TeeJaw Blog

Crony Capitalism — Gangster Government — Fascism

Posted in Economic Theory, Government and Politics by TeeJaw on Wednesday, April 21, 2010, 8: 56 AM

Adam Smith wrote in The Wealth of Nations (1776) that,

    People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, must less to render them necessary.

By 1890 when the Interstate Commerce Commission was established by Congress private companies had discovered that conspiring with each other was chicken feed when much more power and control over the market place could be obtained through collusion with the Government. With the assistance of government power the most dominant companies in the market could also gain an advantage over smaller competitors as well as discourage entry into the market by potential new competitors. Not only could competitors and new entrants be kept at bay by forming an alliance with government but customers could be subdued as well. Railroads and Regulation, a book by Gabriel Kolko written in 1965, debunks the myth that progressive reformers in government regulated the railroads to protect smaller shippers and farmers and shows that it was the Railroad Barons themselves that sought regulation by the Government to stave off competition and divide up the market between the strongest carriers.

Kolko explains:

    The crucial point is that the railroads, for the most part, consistently accepted the basic premises of federal regulation since only through the positive intervention of the national political structure could the destabilizing, costly effects of cutthroat competition, predatory speculators, and greedy shippers be overcome.

The reader ought not be overly influenced by the strong adjectives used in that paragraph. To a business all competition is destabilizing, costly and cutthroat; all speculators in the field are predatory; and all customers seeking the lowest price are greedy. A business entity will always seek ways to make life easier. Colluding with others in the same trade is risky because it may bring criminal charges by the government. Colluding with the Government itself, on the other hand, is golden. It’s what might be called good work if you can get it.

Crony Capitalism exists when the Government grants special favor and protection to politically connected companies and targets the unconnected companies for harsh treatment and possible destruction. Michael Barone has accused the Obama administration of practicing gangster government for its pressuring, (i.e., threatening), of secured bond holders in the Chrysler bailout to accept 30 cents on the dollar while awarding the Auto Workers Union 50 cents on the dollar for its unsecured debt. This is contrary to established bankruptcy laws which hold that secured creditors are completely paid off before unsecured creditors get anything.

Fascism may be defined as a political regime, having totalitarian aspirations, ideologically based on a relationship between business and the centralized government, business-and-government control of the market place, repression of criticism or opposition, a leader cult and exalting the state above individual rights.

I had that background in mind as I read the following two stories from today news:

Goldman Sachs wants regulation — not liassiz-faire

Gangster Government becomes a long-running series

See also, Goldman Sachs — Harbinger of the State Capitalist Firm

I especially liked this from Professor Rowley:

    Goldman Sachs, indeed, is the harbinger of America’s corporate future in the absence of some unlikely reversal of political economic direction. Goldman Sachs is the perfectly designed two-way sewer, pumping excrement in and out of privately-networked political markets and in and out of politically-networked private markets. Goldman Sachs, to put it more bluntly, is designed to work the sewer system, extracting all valued protein for itself, while discharging the residuals into any waste dump corrupt enough, or foolish enough to provide access to its pipes.

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