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Corporate Socialism: Intertwined Economic And Cultural Control By Government And Corporations.

December 29, 2020/in Articles /by Hunter Hastings

Michael Rectenwald has introduced a new terminology for us to consider as a description, and to some extent an explanation, of the political, economic and cultural situation in which we currently find ourselves: corporate socialism.

As part of his context setting, he tells us that his use of the word socialism embraces only one of two different meanings it may have. One meaning is the utopian idea of income equalization, whereby all citizens receive equal benefits from the state, and “from each according to his ability, to each according to his needs” is the governing mantra. The second meaning, which inevitably accompanies any economic movement towards the first, is top-down, not-to-be-questioned authoritarianism, whereby there are people in authority competent enough and sufficiently empowered to tell you what your needs are and what your abilities are. It’s this kind of top-down authoritarianism Rectenwald has in mind in the coinage “corporate socialism”.

Corporations are not asserting their authority over citizens without government approval or permission or participation. Quite the opposite, the corporations and the government are inextricably intertwined in the use of the political power of command. Here’s how the intertwining operates.

Governments have decided that they do not want to own the means of production. That strategy turned out disastrously in the Soviet Union. Governments recognize that there has to be a market in what’s produced, reflecting, at least to some degree, what consumers prefer. Otherwise, rebellion.

However, they have discovered and established their nexus of control in how goods and services are produced. When they impose conditions on commercial operations related to global warming controls, energy use, wage levels, health care benefits, diversity and identity considerations, safety, licenses, labeling and packaging, security, information gathering and sharing, and all their other interventions, governments are determining how firms operate for everything that they produce. The size, shape and function of cars, the organization of telecommunications networks, the operation of search engines, the structure of the health care industry, all these and many other elements of the economy are uniquely determined by legislation, regulation, and government bureaucracy rules.

The enforcement mechanism is compliance. Firms must assign a significant proportion of their personnel, administrative procedures, technology, reporting and systems to compliance – keeping on the right side of government-imposed rules, which are deliberately complex, opaque and open to confrontational interpretation. Charles G. Koch in his book the Science Of Success reports that Koch Industries felt the need to set up an entire operating unit devote to “the public sector”, i.e. compliance with government rules. Banks like JPMorgan Chase spend billions of dollars on, and allocate thousands of employees to, compliance activities. Absent a major investment in compliance, firms leave themselves open to fines, lawsuits, sanctions, property seizure (e.g. shutdowns) and many more kinds of expensive penalties.

The consequence is that only the largest corporations are able to operate profitably under the government’s regulation and enforcement regime. Only their scale is enough to amortize compliance costs over a sufficient volume of transactions and a sufficient revenue volume to render it economically tolerable.

And then government favors the large compliant corporations – those who are doing their bidding – with large government contracts that make them even more co-dependent. As just one example, Google, Microsoft, and Amazon are jointly engaged in a multi-billion dollar Defense Department contract.

Google will build security-and app-management tools for the Pentagon’s Defense Innovation Unit, deepening the Silicon Valley giant’s military ties …. Tools and a console built with the company’s Anthos application management platform will allow DIU to manage apps on either of the cloud services heavily used by the Pentagon: Microsoft Azure, which won the hotly contested JEDI cloud contract, and Amazon Web Services, or AWS, heavily used by DoD researchers, from a Google Cloud console. (www.defenseone.com).

Of course, US Treasury and Federal Reserve operations run through the large banks, the Department of Education determines what technology, services and content are used in public schools, housing regulators determine how builders construct houses, and, to curry government favor, large corporations in these industries comply.

To what extent is this authoritarian socialism?

The goal, says Rectenwald, is “eliminating producers whose products or processes are deemed either unnecessary or inimical to the globalists’ desiderata for “a fairer, greener future.” Naturally, this would involve constraints on production and consumption and likewise an expanded role for governments in order to enforce such constraints”.

The producers who are eliminated are generally small businesses who are less able to afford compliance – and may be less politically inclined to do so. Government requirements, at the state and local level, to comply with COVID regulations have exacerbated the elimination trend. Authorities have, says Rectenewald, “seized the opportunity to cull from the economy the underbrush of small and medium-sized businesses in order to make compliance simpler and more pervasive”.

Who are the perpetrators of this shared compliance scheme?

In a book titled The Managerial Revolution, James Burnham made the case that the socialist revolution of the type that took place in Russia would inevitably be succeeded by a managerial revolution, in which a technocratic elite would take control. As technology and systems become ever more complex, these technocrats believe that production can’t be entrusted to “workers”. Production functions and structures must be shaped and controlled for the “workers’” own good.

Today, the technocrats emerge from our elite government-controlled universities where they are indoctrinated into progressive ideas and, whether they choose employment in industry, government or consultancies and think tanks, they jointly populate a networked system of command and control whereby progressivism can be imposed, embedded and implemented.

Burnham called this arrangement managerialism, a replacement for capitalism. It’s a one-party system of control via a managerial elite. Managerialism is a class structure, with the controlling class embedded in Washington DC in government administration, lobbying, quangos and consultancies, and in large corporations. The managerial elite get to positions of control so that they can fix society, improve us Americans, stave off the global warming we’ve so foolishly triggered, save us from COVID, dictate the conditions in which we work, manage our education and the news and communication we receive.

Politics and economics become directly interfused. The state does not recognize the limits contemplated for it in capitalism, or in the Constitution for that matter. The economic arena is now also the arena of the state. Consequently, there is no sharp separation between political officials and so-called captains of industry. The captain of industry is, by virtue of his function, at the same time, a state official. Managerialism has swept the West not only in business and government, but also in universities, the military, and even churches and synagogues and their leadership.

And this control starts to change the culture. The managerial elite are not content to just control politics and economics, but also take aim at the culture as a whole. It is at the cultural level that the ultimate battle in society between the elite and the normal people takes place. The normal people start to see every aspect of their lives infringed upon by the managerial elite. Managerialism has already totally changed the American culture. It’s changed the composition of American culture through a wide increase in immigration since 1962, and it’s also changing our mores. There’s been a huge transformation, for example, in the embrace of all sorts of sexual lifestyles that used to be anathema to the religious conception of the founders of this country, creating new legitimatized identities and protected classes of people. These and other elements of cultural transformation are the results of the managerial class controlling society.

According to Burnham, this is totalitarian, a managerial state. Democracy is a show for the normal people to let off political steam from time to time, but it does not affect the elite’s one-party system or undermine their command and control platform.

So this is our new political, economic, and cultural situation. Call it corporate socialism, or call it managerialism. Either way, it’s tending towards totalitarianism.

Leftist Legislation Has Turned The Traditional US Corporation Into A Vehicle For Socialism. Time For New Organizational Innovations.

August 7, 2020/in Articles /by Hunter Hastings (Republished)

Socialists would rather the traditional American firm did not exist. Animosity towards the capitalist boss for reaping all the rewards of his employees’ labor, or (perhaps worse) towards the joint-stock corporation, where workers don’t even know who they’re being exploited by, is a staple of socialist rhetoric. Ideally, corporations would be replaced by worker-owned cooperatives or nationalized sectoral industries, but if not, they’ll be strictly controlled through regulation, and their owners and stockholders taxed to oblivion.

Margaret Thatcher called this “the politics of envy.” Her message that it was sinful successfully countered the idea that profit is about greed and turned the British Labour Party from a democratic-socialist party to a social-democracy party for over two decades.

But now the politics of envy is back in a big way. Not only are corporations accused of greed, they are alleged to be destroying the planet. New-style businesses such as Uber are accused of not just exploiting workers but outright cheating them. Yet increasingly socialists, realizing the political impossibility of getting rid of the corporations, are turning to co-opting them instead.

Corporations grow up because entrepreneurs need to find investors to help finance their businesses. In addition, to keep transaction costs low, they need to hire employees rather than contract for each individual routine transaction. That’s the foundation of the corporate structure of owners, management, and workers.

For the past century, that structure has been under attack by socialist activists, who have long viewed corporations as ideological battlegrounds, with management arrayed against workers. You will probably notice there a shift in target from Marx: Management is the enemy, not ownership. In fact, much of the Naderite-era attack on corporations was based on the idea that corporate management did not act in the stockholder owners’ interest.

Ironically, however, the National Labor Relations Act and similar New Deal laws set the corporate structure in stone, in the name of “protecting” workers against management. Certain aspects of the employment relationship were guaranteed by government enforcement — including overtime, unemployment insurance, paid time off, opportunity for union representation, and other requirements on employers. This required a corporate form of business.

Before the modern corporation, economies were characterized by what Adam Smith called “the system of natural liberty,” where businesses were small in scale and owners invested their personal assets into the venture and freely contracted with other businesses and individuals for services.

This model lost out to the corporation because of what are called transaction costs related to identifying and contracting with other businesses to perform a service for you. It was far easier and more reliable to directly employ someone to do the job, even when required to offer the protections imposed by law. That’s why the corporation survived for most of the last century despite the increased costs of hiring.

Corporations also reduced transaction costs within their own organizations — and the prospect of internal strife among workers — by devising innovative new business arrangements. The franchising business model turned many workers into potential owners. New management models turned other workers into junior managers. The “us versus them” model that created labor strife broke down, and union representation in the private sector plummeted.

But in recent years the costs of contracting with another party have been coming down. In some sectors of the economy, corporations are being replaced by networks or platforms that enable two-sided markets, where the purchaser of a service can buy it from a small-scale supplier rather than a large corporation. The most famous example is Uber, which provides a network matching riders to drivers, so they don’t have to go through a taxicab firm. And despite having some corporate features, Uber is a very different animal from a taxicab company.

Given the Left’s hatred of corporations, you’d think that socialists would cheer this development. Not so. Instead, many view Uber as exploitive — perhaps even more so than a 1930s-era corporation, because it deprives workers of New Deal–era legal protections based around the corporation.

Previously, workers who set their own hours and had significant control over the way they worked were regarded as independent contractors, free from the requirements of much of employment law. But now California, through its AB5 law, is leading the way in redefining contractors as employees. So the woman who goes on a ride-sharing app to earn some extra income driving passengers while caring for a sick relative is no longer an independent contractor, but an employee of the app firm. Understandably, companies affected by this law are cutting workers.

During the Obama administration, there was a rash of attempts to make corporations more liable for employees; for example, a change in overtime rules to eliminate huge swathes of junior management positions — something that would have interfered with the aspirations of ambitious young workers (employers would probably cut back on or even eliminate overtime opportunities).

The National Labor Relations Board ruled that franchisor companies are “joint employers” of their franchisees’ workers, making them responsible for day-to-day matters like individual workplace conditions and working hours — a burden that would make franchising a much less attractive business model for companies seeking to expand.

While both these regulatory expansions were changed under the Trump administration, they are still very much in the playbook of the labor-union movement, and Democrats in Congress are trying to make them law. Paradoxically, this suite of policies actually reinforces the old corporate structure that was set in place in the 1930s. The result will be more large corporations based on an “us versus them” paradigm that pits management against workers — in other words, the very corporate structure socialists claim to hate.

There are two reasons that socialists want to see this structure continue. First, it gives government agencies immense power over employment conditions. Second, large corporations are easier to unionize than smaller companies. And the dues paid by employees for union representation — which they may not even want — make large corporations a huge source of funds for political campaigns.

Corporations know this. The political and cultural attacks on them have helped lead some of them down the road to “woke capitalism,” which we’ll discuss in the next part. The politics of envy may end up not destroying the corporation, but making it a vehicle for socialism. It’s a good bet that Marx didn’t see that one coming.

Iain Murray is the Competitive Enterprise Institute’s vice president of strategy. This article first appeared at nationalreview.com.

Thought Starter

There are several interesting and perspective-stretching compilations of writings on individualism, bringing together texts that are in the public domain but not necessarily widely circulated or widely known. “Individualism: A Reader” is one such compilation, assembled by Libertarianism.org. There’s a useful introduction which compares the anti-individualism of Karl Marx with the ambivalence towards individualism of Alexis de Tocqueville and the wholehearted embrace of individualism by E.L. Godkin, who thought of it as a fundamental character trait of the American.The writers gathered together in the compilation range from Oscar Wilde to St. Augustine. The book is a treasure trove to dip into again and again.

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