Trump and Corporatism

For many years some have seen the US as a form of corporatism* - as a country run in the interests of the corporations and those who lead them. There is considerable evidence that in many senses they are correct. However to see Trump as the epitome of this ‘rule by corporations’ I think misses something important. Trump is different from what went before in important respects.

The way business influenced politicians in the past was straightforward. Campaigns cost a lot of money (unlike the UK there are no tight limits on how much can be spent), and business can provide that money, but of course corporate political donations are not pure altruism. The strings attached helped influence both Republican and Democratic politicians. It was influence that followed the money, and that meant to an extent it was representative of the corporate sector as a whole. The same point can be made about political lobbying. 

The government of Donald Trump is different. It is a selective plutocracy, and with one important exception that plutocracy is selected by Trump. In that way it can also be seen as a democratic dictatorship, where the complexity of government requires some delegation of power to other individuals. Like many dictatorships, some of those individuals are the dictator’s family members.

A dictatorship of this form would not be possible if Congress had strongly opposed it. That it has not is partly because the Republican party chooses not to oppose, but also because Trump wields a power over Congress that can override the influence of corporate money. That power comes from an alliance between Trump and the media that has a big influence on how Republican voters view the world: Fox News in particular but others as well. The irony is that under these conditions democracy in the form of primaries gives Trump and the media considerable power over Congress.

The distinction between traditional corporate power ‘from below’ and the current Trumpian plutocracy can be seen most clearly in Trump’s trade policy. It would be a mistake to see past US trade policy as an uninterrupted promotion of liberalisation, but I think it is fair to say that trade restrictions have never been imposed in such a haphazard way, based on such an obviously false pretext (US surpluses good, deficits bad). Trump’s policy is a threat to the international trading system that has in the past been lead by the US, and therefore it is a threat to most of corporate USA. Yet up till now Congress has done very little to stop Trump’s ruinous policy.

The photo above is taken from an extraordinary recent event (watch here) where Trump walks down a line of senior executives, who in turn stand up and say what they are doing for the US and pledge to do more. Each statement is applauded with a positive statement by Trump, as his daughter trails behind. These are top companies: IBM, Microsoft, General Motors etc. It is all a show, of course, but of a kind the US has never seen before. It seems indicative that this is not just a continuation of past corporatism but something quite different. These are corporate executives doing the President’s bidding for fear or favour.

All this matters because it creates a tension that could at some stage drive events. So far the Republican party has been prepared to allow Trump to do what he wishes as long as didn’t require their explicit approval (i.e their votes in Congress), but it has not as yet bent its collective agenda to his. (Arguments that it already has tend to look at past Republican rhetoric rather than actions.) This uneasy peace may no longer become tenable because of developments on trade, or Russia, or the mid-term election results. If enough Republicans think their future is safer by opposing Trump rather than indulging him, they still have the power to bring Trump to heel. But the longer the peace lasts, Trump’s influence on the Republican party will only grow.

* Readers outside the US may be confused by my use of the term corporatism: it is one of those terms with many meanings. I'm using it in the fourth and final sense described here.

Neoliberalism

The term ‘neoliberalism’ has become so ubiquitous that some might think that it has lost all meaning, beyond a useful catch-all for everything some people on the left dislike about current social and economic trends, or more specifically for those on the left to be rude about those on the centre-left. That is in my view far too dismissive, but the reasons for both the use of the term and confusion over its meaning have real historic and cultural roots.

I know what I mean when I (occasionally) use the term neoliberal. Neoliberalism is a political movement or ideology that hates ‘big’ government, dislikes any form of market interference by the state, favours business interests and opposes organised labour. The obvious response to this is why ‘neo’. In the European tradition we could perhaps define that collection as being the beliefs of a (market) liberal (although that would be misleading for reasons I give below). The main problem here is that in US discourse in particular the word ‘liberal’ has a very different meaning. As Corey Robin writes, neoliberals

would recoil in horror at the policies and programs of mid-century liberals like Walter Reuther or John Kenneth Galbraith or even Arthur Schlesinger, who claimed that “class conflict is essential if freedom is to be preserved, because it is the only barrier against class domination.”

So in this US line of thought, neoliberalism is an adaptation of a position on the left towards the ideas of the right.

Contrary to some perceptions, the term neoliberal was not a US invention, but was first used by Rüstow, as this excellent account by Hartwich and Sally sets out. It was designed to be a ‘third way’ between socialism and a German version of capitalism. It was adopted by a group that later became the Mont Pèlerin Society, which included Mises and Hayek and Milton Friedman, but it would be a great error to view that group as some kind of united intellectual conspiracy. As Hartwich and Sally remark, it is “named after the location as the participants could not agree on anything else”. The group was sufficiently diverse that the idea of what we now call a social market economy can also trace some of its roots to this group.

One of the disagreements in the group was over the problem of what we might call ‘corporatism’: the domination of markets by a small number of large firms or cartels that is a long way from the ideal of a perfectly competitive market. Rüstow saw that as a problem that was inherent to capitalism and required a strong state to prevent it (an idea that is central of what we now call ordoliberalism), whereas Mises thought corporatism is the result of state intervention. (Economists would just say that both are potentially true and it all depends, which is one reason why many economists find it hard to talk about ideologies that involve their own discipline.)

From this group we have the term neoliberal being adopted as a modification of European liberalism and (for some at least) it involved a move from the right to the left. I think the clearest way of thinking about the Mont Pèlerin group is that it was a group that had in common a dislike of communism, but out of which different ideologies emerged, including ordoliberalism and neoliberalism as we understand these terms today. I am tempted to argue that what we now call the neoliberal element of the Mont Pèlerin discussions placed such an emphasis on their dislike of the state that they were prepared to ignore the market imperfections that a state could correct.

I think this alone would be a good reason for the use of the term neoliberal rather than, say, market liberal. Neoliberalism as most people use the term seems quite relaxed about departures from the ideal of a market as seen by economists. A clear example, as Chris Dillow points out, is CEO pay. When people argue that CEO pay ‘should be left to the market’ they mean something very different from ‘be determined by the market’. The role of any market in determining CEO pay is marginal compared to most ordinary workers: pay is set by remuneration committees who reference to the pay of other CEOs.[1] What ‘left to the market’ actually means here is ‘no state or union interference’.

Yet this example also tells us that dismissing neoliberalism as a non-existent ideology is wrong. How often have you heard people arguing that CEO pay should be left to the market, and this assertion has gone unchallenged? This common acceptance of ‘left to the market’ really meaning ‘no state or union interference’ suggests something like an ideology at work. Other commonly used language, like taxpayers money (by which is normally meant income taxpayers) rather than public money, or wealth creators for the 1%, does the same.

Attitudes to the state, both on the right and centre of politics, are very different to those I (distantly!) remember from the 1960s. The ability of the state to achieve economic goals is today routinely denigrated. Part of the reason for the success of Mazzucato’s The Entrepreneurial State (apart from it being a very good book) is that it points out how creative and wealth creating the state can be. What would have seemed obvious in the days when we put a man on the moon today needs to be argued case by case.

This is why I do not think it is a problem that few today would describe themselves as neoliberal. Indeed that may be part of the greater problem as perceived on the left: neoliberal ideas have become so commonplace, not just on the right but also the centre of politics, that no self-identification by label is required. But there may be another reason why few call themselves neoliberal, and that is because if we try and regard it as a coherent and consistent set of beliefs it can very quickly be shown to be inadequate and confused. Commonly held beliefs do not have to be coherent and consistent.

This is where many accounts on the left go wrong. Rather than seeing ‘left to the market’ as a deliberately misleading shorthand for no state or union interference, they think neoliberalism involves a devotion to free markets, or worse still (see this piece by George Monbiot for example) they equate neoliberalism with unbridled competition. While that might have been true for some of those at Mont Pèlerin, it is no longer true of neoliberalism today.

The reason is obvious enough. Neoliberalism has been adopted and promoted by monied interests on the right, and that money often resulted from what we might call today crony capitalism. So, for example, there is a big difference between promoting competition within the NHS (which some research suggests works if done in the right context, such as fixed prices), and the privatisation of health contracts. Privatisation is neither necessary nor sufficient for competition. To describe the promotion of competition within the NHS as neoliberalism is confusing and alienating.

More generally, it is a huge error to think that because neoliberalism invokes a highly selective and distorted view of basic economics, the left must therefore oppose mainstream economics. It is a huge error because using mainstream economics is an excellent way of challenging neoliberal ideas. Take the example of banking. At first sight the financial crisis was simply a failure to regulate a free market. But it was a market which included what is to all intents and purposes a huge state subsidy, which is that if the market goes wrong the state (either directly or through its central bank) will come to the rescue. Here state interference in the market encourages lack of competition: only those too big to fail could be sure of support.

For this and other reasons (natural monopolies and other forms of rent seeking), the financial sector embodies many of the things that those who first used the term neoliberalism were opposed to. It is important that those who use the term neoliberalism today recognise this contradiction. It does not mean that using the term neoliberalism to describe the dominant ideology is wrong, but it is a mistake to assume the ideology has not be moulded/adapted/distorted by those in whose interest it works. These changes have made it intellectually weak at the same time as making it politically strong.

[1] This is very similar to how pay was determined under UK ‘incomes policies’ in the 1960s and 1970s. Here the state would set up a committee that would fix the pay of some group of workers with reference to the pay of comparable occupations. At least in that case, however, some of the reference occupations may have had pay that was actually market determined!