Political Capitalism

Download: MOLOCH: Mass-Production Industry as a Statist Construct.

I. The Origins of Sloanist Mass Production

A Fork in the Road
A Wrong Turn
The Role of the State in Tipping the Balance

II. The Institutional Imperatives of Sloanism

Economies of Scale, Economies of Speed, and Push Distribution
Microeconomic Institutional Forms for Providing Stability
Mass Consumption to Absorb Surplus
Political Capitalism
State Action to Absorb Surplus: Imperialism
State Action to Absorb Surplus: Creation of New Industries

III. Conclusion

Despite all the state intervention up front to make the centralized corporate economy possible, state intervention is required afterward as well as before in order to keep the system running. Despite all the microeconomic mechanisms described above, and all the techniques of demand management, the system chronically tends toward excess productive capacity and insufficient demand. Large, mass-production industry is unable to survive without the government guaranteeing an outlet for its overproduction. As Paul Baran and Paul Sweezy put it, monopoly capitalism

tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation. With a given stock of capital and a given cost and price structure, the system’s operating rate cannot rise above the point at which the amount of surplus produced can find the necessary outlets. And this means chronic underutilization of available human and material resources…. Left to itself — that is to say, in the absence of counteracting forces which are no part of what may be called the “elementary logic” of the system — monopoly capitalism would sink deeper and deeper into a bog of chronic depression. [106]

The state, faced by chronic crises of overaccumulation and overproduction, adopted policies described by Gabriel Kolko as “political capitalism.”

Political capitalism is the utilization of political outlets to attain conditions of stability, predictability, and security — to attain rationalization — in the economy. Stability is the elimination of internecine competition and erratic fluctuations in the economy. Predictability is the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations. By security I mean protection from the political attacks latent in any formally democratic political structure. I do not give to rationalization its frequent definition as the improvement of efficiency, output, or internal organization of a company; I mean by the term, rather, the organization of the economy and the larger political and social spheres in a manner that will allow corporations to function in a predictable and secure environment permitting reasonable profits over the long run. [107]

The state played a major role in cartelizing the economy, to protect the large corporation from the destructive effects of price competition. At first the effort was mainly private, reflected in the trust movement at the turn of the 20th century. Chandler celebrated the first, private efforts toward consolidation of markets as a step toward rationality:

American manufacturers began in the 1870s to take the initial step to growth by way of merger — that is, to set up nationwide associations to control price and production. They did so primarily as a response to the continuing price decline, which became increasingly impressive after the panic of 1873 ushered in a prolonged economic depression. [108]

The process was further accelerated by the Depression of the 1890s, with mergers and trusts being formed through the beginning of the next century in order to control price and output: “the motive for merger changed. Many more were created to replace the association of small manufacturing firms as the instrument to maintain price and production schedules.” [109]

From the turn of the twentieth century on, there was a series of attempts by J.P. Morgan and other promoters to create some institutional structure for the corporate economy by which price competition could be regulated and their respective market shares stabilized. “It was then,” Paul Sweezy wrote,

that U.S. businessmen learned the self-defeating nature of price-cutting as a competitive weapon and started the process of banning it through a complex network of laws (corporate and regulatory), institutions (e.g., trade associations), and conventions (e.g., price leadership) from normal business practice. [110]

But all these attempts at private cartelization were failures: the trusts were less efficient than their smaller competitors. They immediately began losing market share to less leveraged firms outside the trusts. The dominant trend, despite attempts to suppress it, was competition. The trusts were miserable failures. Subsequent attempts to cartelize the economy, therefore, enlisted the state.

As recounted by Kolko, the main force behind the Progressive Era regulatory agenda was big business itself, the goal being to restrict price and quality competition and to reestablish the trusts under the aegis of government. His thesis was that, “contrary to the consensus of historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.” In the face of the resounding failure of voluntary private cartels, big business acted instead to cartelize itself through the state — hence, the Progressive regulatory agenda.

If economic rationalization could not be attained by mergers and voluntary economic methods, a growing number of important businessmen reasoned, perhaps political means might succeed.” [111]

Kolko provided considerable evidence that the main force behind the Progressive Era legislative agenda was big business. The Meat Inspection Act, for instance, was passed primarily at the behest of the big meat packers. [112] This pattern was repeated, in its essential form, in virtually every component of the “Progressive” regulatory agenda.

The various safety and quality regulations introduced during this period also worked to cartelize the market. As Butler Shaffer put it, the purpose of “wage, working condition, or product standards” is to “universalize cost factors and thus restrict price competition.” [113] Thus, the industry is partially cartelized, to the very same extent that would have happened had all the firms in it adopted a uniform quality standard, and agreed to stop competing in that area. A regulation, in essence, is a state-enforced cartel in which the members agree to cease competing in a particular area of quality or safety, and instead agree on a uniform standard which they establish through the state. And unlike private cartels, which are unstable, no member can seek an advantage by defecting.

More importantly, the FTC and Clayton Acts reversed the long trend toward competition and loss of market share and made stability possible.

The provisions of the new laws attacking unfair competitors and price discrimination meant that the government would now make it possible for many trade associations to stabilize, for the first time, prices within their industries, and to make effective oligopoly a new phase of the economy. [114]

The Federal Trade Commission created a hospitable atmosphere for trade associations and their efforts to prevent price cutting. [115] Shaffer, in In Restraint of Trade, provides a detailed account of the functioning of these trade associations, and their attempts to stabilize prices and restrict “predatory price cutting,” through assorted codes of ethics.116 Specifically, the trade associations established codes of ethics directly under FTC auspices that had the force of law. Prominent among the list of unfair business practices were “selling of goods below cost or below published list of prices for purpose of injuring competitor” and “use of inferior materials or deviation from standards.” [117] The second item, in practice, criminalized innovation by individual companies faster than an industry as a whole was willing to agree on.

The two pieces of legislation accomplished what the trusts had been unable to: they enabled a handful of firms in each industry to stabilize their market share and to maintain an oligopoly structure between them.

It was during the war that effective, working oligopoly and price and market agreements became operational in the dominant sectors of the American economy. The rapid diffusion of power in the economy and relatively easy entry virtually ceased. Despite the cessation of important new legislative enactments, the unity of business and the federal government continued throughout the 1920s and thereafter, using the foundations laid in the Progressive Era to stabilize and consolidate conditions within various industries. And, on the same progressive foundations and exploiting the experience with the war agencies, Herbert Hoover and Franklin Roosevelt later formulated programs for saving American capitalism. The principle of utilizing the federal government to stabilize the economy, established in the context of modern industrialism during the Progressive Era, became the basis of political capitalism in its many later ramifications. [118]

The regulatory state also provided “rationality” by the use of federal regulation to preempt potentially harsher action by populist governments at the state and local level, and by preempting and overriding older common law standards of liability, replacing the potentially harsh damages imposed by local juries with a least common denominator of regulatory standards based on “sound science” (as determined by industry, of course). Regarding the second, most “tort reform” amounts to indemnifying business firms from liability for reckless fraud, pollution, and other externalities imposed on the public.

State spending serves to cartelize the economy in much the same way as regulation. Just as regulation removes significant areas of quality and safety as issues in cost competition, the socialization of operating costs on the state (e.g. R&D subsidies, government-funded technical education, etc.) allows monopoly capital to remove them as components of price in cost competition between firms, and places them in the realm of guaranteed income to all firms in a market alike. Transportation subsidies reduce the competitive advantage of locating close to one’s market. Farm price support subsidies turn idle land into an extremely lucrative real estate investment. Whether through regulations or direct state subsidies to various forms of accumulation, the corporations act through the state to carry out some activities jointly, and to restrict competition to selected areas.

An ever-growing portion of the functions of the capitalist economy have been carried out through the state. According to James O’Connor, state expenditures under monopoly capitalism can be divided into “social capital” and “social expenses.”

Social capital is expenditures required for profitable private accumulation; it is indirectly productive (in Marxist terms, social capital indirectly expands surplus value). There are two kinds of social capital: social investment and social consumption (in Marxist terms, social constant capital and social variable capital)…. Social investment consist of projects and services that increase the productivity of a given amount of laborpower and, other factors being equal, increase the rate of profit…. Social consumption consists of projects and services that lower the reproduction costs of labor and, other factors being equal, increase the rate of profit. An example of this is social insurance, which expands the productive powers of the work force while simultaneously lowering labor costs. The second category, social expenses, consists of projects and services which are required to maintain social harmony — to fulfill the state’s “legitimization” function…. The best example is the welfare system, which is designed chiefly to keep social peace among unemployed workers. [119]

Monopoly capital is able to externalize many of its operating expenses on the state; and since the state’s expenditures indirectly increase the productivity of labor and capital at taxpayer expense, the apparent rate of profit is increased. “In short, monopoly capital socializes more and more costs of production.” [120]

O’Connor listed several ways in which monopoly capital externalizes its operating costs on the political system:

Capitalist production has become more interdependent — more dependent on science and technology, labor functions more specialized, and the division of labor more extensive. Consequently, the monopoly sector (and to a much lesser degree the competitive sector) requires increasing numbers of technical and administrative workers. It also requires increasing amounts of infrastructure (physical overhead capital) — transportation, communication, R&D, education, and other facilities. In short, the monopoly sector requires more and more social investment in relation to private capital…. The costs of social investment (or social constant capital) are not borne by monopoly capital but rather are socialized and fall on the state. [121]

The general effect of the state’s intervention in the economy, then, is to remove ever increasing spheres of economic activity from the realm of competition in price or quality, and to organize them collectively through organized capital as a whole.

Notes: 

106. Baran and Sweezy, Monopoly Capital, p. 108.

107. Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History 1900-1916 (New York: The Free Press of Glencoe, 1963) 3.

108. Chandler, The Visible Hand, p. 316.

109. Ibid., p. 331.

110. Paul Sweezy, “Competition and Monopoly,” Monthly Review (May 1981), pp. 1-16.

111. Kolko, Triumph of Conservatism, p. 58.

112. Ibid., pp. 98-108. In the 1880s, repeated scandals involving tainted meat had resulted in U.S. firms being shut out of several European markets. The big packers had turned to the government to inspect exported meat. By organizing this function jointly, through the state, they removed quality inspection as a competitive issue between them, and the government provided a seal of approval in much the same way a trade association would. The problem with this early inspection regime was that only the largest packers were involved in the export trade, which gave a competitive advantage to the small firms that supplied only the domestic market. The main effect of Roosevelt’s Meat Inspection Act was to bring the small packers into the inspection regime, and thereby end the competitive disability it imposed on large firms. Upton Sinclair simply served as an unwitting shill for the meat-packing industry.

113. Butler Shaffer, Calculated Chaos: Institutional Threats to Peace and Human Survival (San Francisco: Alchemy Books, 1985), p. 143.

114. Ibid., p. 268.

115. Ibid., p. 275.

116. Butler Shaffer, In Restraint of Trade: The Business Campaign Against Competition, 1918-1938 (Lewisburg: Bucknell University Press, 1997).

117. Ibid., pp. 82-84.

118. Kolko, Triumph of Conservatism, p. 287.

119. James O’Connor, Fiscal Crisis of the State (New York: St. Martin’s Press, 1973), pp. 6-7.

120. Ibid., p. 24.

121. Ibid., p. 24.

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