Corporate power, the fourth branch
Corporate power, the fourth branch
The force that the federalist constitutional architecture could not check
The founders of the American constitutional republic should not be blamed for the failure of the American Republic to check corporate power. They lived in a world in which production was primarily agricultural. As the American Republic moved forward, it formulated two visions in tension. On the one hand, there was the vision of Jefferson and Jackson, that a wide distribution of property to primarily small-scale producers would ensure economic democracy. And on the other hand, the idea of Hamilton, that the state ought to adopt policies favorable to the expansion of industrial manufacturing. Both sides were writing and acting in the context of the world as they knew it. Neither side had experienced the inevitable concentration in industrial and agricultural production, which emerged in the second half of the nineteenth century. When monopoly capitalism came into being, the nation lacked the capacity to make the necessary adaptations in its constitutional system of checks and balances, in order to respond to this unanticipated threat to American republicanism.
In my last commentary, I reviewed the Hillsdale College course on the Federalist Papers. I expressed appreciation for the detailed presentation of the insights of James Madison, Alexander Hamilton, and John Jay, writing in 1787-1788 in the context of debates with respect to the ratification of the proposed Constitution by the states. And I noted that, in the end, the Hillsdale course disappoints, in part because it does not adequately engage the implications of the emergence of large corporations for the exercise of power by the three departments of the federal governments.
The Hillsdale course addresses the issue only in a superficial form. It notes and rejects ultra-leftist critiques of Madison’s concern with protecting the interests of the minority of property holders against unwise populist rule, which he often characterizes as “mob rule.”
In my own view, such ultra-leftist critiques of Madison, which emerged during the course of the twentieth century, are immature, in that they cast Madison in the role of implicitly defending concentrated corporate power, which had not yet come into being. Abstracting Madison from his historical context, the critics fail to see that Madison was defending the rights of a diffuse form of private property, which was playing a central role in the economic development of the English colonies in North America. And he was defending property rights against a real threat, namely, mobs stoked by irresponsible actors in promotion of themselves and their interests, which the framers had seen in their own experience, and which we continue to see today. Madison was not defending concentrated corporate property, which was not a part of his experiences, in the world of the late eighteenth century.
The Hillsdale College professors defended Madison against said immature ultra-leftist critiques. Well and good. But still, immature ultra-leftism aside, corporate power and its implications are real. It has fundamentally transformed the nature of the American political process, in most ways not for the better. This new force must be theoretically, ideologically, and politically engaged, in defense of the sovereign power of the people.
For those of us who are conservatives who believe in a return to the founding constitutional principles of the American Republic, we must explain to the people how constitutional principles can and must be the basis for a republican response to concentrated economic power, a phenomenon that is an inevitable dimension of human progress.
The story of the emergence of corporate power in America
The Robber Barons, The Great American Capitalists, 1861-1901, a classic book written by the U.S. journalist Matthew Josephson, originally published in 1934, describes the concentration of capital in the second half of the nineteenth century, thus leaving the institutions of the nation under the influence of a small number of men.
The oil magnate John D. Rockefeller was the master of concentration, using unfair and ruthless methods to attain control of petroleum. Initially, there were thousands of small capitalists competing in the oil market. Rockefeller began to take control by arranging for secret rebates in transportation rates from the railroad companies, giving him an advantage over his competitors. At the same time, he launched a secret campaign to enlist other oil refineries as allies of the Standard Oil Company, by sharing with them the transportation rebate advantage that he enjoyed. He aggressively campaigned to drive competitors from the field, using his influence over shippers to drive up the shipping costs of the competitor; and then offering to buy the competitor’s company at a fraction of its value, knowing that the competitor, disadvantaged by unequal shipping rates, had no option but to sell. At the same time, Standard Oil used violence to attain its expansion, applying the weapon of dynamite. By 1881, Rockefeller had de facto control of the oil industry, which he did not attain through the natural process of offering a better product at a lower cost.
The innovative methods of Rockefeller were followed in other industries, Josephson reports. Secret cooperative agreements, imposed by threats of ruining the competitor’s business, became the dominant orientation of the capitalist class. In various fields, independent producers found that the manufacturers of necessary equipment had an agreement with an association of big companies to not sell to independent producers.
The era of unfair and ruthless competition was brought to an end by the reforms of the banker J. Pierpont Morgan, who was concerned with the dysfunctionality of permanent competition without rules among the great corporations. He devised the interlocking directorate, which ensured that capitalists had some stake in corporations other than their own, facilitating common policies among the great capitalists with respect to issues of common concern. The great capitalist trusts were increasingly combined, financed by Big Banks. Thus, industrial monopolies came under the control of bankers.
The unchecked power of combined Big Banking and Big Industry gave rise to the resistance of the people in the form of the Anti-Trust movement. During the administration of Grover Cleveland, the Interstate Commerce Commission was established, and the Sherman Anti-Trust Act (1890) was enacted. These reforms, however, were not effective in enabling regulation of the Trusts. The historian Richard Hofstadter, in The American Political Tradition, describes the reforms as a sham designed to respond to the clamor of the people.
With the continuing public outcry, the issue came to a head in the presidential elections of 1912, when the Democratic candidate Woodrow Wilson and the independent progressive candidate and ex-President Theodore Roosevelt proposed similar comprehensive plans for placing the corporations under the effective restraint and regulation of the government. For both, it was a delicate issue of how to facilitate continued corporate contributions to national economic productivity, yet restraining them in accordance with the needs and interests of the people.
Woodrow Wilson arrived to the presidency on the basis of a campaign that formulated a clear view on regulating corporations, avoiding the reckless and idealistic radical rhetoric that he held in disdain. On the one hand, he declared that political power must be in the hands of the people; and that the purpose of the federal government is to protect the people against monopolies. On the other hand, he was not opposed to concentration in industry per se. He supported what he called “natural concentration,” which emerges from fair competition among companies. He was opposed to concentration that was forged through unfair and illicit competition, which included such tactics as blocking credit and raw materials to competitors, squeezing out a retailer who buys from a rival, or supporting politicians who support tariffs on foreign competitors. Seeking to eliminate the concentration that emerges from unfair competition, he maintained that the solution was to regulate the corporations through good laws that were enforced by the courts.
Wilson delivered on his campaign promises. “The conceptions set forth in Wilson’s speeches of 1912 were translated into legislation with remarkable success and fidelity,” Hofstadter writes. Wilson’s economic program included: lowering tariffs; placing the banking and credit system under public control; loans for farmers; the Clayton Act, meant to implement the Sherman Anti-Trust Act, and which included a clause exempting unions from anti-trust action; the creation of the Federal Trade Commission, which was to prevent illicit competition; the Adamson Act, which set an eight-hour limit for railroad workers in interstate commerce; the La Follette Seaman’s Act; a child labor act; and a compensation law for Civil Service workers. Woodrow Wilson declared to the Congress on December 8, 1914, that his legislative program for the regulation of business was complete.
It is possible that Wilson’s economic program could have been decisive in enabling the corporations to contribute to national economic productivity, without surrendering power to them. It is possible that Wilson’s economic program constituted a reformulation of the founders’ concept of checks and balances, responding to the emergence of concentrated industry and banking; a reformulation based on a check by government of the corporations in defense of the interests of the nation and the people. And if so, it could reasonably be said that this historic achievement would have been created by a combination of popular anti-corporate outcry and responsible presidential leadership. It is possible that Wilson’s economic package was an important first step, although ultimately the federal government would have to devise ways to stimulate productivity in determined directions, necessary for the common good, and decided by the representatives of the people.
However, the new laws and regulations were not implemented, forgotten during U.S. participation in the First World War, which economically began for the USA in 1915, with contracts with the allied powers for military arms and supplies. Profits from the manufacture and sale of arms and military supplies to the allies were critical to overcoming the economic depression of 1914, and war profits during the war were central to the continuation of the spectacular U.S. economic ascent of the nineteenth century. The 1915 fusion of economic and military interests created a reality in practice of unchecked corporate productivity.
Following the Great War, the defenders of a peaceful and more just world lacked the capacity to resurrect the issue of Wilson’s 1913-1914 unimplemented economic package. The League of Nations became the great ideological debate, which was an important issue that addressed some relevant questions, but it did not address the crucial issue of reasonable but not suffocating government regulation of corporate power. Wilson himself, it appears, was suffering from melancholy, his great hopes dashed.
The Great War was an unfinished affair. It was resumed as a worldwide conflict among competing imperialist powers, characterized by war crimes and genocide in several dimensions. Following the Second World War, the United States established a permanent war economy, justified by the Cold War ideology. War, in one form or another, has been our condition to this day, a condition that makes impossible the regulation of the great corporations by the representatives of the people. In conditions of war, the corporations have the clear advantage. Their productive capacity is needed to defend the nation against foreign military threats, real or fabricated, and they are in a position to dictate their own terms.
Before they departed from the scene, the robber barons had influenced all areas of society, not only economic institutions. The captains of industry had taken control of the government, educational institutions, the press, and the Church, shaping them according to their needs, so that all institutions defended, each in their manner, the established order of monopoly capitalism. In a classic work published in 1954, the Columbia sociologist C. Wright Mills described The Power Elite, composed of the corporate executives of the large corporations combined with the highest officers in the executive branch of the federal government and the military chiefs, whose successful careers depended on elite support.
The Hillsdale College critique of the lost American Republic
The Hillsdale College professors maintain that the American loss of its constitutional foundation is rooted in the New Deal. They maintain that during FDR’s first term, the Supreme Court struck down as unconstitutional legislation that had been proposed by the President and enacted by Congress in the context of the economic emergency of the Great Depression. But after FDR’s landslide electoral victory in 1936, the Court backed down and gave the other two branches of government the authority to regulate business much more extensively than previously.
This was the first step, the Hillsdale professors maintain, in the construction of an administrative state, which would not only enforce Congressional laws, but would also write its own detailed governmental regulations, sometimes changing the intention of Congressional legislation. They speak of an administrative state characterized by centralized rule by unelected officials, staffed by tenured civil servants who hold office for life, charged with ruling the details of our economic transactions.
The administrative state, the professors charge, has constituted itself as a fourth branch of government. It is staffed by a modern aristocracy, not rooted in divine right or birthright, but in technical expertise, a “technocracy” or “meritocracy.” A modern aristocracy that responds to the impersonal structures of the state apparatus itself, with loyalty not to any person but to a function within the state bureaucracy. The administrative state, they argue, is beyond the control of the private sector or the people.
In my view, the critique of the Hillsdale College professors is not entirely coherent. The phenomenon of the administrative state—they do indeed describe it well—is something distinct from what was at stake in the 1930s conflict among the governmental powers. Back then, we had the phenomenon of a Court that struck down what both the executive and legislative branches were doing in the context of an emergency, with the support of the people. Today, however, the administrative state functions as an entity beyond the control of the legislative branch and even to some extent the executive and judicial branches. These are clearly two different phenomena, and I don’t see how one could lead to the other, without other factors being present.
But more importantly, the New Deal measures provided mostly relief in the context of a national emergency, financed by government deficit spending. They introduced some constraints on corporate conduct, but they do not come close to formulating a response to the question: How can the government and concentrated capitalistic enterprises work together in the development of the national economy, responding to priorities that have been formulated by the representatives of the people?
This fundamental and necessary question could never be addressed, because of the constant pernicious presence of the fourth power, the corporate power, everywhere present to intervene in defense of its interests, always with subterfuge, knowing that the people themselves would always be in favor of the notion that they the people constitute by natural right the sovereign power of the nation, represented by the three powers of government. Driven by its own interests in a republican ideological context, the fourth power would always be compelled to act with deception and secrecy in pursuit of its own interests.
I submit that the bureaucratic and administrative state is an expression of corporate power, not abusive executive power. It has emerged because of the failure of republican government to address the question of how to regulate the fourth power, the great concentrated corporations, without suffocating their productive capacities.
The worst thing about corporate power is that its godchild, the administrative state, will always be a war state. The corporate power, in order to expand and grow, must turn to imperialism and war, using its control of institutions to manipulate the people in support of its bellicose objectives. This will be the theme of my next commentary.
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