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The Return of Progressive Corporatism

Posted By Guinevere Nell On October 30, 2008 @ 3:16 pm In Economics | Comments Disabled

Could the current crisis usher in a new “New Deal”, with a new brand of corporatism to replace the free market system? Certainly European leaders are arguing that case. [1] The current economic “crisis,” may itself have been caused by bad policy [2]. Yet, is provides a great pretext for an expansion of government.

During the 1930s, as part of the New Deal, Franklin D. Roosevelt nationalized banks, set prices, wages and work hours, and promoted public works programs to employ the unemployed. The New Deal, or the National Industrial Recovery Act (NIRA) to be precise, was supported by many industrial leaders [3], some of whom had helped draft the legislation. Cartels, inflated prices and subsidies were great perks for established business, especially those that would have trouble staying ahead in a free market.

Businesses then, as now, cried to Congress about their need for a bailout, and the disaster which would be wrought by their bankruptcy. NIRA was eventually declared unconstitutional. The decision made the important point that “extraordinary conditions do not create or enlarge constitutional powers. [4]

Until then these laws were widely supported and considered critical to recovery from the economic crisis of the time. Yet intervention did more to cause and prolong the crisis than to aid recovery [5].

Although these measures were defended as being necessary during an emergency, and only temporary, many still exist today. For example the emergency farm supports created with the Agricultural Adjustment Act (AAA) have morphed into the current Farm Bill [6], which still pays farmers not grow food.

Like the New Deal period, we are seeing waves of nationalization, bailouts of unrelated industry, and expansion of central bank power. The nationalization of banks during the New Deal was actually smaller than what we are doing today – as a percentage of GDP it was the equivalent to about $500 billion. Today the state took shares in the largest nine banks and bailouts total well over a trillion dollars [7].

As John Goldberg points out [8], the stake that government now holds in these banks is actually greater than the stake it held in Fannie Mae and Freddie Mac, and it is quite likely that this temporary measure might too become the regular state of affairs.

If Obama is the next president, he would like to see a return to union domination and government mediation in wages and hours [9]. Obama also favors public works programs to employ those out of work. He has already proposed at least two kinds of programs like this: his “transitional jobs” program which hires the unemployed, and his National Infrastructure Reinvestment Bank. With the excuse of an ongoing recession, he could easily roll these into New Deal sized public works projects.

But, prior to the New Deal we had small government. Prior to this new “New Deal” we already have enormous government and massive debt. The Deal we sign today would be for European style socialism, with European style unemployment and stagnation.


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URL to article: http://blog.heritage.org/2008/10/30/the-return-of-progressive-corporatism/

URLs in this post:

[1] Certainly European leaders are arguing that case.: http://www.euractiv.com/en/financial-services/sarkozy-outlines-refoundation-capitalism/article-176571

[2] may itself have been caused by bad policy: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR2008101503166.html

[3] was supported by many industrial leaders: http://www.ourdocuments.gov/doc.php?flash=true&doc=66

[4] extraordinary conditions do not create or enlarge constitutional powers.: http://www.time.com/time/printout/0,8816,883442,00.html

[5] Yet intervention did more to cause and prolong the crisis than to aid recovery: http://www.mackinac.org/archives/1998/sp1998-01.pdf

[6] the emergency farm supports created with the Agricultural Adjustment Act (AAA) have morphed into the current Farm Bill: http://ap.google.com/article/ALeqM5g6Vo0ESGrHF7l4w9JBtKYXhW8-TQD93SNH0O0

[7] total well over a trillion dollars: http://www.forbes.com/entrepreneurs/2008/10/30/aig-fannie-freddie-ent-law-cx_kw_1030whartonbailout.html

[8] John Goldberg points out: http://www.cbsnews.com/stories/2008/10/17/opinion/main4529701.shtml

[9] union domination and government mediation in wages and hours: http://www.city-journal.org/2008/eon1017cb.html

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