Louder Voices: The Corporate Welfare Bums (1972)

With a newborn at home, it is difficult to find the time or energy to do much outside of my day job (if it seems like I have gone AWOL, it is because I have).  In what spare moments I have, if I'm not watching old World Series games on iTunes, I am reading classic economics and politics books.

A couple weeks ago I finished reading former federal NDP leader David Lewis's 1972 book Louder Voices: The Corporate Welfare Bums.  Three things surprised me:

1. How much I both enjoyed and agreed with this book. I was not expecting to have as many views in common with a New Democrat from the "nationalize everything" era.
2. How much the book has in common with Mancur Olson's The Logic of Collective Action, given the vastly different political views of Lewis and Olson.  But Lewis makes many of the same points that Olson does, how it is possible for a small group with a narrow interest to extract rents from the population as a whole using the political process.
3. A number of references to the Carter Commission, which should please Kevin Milligan.
4. How Lewis distinguishes the difference between being pro-market vs. pro-business.  Again, I wouldn't have expected that.

Pro-Market vs. Pro Business

I was cheeering pretty loudly during these sections:

These champions of free enterprise actually lobby the government for incentive grants, research grants and tax concessions, and all manner of assistance at the individual taxpayer expense (pg. 1)

This next quote could have come straight out of George Mason's economics department:

In so distorting the economy that corporations can become insensitive to real demand by being cushioned with welfare handouts, the government has laid a foundation for yet more instability. (pg. 10)

I Understand But I Don't Care

Do you think that putting politics ahead of policy is a relatively new phenomenon? Think again:

"Mr. Kierans's economic ideas I generally agree with - it's his politics I don't like... [his ideas] would have been courageous economics but bad politics." - Pierre Trudeau, September 10, 1971. (pg. 107).

Context, from the Toronto Star:

In 1968, Kierans ran for the federal Liberal leadership, and, after Pierre Trudeau won, and Kierans won a federal seat, he became Postmaster General, and then Canada's first minister of communications.

He resigned in 1971, having concluded "the tax system was being used to finance the takeover of the Canadian economy by Americans."

On Criticizing Policy

One constant frustration of mine is that if you argue against the effectiveness of a policy, that's seen as arguing against the goals of the policy.  In other words, if you think that a higher minimum wage is an ineffective way of helping the working poor, then you hate the working poor.  This bothers Lewis as well:

...and anyone who asks questions is charged with being against whatever the programs are intended to achieve. (pg. 104).

Where Lewis Goes Off the Rails

So if David Lewis would have eliminated corporate welfare if he were Prime Minister? No:

I support the idea of assistance to industry to maintain employment or to create jobs in disadvantaged areas of the country. (pg. 11)

Then what exactly is Lewis arguing against?  He's not arguing against corporate welfare so much as the Liberal implementation of corporate welfare.  Why would his version be different?

"The Liberal Party has operated for many years on the support of ninety-five major Canadian corporations." - R.G. Renkin, Liberal Party fundraiser, February 14, 1972.

This is where Lewis and Olson diverge.  Olson would argue (in both Logic and The Rise and Decline of Nations) that gains will naturally go to small concentrated groups at the expense of society as a whole.  Lewis, on the other hand, believes in a 'Great Man' theory of politics, that such a system of rewards and handouts to corporations can benefit society as a whole so long as the right person is in charge.  And, of course, Lewis is that man.  Needless to say I find Olson more credible.

I'm taking suggestions on books I should read next.  I'm looking for something at least 20 years old so we have the benefit of hindsight.  Any suggestions?

 

 

Comments

[Bob Smith]

It's a bit off-topic, but Paul Kennedy's "Rise and Fall of Great Powers" (1987) might be interesting to read in light of recent events. I first read it in the early 1990's and, at the time, thought that it was horribly dated, having a sort of "Dewey defeats Truman" kinda quality to it (what's the old joke about political scientists? They're the guys who predicted the fall of the Berlin Wall three weeks after it happened. Ok, Paul Kennedy's a historian, but I still like telling that joke). Now, 20 years later, I'm not sure I was right.

[Mike Moffatt]

I've never read it, so I'll add it to the list. Thanks for the tip!

[Joe]

I have the perfect book for you, it is a classic... Triumph of Conservatism by Gabriel Kolko. The book is from 1977. You'll love it. Here are some review summaries....

Kolko does an excellent job of making the case that business regulations enacted during the Progressive Era (1900-1916) were due not to liberal reformers, but big business itself! From meat industry regulations to the FTC and the Federal Reserve Board, Kolko shows over and over again how industries sought Federal regulation in order to protect themselves from competition or secure other advantages.and...

and...

No book details the historical relationship between big business and the Federal government better than this one. Though confined merely to the so-called Progressive Era in American history (1901-1914), Kolko manages to overturn all the misconceptions about the formation of government regulation in America. Instead of accepting the standard view that federal regulation of business was inspired by the Progressive intellectuals and activist political leaders eager to put a check on the rising power of big business, Kolko shows that it was really inspired by the drive of businessman to limit competition and bring "stability" into the market. The result is what Kolko calls, appropriately enough, "political capitalism." Some earlier reviews have attempted to draw an ideological lesson from this book. This is a mistake. If there is a lesson to be drawn from Kolko's work, it is the failure of all ideologies (whether from the right, left, or center) to adequately explain the rise of political capitalism in America. Both the right and the left share the common assumption that government regulation hurts big business. Kolko proves that this isn't the case, that Big Business is in favor of regulation and the throttling of competition. Kolko's book is a must read for anyone who wants to understand what capitalism and politics is really all about.

Check out the following reviews to get a flavor of ... http://www.amazon.com/Triumph-Conservatism-Gabriel-Kolko/dp/0029166500/ref=cm_cr_pr_product_top

[Frances Woolley]

"Lewis makes many of the same points that Olson does, how it is possible for a small group with a narrow interest to extract rents from the population as a whole using the political process."

This is a vitally important point.

The reason that corporate executives can engage in rent seeking processes is that corporate governance is weak. Middle-class, middle-aged readers of this blog, think to yourself - how many dollars worth of shares do you own, once you take into account the money Canada Pension Plan is saving on your behalf, employer pensions (if you are so blessed), etc? Do you know how those shares have been voted? Who is voting the shares? Have you ever voted those shares yourself?

This is becoming an increasingly important issue as the amount of assets held by the Canada Pension Plan investment fund grows into the multi-billion dollar range. If you think those shares are going to be voted in a completely non-partisan, apolitical way, with no aim other than to maximize the well-being of Canadians....

This would be a good topic for another policy advice to the NDP post.

[Stephen Gordon]

Yep. That's sort of where I was going with this post. Income that is appropriated by managers isn't much of a progressive redistribution.

[Determinant]

Who cares about anything else? That GMU link led to a new John Pappola/Russ Roberts Keynes vs. Hayek music video!!!

[Ian Lippert]

I'd like to hear your thoughts on the Road to Serfdom (or anything by Hayek). I'm currently rereading it and finding it very relevant to current events and also to much of the Mancur Olsen stuff you just wrote about.

As an aside, I read Olsen's Rise and Decline of Nations and thought it was pretty mediocre. After reading your about.com article I'm thinking of reading the logic of collective action.

[Patrick]

Don't think the share votes matter all that much. Large corporate BoDs and senior management are a closed club, and will look after themselves first and foremost. In practice, shareholders have very little power, especially when ownership is so diffuse and unorganized and management is well organized, rich, and well-connected. Professional management is rarely the shareholder's friend (my crazy pet theory is that in the age of professional non-owners managers, labour and shareholders actually have more in common than they would like to admit).

If anything, the danger is that the management at CPP will become corrupt, lazy, megalomaniacal, etc, and end-up with their hand in the cookie jar - similar to the management at Fannie and Freddie in the US. Without knowing anything about the current governance or pay structure at CPP, my guess would be that salaries for senior execs there are (and have been) on the rise.

[Bob Smith]

"my crazy pet theory is that in the age of professional non-owners managers, labour and shareholders actually have more in common than they would like to admit"

I do think evidence to that effect has been presented elsewhere in this blog. Didn't someone have a post pointing out that most of the increase in income inequalities since the 1970s has come about as a result of increased employment income?

[Ian Lee]

Mike - every business and economics prof should (re)read Schumpeter, Capitalism, Socialism and Democracy, as a tour de force of social science, economics, political science and philosophy - if only to make us more humble.

BTW, for Stephen, Nick, Frances and Livio, I believe it was last year, that a survey of the American Economics Association membership thought Schumpeter was the most influential economist of the 20th century. (with no disrespect to Keynes or Hayek supporters).

From the Economist http://www.economist.com/node/9070610:

"Most economists live pretty dull lives, dividing their time between technical intellectual problems and tedious academic politics. Even Keynes inhabited a comfortable Bloomsbury cocoon. Schumpeter was anything but dull".

"He was a self-made man who put on the airs of an aristocrat: he spent an hour getting dressed every morning, frequently appearing in jodhpurs. He was also a notorious womaniser. He liked to regale his colleagues with stories of “orgies” and “advanced sexual techniques” (Mr McCraw is sadly incurious about this side of his life)".

"By his mid-50s he had lived in nine cities and five countries. He was Austria's finance minister for a time, and witnessed the collapse of the Habsburg Empire from close quarters. He taught in Germany when it was succumbing to the Nazi temptation. He was one of the first of the great European émigrés to the United States. Daniel Bell, a liberal sociologist, described him as that rarest of creatures: an economist with a tragic sense of life".

[btg]

We really need a new paradigm for governing corporations that breaks the cozy relationship between managers and boards... frankly, maybe we would be better off if board members were chosen at random from all the stockholders, and int he case of pension funds, randomly from the beneficaries.

Corpoarate board elections are about as democratic as the politiburo in sovet russia. now that corporations can no longer donate topoliticalparties, i wish one party would put forth a new model for corporate governmence as part of their election platform.

And Kierans was right.

[Jim Rootham]

You are slightly confused with respect to David Lewis's historical philosophy. It was not the Great Man theory. As in, I will do better that Trudeau because I am smarter than him. It's an institutional historical philosphy. As in, I will make different decisions than a Liberal leader because I am head of a party that has a different set of supporters and the resulting institutional pressures are different (and better). Note that the last bit is an extension of the first, you can observe differences between institutions without going into the question of which is better.

[Stephen Gordon]

Seems like a very fine hair you're splitting there.

[Jim Rootham]

No, it's a very substantial difference. Institutions are significant and elections matter. There are limits to political economic models with atomic actors.

[Jim Carson]

Culture of Contentment - JK Galbraith
Written in the early 90's, but very relevant today.
(I counted seven instances of the phrase "too big to fail" in the first two chapters).