Arrival of the Corporate State
Jane H. Ingraham
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The New Ameican, July 2, 1991
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It didn't even rate an editorial in the Wall Street Journal. But on April 25th of this year the White House quietly made an announcement that signals a drastic step away from the essentially American idea of a free market and toward the alien concept of a centrally-managed economy. After years of public posturing to the contrary, George Bush formally committed the United States to a national industrial policy.
Citing a list of 22 technologies "critical to economic prosperity and national security," the White House announcement sets the stage for the flow of federal funds into selected private sector areas of commercial technologies such as materials processing, aeronautics, biotechnology, computers, high-performance metals, and high-definition imaging.
The announcement explained that in the past the White House blocked federal attempts to advance commercial technology "because it considered that an intrusion in the marketplace." But that silly idea has now been discarded. We are assured that the Administration "has gotten around the arguments about industrial policy." According to the Wall Street Journal, the President now believes it is "ideologically acceptable to invest in technologies deemed pre-competitive, even if these investments benefit specific industries."
Insider Move
Once again, the public is having the wool pulled over its eyes by the canny Mr. Bush, who has never hesitated to "intrude on the market" when it suited Insider purposes. And this latest "intrusion" suits those purposes perfectly. What we are looking at is a major Insider move which will transform our market-based economy into a centralized system controlled by Insider corporate and government officials.
Mr. Bush has had to move toward this goal cautiously. The kind of government takeover he is proposing has always been anathema to most Americans, who still like to at least imagine themselves free. It was this antipathy on the part of the public which made it necessary for Mr. Bush to send out false signals while moving carefully behind the scenes to put this program in place and establish a phony rationale. As late as last year Michael Boskin, chairman of the Council of Economic Advisors, and Chief of Staff John Sununu expressed dismay over the idea of the Administration "favoring" selected industries, while the Pentagon fired technologist Craig Fields and the Commerce Department forced out Deputy Secretary Thomas Murrin for pushing industrial policy programs "too forcefully."
Meanwhile, Mr. Bush had brought into the government as his "science advisor" Allan Bromley, a former Yale nuclear physicist and Council on Foreign Relations member. Bromley strongly favors big increases in commercial technology, made possible by government financing. It was he who thought of the perfect way "around the ideological arguments." You finance only those technologies which are "pre-competitive" and "generic." This is okay because technologies that require years of development before they can produce commercial products are "too risky for private industry." But technologies that are ready for commercialization are taboo, because government "would have to enter the market and second-guess who's going to succeed or not."
In other words, just watch your rhetoric. George Bush is fussy. Robert White, the Commerce Department's undersecretary of technology, who works closely with Bromley and is also a member of the CFR, phrases this sophistry more delicately: "We're finding what the administration's philosophical position is, and what we can do within that approach."
Edward Miller, president of a manufacturing group which has won grants from the Commerce and Defense Departments, also found out. "I go along with 'pre-competitive' and 'generic' because I've been told a program is dead-on-arrival if it mentions 'industrial policy,'" he said.
This pretense is merely for public consumption. The May 13th Wall Street Journal reports that, in practice, things are quite different:
The line between what's acceptable ideologically and what isn't is faint, if not invisible. That vagueness allows the administration to stick to its free market rhetoric while starting to endorse some of the industrial policy programs of its opponents.
Japan's "Miracle" Economy
In case the "too expensive for private industry" rationale gets blown away, George Bush is also leaning heavily upon the made-to-order bogey-man of a "threat" from the "economic miracle" of Japan. The myth of Japanese economic superiority and American decline is providing a powerful excuse for this fateful turn toward the corporate state. The media campaign to convince Americans that Japan has surpassed the U.S. economically and is "buying up" America, while false on both counts, has been highly successful. The image of the "Japanese Goliath" with whom the United States is technologically unable to compete is nothing less than the perfect rationale for George Bush's "change of mind," which, we are told, "reflects the growing concern of the administration that the U.S. is slipping in its competition with Japan."
The Administration, of course, knows better. Far from slipping, the U.S. enters the 1990s as the world's greatest economic player. Simply put, the U.S. is the most powerful country on Earth. Not only does the U.S. economy continue to be the most competitive, but it also is the most productive. The productivity level of U.S. labor in general, and in manufacturing in particular, is the highest in the world. In terms of absolute output compared to the other free-market industrial economies of the world, U.S. manufacturing ascendancy continues to increase, not fall; so does U.S. domination of manufacturing employment. Although Japan's international share of manufacturing employment has been rising, shares fell 30 percent in Britain, 20 percent in Germany, and 10 percent in France from 1962 to 1981. U.S. manufacturing output is nearly twice that of Japan, whose economy is only 40 percent that of the U.S. The U.S. is still far ahead of whoever is second.
Yet the myth of U.S. "slippage" continues to be fabricated by George Bush and others intent on making a case for industrial policy. Their claims are based on half-truths and misleading data. We are told that in 1955 the U.S. imported less than 1 percent of cars; today we import 30 percent. In 1963 we imported 2 percent of apparel; today we import 50 percent. In the 1950s virtually all radios and TVs were produced domestically; today almost none are. But these proponents of government control neglect to mention the following:
Since 1977 our production of chemical products is up 78 percent; plastic products up 116 percent; printing and publishing up 102 percent; office machinery up 240 percent; electronic components up 188 percent; communication equipment up 110 percent and aircraft and parts up 177 percent. [ Human Events, August 4, 1990]
Paradoxical as it might seem, a decline in certain industries is really overall growth. As in domestic commerce, specialization is the name of the game in the international arena. If Japan wishes to impoverish its own people by subsidizing a better and cheaper widgit, vast numbers of U.S. consumers will gain. Our own industry will either have to meet the competition or go on to the cutting edge of technical development.
The record shows that since 1982, our industrial capacity has increased by 21 percent and our production by a stunning 37.5 percent ( Human Events, August 4, 1990) -- an astounding accomplishment of our still basically free-market economy.
Balance-of-Trade Myth
Another myth George Bush is pushing in order to justify his grab at economic control is that of our "unfavorable balance of trade." Because the U.S. imports more than it exports, this is supposed to prove that the U.S. is losing competitiveness. This is another outright deception, as can be seen from the fact that during the past seven years (a period of record trade deficits) U.S. economic growth at 4 percent has been about the same as Japan's, with its extremely high "favorable" trade balance, and two-thirds more rapid than in Germany, with a favorable balance. In addition, U.S. growth in 1982-1989 was 44 percent faster than it was in the 1970s when the trade balance was positive. ( Wall Street Journal, January 19, 1990)
Why? Because the balance of trade is only a statistical measure of individual trade and has nothing to do with the economic health of the nation. Nothing could be more insignificant than this measure. It simply means that some Americans bought more from some Japanese than some Japanese bought from some Americans. The idea that this is "unfavorable" is a warmed-over mercantilist fallacy of the 18th Century, disproven 200 years ago by Adam Smith and other European economists. No trade ever takes place unless each side believes it benefits. It has never been explained why the side getting the goods is "harmed."
Furthermore, no nation can export without importing; each pays for the other. Dollars must return to the U.S. and increase sales or investment. Incidentally, Japanese investments in the U.S., which create jobs, pay taxes, contribute to charity, and increase our wealth, are counted as "imports," adding appreciably to the image of the U.S. being drowned in imports and unable to compete.
There is no validity to the claim that a trade deficit threatens us as a nation. But the manufactured alarm over "our record balance of payment deficits" is being put to use by Mr. Bush. Instead of commencing new subsidies of "critical technologies" with tax dollars, George Bush should be removing subsidies and trade restrictions which already exist and are fleecing consumers to the tune of $30 to $40 billion per year.
But this kind of information hardly fits with the required picture of a Japanese economic "threat" turning the U.S. into a Third World country. Instead, we are made to wonder what Japan can be doing that has made it so superior.
Fascism's New Name
What Japan is "doing" is something called the corporate state. Only this nomenclature is never used in Washington; it has a bad reputation. In another time and place it was called fascism, government control of the means of production without government ownership. Some of us can remember that U.S. lives and treasure were sacrificed supposedly to finish off this type of tyranny forever.
MITI, the Japanese corporate/government clique composed of eight huge interlocking companies which buy and sell from each other, has an iron grip on the Japanese economy. Each decade since the war, MITI has defined an agreement between government and industry on the direction of production, from steel to supercomputers. Using an array of powerful means including subsidies, tax breaks, bailouts, trade barriers, and financing of extensive research and development, MITI decides what will be produced, and, by implication, what not. Small wonder that these few protected monopolies have performed impressively, giving Japan a lead in a limited number of selected technologies.
But this picture is one of weakness, not of strength. MITI's misallocation of resources has caused the rest of the economy to lag behind that of the U.S. Entrepreneurial activity is suppressed, consumer choice is limited, and prices are astronomical due to lack of both domestic and foreign competition.
Rich Japan, Poor Japanese
The Japanese taxpayer, who foots the bill for the upper crust and is fleeced as a consumer, has a considerably lower standard of living than his American counterpart. According to the Wall Street Journal, the average wage for a Japanese worker has recently been raised 5.3 percent to $1,854 per month, the biggest increase in nine years. This wage is drastically inadequate in Japan's super-high price structure. The subsidies which have enabled Japanese corporations to undercut certain American markets must be recouped in higher prices, inefficiencies, and a lack of amenities at home.
Domestic consumption and the quality of everyday life is shockingly below that of Americans. According to Insight magazine for September 3, 1990, tiny apartments in Tokyo sell for hundreds of thousands of dollars. A six-room Tokyo home costs about $6.7 million. Most younger couples can't afford to buy even outside the city, and are forced to rent tiny apartments minus water heaters, washers, dryers, dishwashers, refrigerators, stoves, ovens, central heat or air conditioning. Most despair of ever having anything better; only 19 percent have any hope of one day owning a home. It is considered "bad form" to search for a better paying job; one's loyalty must be to the firm and the group.
Japanese office workers put in the longest working hours in the developed world, usually from 8:30 AM to 8:00 PM or later. Seventy percent work six days a week as well as one weekend out of two or three. Many do not take their vacations because they need the extra wages. They themselves have a word for their endurance of these harsh circumstances: shachachiko, which means "corporate livestock."
The Bush Remedy
This, then, is the "Japanese miracle." This is the unproductive and unenviable system which we are told is "threatening" the prosperity and competitiveness of the United States. Nevertheless, George Bush, who has never met a charade he is not willing to enact, has taken the catastrophic step of launching the U.S. economy into a system with the essential features of Japan's corporate state. Although the U. S. economy is the envy of the world due to its historical freedom from government intervention and control, apparently George Bush has finally "learned from Japan" how to do everything better. Bankrupt as we are with over three trillion dollars of debt, we are now to see hundreds of millions of dollars (perhaps billions) handed over to private industries deemed "critical to our prosperity."
This asininity will be accepted by the conditioned public as a logical answer to the "problem" of Japan. It means that powerful figures in business and government, including no doubt a national industrial policy czar (who at this moment looks very much like Allan Bromley), will select specific companies for success. Since no one can compete against government dollars, all competition will be forced out, as in Japan. Chosen individuals or groups with good connections will be enriched at the expense of others. Political favoritism, like that so abhorrent and destructive in China, Indonesia, Latin America, and all other sick economies, will be the order of the day.
There is no such thing as a fair and just method of exercising this kind of power in the hands of government. No decision will be free from bias, or more accurately, outright corruption. Office holders and bureaucrats will be quick to learn that their decisions mean huge profits -- or losses -- for businessmen, an open invitation for bribes from one side, and demands for kickbacks from the other.
Missing Element
But bankruptcy, favoritism and corruption are hardly the end of the story. Transcending these are the disastrous economic consequences which must accompany government intervention, for government cannot deliver the "prosperity" it promises. This is because someone must decide how the capital is to be allocated. That someone, no matter how well intentioned, is endeavoring to direct production without the aid of market signals. For instance, according to the Wall Street Journal for May 13, 1991, "Mr. Bromley says that he has won approval to map out costly new programs to aid the biotechnology and the materials processing industries .... Mr. Bromley and Mr. White plan to use the White House report [naming 22 technologies] to decide how best to allocate federal research funds."
The arrogance of Bromley and White is typical of collectivists everywhere. Of course they can't know how "best" to allocate our tax dollars in any economic sense. The essential ingredient for economic success is lacking -- that is, the individual risk of wealth. All who bid for or allocate funds in this new taxpayer rip-off will be involving no property of their own. It is the prospect of personal loss which, in a free market, forces investors and managers to obey signals which only the market can give and which are imperative for success. Without personal risk, the prospect of loss is ignored; the hazard is transferred to society, which must bear the burden of the inevitable incompetence, mistakes, failures and fraud of government intervention.
Power to Punish
But the worst burden society will be forced to bear will be government compulsion and the loss of freedom. If the 20th Century has taught us anything, it is that the essential feature of government is force. Government intervention of any kind means the threat of force and punishment. Although Washington acts as though it owns a private money tree, federal funds consist of taxes which are paid because resistance is hopeless. In the final resort, government is the employer of policemen, soldiers, courts and prisons.
It is this power of government to punish that makes it a cinch for George Bush, like the Japanese, to direct production along lines different from those of an unhampered market. Of course he can do it. Those in the chosen areas are delighted; the scramble for handouts by universities, scientists, business and industry is already in full swing.
What a grand and glorious bonanza! The harsh reality that such government interference will result in a lower standard of living for all, enormously increased corruption in government and civil life, and the ultimate substitution of the supremacy of government for the supremacy of the market is swept aside.
This move toward the corporate state shouldn't come as a surprise. Constant agitation by the far-Left, led by such intellectuals as Trilateralist Lester Thurow of MIT, Robert Reich of Harvard, and the UAW has been the handwriting on the wall for some time. Although it has received scant publicity, a quasi-governmental group representing big business and research universities and misnamed the Council on Competitiveness has been assiduously working to undermine the market philosophy and calling upon Washington to get those bucks flowing. Heading the group on special assignment from President Bush is Vice President Dan Quayle.
Starting "Small"
Like all government programs, this one is starting "small." The Administration wants $92 million in the fiscal year beginning October 1st to launch work on a supercomputer network; $36 million for a Commerce Department program in advanced technology; $24 million for high-speed trains; and $42 million for electric cars. Sematech, a semiconductor manufacturing consortium in Austin, Texas, says it will seek $100 million a year indefinitely. The National Advisory Committee on Semiconductors, a federal panel once ignored by the Administration, has "convinced" Allan Bromley to sponsor a conference to draw up plans for another costly semiconductor project.
The suggestion has been made to transform the Commerce Department into the Department of Science, Industry and Trade. As explained in the May 13th Wall Street Journal, this transformed department would be a "hotbed of industrial policy." It would "plot technological strategy, fund commercial research projects and force the government to buy high-tech products the department backed."
The picture is clear. This Insider move has nothing to do with "prosperity" and everything to do with transforming the U.S. into a corporate state with a lower standard of living which can be "comfortably merged" with other non free-market states in the new world order.
George Bush's move reconfirms that Republican presidents, masquerading as conservatives, have put Democratic programs into effect. For the corporate state was exactly what Michael Dukakis was selling in the 1988 presidential campaign. Only Dukakis was, by comparison, an amateur. We now have the master salesman in the oval office.
Before Americans buy what George Bush is selling. they should pay attention to what American businessman T. Boone Pickens said after failing to break into one of Japan's cartels: "As good as it is, Japan's industry is not necessarily smarter, more agile or more efficient than America's -- it is simply based on business practices that Americans spurned almost a century ago when we outlawed trusts, monopolies and cartels. We never said those practices didn't work. The question was, work for whom and at what cost?"
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