Monday, January 12, 2009

Corporate Capitalism and Legislative Interests

MSR’ writes the Constructive Interference Blog (‘for political and social commentary from the center left point of view) HERE (10 January):

"Adam Smith"
I found the final paragraph of the first book to be quite striking. It is my contention that much of today's discourse is seriously distorted by the near universal acceptance of some points which are, in fact, completely false. One of these is the idea that modern Conservative/Republican philosophy is strongly tied to the principals of free market capitalism as espoused by the like of Adam Smith. So the following quote, the last paragraph, as I say, of the first book in the Wealth of Nations is quite illuminating. He has just repeated his long running claim that there are three orders within society, those who make their income from the rent of land, those who do so by wages from labor and those who do so off the profit of stock. He discussed that the interests of the first two orders are tightly aligned with the interests of the Nation as a whole and with society in general. In other words, the prosperity of those two classes rises most with the general improvement in the prosperity of the nation as a whole. Of the third class, I quote:

“His [the person who lives off of wages from labor] employers constitute the third order, that of those who live by profit. It is the stock which is used for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension, of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore, has not the same connexion with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans an[d] projects, they have frequently more acuteness of understanding than the greater part of the country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion), is much more to be depended upon with regard to the former of those two object[s], than with regard to the latter. Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public[k], from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the publick; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it.” [WN I.xi.p10: pp 266-7; minor typos corrected].

I would say that the summary of the past eight years of American policy has been to adopt the Conservative/Republican policy of a slavish and servile devotion to all proposals of exactly that order of men whose proposal Mr. Smith says rather "...ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention." Mr. Smith's advice on this score has most certainly not been taken

True, up to a point. Modern Big governments in Europe and North America are subjected to massive barrages of persuasion from special interest groups, and not just employers of labour. Legislators and those who influence them constitute formidable ‘industries’ in their own right, and operate on an unprecedented scale in terms of their funding and staffing.

In Smith’s day, the legislature was predominantly from the agricultural class of country gentlemen, hence his references to them being swayed more easily by the assumed “superiority” of merchants and manufacturers “over the country gentleman”, whose knowledge of trade matters were minimal, and who generally thought patriotically about foreign policy issues. The fewer influencers on behalf of the fewer ‘merchants and manufacturers’ had higher leverage for their notions about ‘narrowing the market’ to reduce competition than their numbers warranted.

Of course, since the 18th century this situation no longer obtains. Those professional advisors on behalf of the corporate interests of Merchants and manufacturers are well matched by the educated influencers of the farming interests of the country (though the percentage of GDP arising from agriculture and mining is now much reduced, but GDP is now much larger). Moreover, legislators – the professional politicians – now constitute a very powerful group of educated and well-supported advisory staff.

Corporate capitalism is a different phenomenon to the commercial market societies of 18th-century Scotland.

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Blogger SadButTrue said...

I think this is a quite brilliant piece and it exposes a side of Adam Smith that the conservative movement's cherry-picking seldom reveals.

Too bad that the only reaction you've gotten is in the nature of comment spam.

7:02 pm  

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