Michael Strong points out this forty-year-old essay by Roy Childs.
What Kolko and his fellow revisionist James Weinstein (The Corporate Ideal in the Liberal State, 1900-1918) maintain is that business and financial leaders did not merely react to these situations with concrete proposals for regulations, but with the ever more sophisticated development of a comprehensive ideology which embraced both foreign and domestic policy. Weinstein in particular links up the process of businessmen turning to the state for favors in response to problems which they faced and the modern “corporate liberal” system. he maintains that the ideology now dominant in the U.S. had been worked out for the most part by the end of the First World War, not during the New Deal, as is commonly held, and that the “ideal of a liberal corporate social order” was developed consciously and purposefully by those who then, as now, enjoyed supremacy
…we have seen that (a) the trend was not towards centralization at the close of the nineteenth century – rather, the liquidation of previous malinvestment fostered by state action and bank-led inflation worked against the bigger businesses in favor of the smaller, less overextended businesses; (b) there was, in the case of the railroads anyway, no sharp dichotomy or antagonism between big businessmen and the progressive Movement’s thrust for regulation; and (c) the purpose of the regulations, as seen by key business leaders, was not to fight the growth of “monopoly” and centralization, but to foster it.
…Regulation in general, far from coming against the wishes of the regulated interests, was openly welcomed by them in nearly every case. As Upton Siclair said of the meat industry, which he is given credit for having tamed, “the federal inspection of meat was historically established at the packers’ request. … It is maintained and paid for by the people of the United States for the benefit of the packers.”
…In any case, congressional hearings during the administration of Theodore Roosevelt revealed that “the big Chicago packers wanted more meat inspection both to bring the small packers under control and to aid them in their position in the export trade.” Formally representing the large Chicago packers, Thomas E. Wilson publicly announced: “We are now and have always been in favor of the extension of the inspection.”
This is actually consistent with Doug Brinkley’s history of the New Deal. Until the 1930’s, the thinking on the left was that production needed regulation, in order to make it more rational and less cutthroat. One can argue that an ideology of trying to use regulation on behalf of the consumer‘s interest did not really solidify until the 1940’s.
Note the latter paragraphs in the excerpt above. If the muckrakers were the baptists calling for government meat regulation, the large meatpackers were the bootleggers.
READER COMMENTS
Michael Smith
Dec 6 2010 at 10:27am
When I first read Ayn Rand’s Atlas Shrugged 3+ decades ago, I could not understand why she depicted so many despicable businessmen manipulating the creation of regulations to their own benefit. Surely, I thought, in the real world there would be very few James Taggarts and Oren Boyles openly pushing for regulations. Eventually I came to realize I was dead wrong — and Rand was spot on.
hhoran
Dec 6 2010 at 6:52pm
It is of course correct that businesses today have co-opted most regulatory processes in order to limit competition against incumbents, just as they did in the Progressive-Era and the New Deal. But the co-optation process in recent decades has been dramatically different, and it is incorrect to view recent events as a simple continuation of the earlier processes.
Progressive-Era/New Deal regulations were established by open/visible political processes. Both “laissez-faire” corporate/financial interests and “progressive” journalists/unionists/academics believed that unfettered markets could not be trusted to produce outcomes favorable to their social class and political allies. Both wanted markets to be guided or controlled by People Like Us, resulting in a battle between the power of narrow (but focused) economic groups and broader (but more diffuse) electoral power. The resulting political compromise was an explicit political victory for progressive elites on high-level policy (business elites openly acknowledged that basic SEC/FDIC/ICC/food safety regulations are fundamental to American Capitalism and abandoned Gilded Age ideological claims) and an explicit political victory for business elites on all industry-level issues (progressive elites and Congress not only disavowed any interest in regulatory micro-management (or public ownership) of industry but agreed that regulatory agencies should largely serve to facilitate self-policing by each industry.
Prior to 1970, regulatory capture occurred within the framework of this explicit political compromise, which was fully supported by the Mainstream Media. As long as business elites clearly granted electorally powerful groups the basic right to intervene in markets to block perceived “excesses”, the progressive elites would look the other way when regulatory agencies became dominated by industry insiders. By the 50s, the “progressive” interest became dominated by the unions and the “business” interest became dominated by inefficient companies in maturing industries, and the two worked together to use regulations to rig markets and facilitate rent extraction. The deregulation movements of the 70s attacked this regulatory capture, but strictly within the post-New Deal political consensus. There was agreement that obsolete/corrupted ICC/CAB regulation wasn’t serving the public interest. But reduced/modified regulation was still justified by the need to protect the public interest.
Modern regulatory capture is totally different. It is not the result of an understood political compromise between organized forces. Certain corporate/financial interests remain highly organized, but there are no countervailing progressive/consumer/union/middle-or-workingclass interests worth mentioning. The market-rigging/rent-extracting interests of incumbent competitors have 100% of the political leverage. In 2010, the vast majority of the Mainstream Media would be either hostile to or uninterested in regulatory agencies and happily publicize the free-market fundamentalist claims provided by corporate interests. Since those interests have the regulatory field to themselves, the scope for destructive rent-extraction becomes far greater than anything seen in the 70s. There is no longer any pretense that regulators serve to represent consumer interests or the public’s interest in long-term industry efficiency. Financial regulators serve the objectives of the biggest, best organized banks. Energy regulators serve the objectives of BP and Shell. Airline regulators serve the interests of Delta and United. Modern progressives can argue for limited regulations on the basis of consumer welfare maximization and market failures, just as libertarians can argue that the need for robust, dynamic competition is more important to the public interest than boosting the quarterly profits of credit card and insurance companies. But both are pissing into the wind as they have zero political leverage.
Similarly, the historical “bootlegger and Baptist alliance” explanation for regulatory distortions is largely obsolete. By definition, this dynamic only holds in cases (like Prohibition, or environmental laws) where there is a visible, open public debate about new rules demanded by incredibly well-organized non-corporate groups. This dynamic is wholly irrelevant to the reduced financial regulation or antitrust enforcement of recent decades. Last year’s heathcare debate was visible and open, but the “Baptists” in this case (frightened/frustrated companies and consumers) had no real political power, and resulting distortions are really the result of the messy political battles between different groups of “bootleggers”.
N. Joseph Potts
Dec 7 2010 at 6:42pm
Recent as well as older examples abound, at least to those with their eyes as well as their minds open.
Conspicuous and obvious among the recent ones was Wal-Mart’s support for raising the minimum wage.
And it went over among the gullible and even those who wouldn’t pause a moment to think, as a propaganda coup!
But in terms of effect, not even the tip of the iceberg.
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