Modern American Corporatism

Marquardt Research LLC October 2013

Modern American Corporatism The Federal reserve and fiscal policy are now manned by Wall Streeters, implying capitalfriendly policies. Stratagem #11 of the ancient Chinese classic The 36 Stratagems states, “Sacrifice the plum tree to preserve the peach tree.” The lesson is to give up something non-critical to obtain the real objective. Are US-based corporations (and politicians) sacrificing capitalism to preserve profits? US economic structure and policy has recently prompted economic disenchantment from both the left and right. Leftists bemoan corporate influence in political campaigns, corporate control of regulatory agencies (FDA, DOE, and the Fed), and globalization, not to mention economic wars. Rightists criticize government mandates (health care and environmental), excessive government regulation (limits to oil and gas E&P, mining, and other resources), and the corporate welfare state (banking and auto bailouts). That governments and corporations are in a symbiotic relationship (in bed together) seems clear to all observers. From the left (imaging that the corporations call the shots), this relationship is sometimes called fascist, while from the right (imaging that big brother calls the shots) it is sometimes termed socialist. More objectively, this universal disenchantment reflects the fact that the economic structure and policies of the US (and many other nations) are increasingly Corporatist. I use the term corporatism to encompass the economic systems of many nations, including crony capitalism (US), crony communism (China), and crony democratic socialism (EU). The common elements are political cronies and their corporate backers. Viewing the economy and the investment markets through a corporatist prism reveals several useful implications. Objectively, the US has many features of corporatism (the reader may assess the degree thereof): • • • • • • •

Corporate dominance of political campaign finance (effectively making corporations the economic constituents of politicians) Government bailouts of strategic industries (too many too mention) The existence of the Fed to ensure the stability of banking (its primary role) The revolving door between regulatory agencies and corporations (USDA, FDA, DOE) Regulatory regimes and mandates, which create new markets (biofuel, health care, environmental) A foreign policy designed to protect US-based corporate interests Trade policy and finance are designed to benefit corporations (NAFTA, WTO, IMF, World Bank, Export Import Bank, foreign aid)

The most important corporatist point to remember (for those of us who respect the enormous productive power of capitalism) is that the primary goal of corporations is profit, not the 1


pursuit of any particular economic philosophy. The symbiosis of governments/regulators and corporations is increasingly the path to profits (at the cost of government intervention). Corporations are indifferent to economic philosophy. Adopting the assumption that corporate profit growth is an important, if not paramount, factor in all government policies and regulations yields some useful results. From this angle, one concludes that the following US policies and positions were intended to benefit corporations: • • • • • • • • •

US immigration policy, which never shuts the door (lower labor costs) Nafta (labor costs/new markets) China’s accession to the WTO (labor costs/new markets) Tepid opposition to China’s currency regime US disagreement at Copenhagen Climate Conference (even Obama wouldn’t impose those costs on the US) Renewable fuel mandates Banking and auto industry bailouts Various tariffs, quotas, and dumping duties (agriculture and some commodity producers) Quantitative easing (buoys the value of financial assets at zombie banks)

The list goes on and on. An objection here might be that the US government inflicts great regulatory costs on corporations. This is clearly true and clearly less than such costs in the rest of the developed world. These costs (including environmental) are lower in the developing world (China). This difference is a profit opportunity for global corporations that produce goods or sources components in China. US foreign policy clearly is motivated in part by corporate profits. For example, the test of whether a nation is friend or foe appears to rest on whether its national oil company is open to foreign investment (Iraq, Iran, Venezuela, Bolivia, and Myanmar compared to Saudi, Kuwait et al). More foes mean more possible wars. From the corporatist point of view, an investor might as well forget any classical economic analysis of policy (set aside your anachronistic capitalist lenses). What’s good for (Big) business is good for America (and her politicians, regulators, and lobbyists). Here are some possible future scenarios, policies, and results: •

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Quantitative easing is nowhere near an end and will be revived if necessary. Financial assets must be continually inflated by new liquidity to remain at current overvalued levels (zombie bank lifeblood). State intervention in financial markets is the new normal (don’t japanic, just adapt to it). The US does it. Now the EU does it. Japan can’t ever stop. It’s China’s turn. Banks love it. Fiscal stimulus is also nowhere near an end. The next real slowdown will see massive new stimulus. Bernanke has written in the past that this could be funded by direct 2


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• • • • •

purchases of treasury bonds by the Fed. Stimulus will be aimed at infrastructure for real this time (steel, cement, et al). Everyone loves stimulus, except the true right wing. Iran is enemy number one until the regime changes and allows foreign investment in the energy sector. (Cuba is in the same boat. Look at oil services when that regime changes.) Immigration policy is profitable (low cost undocumented labor) and won’t change much. It is a fun political football for some, though. Even the “conservative” Bush administration created Medicare Part D, now costing $80 billion annually. Entitlement reform will reduce social security benefits but not Medicare (because the health care lobby would resist Medicare cuts). Every new agency has an industry lobbying for it. No new law or regulation that can possibly reduce corporate profits will ever be passed in the US.

Don’t make the mistake of thinking Big Brother is the natural enemy of corporate profits. He can help. Yes, he can be bought. Comments to [email protected]

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