Free Enterprise Zone, The Freeman, Steven Horwitz
In a recent appearance on Judge Andrew Napolitano’s Freedom Watch (Fox Business), Ralph Nader talked optimistically about a possible alliance between libertarians and Progressives. The groups, he pointed out, oppose many of the same things, from the new TSA procedures, to the wars in Iraq and Afghanistan, to corporate welfare and bailouts. I share the hope that such an alliance might form, and not just because the corporate state needs all the unified opposition we can provide. I think that libertarianism needs to see itself as part of the broad Progressive movement more generally. However, there are a number of hurdles that such an alliance would need to leap. This week I talk about one big hurdle for Progressives, and next week I’ll talk about some for libertarians.
One belief that Progressives will have to reconsider is that government intervention can serve, to use John Kenneth Galbraith’s term, as “countervailing force” against the economic power of large firms. Progressives tend see the corporate-State partnership as a failure of the State to properly control corporations. They see this failure as due to our inability or unwillingness to prevent the election or appointment of political officials who serve the interests of corporate America and our refusal to limit corporate influence over the political process. Note how strongly Progressives hate the Supreme Court’s Citizens United decision, which said corporations may finance independent broadcast political programming during elections. Despite its history of failure, Progressives still believe the State, with the right people in control, can and should forbid corporate political activity.
Libertarians, by contrast, argue that corporate influence over the State is not a “bug” in the political process that can be fixed by better people or restrictions, but rather a feature of that process, in the sense that one of the purposes of the State is to serve the interests of those with the most to spend and the most to gain from intervention. For all their talk of structural explanations of social phenomena, many Progressives fail to apply that critical perspective to the relationship between corporate America and the State. Rather than seeing that unholy alliance as a natural outgrowth of a government with the power to disburse all kinds of favors, they seem to believe it is a more accidental feature of the people elected or the rules by which we elect them.
Ironically, it’s the free-market economists who have the best structural analyses of corporate influence over the State in the form of Public Choice economics. Public Choice theory analyzes political activity as another arena of exchange and recognizes that people in the private sector will take full advantage of the benefits offered by the State. Firms would much rather have the more certain income of a State-granted monopoly or other forms of favoritism, such as bailouts and subsidies, than engage in more difficult market competition. Recall Horwitz’s First Law of Political Economy: “No one hates capitalism more than capitalists.” Public Choice also notes that political officials have every reason to provide such benefits, because it is a way to obtain votes from those whom they subsidize. This trading of votes for benefits is a structural feature of the political process.
Consider George Stigler’s “capture theory.” Stigler pointed out that any regulated industry will have expertise the regulators need to do their work, and thus it will work hand in hand with them to design new rules that benefit itself. Eventually, the regulators, who are often former members of the industry, will be “captured” by it; that is, they will see their work in terms of the industry’s interests. This theory also explains the revolving door between Washington and the private sector.
Like Progressives, libertarians worry about corporations having too much power. However, we believe that comes mostly from their ability to access State power. Given the private sector’s drive to make profit, if the option to use the State is available, corporations will always find ways around the regulations. Given that all political officials gain from providing benefits to the private sector, hoping different politicians and bureaucrats will do better is just rearranging the deck chairs on the Titanic.
Again, these problems are not “bugs” in the political process; they’re features. Redistributing wealth toward the powerful is exactly what governments will always do, no matter who is in office. It’s the powerful who have the resources to access the State and use it to distribute wealth in their own favor. And history clearly teaches that this is what the State has always been about. The sooner that Progressives apply their skepticism about government intervention in the bedroom or foreign countries to intervention in the market, and see that it structurally serves the interests of the firms it purports to control, the sooner a Progressive-libertarian alliance will come to fruition.
Contributing editor Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.Copyright © 2010 Foundation for Economic Education. Used with permission.