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Government Dependency and Corporatist America


Mitt Romney’s comment that 47 percent of Americans don’t pay taxes and therefore are not likely to respond positively to his stated opposition to tax increases has been called a “gaffe.”

This reminds me of Michael Kinsley’s quip: “A gaffe is when a politician tells the truth — some obvious truth he isn’t supposed to say.”

Romney was only half right, of course. While many lower-income workers don’t pay income tax, they do get hit hard by payroll and sales taxes. So to say that these “47 percenters” don’t pay taxes is not accurate. But Romney’s point regarding dependency on government was essentially correct.

The US government has deliberately expanded the welfare rolls for decades, and now that it is going bankrupt it is doubtful that it will be able to deliver the goods in the near future. What will happen when true austerity kicks in and those relying on government for their daily sustenance are cut off? Could we see civil unrest, looting, and martial law?

The Democratic Party has been dedicated to creating mass dependence on the federal government since the 1930s. This political strategy was best summed up by Franklin D. Roosevelt’s close adviser Harry Hopkins, who said, “tax and tax, spend and spend, elect and elect!”

But the Republicans are every bit as guilty as the Democrats of promoting government dependence. Both parties have worked to expand unsustainable federal entitlement programs, and both support corporate welfare on a massive scale. Neither wants to derail the federal gravy train — even though it’s headed over a fiscal cliff.

Romney’s rhetoric rings especially hollow when you consider that both he and his running mate, Rep. Paul Ryan, supported TARP, the Bush II scheme to bail out Wall Street. Talk about dependence on government.

The two men also oppose cutting the Pentagon’s budget, a source of lavish corporate welfare.

But in politics, rhetoric often matters more than reality. I suspect the Romney campaign was not totally displeased by the “leak” of their candidate’s confidential remarks to hundreds of donors. The news coverage helps the GOP cast Romney as a “budget hawk” and an advocate of small government. This image, however false, distinguishes him from his Democratic opponent.

Putting aside electoral politics, Romney’s remarks and the reaction to them reveal a general confusion regarding the nature of the U.S. economy.

Although America is generally regarded as a “capitalist” society, in actuality it is corporatist. This often makes it difficult to distinguish genuine capitalists from crony capitalists or to sort out free-market functions from the market’s reactions to government meddling.

Future of Freedom Foundation senior fellow Sheldon Richman sums up the situation well:

What we have — and have had for a long time — is corporatism, an interventionist system shot through with government-granted privileges mostly for the well-connected — who tend to be rich businesspeople. This system is maintained in a variety of ways: through taxes, subsidies, cartelizing regulations, intellectual “property” protections, trade restrictions, government-bank collusion, the military-industrial complex, land close-offs, zoning, building codes, restrictions on workers, and more. As a result, people can get rich at the expense of the government’s victims. Even some who have prospered apparently by market means have actually done so through government intervention, such as transportation subsidies and eminent domain. Wealth can be transferred in many ways besides welfare and Medicaid, some of them quite subtle. Most transfers are upward.

The frequent conflation of the current corporatist system with “capitalism” has become a personal focus for Richman, who thinks free-market advocates should forsake the term “capitalism” when describing their ideal economic system. Richman writes,

In the periods regarded as classic “capitalist” eras, government intervention on behalf of capital was commonplace. Moreover, it was integral not incidental. In both England and the United States government intervened — on behalf of a privileged landed and then mercantile class — with land grants, subsidies, and commercial regulations. In America, this was true to various degrees at all levels of government, both before and after the Civil War.

Thus capitalism did not mean the free market, or laissez faire, back then. It’s not that the system fell short of an ideal. To the people on the ground, and to historians looking back, this was the system that was intended. Thus pro-business interventionism has a far better claim to the term capitalism than any unrealized free-market system.

Richman’s point is more than just semantic, for corporatism exacts a very high price indeed. The costs come in the form of parasitical corporations, diminished employment opportunities, stunted economic growth, the erosion of the middle class, and the concentration of wealth in the hands of a few well-connected individuals. Richman avers,

The corporate state, after all, is a form of exploitation, the victims of which are workers and consumers, who would have been better off (absolutely and comparatively) without anticompetitive privileges for the well-connected and government-induced recessions.

The 19th-century American statesman John C. Calhoun warned in his Disquisitions on Government that the power to tax would inevitably be used “for the purpose of aggrandizing and building up one portion of the community at the expense of another.” And this will “give rise to two parties, and to violent conflicts and struggles between the two competing parties.”

Calhoun wrote that the result of this struggle will be that “some one portion of the community must pay in taxes more than it receives back in disbursements; while another receives in disbursements more than it pays in taxes.”

Society is thus divided into

two great classes — one consisting of those who, in reality, pay the taxes, and, of course, bear exclusively the burthen of supporting the government; and the other, of those who are the recipients of their proceeds … and who are, in fact, supported by the government; or, in fewer words, to divide it into taxpayers and tax-consumers.

The German sociologist and historian Franz Oppenheimer developed a similar insight in his famous distinction between the economic and the political means:

I propose in the following discussion to call one’s own labor, and the equivalent exchange of one’s own labor for the labor of others, the “economic means” for the satisfaction of needs, while the unrequited appropriation of the labor of others will be called the “political means.”

The problem we have in America today is too many people are making their living from “political means” and too few from “economic means.” Socialism, communism, corporatism, or any other form of collectivism is a form of low-grade economic civil war. In a society like the United States, where an enormous amount of capital has been accumulated, a corporatist system can seem to function well for decades before it collapses under the weight of its own internal contradictions.

The American people would make great strides toward liberty, social harmony, and lasting prosperity if they acknowledged the fundamental immorality of using the state to take the wealth of one person in order to give it to another. Respecting the property of others is not only moral; it is sound economics and good politics.

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    Tim Kelly is a columnist and policy advisor at The Future of Freedom Foundation in Fairfax, Virginia, a correspondent for Radio America’s Special Investigator, and a political cartoonist.