In his State of the Union address president Obama told us that “We must make the hard choices to reduce the cost of health care and the size of our deficit.” We have learned to beware when elites talk of “hard” and “tough” choices. These terms are synonymous with ‘unpopular’, and those for whom life will be made hard and tough are never the ones selling the choices. Historically, in times of crisis the working population has been made into shock absorbers for the oligarchs, and the austere policies required -by the plutocrats- to undo the effects of the crisis on elites have been put forward as bipartisan. The policies are alleged to be the product of no particular interest but represent a consensus shared by all participants in the political process. What is pressed upon the people is thus held to be beyond politics, determined by experts to be pragmatically necessary.
This general strategy was born in the period 1899 – 1907. There had been a series of failed attempts to address the problem of serial recessions and depressions that had plagued the formative years of nineteenth-century industrializing capitalism. Between 1867 and 1900 the economy experienced eight business cycles over 396 months. During this period the economy expanded during 199 months and contracted during 197. This stretch included three severe depressions, from 1873-1879 (the longest contraction in US history), 1883-1885 and 1893-1897. The captains of business understood that this period of serial bankruptcies and chronic instability was the inevitable result of cutthroat competition, which drove prices into a downward spiral to the level at which capitalists were unable to cover their huge fixed costs. Many of the most prominent businessmen of the time, including JP Morgan and Andrew Carnegie, came to understand that combination, consolidation and merger were essential to protecting their interests by muting competition and administering markets and prices. Coordination trumped competition when the interests of the ruling class were at stake. It was common to hear and read corporate heads and attorneys trashing the going ideology of unmitigated competition as a fool’s fairy tale. A way was sought -in vain, as we shall see- for private business to get its house in order on its own.
The business barons attempted a series of combinations, from “gentlemen’s agreements” to the pool and the trust. None of these efforts bore fruit: the individualism endogenous to capitalism led parties to these consolidations repeatedly to break their agreements. Finally, from 1898 to 1902, businessmen resorted to an unprecedent wave of corporate mergers, in which the absorbed companies lost their independent legal and business identities. The opportunity for parties to intercorporate agreements to break their agreement was eliminated. But now competition took new forms, the most effective of which was the entry into key industries of smaller newcomers with smaller fixed-cost debt obligations and the ability to compete… by price cutting! Fratricidal competition was once again, in spite of all the efforts available to business to eliminate it, threatening to undo the ascendancy of the biggest giants.
The situation was grave. The market share of the leading behemoths -US Steel, Standard Oil, International Harvester, Anaconda Copper and the American Can Company- actually fell during the first two decades of the twentieth century. Only about half of the large enterprises formed by combination between the late 1880s and 1906 survived. Iron Age, the steel industry magazine, wrote in 1909 that “So large a part of the current business has been going to those who were either willing or compelled to make lower prices that the situation finally became unendurable.”
All the private methods of eliminating competition had failed to effect the stable market environment sought by the consolidators. A hitherto untried strategy needed to be found that would successfully address the problem of destructive competition that private capital by itself was powerless to fix.
The forty to fifty year persistence, in spite of every strategy available to the private sector, of recessions, depressions, bankruptcies and cutthroat competition constituted the first major crisis threatening US capitalism as a system. When attainable strategies failed to produce stability, businessmen concluded that not only did capitalism preclude automaticmarket self-regulation, it also resisted any private efforts to render the system sufficiently dependable to enable investors to expect profits with the desired confidence. Big capital came to recognize that the only effective alternative was political intervention in the form of government regulation.
The rhetoric of the business community since the New Deal has been replete with ritual denunciations of government regulation of the private economy. These tirades are always aimed at government intervention intended to protect working people from the vicissitudes of the market. When the interests of capital are jeopardized, business does not hesitate to seek government succor. In the period of industrialization, prominent businessmen evidenced no reservations in their desire for government intervention to regulate and stabilize an economy otherwise insufficiently responsive to the needs of capital. In effect, these captains of industry recognized chronic recessions and depressions, with their retarding effects on the growth of output, productivity and profits, as at bottom a political problem demanding a political solution. Thus was born what the historian Gabriel Kolko has called “political capitalism”, namely business elite support for the “utilization of political outlets to attain conditions of stability, predictability, and security -to attain rationalizatiuon- in the economy.”
Referring of the destructive effects of persistent cutthroat competition Andrew Carnegie wrote: “it always comes back to me that Government control, and that alone, will properly solve the problem.” Business leaders were clear that it was federal government regulation they were after. State and local laws were disparate; production for a national market required the uniformity that only federal authority could produce. Between 1899 and 1907 a consensus was formed among large-corporate capitalists, trade unionists and small producers advocating legislation establishing federal regulation of reasonable restraints of trade.
In 1899 the Chicago Civic Federation sponsored the Chicago Conference on Trusts, which promoted the acceptance of corporate bigness as a fait accompli, with the proviso that the power of these companies be curbed by government regulation. How exactly this was to be accomplished was a matter of intense dispute, as the conferees represented perspectives as heterogenous as laissez-fair capitalism, Marxian socialism and single-tax populism.Concord was in effect ruled out from the start.Dissatisfied with the results, a group of delegates called a splinter conference four months later, the National Anti-Trust Conference, but the diversity of the delegates generated the same kind of schism that had doomed the earlier assemblage.
Unanimity was essential to the agenda of elites, who understood that the appearance of bipartisanship was most likely to encourage the mobilization of popular support for congressional action. Marshalling public opinion was especially challenging, since elites aimed to persuade a public largely hostile to the corpoprate giants to acquiesce in the incorporated firm as the dominant form of business enterprise and large-corporate administration of markets. The elite hope was that the advocacy of a strong government regulatory role would dampen widespread suspicion of the giants.
With this in mind, the National Civic Federation organized the National Conference on Combinations and Trusts in October 1907. This time, agenda setting and delegate selection were deliberately controlled. The 492 delegates included representatives of commercial, manufacturing, labor, agricultural and civic associations, presidents of prestigous universities, corporate officers and presidents of state bar associations, among others perceived as private elites. Deliberately excluded from the proceedings were the political elements though to have contributed disproportionately to the discord that had foiled the earlier meetings. Nationally prominent political leaders and U.S. senators and representatives were not invited.
The idea was to de-politicize the trust question. Oligarchic power would be taken out of politics, thereby rendering democracy irrelevant to corporate priorities and national policy making. The recommendations of the Conference would be presented to the public and to Congress as nonpartisan, nonpolitical, representing the best thinking of the most expert and disinterested parties in the country.
The Conference was ultimately successful. Shortly after the Conference concluded, Andrew Carnegie averred that “it always comes back to me that Government control, and that alone, will properly solve the problem [of economic instability wrought by destructive competition].” As a leading authority on the origins of railroad regulation wrote:
“When these efforts [of private business to cooperate in rate setting] failed, as they inevitably did, the railroad men turned to political solutions to [stabilize] their increasingly chaotic industry. They advocated measures designed to bring under control those railroads within their own ranks that refused to conform to voluntary compacts. … [F]rom the beginning of the 20th century until at least the initiation of World War I, the railroad industry resorted primarily to political alternatives and gave up the abortive efforts to put its own house in order by relying on voluntary cooperation. … Insofar as the railroad men did think about the larger theoretical implications of centralized federal regulation, they rejected … the entire notion of laissez-faire [and] most railroad leaders increasingly relied on a Hamiltonian conception of the national government.” (Gabriel Kolko, Railroads and Regulation, Princeton, 1965, pp. 3-5)
The history and the basic rationale of the business movement for federal regulation assured that government would remain subordinate to business domination. The fact of “regulatory capture”, the domination of the regulatory agencies by executives of the firms supposed to be regulated, was built into the regulatory regime from the start. Regulation in the first decade of the twentieth century was openly welcomed by the regulated interests in nearly every case.Upton Sinclair, perhaps the leading public intellectual of the time, wrote of the meat industry, “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.” 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.”
The silliness of the conceit that these rescue efforts were beyond politics is underscored by their depending entirely on government regulation to enforce agreements that capital left to its own devices was unable to implement. This was an epochal consciousness raising for big capital. Government involvement in the accumulation process was inescapable, and was to be secured only by deliberate class-concerted mobilization aimed at securing the state for the interests of big business. Capital learned this lesson well. When the New Deal was perceived by the most influential businessmen to place workers’ interests at the center of the state’s agenda, they attempted to organize a coup to replace FDR with a business-military coalition. When the New Deal-Great Society period 1949 – 1973 evidenced an influential labor movement, several large-scale labor actions and the first and only 40-year downward distribution of income from the top 1 percent to the rest in the nation’s history, elites perceived this as a major crisis and mobilized in the mid-1970s to sieze control of the state in order to undo the social programs and business regulations of the Golden Age, paving the way for the neoliberal macroeconomic reconfiguration superintended by Reagan, Clinton, Bush pere, Bush fils and Obama.
Both the 2008 bailout of finance capital and the ongoing project of doing away with government functions designed to promote the interests of workers and regulate business were put forward as above partisan politics and as requiring for their implementation governmental action. In both cases elite command of the state was demanded lest the economy collapse and government be shut down. Since the establishment early in the twentieth century of corporate oligopoly capitalism as the nation’s settled economic formation, corporate elites have identified two key elements of class power: mobilization and control of the State. Individual efforts are never sufficient to secure interests that are essentially class-bound. Private collective efforts are indeed necessary, but never sufficient to safeguard class interests. That goal is a political one, and as such requires underwriting by the State, and that won’t happen absent control of the State.
John Kenneth Galbraith argued, in American Capitalism (1956), that as the economy grows, its crises become increasingly severe and government remedial action greater in scope. We may draw the appropriate conclusion: increasingly harsh crises will prompt the owning class to demand increasing control of the State. Let’s not mince words. We are talking about the creeping -now galloping- privatization of the State. In fact, domestic policy is now entirely shaped by Timothy Geithner and Ben Bernanke.
The masters of capital have taught the working class a priceless lesson. You will not get what you want unless you mobilize in order to capture State power, i.e. power to turn the State into one whose dominant objective is to further the interests of the working population. It’s not impossible; it only looks that way.
That the two major constituent classes of a capitalist economy must establish an alliance with the State in order to secure their interests goes farther back than is indicated in this article and is as inherent a feature of capitalism as the compulsion to increase profits and the wage labor relationship. In a footnote in Capital (volume III, p. 270, International Publishers) Marx comments on the 1863 testimony of Josiah Wedgewood, of uptown pottery fame, urging Parliament’s Children’s Employment Commission to effect “some legislative enactment” to limit the working hours of children. In an uncommon philanthropic gesture, Wedgewood sought to gain consensus among competing potters to treat child labor less severely. He implored the Commission: “Much as we deplore the evils before mentioned, it would not be possible to prevent them by any scheme of agreement between the manufacturers… Taking all these points into consideration, we have come to the conviction that some legislative enactment is wanted.”
Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. This article is adapted from his book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to firstname.lastname@example.org. Follow me on Twitter: http://www.twitter.com/alannasser, and Like me on Facebook: http://www.facebook.com/alangnasser.