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Old 01-08-2011, 01:23 PM   #1
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Default The history of government regulation and Corporatism

Corporatism aka Crony Capitalism, aka Corporate Welfare, is where Big Gov and Big Biz are in bed together. The gov't writes economic interventionist laws, which are sold as being "for the common good", but in reality are influenced by Big Biz themselves. The result is that regulations more and more favor the big players, to the detriment of smaller competitors. The net effect is the stifling of free market competition and economic inefficiency.

Remember, Big Biz hates Free Market competition. If you were a big player, wouldn't you want anything better than to kill all your competitors? One way to do it is to hire better people, make your product better and cheaper than your competitors. Customers win. We have more and better Big Brake Kits. Another way is to lobby gov't to pass regulatory laws which impose disproportionately higher costs onto smaller competitors. This kills those pesky little startup companies that challenge bigger corporations. Brembo could get Congress to mandate $20k "safety testing" for big brake kits. Presto, no more competition from Trackspeed, 949, Goodwin, and FM.

The result is that corporations get an unfair advantage, get bigger than optimal, and smaller and startup companies have an uphill battle. Customers lose.

Remember, being pro Free Market does not mean being pro Big Biz.

Today lobbying for regulations is heavily influenced by Big Biz themselves, and to a lesser extent, by other groups such as enviro groups.

Here is a description of the phenomenon of "Regulatory Capture":

http://en.wikipedia.org/wiki/Regulatory_capture
Quote:
In economics, regulatory capture occurs when a state regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as an encouragement for large firms to produce negative externalities. The agencies are called Captured Agencies.

For public choice theorists, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture refers to when this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented.
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Old 01-08-2011, 01:30 PM   #2
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From historian Antony Sutton's book "Wall St. and FDR", in the chapter "The Genesis of Corporate Socialism"

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Old John D. Rockefeller and his 19th century fellow-capitalists were convinced of one absolute truth: that no great monetary wealth could be accumulated under the impartial rules of a competitive laissez faire society. The only sure road to the acquisition of massive wealth was monopoly: drive out your competitors, reduce competition, eliminate laissez-faire, and above all get state protection for your industry through compliant politicians and government regulation. This last avenue yields a legal monopoly, and a legal monopoly always leads to wealth.

This robber baron schema is also, under different labels, the socialist plan. The difference between a corporate state monopoly and a socialist state monopoly is essentially only the identity of the group controlling the power structure. The essence of socialism is monopoly control by the state using hired planners and academic sponges. On the other hand, Rockefeller, Morgan, and their corporate friends aimed to acquire and control their monopoly and to maximize its profits through influence in the state political apparatus; this, while it still needs hired planners and academic sponges, is a discreet and far more subtle process than outright state ownership under socialism. Success for the Rockefeller gambit has depended particularly upon focusing public attention upon largely irrelevant and superficial historical creations, such as the myth of a struggle between capitalists and communists, and careful cultivation of political forces by big business. We call this phenomenon of corporate legal monopoly—market control acquired by using political influence—by the name of corporate socialism.
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Old 01-08-2011, 01:35 PM   #3
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Many believe that the history of Progressivism (~1900), was that of the rise of the middle class against Big Biz, and the result was the genesis of government Regulation of big biz.

Here is a well researched book on the history of the Progressive movement and Corporatism in this country.

Triumph of Conservatism
Gabriel Kolko
1963

http://www.amazon.com/Triumph-Conser.../dp/0029166500

http://books.google.com/books?id=jTy...page&q&f=false

http://miltenoff.tripod.com/Kolko.html
Quote:
The Triumph of Conservatism is one of the early monographs by Gabriel Kolko, an eminent scholar from the 1960's generation of New Left historians.

In this reinterpretation of the Progressive Era, Gabriel Kolko marshalls a host of historical sources from the National Archives, the Library of Congress and other great outposts of scholarship to advance a bold thesis: that the Progressive Era was a "triumph of conservatism," the business reforms of the time having been fought for and shaped by not only the reformers but also the very business interests that were to be regulated. Kolko is a socialist, and his case is actually more radical than I have indicated. But it is his dispelling of many widely believed myths that I find the most enticing.
...
Kolko initiates a re-examination of the Progressive Era, challenging the consensus that Progressivism was a middle-class reaction to the power of big business.(6) Kolko also defies the prevalent opinion that the federal government and presidents in particular, sought to neutralize if not destroy the power of big corporations. According to Kolko, major American businesses not only did not oppose many of the regulatory acts from 1900 through 1916 but actively sought and supported many reforms and regulations. The effect of government and big business actions was the creation of 'political capitalism,' <Corporatism>
...

Kolko's analysis is based on the correspondence between businesses and government agencies and on papers of various government officials, including presidents. The author meticulously follows the evolution of the largest American monopolies and mergers, the changes in financial capitalism, and the relation of American presidents from McKinley to Wilson toward big business.
...
Kolko shows how through the machinery of politics big business was able to use the state to further its own interests and maintain monopoly power. This is an important book to read and understand if one wants to understand the economic history of the United States and the role of regulation as supported by business interests.
...
No book details the historical relationship between big business and the Federal government better than this one. Though confined merely to the so-called Progressive Era in American history (1901-1914), Kolko manages to overturn all the misconceptions about the formation of government regulation in America. Instead of accepting the standard view that federal regulation of business was inspired by the Progressive intellectuals and activist political leaders eager to put a check on the rising power of big business, Kolko shows that it was really inspired by the drive of businessman to limit competition.

...
Kolko does an excellent job of making the case that business regulations enacted during the Progressive Era (1900-1916) were due not to liberal reformers, but big business itself! From meat industry regulations to the FTC and the Federal Reserve Board, Kolko shows over and over again how industries sought Federal regulation in order to protect themselves from competition or secure other advantages.
Note that Kolko's definition of "conservatism", is not "small gov't conservatism", but that from a leftist POV - "maintaining the old order, power and class structures, and wealth inequality".

I boldened the fact that Kolko was a socialist, to give him credence among the "liberals" here. He was a socialist and accurately saw that Federal Regulation starting in the Progressive era, was a strategy by Big Business, lobbying the gov't for regulation, under the guise of "protecting the public", in order to stifle smaller competitors. The result is Corporatism. He called it "political capitalism". Some call it "crony capitalism", and some call it the "political economy".
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Old 01-08-2011, 01:39 PM   #4
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more...

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Kolko explains his understanding of "progressivism" which he defines as "a movement for the political rationalization of business and industrial conditions, a movement that operated on the assumption that the general welfare of the community could be best served by satisifying the concrete needs of business." Kolko explains how business interests sought to achieve control over politics in order to achieve their goal of "political capitalism" (which Kolko defines as "the utilization of political outlets to attain conditions of stability, predictability, and security - to attain rationalization - in the economy"). Kolko explains how business interests sought the intervention of the federal government in business and the return of the Hamiltonian unity of politics and economics.
...
Take the "merger movement" at the turn of last century. It was and is popularly believed that competition was at an all-time low, monopoly an all-time high and Theodore Roosevelt's trust-busting the necessary and proper response. But Kolko proves this conventional belief false. In case studies of the big powerhouse industries of the time, he shows that, in spite of (or because of) the merger movement, they were more competitive than they had ever been. Whether the industry was steel, oil, automobiles, agricultural machinery, telephones, copper or meat-packing--Kolko's conclusion is the same: mergers, if anything, decreased companies' efficiency relative to their competitors. In the new century's first decade, the total number of competing firms in each industry grew; market shares of the dominant players, meanwhile, shrunk. As Kolko states, "There was *more* competition, and profits, if anything, declined. Most contemporary economists and many smaller businessmen failed to appreciate this fact, and historians have probably failed to recognize it altogether" (emphasis Kolko's).

The stage thus set by the failure of the merger movement, Kolko moves on to the myth that Progressive Era reforms were uniformly or even predominantly opposed by their affected industries. The key is to realize that, economic strategies like corporate consolidation having failed, companies turned to political strategies to freeze the status quo or to gain new competitive advantages. As Kolko states, "the essential purpose and goal of any measure of importance in the Progressive Era was not merely endorsed by key representatives of businesses involved; rather such bills were first proposed by them." Food companies, for example, wanted the Food and Drug Act so that they could turn its regulations against their competitors (e.g., oleo versus butter). Big meat packers desired to save their industry from tainted meat, which hurt business, but were unable to ensure the quality of small packers' meat and unwilling to pay for independent meat inspection--so they themselves initiated the meat inspection movement, lobbied for and won passage of the Meat Inspection Act, thereby forcing inspection onto the industry and its costs onto the federal government. As for the Federal Reserve Act, it was the product of a banking reform movement "initiated and sustained" by big bankers who sought to protect themselves from small bank competition. The Clayton Antitrust Act and the Federal Reserve Act? Most businessmen supported them to better protect themselves from antitrust prosecution under the Sherman Act's vague provisions or (among smaller businesses) to gain such advantages as enforced "fair trade price-fixing." Thus, Kolko shows that whether for protection from competition or from the government, businesses themselves initiated or shaped these Progressive Era reforms and others that most Americans regard as being part of an anti-business (or at least not pro-business) reform movement.

This book will fascinate students of American business and reform history. Ironically, given Kolko's philosophical disposition, even ardent pro-capitalists should relish it. That audience will likely be reminded of Burton W. Folsom's distinction, in his eye-opening *Myth of the Robber Barons*, between "market entrepreneurs" and "political entrepreneurs." Dominick Armentano's *Antitrust and Monopoly: Anatomy of a Policy Failure*, a work of heavier scholarship, may also be recalled to mind. His thesis that antitrust laws, even when not passed unequivocally to benefit special business interests, have "solved" nonexistent problems (and caused a few real ones) and should be repealed is entirely confirmed by Kolko's *Triumph of Conservatism*, which Armentano even cites in support (in addition to another of Kolko's works, on railroad regulations).
...
Chapter Two is entitled "Competition and Decentralization: The Failure to Rationalize Industry". Kolko explains how the first decades of last century involved intense competition, however this competition resulted in a failure to rationalize industry and many industrialists found that overcentralization was less efficient. Kolko points out cases of this in "The Iron and Steel Industry", "The Oil Industry", "The Automobile Industry", "The Agricultural Machinery Industry", "The Telephone Industry", "The Copper Industry", and "The Meat Packing Industry". Chapter Three is entitled "Theodore Roosevelt and the Foundations of Political Capitalism, 1901 - 1904" which shows how the efforts of Morgan to rationalize and stabilize industries were leading to failure which resulted in the call for antitrust legislation from Roosevelt.
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Chapter Four is entitled "Roosevelt as Reformer: 1904 - 1906" and considers the case of Roosevelt as reformer mentioning such topics as "Roosevelt as Reformer", "Insurance and Regulation", "Meat Inspection: Theory and Reality" (explaining the role of the muckrakers and Upton Sinclaire).
...
Chapter Six is entitled "The Failure of Finance Capitalism: 1890 - 1908" and explains the failure of finance capitalism and the call for banking reform mentioning in particular the Morgan interests. This chapter includes topics discussing "Banking Reform Movements: 1893 - 1903" (mentioning the role of "Bryanism" and silver), "Roosevelt and Banking Reform", and "The Panic of 1907" (which led to the Aldrich Bill <which was the precursor to the Federal Reserve Act>)
...

Chapter Nine is entitled "Woodrow Wilson and the Triumph of Political Capitalism: Banking" which discusses how centralization of banking was achieved. This chapter includes topics discussing "Writing a Reform Bill", "The Bankers and the Glass Bill", "The Authorship of the Federal Reserve Act"[/b]
...

Chapter Ten is entitled "The Triumph of Political Capitalism: The Federal Trade Commission and Trust Legislation" explaining how Wilson's "conservativism" under the guidance of Colonel House led to further regulation, the triumph of political capitalism. This chapter includes sections discussing "Wilson and Business", "The Campaign for Legislation", "The End of the New Freedom", and "The Commission Defines the Law". Kolko ends with a chapter entitled "Conclusion: The Lost Democracy" which discusses the fact that regulation was achieved to further the ends of business during the Progressive Era and that such regulation allowed for the triumph of political capitalism.
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Old 01-08-2011, 01:40 PM   #5
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Why is this history hidden?

The historical profession was bought off by big business. The "intellectual class" likewise, is essentially funded by Big Biz - they are the newspaper columnists, media news personalities et al - they are the opinion makers of society.

Check out the "fathers of PR", Edward Bernays, and Ivy Lee. They created the modern methods of spin doctoring. Big Biz hired them, and later their methods were adopted by politicians.

The American Historical Society, and university faculties, were funded by the Rockefeller Foundation types. History is written by the winners.
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