To say that our public discourse today stands in need of some improvement is undoubtedly an understatement, but perhaps no area of our common life requires more careful consideration than our political speech. All too often we find public discussions of political economy cast in stark terms, such as “socialism” versus “capitalism.” Very often these characterizations fall out along party lines, with Democrats branded as socialists by conservatives, and Republicans branded as free-market fundamentalists by progressives. But this basic paradigm is badly flawed, and helps obscure the true nature of the relationship between government and economics in America today.
In a recent essay, Edmund Phelps and Saifedean Ammous explore the need for increasingly nuanced and careful accounts of the social order by exposing the fallacies behind describing our contemporary order as “capitalism.” We are dealing instead today with a capitalist system that “has been corrupted.” Describing this system as “corporatism” rather than “capitalism,” Phelps and Ammous write, “The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement.” To help understand some of the differences between corporatism and capitalism, we might point to some of the systems’ respective features.
Capitalism is (or was) an “economic system in which capital was privately owned and traded; owners of capital got to judge how best to use it, and could draw on the foresight and creative ideas of entrepreneurs and innovative thinkers.” The main dynamic of the market system is the relationship between the producer and the consumer. Corporatism, by contrast, brings to the fore the role of the “managerial state,” in which the government takes on an increasingly larger task in telling producers what they should produce and consumers what they should consume. This can be done in many ways, some more implicit and others more aggressive. Corporatism is distinct from socialism, because under corporatism the means of production (capital) remain in private hands. But the private firms are not simply free to respond to market signals. Instead, under a corporatist structure, the government directs firms in the ways in which they should employ their resources, sometimes through moral suasion, but more often through regulation, tax policy, and legal directives. Fascism, which uses coercion, bullying, and demagoguery to control private firms, is an extreme form of corporatism.
The consequences of contemporary corporatism can be seen most strikingly in the recent growth and collapse of the housing market bubble. It would be hard to overstate the role of the government in fostering the conditions leading up to the collapse. For decades politicians have been extolling the ideal of home ownership as constitutive of the “American dream,” in speeches and in concrete policy. George W. Bush made his vision of the “ownership society” a critical component of his domestic agenda, and in his most recent State of the Union address, President Barack Obama echoed this emphasis, calling its survival part of “the defining issue of our time.” The president described “the basic American promise that if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement.”
But beyond presidential rhetoric, various administrations and legislative sessions have pursued domestic policies that intend to make good on the American promise of homeownership for all. Whether or not homeownership is something that is good for everyone was never seriously questioned; the only question was the way in which the government could persuade, incentivize, and even coerce individuals and institutions to become home mortgage borrowers and lenders. The phrase “ownership society” takes on a much more tragic connotation when uttered on this side of the millions of foreclosures that occurred during this crisis.
The role of the government in promoting home ownership is indicative of a corporatist system, a system whose assumptions need to undergo close scrutiny. As Robert Bridges wrote in the Wall Street Journal last year, “we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We’ve diverted capital from more productive investments and misallocated scarce public resources.” This misallocation laid the foundations for the housing crisis.
There are, in fact, many reasons that home ownership is not a good idea for many, many Americans. In a 2009 interview with APM’s Marketplace, Edmund Phelps discussed the problems with American homeownership “obsession.” When you rent, said Phelps, “You don’t have to pay any interest to anybody. You don’t have to pay any maintenance costs to anybody. You don’t have to worry about whether the boiler is going to break down.” But when you own a home or have a mortgage, “you have a hundred aggravations. Maybe the roof will leak while you’re overseas.” Anyone who has ever owned a home knows the constant worry and potential financial exposure that follow signing those mortgage papers. Indeed, comparing renting and owning, Phelps concludes, “In strict money terms, there is no reason to think there is a systematic, long-run, sustainable, durable difference between the two.”
Politicians, and perhaps current and would-be presidents most especially, need to abandon the dominant logic of corporatism and the crises that inevitably result. The Declaration of Independence wisely left the “pursuit of happiness” indeterminate, linking it instead with the attendant rights of “life” and “liberty.” These rights involve the freedom of self-determination in defining happiness and the means to achieving it. As Lord Acton put it, “liberty is not a means to a higher political end. It is itself the highest political end.” This political protection of liberty stands diametrically opposed to corporatism, and is instead instrumental to, not determinative of, “the pursuit of the highest objects of civil society, and of private life.” The American people do not need politicians to tell them what happiness is and how it should be pursued. These are functions that our families, churches, and friendships fulfill.
Author Credit: Jordan J. Ballor, Ph.D. is a research fellow at the Acton Institute in Grand Rapids, Michigan and serves as executive editor of the Journal of Markets & Morality. He is a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research center. Dr. Ballor’s article originally appeared as an Acton Commentary.