Is Barack Obama a socialist? Not really. Is George W. Bush a free marketer? Not hardly. In fact, right now they both seem to be pursuing policies that are neither socialist nor laissez-faire but rather corporatist.
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."
We've always had some elements of the corporate state in America — subsidies, tariffs, monopoly privileges, regulatory cartels — but we've prospered because of the freewheeling entrepreneurship and creative destruction that characterizes most of our economy.
In a few short months, the Bush administration has turned the focus of our economy to corporatism. Every day brings another story about businessmen seeking their profits in Washington, not the marketplace:
- Life insurance companies are seeking to buy savings and loan institutions in order to qualify for a piece of the $700 billion bailout fund.
- Realtors and homebuilders are asking for mortgage subsidies, tax credits and interest-rate "buydowns" to stimulate demand for their product.
- Recently "the health insurance industry said" — a pretty corporatist phrase right there — that it would support regulations requiring insurers to accept all customers, regardless of illness or disability, as long as Congress would require every American to buy insurance.
- After Congress turned down a bailout for the car companies, the firms are asking the Bush administration to fund them on its own authority.
Meanwhile, Obama advisers are saying that if the federal government invests billions of dollars in businesses, it should get some influence on company policies regarding foreclosures, lending, executive compensation, environmental effects and product lines.
So politicians would be making important corporate decisions, which means less attention to meeting consumer demands and more emphasis on satisfying outside interest groups.
Some bailout advocates want to go even further.
Jonathan Cohn of the New Republic suggests that the federal government use its new power over the auto companies to fire a General Motors vice chairman who has expressed skepticism about the catastrophic effects of global warming, and congressional Democrats wanted to forbid the firms from filing lawsuits against state environmental regulations.
That's corporatism for you: Big, established corporations get taxpayers' money as long as any dissenting scientific or political opinions are suppressed.
Socialism is dead even in Moscow and Beijing.
The real choice Americans face is whether we want a free market or a corporate state.