I have copied the first 2 of 6 pages of an essay on Corporatism in the U.S. (aka Crony Capitalism &/or the increased Government control of Corporations). It is a very powerful essay. The link to the whole article is here. The Intercollegiate Studies Institute is located in Delaware. For over 50 years, it has been a leading light in conservative thought having been started by William F. Buckley. ISI’s homepage can be found here. (Note: In the spirit of full disclosure, I am on the ISI Board).
This particular piece details how companies as diverse as Microsoft, Apple, and Philip Morris have eventually had to bow down to the power in Washington. But in the act of bowing down, many of them have discovered how to alter the rules to promote their success at the expense of competition. To the peril of our future, we ignore what is happening.
The Cultural Costs of Corporatism: How Government-Business Collusion Denigrates the Entrepreneur and Rewards the Sycophant; Chapter 7 from “Back on the Road to Serfdom” by Thomas E. Woods Jr.
One of the many vicious customs of our media is to fit every story into an evenly matched, two-sided debate, set in a familiar template.
Regarding government intervention, the standard frame is this: On one side are the “public interest” groups fighting to protect the consumer, or worker, or environment by calling on the government to enact new regulations. On the other side is industry, fighting to be left alone.
But this simplistic template rarely reflects the truth. The business lobby is far from uniform, and it is even farther from advocating laissez-faire. Often, regulation debates pit one big business against another—or one industry versus another. On other occasions, it’s less evenly matched: on the pro-regulation side are big business, big labor, and the “public interest” groups; on the anti-regulation side is small business. You can guess who wins.
Despite the widespread assumption that a free market is the ideal economy for big business, and that regulation checks the power of big business, more often the opposite is true. Regulation, by adding to the cost of doing business, disproportionately hurts smaller business and acts as a barrier to entry, keeping out new competitors. Likewise, government subsidies can be far more valuable, or at least more reliable, than income from consumers, for which businesses must continually fight with competitors. The dynamics of the lobbying game are crucial here. Bigger companies enjoy a greater advantage in Washington than they do in the market. Not only can bigger companies hire the better lobbyists—former lawmakers or top administration aides—and hand out more in campaign contributions, but they alsomatter more to lawmakers. The more workers you employ and the more taxes you pay, the more lawmakers care about your well-being, desires, and wishes.
In short, big business has a strong motivation to support big government: profit. To use the terminology of economist Joseph Schumpeter, big government enables political entrepreneurs—those who influence government to grant subsidies or harm competitors through regulation—to succeed over market entrepreneurs.
Thus we frequently see big business–big government collusion, which goes by many names: rent-seeking, corporatism, corporate socialism, corporate welfare, regulatory robbery, and subsidy-suckling, to name a few. Indeed, throughout our country’s history, some of the greatest enemies of the free market have come from the big-business lobby.
When Theodore Roosevelt proposed federal inspection of meat and meatpacking, the biggest meatpackers applauded.1During FDR’s New Deal, big business almost universally supported the National Recovery Act, which was a legalized system of cartels.2 Richard Nixon’s firmest backers for his 1971 wage and price controls were from big business, led by the National Association of Manufacturers.3 Bill Clinton’s new regulations on genetically modified foods, requiring expansive testing before such foods could be sold, had an ally in Monsanto, the world leader in such food.4
In the twenty-first century, it seems, such corporate-government collusion has accelerated. Consider the two biggest big-government programs of George W. Bush (besides his wars): creating a prescription drug subsidy under Medicare, and ramming through Congress the Troubled Asset Relief Program (TARP), which bailed out Wall Street and Detroit. The Medicare drug bill was the creature of drug companies, which got to pocket the subsidies, and insurers, which were legislated in as middlemen. The TARP bailouts were the pinnacle of corporate welfare—government transferring wealth from taxpayers to the largest corporations in America.
While Barack Obama pledged to drive lobbyists out of Washington and has portrayed himself as the scourge of special interests, corporatism has flourished under the Obama administration. This is evident in Obama’s signature achievement, his overhaul of the health-care system—a package of mandates, regulations, taxes, and subsidies. Supporting the White House all along was the drug industry, which spent more on lobbying (by a huge margin) in 2009 than any other industry.5Leading the drugmakers’ charge was the Pharmaceutical Researchers and Manufacturers of America (PhRMA),6 the largest single-industry lobby group in the country.7
The climate-change debate is typically portrayed as a battle between industry and environmentalists, with the latter leading the charge for government constraints on greenhouse-gas emissions, and the former desperately lobbying to be left alone. In fact, the only climate proposals to see the light of legislative day were crafted by industry—energy companies seeking subsidies, dealers in dubious greenhouse-gas “offsets,” agrichemical companies jockeying for handouts, and others of the same stripe. Supporters included BP, General Electric, Duke Energy, and Nike.8
Clearly, a rapidly growing government is insinuating itself in practically every corner of the market and of the broader culture. What is less obvious is that the road to serfdom is not being paved by government alone; in many cases the business community supports and enables the growth of government power. The reason is that big government brings ample benefits to big business. Unfortunately, it exacts many costs from the rest of society.
The Roots of Corporatism
Economists explain that government intervention reduces society’s wealth by reallocating it away from where the money will be most useful (where consumer demand is high or where investors see profits) to politically favored corners of the economy. This insight points us toward the cultural ramifications of growing corporatism.
Favoring big business over small business promotes uniformity over diversity and localism. It can weaken towns, cities, neighborhoods, and even families. It can destroy downtowns and replace them with strip malls. This is the opposite of the standard account, which blames Wal-Mart for crushing Mom and Pop. Wal-Mart dominates through government as much as through capitalism. An unbridled free market isn’t killing Mom and Pop; an untethered state is. Big-government efforts at building infrastructure and subsidizing all forms of travel and shipping undermine a local economy and prop up a global economy. Localism’s enemy is not capitalism but corporatism.
Beyond harming communities, business-government collusion denigrates the entrepreneur and elevates the lobbyist. Whenever government gains greater control over the economy, economic actors will depend more on government. Activist government makes political connections more valuable. This drives up the value of a lobbyist.
And the lobbyist’s gain has costs. Every new subsidy takes power away from consumers, because business goes where the money is. With Uncle Sam handing out cash, producers and investors become more interested in what the government wants than in what regular people want. Every mandate or regulation similarly disenfranchises consumers, but it also hurts entrepreneurs. Regulations, taxes, and mandates narrow the playing field, and by doing so, they narrow the opportunities for innovation. Most importantly, government intervention hurts anyone who is not politically connected. If you haven’t invested time and money befriending politicians and bureaucrats, you’re at a disadvantage. If you don’t have a lobbyist, you’re behind the eight ball.
As a result, entrepreneurs either (a) spend more time and resources greasing the political skids and thus less time and resources developing a better product, or (b) go out of business because they can’t compete with the politically connected. The more regulated and subsidized an economy is, the less sense it makes to work for yourself, and the more sense it makes to work for a well-established business.
Killing the Small Guys
It’s easy to find stories of government regulation of an industry helping the biggest businesses by killing the smallest ones—thus hurting consumers, promoting uniformity, killing local economies, and stifling entrepreneurship.
When President Obama signed a bill in 2009 heightening federal regulation of tobacco, he held a Rose Garden ceremony at which he claimed that the bill had passed “despite decades of lobbying and advertising by the tobacco industry.”9 But Philip Morris, the country’s largest tobacco company, had supported the bill for a decade—during which period it spent more on lobbying than every other tobacco company combined.10
The bill was officially named the Family Smoking Prevention and Tobacco Control Act (FSPTCA), suggesting that the regulation was intended to protect consumers, and especially children. But smaller cigarette companies called the bill the “Marlboro Monopoly Act,” referring to Philip Morris’s leading brand, which sells more cigarettes a year than every brand sold by the number-two cigarette company, R. J. Reynolds. In fact, Philip Morris typically sells half the cigarettes bought in America every year.11
The new tobacco legislation enacted strict regulations on manufacturing, testing, and disclosure. Such regulations impose new overhead costs. Why would Philip Morris support that? Because its massive economies of scale make it easier for the company to handle the added costs. The bill also restricted advertising and marketing, which helps lock out new companies and lock in place Philip Morris’s market share.
The tobacco giant made sure it had a seat at the table as the Food and Drug Administration (FDA) began implementing the regulations. Altria, Philip Morris’s parent company, hired lawyer/lobbyist Coleen Klasmeier to work with the FDA on the proposed rules. Klasmeier had worked at the FDA until 2005, when she joined the lobbying firm Sidley Austin as head of its FDA regulatory practice. She contributed the maximum legal contribution to Obama’s 2008 campaign.12
Smaller tobacco companies weren’t so well connected or so positive about the new law in their comments to the FDA. Smokin Joes, a cigarette maker owned by a Native American tribe, expressed its concerns about the proposed ban on free samples, asking the FDA whether “manufacturers cannot give free samples of their cigarettes to wholesalers so the wholesalers can determine if it is a brand they are interested in carrying?”13 Smokin Joes, unlike Philip Morris, needed to hustle for distribution. Constraining publicity would cement Philip Morris’s market share. But Smokin Joes didn’t have a prominent law firm or lobbyist firm working on regulations. Company attorney Karen Delaney submitted these queries.
Philip Morris, realizing that it couldn’t avoid government, decided to partner with it. When forced to, the company abandoned market entrepreneurship for political entrepreneurship—and it worked…..