A Threat Worse Than Socialism?

O ver the past ten years, several polling outfits have indicated an uptick in the number of Americans who say they are disillusioned with capitalism and willing to consider socialism as an alternative. This, however, isn’t the most immediate threat to American capitalism.

Yes, the U.S. government controls a far larger chunk of GDP than it should, state institutions regularly intervene in every economic sector, and entitlement programs constitute the bulk of government spending. But another set of ideas that has helped inflict considerable damage on the American economy is reemerging. It is best labeled “corporatism.”

As a modern political program, corporatism (derived from corpus, Latin for “body”) first surfaced in the 19th century. Shaped by thinkers such as the German Jesuit theologian Heinrich Pesch and the French sociologist Émile Durkheim, the following ideas featured in different expressions of corporatist thought:

• Private enterprise and markets are tolerable. But they generate gross economic inequality, undermine communities, and diminish solidarity.
• Private property and competition must be integrated into legal structures that enable governments to coordinate the activities of businesses, unions, and other organizations towards the realization of political and social objectives.
• Employees and other interest groups should be involved in the management of businesses, whether through advisory councils or representation on boards of directors.

Examples of full-blown corporatism include distinctly authoritarian regimes such as Mussolini’s Italy, Dollfuss’s Austria, and Franco’s Spain until the mid 1950s. As the German market economist Wilhelm Röpke pointed out in 1935, Mussolini deployed corporatism as a means of cementing the state’s coordination of economic life for the sake of tightening his grip on society. Following World War II, corporatism took on milder expressions. Some Western European governments mandated work councils (invariably led by union officials) that business owners were required to consult. In other cases, codetermination legislation was enacted to force companies to put employees (again, union officials) on their boards of directors.

But whatever the form, corporatism creates serious political and economic problems. Even soft versions of corporatism provide established companies with political mechanisms to advance their interests over those of consumers, taxpayers, and new entrepreneurs, who aren’t hardwired into policy-influencing structures. In these conditions, success depends less on innovation and competitiveness and much more on political connections.

The resulting economic stagnation is exacerbated by the fact that mandating things like employee and interest-group representation on the board results in priority being given to continuity of employment or pleasing groups other than the shareholders. This undermines the ability of businesses to make necessary but often difficult changes. The chances of a business’s becoming complacent and disappearing, along with the jobs it provides, thus multiply.

Corporatism also facilitates cronyism. In corporatist economies, business success is all about whom you know at the government ministry or on the works council. Then there are the ways in which corporatism encourages corruption. Consider the 2008 Volkswagen Corporation scandal. Facing greater competition and needing to reduce labor costs, VW executives created a fund to buy off employee representatives (i.e., union officials) on the VW works council to obtain their consent for changes in working conditions. Among the favors offered were paid visits to prostitutes, shopping excursions for union officials’ spouses, and outright bribes.

Corporatist ideas have long since made their way across the Atlantic to these shores. Aspects of Franklin Roosevelt’s New Deal reflected Mussolini’s version of corporatism. As the historian James Whitman writes, “A startling number of New Dealers had kind words for Mussolini. Rexford Tugwell spoke of the virtues of the Italian Fascist order. So did internal NRA [National Recovery Administration] studies. And the President himself expressed interest in bringing the programs of ‘that admirable Italian gentleman’ to America.” Section One of the 1933 National Industrial Recovery Act states that Congress’s policy is “to provide for the general welfare by promoting the organization of industry for the purpose of cooperative action among trade groups, to induce and maintain united action of labor and management under adequate governmental sanctions and supervision.” Behold the influence of the admirable Italian gentleman’s corporatism.

Fascist regimes, however, weren’t the only sources of corporatist ideas. Pope Pius XI’s 1931 social encyclical, Quadragesimo Anno, amounted to the Catholic Church’s endorsing its own version of corporatism. In 1932, Roosevelt called this encyclical “one of the greatest documents of modern times.” This was not lost on influential American Catholics like Monsignor John A. Ryan, a fervent supporter of FDR’s economic program. On several occasions, he presented the New Deal as reflecting basic corporatist tenets expressed in Quadragesimo Anno.

After World War II, the Catholic Church quietly abandoned corporatism, perhaps because of its association with some distinctly unsavory European regimes like Vichy France and fiscal and political catastrophes like Juan Perón’s Argentina. But though it has been barely mentioned in papal teaching since the 1940s, some contemporary American Catholics, primarily integralists, are advocating for neo-corporatist economic visions. A far more serious neo-corporatist challenge, however, is coming from the left.

The expansive versions of stakeholder capitalism favored by progressives and woke capitalists are almost indistinguishable from corporatism. They focus on incorporating various stakeholders (environmentalists, unionists, assorted activist groups, etc.) into the governance structures of publicly traded corporations, using regulation to mandate the representation of racial and sexual minorities on boards in the name of diversity (which somehow never extends to political or religious diversity), or corralling businesses to help realize various national and international objectives. World Economic Forum chairman Klaus Schwab, for instance, wants a trinity of governments, businesses, and NGOs working together to pursue political goals that are always of the progressive variety. Schwab has even alluded to the neo-corporatism that remained influential in post-war West Germany as the blueprint for the political-economic model he has in mind.

The biggest loser of the corporatist resurgence is freedom. Whether of the fascist or stakeholder variety, corporatism doesn’t cope well with dissent, as it seeks the harmonization of views, however contrived the consensus. Woe betide the business that suggests that Il Duce’s economic policies are seriously wrong, or the entrepreneur who questions the climate-change consensus.

Warning young Americans about socialism remains important. That illusion rears its head every generation. This, however, should not distract us from highlighting the dangers associated with corporatist economic outlooks. Not every corporatist is a fascist, but every fascist is a corporatist. Authoritarian economics isn’t just economically foolish. It is also an affront to human liberty and dignity.