The Home of American Intellectual Conservatism — First Principles

March 20, 2019

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 also matter 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.1 During 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.5 Leading 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.

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