Friday, December 19, 2008

The Fascist Corporatism of Bush and Obama

It is a disturbing sign of the times that even though the bailout of the Detroit automakers failed to win congressional approval, President Bush has just announced that he will carry out the bailout on his own authority. At the same time, Henry Paulsen has announced that he has already spent $350 billion of the financial bailout money and is now prepared to spend the second $350 billion. All of this and more has been supported by Barack Obama who promises to continue in the path of Bush towards using taxpayer money to protect corporations from collapse while introducing federal management of large sectors of the American economy. During the presidential campaign, John McCain agreed with both Bush and Obama on the need for such governmental control of the economy.

So what do we call this? This is not free-market capitalism, because government is intervening to protect failing corporations from the consequences of their economic decisions. This is not pure socialism, because private property and markets have not been completely abolished by the government intervention. In a previous post, I called this "market socialism." But a better label might be "fascist corporatism."

Corporatism emerged in the late 19th and early 20th centuries as an attempt at finding middle ground between pure capitalism and pure socialism. The idea is that while property would be mostly privately held and largely subject to market mechanisms, government would intervene to manage the economy to protect the social good.

Corporatism was a crucial element of Benito Mussolini's fascism. In "The Doctrine of Fascism" (1932), Mussolini criticized the individualism and greedy materialism of classical liberalism. Against this, he argued for the "corporative system" in which "divergent interests are coordinated and harmonized in the unity of the State." This would support Fascism as "an organized, centralized, authoritarian democracy." "If liberalism spells individualism, Fascism spells government."

After quoting some classical liberals about the need for free markets and limited government, Mussolini pointed to the global economic crisis that began in 1929 and asked: "What would they say now to the unceasing, inevitable, and urgently requested interventions of government in business?" Franklin Roosevelt adopted many of Mussolini's arguments and policies as the basis for the New Deal.

Doesn't this sound familiar? Isn't this the rhetoric of Bush and Obama? And just as Mussolini insisted on the need for charismatic leadership in a time of crisis, don't we see Obama presenting himself as the great leader who will save us?

From the viewpoint of Darwinian conservatism, Fascist corporatism is foolish and dangerous because it ignores the imperfection of human nature in both knowledge and virtue.

Because of the imperfection of human knowledge, governmental planners never know enough to plan a large, complex economy. They act without knowing what they are doing. Far from pulling the country out of the Great Depression, FDR's policies actually made the economy worse--as indicated by the new economic slump in his second term. But no matter how often his policies failed, FDR never lost confidence as he tried one thing after another. Obama has said this is what he most admires in FDR--the confidence in trying anything without any coherent understanding of what he was doing. Don't we see this now in the chaotic moves from one bailout plan to another without any persuasive rationale for why any plan will really improve things rather than make things worse?

Because of the imperfection of human virtue, the concentration of power in the hands of a few people makes corruption inevitable. When a few people in the executive branch of government are free to hand out trillions of taxpayer dollars to businesses and individuals, we know that this will be distorted by ambition and avarice.

By contrast, Darwinian conservatism looks to the principles of dispersed knowledge and countervailing power. No single mind or group of minds know enough to manage a large, complex economy. Free markets allow for the allocation of resources through an emergent order of exchanges that draws from the knowledge of ever-changing economic factors dispersed over millions of individuals facing local conditions. This free-market system is not planned out, and so it works through unpredictable cycles of boom and bust that are painful to those who have made bad business decisions. But any attempt to smooth this out through centrally planned governmental planning will only prolong the economic slumps.

Darwinian conservatism subscribes to Lord Acton's famous maxim: "Power tends to corrupt, and absolute power corrupts absolutely." There is no perfect protection against the corruption of power. But we can at least try to create institutional structures in which "ambition counteracts ambition." But what we see now in the United States is a concentration of power in the President and the executive branch with very little countervailing power. Bush's bailout of Detroit a few days after Congress failed to authorize this is only one of many examples of how American government has been transformed into a presidential government based on the sort of executive leadership favored by the Fascists.

A few months ago, I predicted that if Bush and Obama continued on the path of massive governmental interventions in the economy, the consequence would be a deepening crisis over many years comparable to the Great Depression. Events over the past few months suggest that is exactly where we headed.

Further analysis of the history of Fascist corporatism in America can be found in a recent article by David Boaz and an earlier article by Anthony Gregory. The link between Fascism and corporatism is clear in Mussolini's "Doctrine of Fascism."


RBH said...

I'm afraid there's a two-fer in this piece, Professor Arnhart.

First, of course, it's surprising to see s self-styled Darwinian denigrate a trial and error process, as you do above. That's what the evolutionary algorithm is, you know: trial and error, retaining the successes and abandoning the failures.

Second, your remark about "the new economic slump in [Roosevelt's] second term" contradicts the point you are trying to make. As Paul Krugman notes

... Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

I agree with your worries about the concentration of power in the executive, but making bad arguments for it doesn't help.

Larry Arnhart said...

I agree with you about the need for "trial and error, retaining the successes and abandoning the failures." But having the government bail out failing businesses would seem to be doing just the opposite.

The economic decline in the U.S. in 1937 was probably due to the Federal Reserve's doubling of banks' reserve requirements and the new levying of social security taxes years before any benefits were to be paid out.

Anonymous said...

The "trial and error" has already occurred, RBH. The trial was of securitized mortgage debt, credit default swaps, GSEs, and a risks-be-damned attitude of the Federal government toward increasing home ownership. The error has showed up in your IRA.

The Federal government's intervention is more akin to God thrusting his hand into the evolutionary process, saving animals otherwise destined for extinction, or determining which changes shall be considered adaptive. Except, of course, that the Federal government is not God, though some would like it to be.

And FYI, just because Paul Krugman says something doesn't make it true. Consider an alternative viewpoint:

Kenneth Nyman said...

I write from Europe, and here we can see quite different attitides toward governmental support for private companies. I come from the Scandinavian countries. Here the welfare systems are quite generous, but on the other hand there is quite a big reluctance against protectionism and governmental support for private companies. The bottom line for many is, that it is better in the long to let failing companies go bankrupt, even if it means that the employees have to be unemployed for a while before they may be hired by more successful companies.

In much of continental Europe, it is quite the opposite. In countries like France, for examople, it goes without saying that if Renault fares badly, then the government should help the company. Compare this with the case in Sweden. Here there has been discussions about public help to the auto industri, but it has however been quite difficult and is not very popular in the public opinion.