The Bush administration has spent close to a trillion dollars to keep the managers of big companies in the driver’s seat. Instead of a free‐market policy of letting the market determine winners and losers, the administration says Bear Stearns, AIG, Citigroup and other big Wall Street firms are “too big to fail.” They can take dramatic risks and the taxpayers will cover them.
For the first time, the government is supporting mortgages and consumer borrowing — up to $800 billion worth. As critics complain that banks have lured consumers into mountains of unaffordable debt, the government is seeking to shore up credit cards, auto loans and other consumer debt.
Timothy Geithner, president of the New York Federal Reserve Bank, has been a key player in these bailouts. He is Obama’s choice to be Treasury secretary. Obama himself wants to extend the government’s new programs to support specific companies, including the major car manufacturers, bailing them out at a cost that would begin at $25 billion.
In all these cases the government is seeking to support existing businesses. That isn’t laissez‐faire. It isn’t what free‐market advocates support. But it is what Bush is doing and Obama wants to continue.
Corporatism has a history in American economic policy, but it has generally been advanced as a guiding philosophy only in other countries. Corporatism was seen as an alternative to both the egalitarianism of the French Revolution and the laissez‐faire economics of Adam Smith, with the state working closely with the different elements of society, especially labor and business.
As the Nobel laureate Edmund Phelps wrote: “The fundamental corporatist idea was to retain the private income, private wealth and private ownership of firms that (were) so central to capitalism (and found in avant‐garde examples of market socialism too) but to remove the brain of capitalism — to curtail and to modify the mechanism of experiments and discoveries undertaken by unorganized entrepreneurs and financiers on which capitalism relied.… Corporatism sought to interpose the interests of the whole society in a range of decisions affecting the directions taken in the business sector.”