Arnold Kling  

Progressive Corporatism

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Chief Financial Plumber... Morning Reading...

Roderick Long writes,


The vast regulatory apparatus that emerged in the late 19th and early 20th centuries was thus specifically campaigned for by the business community. ..The supposedly pro-labour legislation that emerged from this area was also mostly bogus, a matter of co-opting labour leaders into a junior partnership with government and business in exchange for not rocking the boat.

Read the whole thing. Much-appreciated pointer from Will Wilkinson.

This phenomenon goes by many names. My father liked Murray Edelman's term, symbolic reassurance. The progressive symbols were used,, but underneath it was corporate-state co-operation. A more recent term is bootleggers-and-baptists coalitions. The bootleggers are the corporations who say that consumers need protection from dangerous products or from products made by cheap labor. The baptists fall for that. The result is regulated industries, free to operate in monopolistic fashion. I think that major auto companies are protected by regulation, including the many regulations that Ralph Nader forced on them several decades ago. You can't start a car company today. You'd need too many lawyers. Similarly, you can't bring a new drug to market as an independent company. You have to sell to big pharma. Thanks to progressives, the supposed enemies of big corporate power.

Homework: write an essay on how this model explains the latest actions of the government in the financial crisis.


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CATEGORIES: Political Economy



COMMENTS (6 to date)
Brad Hutchings writes:

So you think that the government is going to dismantle the entire network of mortgage originators and brokers under the premise that it introduces too much consumer fraud and consumer abuse into the system? And I'm also guessing that you think the push for this hyper-regulation of originators will come from Barney Frank. Progressives are already circling the wagons around him, denying any suggestion that he used his position to influence Freddie and Fannie lending policies.

Matt writes:

Treasury is staffed with folks from investment banks. Investment workers switch over to government lobbyist and back as the cycle completes. Unions get pension guarantees, Wall Street gets backstopped.

Basically we have a quasi-independent, informal network of aggregators whose only function is to move in and out of finance and government, aggregating.

Why? God only kows!

E. Barandiaran writes:

Since the Great Depression, US government has changed in many ways and you're asking which one of these changes explains its ongoing intervention to redistribute the losses of financial intermediaries. I think that in all democracies, a long time ago people willing to take large risks learnt that to protect their interests they need to engage government in their investments. Either they engage government from the very beginning (quite common in developing countries like Chile where I'm now or even in Spain where I live) or they delay the engagement until they have become "too big too fail" (the relevant definition of "too big" depends on the activity in which they have invested and indeed it is not limited to financial intermediation). Many economists like to argue that this engagement is justified because of the pervasiveness of market failures. It reflects, however, a big failure of democratic government: income redistribution in favor of powerful interest groups. In sum, constitutional democracies are incompatible with a free market economy and the only relevant issue is how to increase the cost to politicians and government officials of redistributing income in favor of those groups. Bryan and you want to do it by changing the rules of democratic government--good luck.

Patrick writes:

In sum, constitutional democracies are incompatible with a free market economy and the only relevant issue is how to increase the cost to politicians and government officials of redistributing income in favor of those groups.

Not necessarily. If people are taught about economics and the constitution clearly states that the governments (Not just federal gvt, but also state and local gvts) cannot curtail economic and civil liberties (Basically, laissez-faire), then democracy wouldn't be as opposed to the free market economy (Although in that case, it would be limited democracy based on the rule of law, as opposed to pure democracy). Unfortunately, this is unlike to become reality (At least in my lifetime). I do share your assessment, which is that there is an incentive for different groups to maintain the way things are, as in political parties not fixing every problems, if not any problems at all.

parviziyi writes:

Arnold Kling is being incoherent here. First, he confounds the "symbolic reassurance" w.r.t. the overall social order, on the one hand, with, on the other hand, the regulations on particular industries designed to protect consumers from dangerous products. Two totally different things.

Then he claims that consumer protection regulations cause "regulated industries, free to operate in monopolistic fashion". Whereas the regulations, although raising the barriers to entry in an industry, don't result in monopolies at all -- e.g., the pharmaceutical and auto industries both have got high levels of competition (that's true even though big pharma has high profit margins and big auto does not).

Arnold also appears to agree that "pro-labour legislation that emerged from this area was also mostly bogus, a matter of co-opting labour leaders into a junior partnership with government and business in exchange for not rocking the boat". That's like saying that any pro-labour legislation that isn't downright communism is "mostly bogus". Which is a very silly attitude.

Eric McFadden writes:

You are wrong to say that the baptists are people that fall for bootleggers arguments. Baptists are the ones who cry that a particular action is needed for some moral reason. The bootleggers support them because they gain from this action, though they usually have some sort of "immoral" goal. In the case of increased corporate regulation the baptists are the consumer safety people. The bootleggers are the corporations that know they will eventually co-opt the regulatory agency set up by the government.

Homework 1:
Baptists are the people that want the financial system to continue to function. Who can argue against that?

The bootleggers are the ones who stand ready to increase their envelope of power. Treasury and Fed gain power directly. Finance firms will have to turn whatever government agency arises for their own benefit. As Overcoming Bias points out the group whos plan gets approved also wins just by proving that they have the power to get their plan passed in a time of crisis.

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