Thursday, March 15, 2012

Skeel on "Corporatism"

I'm embroiled in other stuff today but I'm also just finishing up  The New Financial Deal, David Skeel's impressive exposition/critique of Dodd-Frank.    It's the handiest overall summary of Dodd-Frank I've seen and although Skeel makes it clear he is no fan of this particular financial revolution, he's fair-minded and candid in sketching the basic landscape.  His fundamental complaint is that the Act mandates "corporatism"--giving the government broad powers to channel rewards and punishments into selected financial institutions, so as to accomplish a political agenda.  In Steel's words:

The Dodd-Frank Act invites the government to channel political policy through the big financial institutions by giving regulators sweeping discretion in enforcing nearly every aspect of the legislation.
The general point is clear enough.  Skeel makes it clear that he is no fan of the auto bailouts and resoundingly no fan of Fannie/Freddie, but beyond that, he doesn't attempt to explore the notion of "corporatism" in great detail.  But given the current political climate, I'm pretty sure I know how the average reader will understand it: he'll see the threat of "corporatism" as the risk that government bullyboys put their jackboots on the faces of private citizens who are just trying to go about their business.

I'm actually sympathetic to Skeel's concern about "corporatism" and I am no fan of bullyboys or jackboots but I'd conceptualize "corporatism" a bit differently.   Grant that there is a threat governments will (do) push private parties around.  Seems to me there is just as much of a threat that private parties push the government around, and use the intimate but open-ended structure to work their own will on a malleable government: regulator and regulated get in bed and make whoopee together.

The catchphrase name for this sort of thing is "regulatory capture," but that is insufficiently nuanced.   Recall what we're doing here: we're going to take ring-fence one segment of the economy and mandate a special relationship with special obligations and plenty of special protections.  Recall also the free flow back and forth between regulator and regulated: recall that they mostly went to school together; that they congregate at the same watering holes, that they intermarry and inbreed.   It begins to sound like the definition of an entrenched caste, governing of, by, and for the entrenched caste.

I suppose that every government can be seen through some lens as  a business (and vice versa).  Maybe the instructive example is Venice--in a way, the most distinctive society/economy on the planet, and so not a precedent for anything.  Still, Venice was once one of the most energetic, dynamic, and, yes, innovative economies on the planet, until one day the elite decided too many upstarts were getting into the club; they slammed down the shutters and closed the shop.

I'll try not to get carried away here.  I'm not talking about the illuminati, or even the Council on Foreign Relations (though if you really want to go down that road,. here is a transcript of a discussion of Dodd Frank from the World Economic Forum at Davos).  But you don't need to be a tin hat to worry about the threat of a society in which either governments or private persons have too much power.  Or worse, both together.   

Optional extra-credit reading: Andrew Redleaf, Panic.

1 comment:

John Haskell said...

rather, it was an upstart who closed down the shop