Despite Senator Sherman’s efforts, the U.S. government had only spotty success in checking concentrations of commercial and financial power. As fast as the senator’s legislation broke up some trusts, new ones formed. Commercial and industrial monopolies thwarted government efforts by corrupting politicians and administrators, practices that today we call “crony capitalism.” Yet, at the same time, Washington saw how concentrations of corporate power could serve its aims. In a forerunner of today’s cooperative-collusive arrangements, Washington offered the railroads vast tracks of land if they bowed to government direction. The most successful check on concentrated commercial power emerged not from the government but from the countervailing and competitive power of newly formed labor unions, which began in the 1860s with the Knights of Labor and grew into a broader movement with the founding of the American Federation of Labor in the 1880s. In this way, the nation recovered Madison’s goal of checking power with a “variety of parties and interests.”
WASHINGTON UNDER Franklin D. Roosevelt made the decision to shift from a competitive, market-driven economy toward a corporatist one that accepts, indeed embraces, concentrations of power. As with other manifestations of government-business collusion in this country, the approach grew out of the best of intentions—namely FDR’s heroic efforts to fight the Great Depression. It is ironic to think of FDR colluding with big business. His rhetoric was, if anything, openly hostile to business. In one of his famous fireside chats he expressed satisfaction with how much business leaders hated him. But for all his talk, Roosevelt nonetheless strove to co-opt corporate power. Nor did he make a secret of his model. Early on, FDR’s administration made clear its admiration for Mussolini’s Italian state. One of Roosevelt’s original “brain trust” of advisors, a Columbia University economist, Rexford Tugwell, openly spoke of his enthusiasm for the fascist leader, as did the man Roosevelt picked to head the National Recovery Administration, General Hugh Johnson, who several times referred to the “shining name” of Benito Mussolini. Roosevelt himself expressed interest in “bringing to America” the programs of “that admirable Italian gentleman.”
Such public talk ceased abruptly when Italy invaded Ethiopia in 1935 and Mussolini lost sympathy among the American public. Even Cole Porter dropped from his popular hit the lyric, “You’re the top. You’re Mussolini.” The Roosevelt administration was also sobered by the Supreme Court’s decision to strike down as unconstitutional the National Recovery Act. But then World War II, and afterwards the Cold War, furthered the journey toward government-business collusion. The war effort in the 1940s demanded a close working relationship between business, finance, and Washington. The administration and the War Department set the agenda, and those who supported it enjoyed the contracts and useful exemptions from certain regulations. After the Second World War ended, the long Cold War that followed institutionalized and deepened this collusive approach.
Especially conducive to these developments was America’s confrontation with communist ideology. At one and the same time its anti-communist stand made Washington reluctant to command business openly, as it had during the war, but also not wanting to seem anti-business, by, say, aggressively pursuing anti-trust actions. Since the nation’s ongoing war footing gave Washington so much power and money, it had little trouble enticing the cooperation of business simply by threatening to exclude uncooperative firms from what became a torrent of money. When people reflect on President Eisenhower’s concerns about this developing pattern, they mostly associate it with defense contracting. But even as Eisenhower introduced the phrase “military-industrial complex” into the national lexicon, he likely saw the broader picture of government-business collusion run comfortably by a corporate-government elite.
The auto industry is a case in point. Washington had long protected it—no doubt a legacy of the auto companies’ enormous cooperation during World War II, and later as part of the Cold War effort. In an earlier time, the government might have used anti-trust legislation to break them up, especially the behemoth General Motors. Indeed, for years there were calls to do just that. As it was, Washington allowed the industry to become what economists call an oligopoly, and what the public then referred to as the “Big Three”: General Motors, Ford, and Chrysler. Giving voice to these arrangements, General Motors president Charles Wilson, at the peak of General Motors’s dominance, declared before Congress in 1953 that what was good for the country was good for General Motors and vice versa.
These firms hardly competed with each other. They drove out any potential competition, including Packard, Studebaker, American Motors, and even the Checker cab––that square and roomy conveyance beloved of taxi passengers. Washington throughout turned a blind eye, even as the lack of competition allowed the Big Three to build ever-shoddier vehicles, preferring tailfins to engineering innovations and guaranteeing themselves future sales by producing vehicles whose obsolescence was built in. Because this structure generated huge cash flows, which managers wanted to keep uninterrupted, the Big Three eagerly bought peace with the United Auto Workers (uaw) union by sharing the monies taken from hapless consumers. Thus the uaw, along with government and the Big Three, became the fifth party to this collusion. The comfort and protection afforded by these arrangements leaves little wonder why this crowd had so much trouble coping when real automotive competition docked from Japan in the late 1970s and 1980s.
Rather than adjust to the market realities of Japanese competition, the collusive parties used Japan as a substitute for the Cold War to justify corporatist, fascist-like economics and secure the position of the corporate-government elite. A perfect example emerges from President George H.W. Bush’s late 1980s visit to Japan. In asking for concessions for U.S. auto manufacturers, his rhetoric focused on jobs for Americans. But that was a veil: by then, Toyota, Nissan, and Honda had already moved production facilities to the United States and were employing about as many people as General Motors, Chrysler, and Ford. Instead of protecting jobs, Washington was serving its well-established partners: American corporations, as well as the United Auto Workers, which had power in Detroit but not in the Japanese factories. Shortly after, a new president, Bill Clinton, found another way to use Japan to bolster government-business collusion: he announced that this cooperative model had produced Japan’s economic success, and that America needed to imitate it. What he did not say was that his way forward offered Americans nothing new. Nor did he point out, even as he plugged the cooperative approach, that Japanese commentators were complaining that their country’s ongoing government-business collusion was a continuation of its prewar and wartime militarist, fascist structure.
By the time Japan’s economy unraveled later in the 1990s, China’s economic power had grown sufficiently to take Japan’s place as a justification for America’s continuing corporatist arrangements. Washington may have appeared to become harder on business as its regulatory agencies grew, but behind the seemingly harsh rhetoric the explosion of rules—especially from Democratic administrations—served only to bind established and favored firms closer to Washington. Think of it this way: the more pervasive the regulation, the more value to business of any government-issued breaks, and so the more motivated managements become to secure these breaks by cooperating. Additional government licensing and regulatory hurdles also benefit established cooperators because those rules make it more difficult for new firms—potential competitors—to enter existing industries. By both pushing the government’s agenda and effectively protecting cooperative firms, what is sometimes called “the administrative state” has become a key to securing this centralized, collusive organization—an approach that is antithetical to Madison’s plea for countervailing interests.
Technology firms, often viewed as symbols of independent entrepreneurial effort, nonetheless also exemplify the workings of this fascist-like economic system. The Obama administration certainly offered favored firms protection and even lavished subsidies on them when they did what the government wanted; energy alternatives and electric cars stand out as examples. Even such firms as Facebook and Google, which reached near-monopoly status without government assistance, have embraced the cooperative approach. A stark example is Mark Zuckerberg’s recent plea for government regulation of his company. No doubt he would prefer to continue abusing his customers as in the past, but because public outcries have moved Washington to question Facebook’s practices, he has had to make a difficult choice. Fearing the competition that anti-trust action would bring, he has opted for greater regulation with new rules that he no doubt would have a hand in writing. Embracing regulation would also allow him to head off any possibility that Washington might thwart ongoing efforts by Facebook—presently valued at over $500 billion—to stifle competition. He would have no need to do it for himself, because the regulations laid down by Washington, by making entry into the industry more difficult and expensive, would do it for him.
PROBABLY THE clearest illustration of government-business collusion can be found in the 2008–09 financial crisis. In the long run-up to that disaster, Washington had enlisted the cooperation of the banking industry to promote a political interest—widespread homeownership among less affluent Americans. Washington pressured banks to lend mortgage money to those with sub-par credit ratings, and thus a questionable ability to repay the loan—the so-called sub-prime borrowers. Under the 1992 Housing Community Development Act, the two federal agencies designated to support private mortgage lending, the Federal National Mortgage Association and the Federal Home Loan Mortgage Cooperation, announced they would extend such support only to lenders who made many subprime loans. By the aughts, those two agencies limited that support to banks that reserved fully half their mortgage lending to subprime borrowers.