OBAMA'S CORPORATIST STATE
President Obama’s government depends on the merger of big government and large industry through a classic quid pro quo. In exchange for industry leaders ceding to the government control over critical aspects of their business, the government erects anti-competitive regulatory barriers to market entry, thus giving the industry leaders above-market rates of return. The deal works well for the government and big industry but harms all others.
The President’s health reform law forces all Americans to buy health insurance, causing the insurance industry to experience an enormous windfall, adding upwards of forty million people to the ranks of the insured. In exchange for that massive increase in revenue, the government expects health insurers to offer qualified plans approved by the Secretary of Health and Human Services. In short, the government has bribed the industry into a cooperative relationship. Small insurance firms stand to lose out because they will not be able to afford compliance with all of the regulatory strictures that will be imposed and this too will benefit the larger firms.
The President’s banking reforms have caused the United States Treasury to exercise unprecedented control over lending practices by private financial institutions, turning them into quasi-governmental entities. The President’s reforms have also created a new federal regulatory agency with broad powers over credit card lending and other non-commercial lending. In exchange for cooperating with the government, the affected lending institutions are favored by the regulators, while those who present any opposition are encumbered with regulations that will reduce their ability to lend and compete.
The President’s Commissioner of Food and Drugs has adopted, at the request of industry leaders, Good Manufacturing regulations for dietary supplements. It would have been simple for the government to require finished product testing to prove the absence of contaminants in dietary supplements, but that would give the federal government no leverage over the production, holding, and distribution of the products. Instead, FDA with the enthusiastic support of leading supplement companies chose to impose extremely costly process controls on the industry (regulating every aspect of production, holding, and distribution of the product). By the agency’s own admission, “140 very small and 32 small dietary supplement manufacturers will be at risk of going out of business” when the rules are fully implemented. The FDA estimates that full implementation will sacrifice some “2,500 workers [jobs].” The rules favor big industry (principally pharmaceutical companies that wish to dabble in national supplement sales) to the detriment of smaller firms. Use of the quid pro quo approach replaces a free market with a smaller body of tame regulatees who are pleased to do the government’s bidding.
FDA is also rapidly destroying small organic food producers across the country. The Food Safety Modernization Act gave FDA extraordinary new power to achieve that agenda. Some 4,000 to 6,000 new FDA inspectors will be employed each year between 2011 and 2014. Every food manufacturer in the United States, regardless of size, must now be registered with the FDA. If FDA finds a violation of its numerous rules governing the production of foods and supplements, it may now try the offender in its own administrative courts with intra-agency revocation hearings. While the administrative process goes forward, the FDA Commissioner may suspend a company’s registration to manufacture and sell foods, thus disarming the defendant before the hearing even commences. These regulations, true to form, promise to wipe out small producers and, thus, reduce competition for the big ones.
FDA is on a rampage, eliminating farm based manufacturers of unpasteurized milk and cheese. Large dairy producers stand to benefit from the prompt elimination of a burgeoning organic milk and cheese market that services some 10 million American consumers.
Each of these measures, together with a wide array of pre-existing prior restraints whereby government forbids an action on the theory that some who act in that way will cause harm, has created a labyrinth so extensive and costly to navigate that only the wealthiest institutions can survive. This leads inevitably to a reinforcement and expansion of the corporatist state.
In the corporatist state so beloved by our President, industry and government are partners. The government calls the shots, defines through regulatory carrots and sticks the direction industry will take, while ensuring through anti-competitive rules that the cooperative are rewarded with above market rates of return. This is to the distinct pleasure of the heads of leading firms because it at once takes away from them the necessity of making difficult choices subject to the vagaries of a free market and also gives them a protected rate of return.
The corporatist state not only destroys free enterprise but it also expands enormously the corrupt influences of government and destroys individual rights to life, liberty, and property on a selective basis. While it ensures prosperity for corporate leaders, it simultaneously ensures the destruction of innovation. By reducing competition and making industry far more dependent on planned growth dictated by federal bureaucrats, it miscalculates consumer demand leading to avoidance of the best and highest uses, reduces the standard of living, and increases the cost of all goods and services. In short, it reduces everything that is above and fails to raise anything that is below. It stultifies the economy by encumbering the functioning of engines of innovation and by insulating leading firms, reducing the necessity for their investment in research and investment.
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The corporatist state constructed by President Obama is not true socialism, it is more akin to the national socialism favored by Benito Mussolini and Adolph Hitler. It does not replace private firms with public ones, it co-opts the decision-making apparatus of private firms to ensure that they pursue the President’s political objectives. Much like the national socialist regimes of the past, President Obama’s government is riddled with corruption (forged by corrupt bargains whereby power brokers in government and in leading firms exchange terms until they achieve agreements of mutual benefit at everyone else’s expense). The corporatist approach has been one employed variously by agents of the federal government since the 1930s, but in the Obama Administration the approach has become universal. It tramples over the rights of individuals to achieve political objectives and limits opportunity for advancement to those opportunities that exist within private institutions favored by the government.
© 2011 Jonathan W. Emord - All Rights Reserved