Yesterday I argued that since bias is inherent in institutions and neutrality between individual and social spheres is illusory we should harness and direct the bias of institutions towards a free and virtuous society characterized by individual liberty and sustained by religious principles.
One of the ways we can do that in the economic realm, I believe, is to encourage a bias toward entrepreneurship and away from corporatism. As Derek Thompson, a senior editor at The Atlantic, says, “It would be naive to think we can cleanse the law of all biases. But what if the law were biased, not toward the oil and gas industry or the cotton farmers, but toward the creative, the self-employed, and the entrepreneurs?”
Thompson proposes a new framework for competitiveness:
In this week’s Acton Commentary I conclude, “The American people do not need politicians to tell them what happiness is and how it should be pursued.”
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
The payoff? “So while home ownership may sound glamorous, you need a lot of money to make it work, without much guarantee of positive returns in a post-bubble era.”
In this week’s Acton Commentary, “Corrupted Capitalism and the Housing Crisis,” I contend we need to add some categories to our thinking about political economy. In this case, the idea of “corporatism” helps understand a good deal of what we see in the American system today. Adding corporatism to our quiver helps us to make some more nuanced distinctions than simple “socialism” and “capitalism” allow.
Take, for instance, Mitt Romney’s contention this week while campaigning in Michigan that the bailouts of the auto companies was a feature of “crony capitalism.” A better way to understand the relationship between big business and big government today might instead be characterized as “crony corporatism.” You have a select group at the highest levels of an industry influencing government policy, which in turn favors those big businesses, provides various moral and fiscal incentives to consumers to patronize these industries, and then when necessary bails them out.
In this week’s commentary I use corporatism as a way of unpacking what happened in the recent housing crisis. For too long the American dream has revolved around home ownership. Owning a home is a good thing for many people; for many others it isn’t. What we have failed to recognize is the moral hazard that attends to government promotion of a particular vision of the American dream and the crises that result. As Dambisa Moyo characterized the housing crisis,
The direct consequence of the subsidized homeownership culture was the emergence of a society of leverage, one where citizen and country were mortgaged up to the hilt; promoting a way of life where people grew comfortable with the idea of living beyond one’s means.
The definition of the American dream offered by politicians should be far less precise, and presumably not include the level of specificity that says we should all own a home, drive a GM car, and have a college degree. As Nobel laureate Edmund Phelps put it in a 2009 interview,
I’m hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life. That’s what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a home owner.
The cultivation of an “ownership society” through government subsidy is only one feature of the creeping corporatism of contemporary America. As has been documented just in the last few days, the role of the government in directing and providing social goods has increased dramatically over recent decades. Following a New York Times story describing the increasing dependence of the American middle class on governmental initiatives of one form or another, Steve Hayward summarizes, “increasingly we’re taxing the middle class to pay themselves their own money, minus a large commission to Washington DC” (HT: The Transom). The government is increasingly using these subsidies and incentives to shape how people live their lives.
As I conclude in today’s piece, “The American people do not need politicians to tell them what happiness is and how it should be pursued. These are functions that our families, churches, and friendships fulfill.” One place to look instead would be the Westminster Shorter Catechism: “Man’s chief end is to enjoy God and glorify him forever.” Another would be the words of Jesus: “Life does not consist in an abundance of possessions” (Luke 12:15).
On the blog of The American Spectator, Acton Research Director Samuel Gregg looks at how Europe refuses to address the root causes of its unending crisis:
Most of us have now lost count of how many times Europe’s political leaders have announced they’ve arrived at a “fundamental” agreement which “decisively” resolves the eurozone’s almost three-year old financial crisis. As recently as late October, we were told the EU had forged an agreement that would contain Greece’s debt problems — only to see the deal suddenly thrown into question by internal Greek political turmoil, which was itself quickly overshadowed by Italy’s sudden descent into high financial farce.
No doubt many of these dramas reflect commonplace problems such as governments having difficulty reconciling promises made in international settings with domestic political demands. The apparently unending character of Europe’s crisis, however, is also being driven by another element: the unwillingness of most of Europe’s political establishment to acknowledge the root causes of Europe’s present mess.
One such mega-reality is the unsustainability of the pattern of low-growth, big public sectors, heavy regulation, large welfare states, aging populations, and below-replacement birthrates that characterizes much of the eurozone. Even now, it’s difficult to find mainstream EU politicians who openly concede the high economic price of these arrangements.
Read “Can’t Face Economic Reality” on The American Spectator.
In a new essay for Public Discourse, Acton Research Director Samuel Gregg explains why we shouldn’t only focus on public sector unions as examples of organizations that seek government power and taxpayer dollars to advance their ends. “A considerable portion of the business community is equally culpable,” Gregg writes. Excerpt:
The attractions of business-government collusion are enhanced when the state’s involvement in the economy grows. This is partly a question of incentives. The larger the scope of government economic intervention, the more businesses are incentivized to cultivate politicians in much the same way that public sector unions have.
As a result, consumers become displaced as the focus of business activity. Nor do the incentives for people of an entrepreneurial bent lie with creating something that the entrepreneur thinks consumers will value.
Instead the incentives become increasingly aligned with successful political entrepreneurship. Competition becomes less about a company’s ability to offer new and better products for consumers at lower prices. Instead, it become a struggle among businesses to secure state subsidies, to lobby legislators to establish tariffs that stack the deck against foreign competition, or to persuade governments to provide one company with exemptions from regulations that apply to every other company in the same industry.
It’s a form of soft corruption that produces higher prices for consumers, undermines value creation in the marketplace, and facilitates unwholesome relationships between politicians and businesses. It also represents the gradual subversion of the market economy by mercantilist arrangements. Smith identified the core of the problem in his Wealth of Nations (1776): “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and consumption.”
In the end, however, everyone loses.
Read Samuel Gregg’s “Business vs. the Market” on the Public Discourse website.