The term “corporatism” is in the news. Some on the left use it as an epithet, distinguishing between a progressive and a “corporatist” wing of the Democratic Party. At the same time, as Mike Konczal of the Roosevelt Institute has noted in the New Republic, some on the right accuse the Obama administration of a “corporatist” agenda of furthering the interests of well-connected corporations, at the expense of free enterprise. Conservatives and libertarians continue to describe the New Deal as a sinister “corporatist” arrangement allegedly inspired by Benito Mussolini’s fascism. And one Nobel Prize winner in economics, Edmund Phelps, has sought to stigmatize all modern industrial capitalist economies that do not fit his utopian libertarian ideal of a laissez-faire market system as “corporatist.”
When a word has too many meanings, it ends up spreading confusion rather than clarity. Confucius said that reform must begin with “the rectification of names,” that is, assuring that words and meanings be used consistently. It is high time to distinguish among the multiple meanings of “corporatism,” as a preliminary to deciding whether the phrase is useful or useless.
There are at least four different and incompatible meanings of “corporatism”: political representation by vocational groups; centralized collective bargaining among employers and organized labor; modern industrial capitalism; and “crony capitalism” or the corruption of public policy by special interests.
Corporatism as political representation by vocational groups. In the 19th century, some conservative romantic opponents of the Enlightenment and liberal democracy called for a neo-medieval system in which everybody would be represented by economic guilds, rather than political parties. This kind of functional representation was one of many reactionary ideas that influenced fascism, though Mussolini’s Italy and Hitler’s Germany were short-lived and incoherent rather than highly systematic. Corporatism in this sense has never had any relevance in the U.S. context; apart from critics satirizing Washington lobbying, no American has ever suggested that Congress should directly represent the pharmaceutical industry association or the AFL-CIO.
Corporatism as centralized collective bargaining among employers and organized labor. This kind of corporatism has been a feature of many modern democratic societies and has nothing whatever to do with substituting guilds for political parties or free elections. In the 20th century many democracies adopted systems in which government encouraged or compelled employers in particular industries to engage in collective bargaining with labor unions to set industry-wide wages and benefits. In many cases the bargaining was carried out by national or regional-level business trade associations and centralized labor unions.
This kind of business-labor corporatism continues to exist in many European and Asian nations, including many that are models of liberal democracy and successful capitalism. The purpose of Franklin Roosevelt’s much-maligned National Recovery Administration (NRA), struck down by the Supreme Court on constitutional grounds in 1935, was to oversee the creation of similar centralized collective bargaining in most American industries. Ironically, the purpose of this kind of corporatism — in the U.S. as in Europe and Asia — has been to avoid more direct government intervention in the market, by leaving companies and their employees to work out their own industry-specific arrangements. For example, it was only after the NRA was struck down that the Roosevelt administration moved to impose economy-wide minimum wages, Social Security and minimum hours laws. If the NRA had survived to the present, different industries in the U.S. today might have their own, privately negotiated and publicly approved, industry-wide minimum wages and retirement benefits — and levels of unionization in the U.S. would probably be much higher.
Historically illiterate conservatives and libertarians, like Jonah “Liberal Fascism” Goldberg, confuse collective-bargaining corporatism with fascist-style guild representation. You can criticize centralized collective bargaining — but not on the spurious basis that it is somehow “fascist.”
Corporatism as modern industrial capitalism. Perhaps the most absurd use of the term “corporatism” in recent years has been that of the Nobel Prize-winning economist Edmund Phelps. In articles and a recent book, Phelps has sought to popularize a distinction between “capitalism” — understood as a pure laissez-fare free market system — and “corporatism,” by which he means any economic system in which government regulation and social welfare policies constrain the pure free market. “Capitalism” in the sense that Phelps uses the term has never existed, in any actual society, now or in centuries past, so his attempt to stigmatize all really existing capitalist countries as “corporatist” monstrosities should be recognized as the stale, run-of-the-mill libertarian propaganda that it is.
Corporatism as “crony capitalism” or the corruption of public policy by special interests. This is the most common usage of “corporatism” in contemporary debate. Those who denounce the “corporatist wing” of the Democratic or Republican parties are objecting that policymakers are sacrificing the common good to the short-term objectives of particular businesses or industries.
As an epithet, “corporatism” fits into the worldview of Jeffersonian populists, for whom large corporations have always been suspect. And “corporatist” as an insult also makes sense when deployed by libertarians who insist that they are pro-market, not pro-business.
But progressives, including very left-wing social democrats, should think twice before wholeheartedly adopting the term “corporatism” to describe everything they dislike about modern American politics and political economy.
A strain of progressivism associated with Louis Brandeis shares the Jeffersonian populist suspicion of large corporations. But in practice, the mainstream of American progressivism since Theodore Roosevelt has viewed large corporations as permanent fixtures of the modern economic landscape. The mainstream agenda has been to check excessive corporate power by means of regulation and the “countervailing power” (the term is John Kenneth Galbraith’s) of labor unions and consumer lobbies — not to use anti-trust policy to break up all big firms into many tiny ones.
Just as American progressives are not small-producer populists, so they are not socialists. The progressive ideal is not state ownership of the economy but rather the mixed economy — an economic system in which different functions are carried out, as appropriate, by the government, the nonprofit sector, the household and the private sector. The private sector, moreover, is divided among competitive markets, where intense competition and small firms are the norm, and imperfect markets in which economies of scale tend to produce large oligopolistic or monopolistic firms. The task of progressive economic policy is to nurture a forest with different shapes and sizes of trees, and to prune them when necessary.
While industry needs appropriate finance, the industrial sector and the financial sector are and always have been quite distinct in interests and worldviews. Instead of denouncing “corporatism,” and thereby lumping in productive companies with parasitic “vulture capitalists” in the FIRE (finance, insurance, real estate) sector, progressives ought to be denouncing “financialism.” “Financialism” can be defined as the excessive political and economic influence of unproductive elements of the financial sector (as distinct from those like venture capital, which actually contribute to industrial progress).
Many goals of today’s opponents of “corporatism” are legitimate and must be part of any program of economic and political reform. But those goals can be pursued using other terminology. The phrase “corporatism” is so ruined by multiple meanings and misuse that it ought to be dropped from the political lexicon.