The New Corporatism In American Capitalism

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The recent release of Nobel Laureate Edmund Phelps' book Mass Flourishing (2013) may be serendipitous, but Phelps' analytic insights definitely add critical perspective on the recent firestorm of business associations' criticism against Tea Party-backed congressional Republicans blamed for the October partial shutdown of the Federal government. In Mass Flourishing, Phelps, a Columbia University economist, defines the "new corporatism" as where "[T]he state is less a guide choosing the heading than a pilot paid by the passengers to take them where they ask. Some of the power has shifted to large-wealth owners and holders of powerful positions in business."

A classical view of modern corporatism in post-war America has focused on an "economic tripartism" approach to political power sharing by social partners involving government, organized business groups, and labor unions. According to Phelps, "[C]lassic corporatism widens government powers (relative to that under 18th century liberalism) in order to forge a state-led economy." However, the relative weakening of the American labor movement, due to declining worker membership over the last two decades, has often resulted in "economic bipartism" being the institutional norm - with government and business jointly at the helm.

In the New Corporatism, Phelps argues that much of this political power is shifting back to government, where the state is intensely involved in regulating major sectors of the American economy, including healthcare, financial services (higher education), and energy. Moreover, Phelps sees the creation of a nonmarket economy existing in parallel to - and which extracts resources from - the market economy. This nonmarket economy, says Phelps, is supported by an economic tripartism consisting of government, organized business, and a weakened organized labor movement which collectively supports "lethargic, wasteful, unproductive and well-connected firms." This economic tripartism also creates a public policy environment which encourages the proliferation of "crony capitalism", whereby the state acts as "a pilot paid (through electoral and financial campaign support) by the passengers (business) to take them where they ask."

In the case of organized business interests, The Wall Street Journal ("Business Voices Frustration with GOP", October 17, 2013) reports that the partial shutdown of the Federal government, ostensibly an attempt by conservatives to prevent implementation of the Affordable Health Care Act, an eventual takeover by the U.S. government of one-sixth of the U.S. economy, and its estimated $24 billion annualized cost to the already weak U.S. economy, has subsequently resulted in a reassessment of how major business associations will support the Republican Party in future elections. According to the Journal, it "has prompted top business lobbying groups, including the U.S. Chamber of Commerce, to consider taking sides in Republican primaries next year in hopes of replacing tea party conservatives with more business-friendly pragmatists."

In a recent article in BloombergBusinessweek ("Big Business Tries to Unseat the Tea Party", October 28-November 3, 2013), it was reported that "business groups are considering fielding their own candidates in the 2014 primaries and redirecting their ample resources to deposing Tea party stalwarts." In 2012, the U.S. Chamber of Commerce ("Chamber") spent over $35 million on elections nationwide, with the overwhelming majority on behalf of Republican candidates. Other business groups will be backing what they consider to be "business-friendly" Republicans. The Wall Street Journal also reports that, according to David French, a lobbyist for the National Retail Federation, business associations will be actively backing between 12 and 25 business-friendly Republicans in next year's congressional primaries.

Is this a visceral over-reaction on the part of organized business interests to an isolated political battle? Perhaps, but not likely. Economists and legal scholars affiliated with the University of Chicago have developed a theory, called the rent-seeking perspective, explaining where government intervention in the American economy, through regulation, is found which, while increasing costs for companies and industries also generated profits. This theory argues that this regulation, i.e., government intervention in the form of laws and administrative rules, is demanded by interest groups, such as business associations, acting through the political processes to permanently benefit those politically effective interests. For business interests, their rent-seeking activities focus on economic and political stability and certainty in the operating environment. This rent-seeking activity by big business interests, not surprisingly, often translates into a working partnership with big government.

The New Corporatism does not, however, support a "muscular" definition of capitalism, one steeped in the tradition of classical liberalism. Many conservatives in the Republican Party, and particularly those who are members of the U.S. House of Representatives, represent this constitutionalist, limited government ideology that is found in the Tea Party movement. Rent-seeking behavior on the part of special interests, including business interests, is often viewed by Tea Party adherents as an inefficient, market distorting activity. The U.S. Chamber of Commerce advocates for "free enterprise", and in its online publication FreeEnterprise.com, describes itself as one which "captures the triumphs of risk-taking, hard work, and innovation and the threats of expanding government, burgeoning debt, and an uncertain legislative and regulatory environment."

It is unlikely that any Tea Party-backed Republicans members of Congress would have any quarrel with the Chamber's definition of "free enterprise." But big business, like any special interest group, expects the "pilot", i.e., government, to take the "passengers" to their destination. The Chamber and other business associations, while concerned about the final destination, have decided that they need to support upcoming Republican primary candidates who will make better "pilots" and provide certainty - that is, no future "disruptions" in government operations - during the legislative voyage. In the New Corporatism, the U.S. Chamber of Commerce and other business associations are simply recognizing their new institutional reality, and behaving in a fashion that represents who they are and what they represent - special interest groups actively involved in rent-seeking behavior to benefit their business constituents.

Thomas Hemphill (thomashe@umflint.edu) is a policy advisor to The Heartland Institute, and professor of strategy, innovation and public policy, School of Management, University of Michigan at Flint. 

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