restaurants, but usually can scrape up money for McDonalds, or buy Frito-Lay chips. They purchase name-brand clothes, they purchase electricity, gas, medicines, and other goods and services as they must. They are a captive market, in that they rarely have much choice. And they are the ambrosia of statist politicians who stay in office and feed the corporatist beast. The last thing a big corporation wants is to see the poor move up and have the freedom to choose their own destiny. They are the consumer version of serfs.) Small businesses could help break that cycle, but are so hamstrung by laws and regulations that they simply cannot afford to go into poor neighborhoods or hire poor workers. The corporate fatcats make out, the government makes out, but the poor and middle class pay the price.

There is a classic tale which may or may not be true; one of the best public transportation systems ever devised was the streetcar. Everyone benefitted; they were running endlessly and a person could travel anywhere in a metropolitan area with streetcars. They were cheap. Big business killed them.

The story claims that General Motors, which did not make the electric powered vehicles, conspired to kill them. From an entry on Wikipedia:

"During the period from 1936 to 1950, National City Lines and Pacific City Lines, with investment from General Motors, Firestone Tire, Standard Oil of California, Phillips Petroleum, Mack Trucks, and the Federal Engineering Corporation bought up over 100 electric surface-traction systems in 45 cities including Baltimore, Newark, Los Angeles (mainly the "Yellow Cars"), New York City, Oakland and San Diego and converted them to bus operation. In 1946, Edwin J. Quinby, a retired naval lieutenant commander, alerted transportation officials across the country to what he called "a careful, deliberately planned campaign to swindle you out of your most important and valuable public utilities—your Electric Railway System". GM and other companies were subsequently convicted in 1949 of conspiring to monopolize the sale of buses and related products via a complex network of linked holding companies including National City Lines and Pacific City Lines. They were also indicted, but acquitted of conspiring to monopolize the ownership of these companies."

End excerpt.

And this was accomplished through legal challenges, through manipulation, and through outright financial pressure. It was a case of corporatism. But in 1946 America was still not adequately Brown to overlook this; some people went to jail. It is questionable if anyone would today. And, unfortunately, many good Conservatives would defend them in the interest of defending the free market.

Such an action could not have taken place without government complicity. If it were just a coalition of businesses it would not matter so much; other companies would get into the streetcar business. But this group knew that government would stop others from getting into it, and the bus lines they were offering as an alternative would be given preference. There was nothing free market about this.

It just illustrates that a "guided economy" is little more than a fascist one, and Mussolini considered himself a socialist till the day he died.

Which brings us to the purpose of this essay; a post at Reason magazine makes many of the same arguments.

According to Sheldon Richmond:

"Columbia University Professor Edmund S. Phelps, who won the 2006 Nobel Prize in economics, and his coauthor, Saifedean Ammous, assistant professor of economics at the Lebanese American University, write that the U.S. economy ceased to be a free market some time ago, yet the free market is blamed for the economic crisis. (The real question is whether it was ever really free.)

Phelps and Ammous condemn corporatism unequivocally.

In various ways, corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusiveness. It maintains lethargic, wasteful, unproductive, and well-connected firms at the expense of dynamic newcomers and outsiders, and favors declared goals such as industrialization, economic development, and national greatness over individuals’ economic freedom and responsibility. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, hedge funds, and much more has [sic] at some point been deemed too important to weather the free market on its own, receiving a helping hand from government in the name of the “public good.”


"The corporate state, after all, is a form of exploitation, the victims of which are workers and consumers, who would have been better off (absolutely and comparatively) without anticompetitive privileges for the well-connected and government-induced recessions.

The authors are optimistic that time will work against the corporate state. Young people coming of age in the Internet’s decentralized and wide-open market of ideas and merchandise can’t be expected to show enthusiasm for a system that protects entrenched corporations from the forces of competition. Moreover “the legitimacy of corporatism is eroding along with the fiscal health of governments that have relied on it. If politicians cannot repeal corporatism, it will bury itself in debt and default….”

Capitalism versus the Freed Market

My main beef with Phelps and Ammous’s essay is their use of capitalism to name the economic system that corporatism corrupted. Like many others, they believe that word “used to mean” the free market. To be sure, it was used that way beginning in the mid-twentieth century. But there was an older usage (of capitalist specifically), coined by free-market liberals like Thomas Hodgskin who predated Marx, associating it with government privileges for the capital-owning class. That undertone has never left. (Long-time Freeman writer and historian Clarence B. Carson expressed misgivings about the word here.)"

End excerpt.

The Left has managed to confuse Free Enterprise with the Darwianian-style Capitalism that elevates the uber-rich to permanent ruling class status. Chesterton understood what was wrong with this, and created his concept of "Distributism" as an economic theory. Distributism argued for the means of production to be in the hands of the working class, much like Marx, but he argued that the workers should be the owners, every man his own Rockefeller as it were. In short, Chesterton wanted a world of small businesses competing for every dollar spent, and offering better and better service for that dollar. What we sometimes think of as Lassez Fairez Capitalism is really Corporatism, the kind practiced by National Socialists like Mussolini and Hitler. The partnership of huge corporations and governments inevitably leads to socialism. It should stand to reason; an ingathering of power and wealth inevitably leads to more ingathering, and the ultimate ingathering leads to the state and the economy being one. It's like the permanent standing army of the U.S.; there was a time when establishing such an entity was hotly disputed, with many of the Founding Fathers prefering state militias. Over time the Armed Forces became so dominant that today we cannot fathom not having all of our defense needs centralized. But it was not always that way; government encroached on the rights of states to defend themselves, and the Civil War finally killed the idea of Federalism where national defense is concerned. Now we have a "military industrial complex" that so many liberals fear, yet they eagerly promote a governmental industrial complex that is perhaps more dangerous and onerous. And they fail to see that the very fat cats they so despise owe their continued existence to the very governmental power they promote.

The Founding Fathers understood that decentralization was the key to liberty. They created a system of government that, first, pitted the states against the central government, and they created three coequal branches of government to compete against each-other. Competition, they rightly knew, was the key to keeping people free. But with the rise of the imperial state we have lost all notions of Federalism, and with it we have lost notions of economic federalism as well. We have centralized political power, and with it we have centralized economic power into the hands of the few with the financial resources and political connections to manipulate the law.

Many Conservatives criticized Gingrich's PAC for "attacking capitalism" yet it would have been unamerican for them to withold such criticism if valid. Part of a free market is the right and duty to criticize. Ask any leftist industrialist (like George Soros) if he would not be pleased to shut the mouths of critics. Why ask Soros; just look at Glenn Beck!

If we are to have freedom we must first understand what we are talking about. Too few in America understand what our system is supposed to be. Just because somebody calls it Capitalism does not mean it's automatically true or good.

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