The Third Way: Corporatism Right and Left
Corporatism is not an internal reform to satisfy the selfish interests of each of us.… [I]t represents the end of civic and economic individualism, the coming of a new social and economic regime, and the revelation of an organized nation made up of mutually supporting bodies.
GEORGES VALOIS, “La Coordination des forces nationales”
WHEREVER THE MODERN ECONOMY ARRIVED, with its institutions and culture, there were preexisting social customs and social values going back centuries. Over the latter half of the 19th century, extensive modernization in parts of continental Europe, including France and Germany, rode roughshod over traditional ways of life. Though socialists went on with their critique of capitalism—the modern capitalist economies not excepted—other social critics arose to deplore other things about the modern economy. By the mid-1920s, these critics had formulated the standard 20th-century indictment of the modern economy. While the unemployment and wages that socialists complained of in capitalism could have been addressed and eventually were, the new indictment struck at the heart and brain of the modern economy.
Corporatism’s Indictment of the Modern Economy
The modern economy, as argued earlier, was driven by the altruistic individualism of Renaissance humanism, the vitalism of the Baroque, and the modernism of the Enlightenment. That last current, in adding to (as well as building on) the earlier currents, made the critical mass that fueled the modern economy. At modernism’s core was the idea that individuals ought to be free to pursue their own happiness, with some regulations for their own benefit. In arts and letters, the author of a work should be emancipated from service to extrinsic moral and political ideals. Art for art’s sake, as Oscar Wilde and E. M. Forster proclaimed. In business, the entrepreneur should—on the same grounds—be freed from service to society. Business for business’s sake.1
In social life, a “modern woman” felt free to depart from tradition or even break taboos. Ordinary people went from being dependents on mutual protection to adventurers out in the world in quest of career challenges and whatever other chances might lie ahead. Men and women might become heroic figures on a small or large scale, far more so than in the mercantile age that Smith saw as unheroic. In some countries, important political leaders and activists were early champions of such a society, voicing little or no support for the state’s pursuing social goals other than the goal of individual prosperity and individual development for all. In Common Sense, first published as a pamphlet early in 1776, Thomas Paine’s argument for American independence from Britain was built on the proposition that it would boost Americans’ prosperity; if Paine recognized another social value, it was not evident. Jefferson, in the second draft of the Declaration of Independence in July 1775, wrote that the institutions of America “opened … to the unfortunate & to the enterprising of every country … the acquisition & free possession of property,” thus suggesting that self-support, a career, and some wealth were markers on the road they took in pursuit of happiness and the reason they came to America. In a 1925 speech after his election, President Calvin Coolidge saw Americans as still on the course that Paine and Jefferson evidently supposed they were on and left little doubt that his government would be oriented accordingly. “After all,” he said, “the chief business of the American people is business. They are profoundly concerned with buying, selling, investing and prospering.” Even more strikingly, Lincoln’s second lecture speaks of Americans’ “rage for the new.”
Also at the core of modernism was the idea that everyone who enjoys the legal rights of a modern society and pays little for them has obligations of responsibility: to respect the laws and people’s rights, so as not to cheat others; and obligations of independence: to bear the consequences of one’s mistakes so as not to be a burden on others. Responsibility implies that persons, alliances, and even the state may not violate property rights of persons or companies; extort payments from them; induce the state to block competitors from introducing new products; or solicit subsidies, grants, and indemnities from the state. (The modern state may make investments to open up new innovation and enterprise, as the Louisiana Purchase did, and may take actions to prevent external forces from crippling innovation and enterprise—if these are not judged to cost too much. And the state may act to combat what is seen to be economic injustice in the rewards from cooperation. But it is not a function of the modern state to block development of innovative products or block new investments to protect competing producers from the new competition or to indemnify them if it is too late to protect them. In a modern society, even a just state is not in the business of comprehensive insurance.)
This modernism that impelled the emergence of modern economies was nothing less than a cultural revolution, and the modern economies it was injecting were a cultural shock, especially in continental Europe. In the last half of the 19th century, whole operas dramatized the costs of modern self-finding and self-expression in societies still heavily traditional: Mascagni’s 1890 Cavalleria Rusticana, Wagner’s 1868 Die Meistersinger, and Verdi’s 1853 La Traviata. (“A subject for our age,” Verdi wrote to a friend. To obtain a theater he changed the setting to “Paris and environs, 1700.”) Modernism and modernity stimulated counter-currents in those Continental countries where a modern beachhead was substantial but traditions remained strong. The most important counter-current began in late 19th-century Germany—one eventually culminating in an economic system that came to be called corporatism. But why was it bound to elicit a backlash? In a classic treatise on the healthiness of traditional life, which became a fount of corporatist ideas for decades, the Prussian sociologist Ferdinand Tönnies points to the trader who, armed with the “contracts” created by Roman law, makes offers that put others out of business. For Tönnies, this trader is the force destroying the traditional community, not the “division of labor” brought by factories, which Marx had emphasized.2 Much of the corporatist critique of modernity consisted of unfavorable comparisons of city life with community life. More generally, a large part of the corporatist critique of modernity protested features and properties of the modern economy that broke with traditions.
A corporatist critique of the modern economy developed over the next several decades. One of the corporatist criticisms of the modern economy was that it had no leadership, thus no course, its heading being the net resultant of millions of individuals pulling in myriad directions. In the medieval past, corporatists supposed, attempts to innovate were directed by the economy’s communal authority, with results generally along the lines of what the community had hoped. When such communal goals came to be largely crowded out by the unannounced, largely unobserved, and often inscrutable initiatives of a welter of individuals and companies in the business sector, the economy could be said to have been left rudderless, which gave rise, understandably enough, to a sense of disorder. And that sense, no doubt, lay behind some of the unease felt across Western Europe in the last years of the 19th century and the early decades of the 20th. The desire for direction (for dirigisme, as the French said) was a major strand of corporatist thought.
Many corporatists saw the uncoordination in capitalism as another source of disorder. They sought a system of concerted action. At the micro level, a company’s owners could act on a proposal only if “stakeholders,” such as employees, agreed (codetermination or mit Spreche). At the macro level, legislative action needed the consent of the main players, capital and labor (Concertazione). Later they spoke of the “social partners.”
Conservative corporatists sought not just order but the old order. As they saw it, the modern culture with its yen for change was eroding the economic order in traditional communities, where members had a sense that they were working toward the shared goals of their traditional culture. They bewailed the lack of solidarity. For Freud, the conflict between modern and traditional was, ultimately, “the struggle between the claim of the individual and the cultural claims of the group.”3 The yearning for the traditional culture is evidenced not just in the writings of corporatist theorists but also in artistic works of a splinter group of classicists who broke away from modernism in the 1920s. A return to the harmony and perfectionism of the classical order was evoked in sculptures such as Aristide Maillol’s Ile-de-France, paintings such as those from Picasso’s period of classical portraits, and film, notably Leni Riefenstahl’s documentary film Olympia.4
Many social critics, most of them in continental Europe, saw failings that had to do with the materialism of the societies around them. They charged that the quality of life in society had been debased by what they saw as a spread of money-grubbing. They complained of the economic disparities between those who scurried to make the most of their material advantages and those who lacked them. They also complained of the outbreaks of violence between owners and workers, neither of whom seemed to have limits on the means they would use to achieve material gains. These were the themes of the Roman Catholic Church and the articles of what came to be called Catholic corporatism. For the mitigation of this misery the 1891 papal encyclical of Leo XIII titled Rerum Novarum called upon those who hire labor to pay a wage adequate for raising a family. Today this would be called exercising social responsibility. (One wonders why the Church’s economists did not look for a way that would not destroy jobs; the public could have paid a tax to finance subsidies for hiring factory workers.) Rerum also threw its support behind the establishment of labor unions to negotiate improved conditions. The 1931 papal encyclical of Pius XI, Quadragesimo Anno, gave its approval to the corporatist invention of vocational groups and to producer associations. Neither of these encyclicals attacked private property but rather appealed to private owners for a kinder face. By this time, both the Church and many, if not most, intellectuals had turned away from the socialist contention that state ownership would serve any good purpose. Freud wrote in Civilization and Its Discontents (p. 60) that “[i]n abolishing private property we deprive the human love of aggression of one of its instruments,” such as amassing more wealth than our neighbors, no doubt, “but we have in no way altered the differences in power and influence which are misused by aggressiveness, nor have we altered anything in its nature.” The stark inequalities that were fast developing in the Soviet Union bore out this prophecy.
Much animosity toward the modern economy, though, expressed not a desire for order, whatever the new order might be, or even nostalgia for the old order, whatever order that was, so much as the fear and anger of various social classes whose social status and very survival were threatened. The modern economy was dissolving the social hierarchy and the distribution of power. In the societies of medieval Europe, the classes were imbedded in a system of mutual protection: peasants could appeal to authorities, such as the lord of the manor, for protection when the actions of another raised their costs or reduced their revenues. Competition among manufacturers might be forestalled by limiting production to the manufacturer granted a royal charter. Merchants formed merchant guilds, which served to control the sale of staples such as food and cloth, thus exercising a degree of monopoly power. Artisans and craftsmen formed the craft guilds, which sought to regulate standards for, thus entry into, their line of work. There was a sense that the terms demanded by the various producer groups were sanctioned by an unwritten social compact, whether or not the terms were exactly the “just price” conceived by some theologians.
In contrast, modern capitalism did not offer a social contract—it could not and be true to the values for which it stood. Thus the various groups of producers, merchants, artisans, and the rest experienced a newfound powerlessness, though some of them were on the rise, so they were not materially suffering. In some countries, the manufacturers in the new infant industries tended to be protected by an import tariff, but few manufacturers, if any, faced the reliable and stable demand that manufacturers enjoyed in the traditional economies, owing to the economy’s evolution and advance over time. And few manufacturers enjoyed monopoly power for very long. As a consequence, individual producers and producer groups had no power to set their terms outside a narrow range—they went from price setters to price takers—and they lost some of their power to set standards and maintain prestige. The sense of powerlessness in trades, industries, and professions could have been for many people a gnawing frustration to be set against the satisfactions that they found in their work. If they loved the business they were in and the work they did, that was all the more reason to suffer from their inability to set their own terms in hopes of maintaining their social position. The corporatism of 1920s Europe held out the promise of some defense against the relentless innovation of the modern economy and against the desertion of consumers—defense that they later dubbed “social protection.” Farmers could go on producing, even if not all of their produce could be sold in the marketplace. Movie makers could be subsidized even if their former audiences now preferred not to watch them. This broad “social protection,” as it became known, was one of the last strands of corporatism to fall into place.
In continental Europe all these intellectual strands and the political forces championing them came into a confluence during the 1920s: the elites in a city like Munich or Rome, many of them nationalists who felt the need for a return to unity and purpose in society; the intellectuals who felt the need for economic order; the peasants, artisans, and other interest groups losing ground to modernization, who wanted protection; the scientists who wanted state support for research and artists who wanted it for the arts; and, not least, the Christian corporatists, who advocated restoration of traditional communities and vocations through curbs on mobile capital and the “trader spirit” in profit-driven businesses.5 True, the socialists had already decried the scramble for social status, money, and power, most dramatically the socialist-sympathizer Wagner with his opera cycle, Ring of the Niebelung. To pick up votes, the corporatists took up that socialist theme and other parts of the socialist agenda, such as some sort of codetermination, without saddling themselves with the socialist baggage of social ownership and without making a fetish of wage equality and full employment.
All these factions hoped for some way of curbing or overriding the various tendencies and impulses of the modern economy with its modernist culture. The result was the corporatist economy. Its core function was to keep the private sector under public control. To what ends? The corporatists’ main aims were state-led investment, industrial peace and solidarity, and social responsibility. There was much thinking about economic growth too. Economies on the fringe of modernity were growing so slowly as to leave a widening gap between their productivity and that in America and Germany. Italy and Spain were being passed by others in the league table of productivity. Some corporatists, Benito Mussolini included, laid Italy’s problem to the cautious performance of the small family businesses that dotted Italy. Others, corporatist or socialist, laid the problem to the degree of monopoly and cartelization among the big businesses. The corporatist theoreticians supposed that, with the concerted effort of all society, and in particular its community of scientists, a country could drive scientific advances at a faster pace. And the state might act to steer scientists toward projects that would yield, with the involvement of engineering and other specialities, advances in useful technology—thus possibilities for better methods of production and new kinds of goods. This was the doctrine dubbed techno-nationalism by Richard Nelson. It is one manifestation of the more general belief called scientism—the belief that scientists, equipped with the tools of their science, more effectively advance the flowering of new products and methods than do the diffuse and poorly directed initiatives taken in a free enterprise economy. (It was under Mussolini in 1923, then prime minister, that Italy founded its national science foundation, the Consiglio Nazionale delle Ricerche, a full 27 years before America’s National Science Foundation.)
The corporatist system also aimed to enlist artists. The preservation and promotion of the culture of the nation was a natural outgrowth of the elevation of the society over the individual. And the belief grew up, which could be called culturalism, that artistic advances could drive a country’s economic progress, just as scientism held that scientific advances could be such a driver. Article 9 in Italy’s constitution charges the government with responsibility for maintaining and promulgating the nation’s cultural heritage. (This culturalism persists today: When the Milan opera house La Scala saw its budget cut back by the government in 2011, some opera fanatics called the move unconstitutional. Only increases are constitutional, not decreases.)
All this control had to mean putting the private-enterprise economy under political control—not back under propped-up lords of the manor, of course, but under some sort of political governance. If the main direction or directions of the economy were to be determined politically, the corporatists supposed, there would be progress along the lines they ardently wanted. By what means was this control to be achieved? The economy was to be organized into groups of companies and workers, large and small. The impression was that workers and indeed all groups, from taxi drivers to pharmacists, suffered from competition—from others and each other. Some socialist thinkers had argued that workers’ wages were depressed by the power of capital to “divide and conquer.” A company’s workers had to expect to lose some jobs to workers in competing companies or industries to the extent that a wage increase would push their company to raise its price relative to others’ prices. If represented by a very broad labor union, best of all a nationwide one, the workers would find themselves with the monopoly power of their dreams. In the thinking of this unionism, it was not imagined that the increase in wages would or could bring a decrease in jobs. Oddly, corporatist thinkers thought that grouping producers into a few large cartels would solve the problem—that, with the formation of cartels, the balance of power between labor and capital would be restored, and jobs would not be lost as a result of either the unions or the cartels. It seems to have escaped notice that enabling an increase in mark-ups by companies constituted a contraction of supply on top of the contraction of supply caused by enabling an upward push on wages. The last argument of the corporatists, however, was that, with labor and capital talking together in their “chamber,” a new economy of unity and purpose would arise that would put an end to lockouts and threats of mass dismissals on the part of employers and to shirking, work stoppages, and general strikes on the part of employees. This new industrial peace would improve the efficiency of business operations and thus might end up expanding rather than contracting employment while raising wages and profits too.6
Whatever the merit of the corporatists’ beliefs, aims, and means, the attraction they held for Europeans would be hard to overestimate. Corporatist doctrine was soon put into practice over a vast swath of Europe and the rest of the world.
Early 20th-Century Corporatism
Italy can be said to be the first country to build an economy along the lines of corporatist thought. Benito Mussolini, born in 1883 (like Schumpeter and Keynes) to a poor family in the province of Forli, became the most forceful champion of a corporatist economy in Italy and eventually its chief operating officer. A school teacher briefly, he became a political journalist, editing the Marxist weekly Avanti! Deciding that private ownership of enterprises could better serve high economic performance than either worker ownership or worker control, he broke with the socialists as World War I approached and founded the daily paper Il Popolo d’Italia, which would be his organ. Italy, after its costly combat against Austria in World War I with no rewards to show for it, needed a leader to give them hope for greater importance in the world. A forceful speaker and a shrewd tactician, Mussolini was well suited to take on the role. He was able to enlist to his side most of the corporatists and many of his old socialist allies, becoming the leader of the Fascist Party. Rapidly gaining popular support, he was elected a deputy in the Parliament in 1920, organized the March on Rome in early 1922, and was named prime minister by King Vittorio Emanuele III soon after. In 1925, Mussolini reduced the powers of the parliament, becoming dictator. There was no constitution in Italy, nor elsewhere in Europe at the time, hence no judicial review to put a check on such moves.7
In these years, Mussolini’s program had been critical of Italy’s capitalism. The Fascist Manifesto of 1919 demanded a heavy capital levy, workers’ participation in company management, and a minimum-wage law. There was much emphasis on productivity. When the Mussolini government formed, it quickly aimed for a revival of economic growth. Yet the policies that were attempted led to another lurch in his thinking.
The Mussolini government saw Britain and America as having shown the way to a 100 years of growth in the form of 19th-century liberalism. Mussolini moved to repeal much of the socialist legislation of the previous decade: to end the state ownership of the insurance business in 1923 and the telephone network in 1925. Also in 1925, he disempowered the trade unions that had been empowered by the socialists and moved to exempt inward foreign investment from taxation and to make trade agreements. In moves reminiscent of the travails of present-day capitalism in some countries, the government bailed out the banks in 1926 following speculative attacks on the currency. In the end, Italy’s experiment with cosmopolitan mercantile capitalism failed to generate appreciable economic growth and failed to protect the population from a sharp recession. Mussolini concluded that laissez-faire, or (classical) liberalism, was a weak reed on which to depend for rapid economic growth.
By then Mussolini’s thinking had graduated to a conception of the corporatist economy. What Mussolini was seeking was more than a pickup of the growth rate. It was a radical modernization of the Italian economy through a fundamental recast of Italian institutions, values, and beliefs. Mussolini took pains to register his dislike of “super-capitalism,” with its mass production of homogeneous consumer goods, and his dislike of socialist cartel or monopoly capitalism, with its loss of the innovative spark and increased bureaucratization. His discontentments with capitalism were no doubt real enough, though he was not a philosopher of corporatism—that role fell to Giovanni Gentile, who would later ghostwrite The Doctrine of Fascism for him in 1932. Though no corporatist philosopher, Mussolini was nonetheless a builder of a corporatist economy. And the system he built could hardly have differed more from modern capitalism.
The architecture of his corporatist economy is laid out in his own publications.8 The molecules of the institutional framework are entities called “corporations” (corporazioni). In the industrial classification there were finally 22 categories, for example, cereal, textiles, steel, hotels, arts, and credit. Each such corporazione was required by the Sindical Laws of 1926 (the “Rocco Laws”) to have one employers association (Associazione) and one labor union (Sindicato):
The class struggle in the Marxist sense between workers grouped on one side and masters grouped on the other is replaced by debates on matters concerning various categories of producers. Disputes … may arise between various categories of workers or between various categories of masters, or even between masters and workers, but they are viewed as one of the inevitable forms of human restlessness, indeed of human life.…
The corporazione was conceived as an organ where managers and workers might come in touch with one another and establish cooperation. The corporazione took definite shape through the Act of February 1934 as an organ for collaboration.9
This was a big change from the socialist period before the war. By the early 1910s Italy had a spate of trade unions, some legally recognized by the socialist government only recently. In 1910, a broad employer association, the Italian Confederation of Industry, was founded to work with the unions and to serve as a lobbying organization. But conflict arose after the war with the militancy of the working class. The unions led the “factory councils” movement in 1919–1921 for the sharing of company management between capital and labor; the Confederation, relaunched as Confindustria, worked to save owner control. The Fascist regime then acted to marginalize these unions by creating Fascist unions. Historians date the emergence of corporatism in Italy to October 1925, when Confindustria and the new unions concluded a pact at Palazzo Vidoni recognizing each other as the only legitimate representative of capital and labor.10
Mussolini’s corporatism was not exactly the restoration of the control of private owners, however. Article 43 of the Decree of July 1926 declared that “the corporazione is not a civil person but an organ of the state.” Article 44 adds that “corporative organs are endowed with powers to conciliate disputes that may arise between the affiliated organizations.”11 The Labor Charter of April 1927, while reaffirming rights to private “ownership,” asserted the state’s right to intervene even in companies’ hiring of workers. So the Italian government was free to reject agreements between employers and employees until it got the agreement it wanted and free even to dictate company employment. Mussolini spoke of this power to intervene in his January 1934 speech, explaining that it would be invoked only when the decisions of Italy’s patriotic owners and employees suffered from some miscalculation or coordination failure:
Corporate economy introduces order in the field of economy.… In what way should this order be put into practice? Through self-discipline of the various categories concerned. It is only when various categories fail to come to an agreement, or to establish the proper balance, that the State may intervene, although the State always has the undisputed power to do so, because it represents the other aspect of the phenomenon, which is consumption.12
In this passage, Mussolini was being naïve or cynical, though. Italian corporatism with its corporazioni created or aggravated problems that it then called upon the government to solve. Corporatist theoreticians, by perverting capitalist industries into employer “associations” that were larger and had more pricing power than the capitalist cartels, and “syndicates” that were larger and in some cases more powerful than the traditional craft unions, increased the monopoly power of many bodies and coalitions to the point where it would require pervasive and invasive government action to curb. Yet it would be quite a leap to conclude from this bit of analysis alone that corporatist economies were bound to perform worse on the whole than the modern economies or, at any rate, worse than the relatively well-performing among them.
This tripartite system began operating in piecemeal fashion by 1926, and the scaled-up system was operational by 1935. The system was something new in the firmament, and references to it—admiring or envious—were made by Winston Churchill, George Bernard Shaw, and John Maynard Keynes. It hardly needs saying that, in the second half of the decade, Mussolini, done with his economic designs, moved on to pursue his imperial designs on Ethiopia and the Adriatic, and then tainted his government forever by turning the force of the state against homosexuals, Gypsies, and Jews. Yet in the first half of the decade, Italy’s construction of a functioning corporatist economy fascinated much of the world and surely played a part in emboldening some other countries to proceed along corporatist lines.
Germany, for one, had already been incubating its own corporatist philosophies before the full realization of Italy’s example. In fact, the development of corporatism there started sooner than in Italy. Even before Leo XIII pontificated for social responsibility, Germany had had its early corporatist critics of capitalism: Ferdinand Tönnies, with his thesis in 1887 that communities and guilds were being destroyed, and Émile Durkeim, who argued that capitalism raised conflicts without rules. In the 1920s, German politics gradually gave voice to the elements of corporatist thought that Italy did—the revulsion against individualism, the rejection of laissez-faire economic policy, and disdain for the petit bourgeoisie. Yet some other strains of thought were more salient, and socialism was more embedded in Germany than in Italy, so the rise of an Italian-style corporatist economy was more complicated and took longer.
Adolf Hitler played a pivotal role in much the same way as Mussolini did. A former art student born in Austria and working in Munich for the German military in 1919, Hitler was sent to spy on the leftwing German Workers Party, an upstart rival of the venerable Social Democratic Party, and found that its ideas—German nationalism and anti-Semitism—were like his own. A stirring orator, he gained mounting leverage in the German Workers Party, recruited some of the military to it, and in 1920 proposed it be renamed the National Socialist German Workers Party, known as the NSDAP, and later nicknamed the Nazi Party to underline the nationalism and to retain votes that still lay in socialism.
A theme of the Nazi Party in the 1920s and later was their desire to see a return of the economy to high performance (Leistung), much as Mussolini’s party harped on productività. In 1920 the party’s first program, known as the “25 Points,” was as anti-capitalist as the Italian manifesto of 1919. It demanded the abolition of unearned income, the nationalization of trusts, land reform, and the nourishment of a “healthy middle class.” And it vented an opposition to self-interest verging on hatred:
The activities of the individual must not clash with the interests of the whole … but must be for the general good.… We demand ruthless war upon all those whose activities are injurious to the common interest … usurers, … other profiteers … the Jewish materialist spirit.… The Party is convinced that our nation can achieve permanent health from within only on the principle: the common interest before self-interest.13
The Nazis gained a plurality in the Reichstag, and Hitler was named chancellor in 1933, a win paved by Germany’s 1929 Depression, or “slump,” and the Nazi’s portrait of the Weimar government as weak on the issue of German reparations (even though it had twice negotiated them down and little had been paid). The National Socialists set out to construct a corporatist system of the tripartite type—capital, labor, and government—in 1933. The 1934 Act for the Organization of National Labor established a number of industrial groups, each with “followers” under a hierarchy of “leaders.” In 1935, labor unions were regulated and called on to find noncommercial incentives to raise productivity. Cartels were spread over nearly the entire economy, and joining them was made compulsory. The National Economic Chamber was formed atop all these associations, with power to issue laws and decrees. The system was such that the state could intervene as widely or as little as it wished.
For a time, the government attempted to direct a large part of the economy: conscripting labor to work as desired, telling companies what to produce and how much, and imposing price and wage controls. But by 1937, the government drew back: the Chamber was directed not to engage in any more price and market regulation, and the cartels resumed setting prices and wages. The focus of the Nazi government swung to foreign policy, and companies were largely free to compete for customers in the marketplace and to compete for government contracts. Yet the limitless power of the state ensured that no company would dare go far against the government’s manifest desires. Companies might also become arms of the state, vying for government contracts and subsidies. Hayek thought, as he said in his 1944 Road to Serfdom, that the German business people were deluded in believing they retained the autonomy from the state they had enjoyed when Germany’s economy was relatively modern.
Germany, like Italy, had possessed elements of corporatism long before the interwar years. Mercantile guilds, craft guilds, and guilds of professionals, which were relatively important in German lands as far back as the 1100s, sought to control prices and standards of manufactures and also to exert influence on the provincial—or national, if there was one—ruler and legislature. But the waves of competition brought by capitalism had weakened them, and Napoleon had banned them throughout his empire, so their influence was at least diminished in the modern economies of the 19th century. Germany reached a turning point when in 1871 Otto von Bismarck completed the unification of the German states under Kaiser Wilhelm’s Prussia, the states having lost their unification under the Austrian Empire in 1866. The historian Ulrich Nocken dates German corporatism from 1871, while Werner Abelshauser puts 1879 as “the birth-point of the modern system of corporatist interest mediation.”14 Germany’s emerging modern economy went corporatist to some extent. Employer associations, called “chambers” of commerce and of industry, arose, which served to lobby, set wage norms, and agree on prices. Industrial unions, mostly small, arose too, though they were weak (especially from the enactment of anti-socialist laws in 1879 until their repeal in 1890) compared to the German unions in World War I and post-World War II. The employer confederations and to a small degree the unions were players in the “wheeling and dealing” with the government that characterized the Wilhelmine economy. Bismarck, the Reich’s chancellor from 1871 to 1890, failed in his efforts to set up a National Economic Council that could both veto and propose legislation in the parliament (Reichstag) like the Prussian Economic Council he set up to curb the Prussian Diet. But though he had to share power over economic matters with the Reichstag (unlike Hitler), the Iron Chancellor exerted great influence and later wielded his power to pave the way for financing the iron and steel industry in the 1880s and 1890s. Thus, the German Empire could be said to have developed a version of what historians have variously called a voluntary or consensual corporatism in the late 19th century, in contrast to the mandatory and generally comprehensive corporatism of the 1930s. Germany’s voluntary corporatism went on to embrace labor unions in the early Weimar years from 1919 to 1924, when the employer associations, caving in to the stronger labor unions of the war years, agreed to sit down with them as equals at the bargaining table.
Interwar corporatism’s popular appeal is evident in the mass rallies and wide support it inspired, as well as in the direct reports of contemporary observers and the indirect responses of artists to the era’s shifting mood. There was in many quarters a sense of a new path with new discoveries along the way. The impetus, all or most of it, behind the corporatist project is easily seen. It was the public’s mounting rejection of both capitalism and socialism. Corporatism was the third way (la terza via). It was “neither right nor left,” in the telling phrase of the historian Zeev Sternhell—neither the old right nor the old left, at any rate. (One could say—getting ahead of the story—that, well into the postwar period, a new corporatism was to become the medium of both a new right and a new left.) Thus corporatism could capture both the interest groups that felt ill-used by capitalism as well as the interest groups that feared socialism. The former grasped at corporatism as an escape from all the ills that modernism and the modern economy brought or threatened to bring: the perils from market competition, the instability of jobs, and the rudderlessness of industry. The latter saw corporatism as an alternative to the arbitrariness and dreariness of a socialist economy: the loss of their savings and the loss of their fun—the bars to building companies, and the difficulties of building careers. Corporatist politicians could argue that the corporatist structure would resolve the capitalist conflict between workers and owners and dissolve the socialist conflict between the proletariat and the rest by reengineering men and women to pursue the common good—the state would take care of their vestigial needs for pedestrian private goods. That the politicians could not first build a prototype corporatist economy for the populace to test under laboratory conditions against their actual capitalist economy gave them an excuse to scrap much of the capitalist structure and put in its place the new corporatist economy. Ridding the country of the capitalist economy was their primary objective; fine tuning the corporatist economy for best results was secondary. That the world economy was in crisis in 1929, with the Great Depression looming ahead, made it all the easier to portray the existing capitalist economies as systems to be jettisoned as quickly as possible. Finally, the politicians could boast that they were taking action, which the legislatures, in a stalemate between those who would remake their capitalism and those who would step up their socialism, were unable to do. The politicians, once in power, could be seen as doing something—not simply standing idly by with the sole justification that they were not making things worse. In a string of countries with elements of corporatism, the populace was thrilled at the prospect of a new start.
Corporatism did not stop at Italy and Germany. With the 1936 coup, General Francisco Franco ended the socialism of the Spanish Republic, although corporatist thought in Spain never became as pervasive and the corporatist superstructure never as vast as in Italy. Portugal’s Antonio Salazar, a professor of economic sciences at Coimbra and an admirer of the author Charles Maurras and Leo XIII, drew on corporatist ideas in his presidency between 1932 and 1968. (The experiment was of great interest in France.) Austria was next in 1934 when Engelbert Dolfuss, on becoming chancellor, adopted some of the corporatist doctrine of Monsignor Ignaz Seipel. Corporatism came to Ireland in 1937, where it was championed by anti-capitalist parties such as Sinn Féin and supported by the Church.
What of France? Early in the century the salons of Paris were full of militant intellectuals with visions of a fusion of socialism that would end individualism and democracy—Maurice Barres, Georges Sorel, and Charles Maurras among them. Yet France did not adopt in the interwar years the Italo-German corporatist apparatus introduced by Mussolini and Hitler. But when German soldiers marched into Paris in 1940, the Vichy regime they installed in the summer of 1941 quickly established a system of economic planning in the corporatist spirit. Less than half a decade later, Vichy was out, but General Charles de Gaulle’s 1944–1946 government introduced the plan indicatif in 1946, and the Fourth Republic of 1946–1958 adopted Five-Year Plans, taking a leaf from the Four-Year Plans in 1930s Italy and Germany. In this way the government tried to point French industry in the directions in which they wanted it to go.
In South America, elements of corporatism came to Brazil during the regime of Getúlio Vargas, especially the dictatorship of 1937–1945. The labor law was taken verbatim from Italy’s law, cartels were set up to control key products, and the government sought to steer industrialization. (Yet the mild-mannered Vargas, like Salazar, suppressed the Fascist and Nazi parties. He was also the undoing of Plínio Salgado’s radical Catholic party Acao Integralista Brasileira.15) Corporatism of another color came to Argentina in the first presidency of Juan Perón, 1943–1955. Industrial labor unions became the backbone of the Peronist party in its sweeping interventions in industry and agriculture.
In Asia, Japan’s large vertical monopolies, called zaibatsu, typically controlled by a single extended family, became so prominent after World War I (even though they emerged in the Meiji period in the last decades of the 19th century) that they were necessarily in close contact with the central government. A corporatist arrangement resulted, as the imperial government did not keep them at arm’s length or break them up. Korea fell into a corporatist structure with the end of Japan’s rule in 1945, when the government awarded Japanese plants and other favors to a handful of Korean businesses in return for kickbacks.
As for the Anglo-Saxon countries, it would be an immense distortion to say that they too installed in the interwar years a corporatist system like that introduced by Italy and Germany. During the 1920s and 1930s, labor unions grew in power and size in America and Britain while they were being hobbled in Italy and Germany. The Americans continued the opposition begun by the Progressives while the Continent was busily creating cartels. The question is whether the American and British economies possessed a corporatist character more or less equivalent to that in Italy and Germany. America saw widespread governmental intervention in the economy after its horrendous slide from 1929 until 1933 into the Depression. Franklin Roosevelt was swept into the presidency, taking office in 1933, and a spate of New Deal legislation soon followed. In 1933 the National Recovery Act established the National Recovery Administration (NRA) to organize a team of leaders in each industry to set codes for prices and wages aimed at arresting their downward spiral, which Roosevelt believed had greatly amplified the downswing of employment. Joining was not compulsory, but reserving a Blue Eagle seal of approval to every company that complied with the code must have exerted social pressure on companies. (TV viewers can still see the seal in the first frame of the Marx Brothers movie Duck Soup.) Many commentators, including some widely considered to be thoughtful, viewed the NRA as a worrisome step toward the “collectivism” of a corporatist economy:
The vital essence of the whole conception was that each codified industry would enjoy an approximate monopoly of the American market, and that its monopoly profits would enable it to pay high wages. But in order to protect the monopoly, competitors had to be excluded. Thus, in the more “advanced” codes, barriers were raised against new enterprises and new processes, and the whole establishment was then protected … by the power to lay an absolute embargo against any imports.16
To most observers, though, the New Deal interventionism did not match that on the corporatist Continent, where intervention was unbridled—where no legislation was required, legislatures were disempowered and no court had powers of judicial review. As it turned out, the NRA was ruled unconstitutional in a unanimous decision by the Supreme Court in Schechter v. United States in 1935. Roosevelt soon after enlarged the Court, making it more to his liking. The NRA was not resurrected, however, and the Court’s reputation seemed to improve, not to decline.
With the New Deal, social thought in America—if not always social action—radically distanced itself from 19th-century liberal thought. A statement by the NRA’s head, Donald Richberg, is arresting:
There is no … return to the gold-plated anarchy that masqueraded as “rugged individualism.” Unless industry is sufficiently socialized by its private owners and managers so that great essential industries are operated under public obligation appropriate to the public interest in them, the advance of political control over private industry is inevitable.17
Yet the bark was more fearsome than the bite. A range of unfamiliar initiatives, some verging on the radical, were taken by the government in the Depression years, which created new classes of jobs. For instance, the Civilian Conservation Corps employed photographers and documentarists to record the look and sound of rural America before it became nearly extinct. The Works Projects Administration undertook major construction initiatives at a time when the federal government had previously lent money for the railroads and state governments had built canals, but the massive federal dams, such as Hoover Dam, were not a familiar sight. These novel initiatives resembled some of those undertaken in Germany. Yet these new frontiers could be regarded by the public as temporary measures rather than a shift from the capitalist culture to the corporatist culture. “Things have to change,” Prince Don Fabrizio Salina says in Visconti’s The Leopard, “so that they can stay the same.”
The New Deal also wrought a range of changes supposed to be permanent. In response to the abuses and failures to disclose conflicts of interest in the banking industry and the securities business, as uncovered by the Pecora Commission, Congress enacted the Glass-Steagall Banking Act of 1933 to separate commercial from investment banking; the Securities Act of 1933 on filing false information in stock offerings; and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission to regulate the stock exchanges. The National Labor Relations Board was created in 1935 to prevent and remedy “unfair labor practices by private sector employers and unions.” Yet these measures too were hardly daggers at the heart of modern capitalism. The protections they provided potential investors and potential employees brought a considerable renewal of confidence in markets.
A big step in the corporatist direction was the establishment of rights of employees to organize or to join an already organized labor union in the National Labor Relations Act of 1935, the Wagner Act. Congress argued that “unequal bargaining power” between employees and employers leads to “economic instability” and that the refusal of companies to negotiate leads to strikes, both of which impede the flow of commerce. This was new: previous governments did not boost organized labor; they only broke up organized business—cartels and sprawling monopolies. The progressive movement, led by Theodore Roosevelt in the 1910s, was aimed at busting the monopolies. So was Woodrow Wilson. (“I am for big business, and I am against the trusts.”) After the Teapot Dome scandal of 1923, a case of bribery of federal officials, the government tried harder to keep businesses at arm’s length and not to award them increased legal protections. Relations between business and Washington were distant in the 1930s.
These changes and others did not make Americans feel there had been an abandonment of what they held to be the traditional social values of the country. One may view Franklin Roosevelt as having made accommodations to corporatism that served to preserve modern capitalism from wholesale replacement by corporatism. It is arguable that corporatism began to make deep inroads that threatened to kill modern capitalism only long after Roosevelt was gone.
What was the performance of the newly corporatist economies of continental Europe, particularly Italy and Germany, compared with the economies that remained in the category of modern capitalism, such as America and Britain? Italy’s corporatist economy was operational only by the late 1920s, Hitler’s by 1933, and World War II was breaking out by the end of the 1930s. So the time span offers few “natural experiments” from which to learn. One of these “experiments” was the onset of severe slump—Britain’s in 1926 and the others’ in 1929. Both Hitler and Roosevelt came to power in early 1933.
It is widely believed that Hitler wielded corporatist tools so as to pull Germany out of its slump in short order, while Roosevelt, burdened by the laissez-faire thinking in most of the country, was compelled to look on while the slump lengthened into a depression that would go on for the next eight years.18 But the national output numbers in Germany and America tell a quite different story:
By [1936] German GDP in real terms had recovered to roughly the same level it had stood at in [1929]. This was no doubt a rapid recovery. But it was not superior to the recovery achieved [over the same span] in the United States under a very different policy mix. Nor, in terms of the rate of growth, was it superior to the rebound from the Weimar Republic’s first severe recession over the winter of 1926–27, when the twelve-month growth rate was higher than at any time during the Third Reich. It is possible therefore to imagine a similarly rapid recovery taking place even under a very different policy regime. In this strict counterfactual sense, Nazi economic policy cannot claim to have “caused” the German economic recovery.19
Moreover, had Roosevelt and his predecessor, Herbert Hoover, expanded the building of capital facilities, that would not have made the economy fundamentally corporatist (or closer to being fundamentally corporatist) and it might have made the American economy recover faster—faster than the Germany economy recovered. (“Might have” because a government action intended to boost aggregate employment does not work with the classical certainty of a lever and fulcrum lifting a heavy weight.) A look at all four of the large economies recovering from a deep slump—Britain’s in 1926 and the others’ in 1929—shows that national output in all of them gradually began recovering within a half-dozen years or so.20
More striking, productivity—as measured by national output per man-hour or more sophisticated measures—leapt ahead in America at a record-breaking speed from 1930 to 1941, a speed even faster than in the previous decade, while productivity growth in Italy and Germany was far slower than America’s in the 1930s and gained only moderately in the 1930s over the 1920s rate. According to one explanation, America achieved a surge of innovation over the 1920s, much of which involved the development of many new products and processes sparked by electrification. But the innovation had not completely diffused through much of the economy by the decade’s end. As a result, the ground was laid for further diffusion of the new products and processes in the 1930s. This latter diffusion caused an immense number of workers to lose their jobs—a situation made worse by the over-valuation of the dollar and the resistance of overseas nations to increased American exports.
The growing disparity in productivity was at first no more than a thorn in Hitler’s side. In his “table talk,” he complained that German automakers in the 1930s had barely reduced the number of workers required to produce one car while Ford Motor Company had reduced the labor requirement to a small fraction of its former level. As historians later noted, this extraordinary productivity in America made it possible to produce the many thousands of tanks, trucks, and fighter planes that ultimately defeated Germany in World War II—not so much the bombing of cities. The surge of productivity that threatened America’s modern capitalism for awhile in the 1930s eventually saved that modern capitalism from the threat of takeover by corporatist thought.21
The defeat of the Axis powers in World War II toppled the national governments and prepared a return of the old democratic political systems in Italy and Germany as well as in the nations they had occupied. In 1947, Italy produced its first constitution, which made provision for judicial review of policies carried out by the executive branch and laws enacted by the parliament. Germany followed in 1949 with a constitution that was closer in spirit to the Weimar constitution’s goals of social democracy than to Bismarck’s imperial constitution of 1871.
Some political parties of the radical right survived, and new ones emerged after the war. They echoed several fascist themes: “fears of decadence and decline, assertion of national and cultural identity, a threat by unassimilable foreigners to national identity, and the need for greater authority to deal with these problems.”22 But to gain enough votes to be represented significantly or at all, most of these parties had to espouse programs of the moderate right and to drape themselves in the obscure term “postfascist,” whatever that meant. And not even the far right parties attacked democracy and the rule of law.
These gains on the political side presented Germany and Italy with an opportunity to reexamine the character and effectiveness of the national economies that had developed over the interwar years. Did these reappraisals lead European nations to retrench in their corporatism, in its institutions, policies, and thinking? Or did the subsequent decades see a growth of corporatism on the whole? What precepts of corporatism have been sloughed off and what new ones, if any, have been added?
Evolution of Corporatism after the War
In the popular mind, the influence of corporatist ideas waned after the war because the strength with which these ideas were held has since diminished. And the strength with which these ideas were held has diminished because the social tensions wrought by the interwar catastrophes—the wreckage caused by the Great War, the Great Inflation, and the Great Depression—have passed. It is also suggested that popular democracy is now so strong that people can obtain the protection at the ballot box that they once needed unions, lobbies, and a strong state to obtain. But social democracy and a corporatist economy are not contradictory ideas, so it is not obvious that they could not coexist. A small number of serious economists in Europe argued in the 1960s or 1970s that their countries did not understand the continuing damage they suffered from a failure to keep enterprise relatively free—Herbert Giersch in Germany, Raymond Barre in France, and in Italy, Luigi Einaudi and Paolo Sylos-Labini. Yet there was little systematic research into corporatism in the second half of the 20th century.
Did Germany and Italy in the decades after World War II show evidence by any of the measures suggested here of shedding their corporatism and developing further modern institutions, policies, and cultures? Or evidence of keeping or renewing or even intensifying their corporatism? And what about Britain and France? And America? These questions have received little study.
The Western European continent in general and Germany in particular made in the early years after the war a number of economic reforms in the direction of laissez-faire, or neo-liberalism—quite a change from interwar corporatist policy. Continental economies became vastly more open to foreign trade (first, bilateral trade, or barter, then multilateral trade). Later they opened themselves to capital outflows, thus denying their governments the power to imprison private capital within their borders. And finally they permitted financial companies and businesses to compete across borders and move headquarters. (Much of the organization of all this took place at the European Economic Commission, established when West Germany, France, Italy, and the Benelux countries founded the European Union.)
In Germany, a sharp turn in policy was prophesied with the announced Economic Reform of 1948 under Economics Minister Ludwig Erhard. It declared that neo-liberal principles opposite to those of the corporatist model were to be embodied in the “social market economy” of the Federal Republic created in 1949. In his 1957 book Wohlstand für Alle, titled Prosperity through Competition in the English translation, Erhard credits the near-doubling of West Germany’s national product between 1949 and 1956 to the rebirth of competition in the economy and the restoration of confidence that inflation would not rob lenders of their gains. Erhard believed that the nation gained by rejecting the corporatist tendency to dispense with individual incentives and rejecting also the socialist tendency to think of the distribution of wealth more than of the level to which productivity might bring it.
Erhard’s analysis suggests, cleverly or unconsciously, that when in 1949 German output regained its last fully-peacetime level of 1936, there was no more damaged capital left to restore, so all of the subsequent doubling of output is to be attributed to increased competition and greater confidence than existed in the Hitler years—and the new investments and productivity gains that resulted. Never mind the obvious omission that in fact there may have been capital structures, such as rail lines and factories, still needing repairs, so that huge output gains were a certainty for more years to come—increased competition or not. The more important omission deluded all of Europe into believing they had stumbled onto a road taking them to Rostow’s “sustained growth” forever. It was not understood that productivity on the Continent was shooting up in large part because companies could cheaply boost productivity and profits by identifying, adapting, and adopting the new goods and methods of production that had been developed and embraced in America and to a lesser extent Britain and a handful of other non-Continental nations in the 1920s and 1930s but which had not been adopted on the Continent owing to its upheavals and the lurch under corporatism toward closed economies. For this brilliant “catch-up” growth, neo-liberal competition and confidence were not sufficient: there had to be bountiful low-hanging fruit across the Atlantic for the taking.23
Was corporatism put back in place after the bricks and railway ties were restored? After 1949? If, at this point, we were playing statisticians seeking to measure the degree of corporatism’s return, we would need a checklist of measures, yearly or decadal, of the force of corporatism, such as its effects on policies. These measures include state interventions in production: the volume of regulation (statutes and rulings), bureaucratic “red tape” (permits, etc.), limits on entry in industries and professions, “industrial policy,” and tax collection. (Socialism, it may be noted, cares more about how things are made than what things are made.) Another set of measures capture the diversion or control of income: subsidized social insurance, “coordination” of wage determination by industries and unions, the depression of share prices viewed as evidence of the state’s overriding of shareowners’ property rights, and the prevalence of zombie companies impeded from selling or scrapping. High employment in the public sector is another measure, since intervention in the private sector requires personnel to conduct it. There are quantifiable measures of the strength of values—desires and beliefs—allied with or opposed to corporatist thought. (Several of these measures of corporatism’s force are used to test the claims made on behalf of corporatism in the next two chapters.)
We are playing historians in this chapter, though, so we focus on significant events: the high points—or low points. Two developments suggest that corporatism did not have to wait very long for its comeback. Amid a crisis precipitated by the “Korea boom” in Germany, Abelshauser writes, “influential sections of German industry [began] reformation of [the] state corporatist system of the interwar period” (ibid., p. 308). The cooperation between various employer associations that reemerged in the early 1950s reminded one scholar of the “well-proven German tradition … which survived the end of the Nazi economy and the … Reform of 1948 virtually unbroken.”24
The other development was the shift of power between capital and labor within the corporatist framework. From one perspective, corporatism results in a merger of government with the business sector, so that much of business activity is decided through negotiation with the government rather than through the market, though much of that activity is nevertheless influenced by the market. But that leaves open how much of a connection to the government organized labor would have. By the end of the 1960s Europe had greatly increased the voice of labor—making the “tripartism” of the classic corporatist doctrine into a reality replacing the earlier “bipartism.”
One aspect of labor’s new power was its seats on the supervisory board of directors of the large companies. This was not considered of any great moment in Germany, where the socialist hostility to big business had never completely died out. It went further, however, in the 1990s, when the labor unions managed to get a seat on the investment committee. This time, Germans blanched. There were fears that this change might block profitable investments or block efforts of companies to make reforms in order to survive—and some jobs to survive with them. But the economists need not have worried. It was disclosed in 2005 that Volkswagen, the German auto maker, had been paying bribes to union officials for over a decade.
The Economics Ministry in 1967 made tripartism explicit, undertaking a program of Concerted Action that brought labor, capital, and the government to the bargaining table. Although this formal tripartism lasted only 10 years, informal trilateralism has continued with the cooperation of “liberal” corporatists on both the union and the employer side. In these same years Italy was developing its own trilateral structures. It was at this time that the term Tavola di concertazione came into use in Italy to refer to the practice of formal consultation among labor, capital, and government. But was this postwar trilateralism on the Continent all “sound and fury,” or did it have influence?
Trilateralism has had its good moments. The Wassenaar Agreement, reached in 1982 by organized labor and employer organizations amidst the European slump of that time, inaugurated a new era of wage moderation and appeared to create some jobs in the Netherlands. But it is not clear that either result has been lasting. The Organisation for Economic Co-operation and Development (OECD) tabulates national data for the member countries. Those data show that, two decades later, in 2004, the Dutch unemployment rate was in the middle of those for the OECD nations—between the British and the American rates—and hours worked per employee near the bottom. Thus a permanent influence on the labor market is not discernible with the naked eye. On the other hand, under the coaxing of Chancellor Gerhard Schröder of the Social Democratic Party, Germany negotiated a series of measures in 2003, called Agenda 2010, to cut wage costs and increase the “flexibility” of the nation’s labor market. The reduction of labor costs in the business sector has lasted the decade and is credited with much of the German export boom of recent years. Yet, today, the labor market statistics in Germany are not seen as outstanding. The German unemployment rate in recent years has been typical of European rates if the high rates in crisis-torn Italy and Spain are set aside, and hours worked per employee is only a little higher than in Holland and Norway. (Unemployment may nevertheless be lower than it other wise would be.) However, the influence of corporatism, embodied formally or informally, could reach far beyond wage setting, as the discussion above has tried to make clear.
It might be guessed that the graduation to tripartism and, more broadly, the idea that nothing important may be done without the “social partners” on board, were harbingers of a new springtime for corporatism in Germany and Italy—and perhaps in much or all of continental Europe too. What, then, do some of the corporatist statistics proposed in the previous pages show? There are data on the rise of the public sector in several countries over the course of the postwar decades. And there are census data from interwar Germany. The public sector in Germany employed 9 percent of all employees in 1933, and the number rose to 12 percent in 1938, owing to an increase in the armed forces. In 1960, this statistic stood at 8 percent. But it grew to virtually 15 percent in 1980–1981 (OECD 1983, table 2.13). It may be significant that the size of the public sector grew to be even larger than in the peacetime years of the 1930s corporatist economy. Another striking corporatist statistic is the rise of total government outlays—for consumption-type goods and services and for purchases of capital (plant, equipment, etc.)—over the same span from 32½ percent of the gross domestic product (GDP) to 49 percent in 1981 (OECD 1983, table 6.5). Italy’s public sector employment statistic went from 9 percent to the German level of 15 percent; and the total government outlays statistic went from 30 percent to 51 percent.25 The German figures were very nearly peaks. In 2006, before the onset of the huge downswing, Germany’s public sector employment statistic was at 12 percent, and its total government outlays stood at 45½ percent. In Italy, the size of the government by either measure reached new peaks in the early 1990s. By 2006, though, the public sector employment statistic was again around 15 percent, and the government outlays statistic was back at 49 percent. In the Western world, at any rate, these measures indicate unprecedented levels of government involvement and lend weight to the hypothesis that corporatism on the Continent, far from fading, actually grew more influential. We are curious, though, whether these countries grew to be more corporatist than some comparator countries.
France’s corporatism dates back in some respects to the time of Jean-Baptiste Colbert, finance minister of Louis XIV. Yet in the present era, judged by how they score on various measures of corporatism, France is not easily distinguished from Italy (and some other European nations). France’s public sector employment also grew—from a jumping-off point of 13 percent—and reached 16 percent in 1981, and an astonishing 22 percent in 2006. France’s total government outlay statistic also started higher, reaching Italy’s 49 percent level in 1980 and going ahead to 52½ percent in 2006.
How do these three countries compare by another measure of corporatism, bureaucratic “red tape”? In this respect, France tied Italy in exceeding all the others according to a 1999 survey. Germany had less red tape but markedly more than Britain and the United States.26
French and Italian labor relations continue to look conflictual to foreign observers, while the unions complain that they do not have the power that the public imagines. A spate of “boss-napping” broke out in France during 2008–2009, and general strikes in France and to a lesser degree Italy—the awesome “manifestations”—sometimes paralyze the economy. Certainly in its outspoken rhetoric there was no country in Europe more hostile than France to “market society” and more alienated from business life.
Looking back at the history of these three countries since the war, the most influential development in corporatism appears to be the rise of labor unions to positions of political power verging on equality with business interests. Labor power did not substitute for company, or “corporate,” power. (In product markets, it effectively added to the total amount of monopoly.) The concept gained strength that workers and investors could exert myriad and profound influence on the behavior and direction of the economy—generally to protect their vested interests—by mobilizing labor unions, companies, and business federations to exert influence through nonmarket channels. A huge increase in the activity of the public sector and a thicket of regulations has resulted. The question at this point is the extent to which and the ways by which this new system and accompanying culture, in narrowing the possibilities of change, of innovation, has choked off the possibility of the deeper rewards of business life in return for stability and the status quo.
In Britain, the experience with corporatism was comparable to that of France until a turnaround in the early 1980s. The share of total jobs located in the public sector by 1960—at about 15 percent—was already the highest in Europe and skyrocketed to the extraordinary level of about 23 percent by 1981. Britain’s total government outlays statistic was at the Italian and German level in 1960 and rose to a level, 47 percent, just below the level in those two countries. But by 2005 it had fallen to 45 percent, well below Italy’s 48 percent and still under Germany’s 47 percent. What happened in the 1980s is becoming better known in recent years. The debate about the economy that polarized Britain for a decade was not over its “socialism.” There cannot have been any other advanced economy with as small a share of enterprise output produced by state-owned enterprises (SOEs), which hardly budged from 1.3 percent from the early postwar years to the present. The debate was over corporatism, a debate that began in 1979 when Margaret Thatcher became prime minister.
It is hard to recall now what a shock Mrs Thatcher’s election in 1979 brought to employers as well as to trade unions. Her bracing dose of free markets and deregulation [led to] the most tumultuous period in Britain’s postwar history.…
The Confederation of British Industry was marginalized by the Thatcher government and many of its members reacted with horror as high interest rates and a strong pound deepened the early 1980s recession and drove many manufacturing businesses to the wall. But as the economic medicine and tough trade union laws began to work, attitudes softened. Sir James Cleminson, who got on well with Mrs Thatcher, did much to dispel the CBI’s reputation as a bunch of “moaning Minnies” always seeking government help. “Business is now recognizing that four-fifths of the things it wants done it can do for itself; it is saying that all we can expect government to do is clear the path,” he said in 1985. That attitude largely survives today.27
After this period, Britain slowly turned the corner in the corporatist standings, leaving France in top place followed by Italy. Among countries in the G7, Britain was estimated in 1999 to have by far the lowest amount of red tape impeding business.
Last, we come to the corporatist influence in America. By 1960, despite the postwar cutbacks in the standing army, public sector employment as a share of the labor force was already higher than Britain’s at that time—thus the highest in the G7. By 1980 the American level continued to exceed that in Germany, Italy, and France, though passed by Britain. In contrast, America’s total government outlays as a share of GDP, which was in the middle of the pack, at 27.5 percent, in 1960, was the lowest in the group by 1980, standing at 35.5 percent. And, measured by red tape in 1999, the United States was well below the levels in Italy, Germany, and France.
The corporatist influence in the decade past must be judged to have increased. The Federal Register of Regulations has continued to rise steeply. Some of the new regulations, such as the Sarbanes-Oxley law, which holds chief executives legally responsible for the way in which the accounting of their corporations is presented, could be argued to have reduced the willingness of corporations to embark on novel projects shrouded in uncertainty.
The state’s intrusion into resource allocation was most remarkable in the individual income tax code. The so-called Reagan tax cut legislation of 1981 abolished myriad tax “loopholes,” thus bringing in billions of dollars of additional revenue, in return for cuts in the structure of tax rates—the marginal tax rates in the tax brackets from lowest to highest. But loopholes and even rulings individualized to benefit particular persons or companies have mushroomed. The U.S. tax code runs to 16,000 pages. In contrast, the French have a tax code with only 1,900 pages.
A no less stunning development in America is the spectacular rise of litigation and the consequent fear of lawsuits. While Americans may not have as many unions to protect and defend them as they did in the 1930s, they now have access to rich legal resources and a vast court system with which to protect and defend themselves from being set back by others in the to-and-fro of society’s pursuit of change and advance. The fear of being sued has noticeable consequences for individual initiative and judgment, and thus on efforts at innovation:
[W]e have created a society paralyzed by legal fear. Doctors are paranoid.… Principals [are] paralyzed. Teachers don’t even have authority to maintain order in the classroom. With no one in charge, the safe course is to avoid any possible risk.… A huge monument to the unknown plaintiff looms high above America, casting a dark shadow across our daily choices.28
It would be hard to argue, therefore, that corporatist influences in the American economy abated after World War II. It is easier to make the case that corporatist influences have intensified.
The conclusion to which this evidence points is that, generally speaking, corporatism gained or at least consolidated its influence in Europe over the decades, taken as a whole, since World War II. The drift in America may not be obvious to some, but there is evidence it has grown there too. Britain is an exception in having registered a decline of corporatism after a long rise until 1980. The major evolution in corporatism over the postwar decades was surely the rise of the labor unions to positions of power comparable to or at times exceeding that of business interests in some countries.
The concept that the market was never to be presumed right, that the voices of capital, labor, the professions, and other key groups could exert their influence through nonmarket channels such as lobbies, was a profound change. The big question not resolved in the 1930s was whether corporatism, in narrowing the market, removed or impaired the dynamism required for the pursuit of indigenous innovation.
As seen above, the classic corporatism of the interwar years can be said to have survived to a degree in several countries in the past half-century. Although corporatism sooner or later allowed organized labor to become a social partner on a par with organized business in most economies, it was still classic corporatism: Classic corporatism widens government powers (relative to that under 18th-century liberalism) in order to forge a state-led economy. This corporatism, it will be recalled, refers to a set of aims: directedness rather than disorder, solidarity rather than individualism, and social responsibility rather than anti-social behavior. After the war this basic corporatism added to the agenda codetermination instead of owner-control and stakeholderism instead of companies maximizing the income to be divided between owners and workers. These ideas radically widened what the state may grant to interest groups—and where it may take the economy—in the name of the national interest. Now, time has added new dimensions to corporatism.
A new kind of corporatism has developed in recent decades. What we may call the new corporatism either reverses the flow of power or provides a two-way flow. The state is less a guide choosing the heading than a pilot paid by the passengers to take them where they ask. Some of the power has shifted to large-wealth owners and holders of powerful positions in business. (Even if all of them were mere atoms, the government might heed what the bond market and other markets have to say.) The state may retain some of the scope found in classic corporatism, though. It still takes it upon itself to act when society or a large part of it is in difficulty or faces the prospect of it.
The new corporatism also goes beyond the groups of classical corporatism—the groups that may bargain collectively and the groups yoked together in “concerted action”—by embracing the idea of a social compact: every person in a society is a signatory to an implicit contract with the others—its terms understood by all—and, according to this contract, no person may be harmed by others without receiving compensation.29 This populist corporatism had vast consequences. Where in the past a group of lawyers, pharmacists, or garment workers might have been granted the status of a corporazione with which to exert monopoly power, now all sorts of groups can demand a voice, request powers to protect themselves, or seek to be protected by the state. This new element of corporatism goes beyond the classic demand for state control that improves the conditions of society—national growth through state direction and industrial peace through “concertation” and co-determination—to the demand that the course of development at no time set back some while propelling the rest. The new thinking sees the state as undertaking to protect everyone from everyone else—or as close to it as is practicable. Social protection for all is the motto of the new corporatism.
A panoply of new roles has been given to the state. The state may compensate those hit domestically by a range of developments, from foreign competition to storm damage. Government grants of unlimited scope may be made to regions and cities, even if their latent function (in Robert Merton’s term) is to dispense patronage in return for support, political or financial. Lobbyists are welcome to submit requests for legislation, regulations, and interpretative rulings, especially if they come with bribes. Regulations of industries are instituted, aimed at shielding companies or workforces from competition. Bans spare influential communities from new airports, landfills, and the rest. Shakedowns of companies by communities, nonprofits, or governments extract donations or other accommodations. Class action suits add to the diversion of income from earners to those receiving compensation or indemnification. (Other features of the new corporatism are mentioned in Chapter 10.) The result was not necessarily an extremely large government, but it was in important ways unlimited government.
The new corporatist economy, then, is pervaded by fears of holdups by the government, by stakeholders, by organized labor, and by an ocean of persons and companies ready to litigate. It is a familiar point that in economies where labor and capital are protected from having to compete, thus frozen indefinitely in companies producing the same old products, investment activity is generally meager. It is also familiar that the powers in a corporatist society to threaten existing companies can weigh heavily on the prospects for profit at affected companies and thus on their share prices, and thus depress the economy’s investment activity and employment levels.30 It needs to be added that if would-be innovators fear to embark on novel undertakings for fear of a feeding frenzy of pressure groups demanding a cut of any potential resultant innovation and profit, it becomes impossible for ordinary people to thrive and flourish. Indeed, the whole economy may gradually become obsolete and fall into a mounting depression.
Corporatism’s Dark Side
The next two chapters undertake some economic research to test the central claims made on behalf of corporatist economies. But some of the false claims of corporatism can be detected with no economics at all, only a little common knowledge.
The corporatist system was idealized as having dispensed with individualism and competition, which were demonized as ugly and inhuman. But the system merely transplanted individualism from the market to the state, where individuals would elbow their way to increased power. The system would end competition among producers for the many buyers in the markets. But it replaced that with the insidious competition of producers and professionals for a share of government contracts and a place in government-sponsored enterprises—for a single, all-powerful buyer. The system was idealized as having put an end to the conflict between capital and labor, but in the end the postwar systems simply conferred large monopoly power to unions as well as large employers, thus licensing both of them to contract output. The system was portrayed as restoring the balance between materialism and high culture, but the system then undermined most of the great literature and art because they were individualistic. The system was extolled as scientific in contrast to the chaos of the modern system it replaced. But the system would replace uncertainty about what the myriad would-be innovators were up to with uncertainty about the outcome of the state’s attempts at innovation. That might create more uncertainty than before. The corporatists demonized the power that the modern economy conferred on the industrial mogul or financial speculator who became rich, portraying their new system as a servant of society as a whole. But their system concentrated far greater power in the hands of political moguls and their financial backers.
It is understandable that, under early capitalism, market forces caused participants to feel they are like sheep being driven by snows, floods, and the rest. (The saving grace of the market in this respect is that it drove people to do voluntarily what needed to be done for a better allocation of resources.) The times of mercantile capitalism may not have been very happy for that reason. But with the advent of modern societies, participants in the economy were able for the first time on a mass scale to conceive and look for new ways of producing and new products to produce, thus to make new careers. Individual opportunity meant opportunities for mental stimulation, engaging work, and rewarding lives of challenge and personal development. Corporatism suppressed this individual opportunity, forcing participants to gain permissions to enter an industry and possibly to curry favor to enter an industry or win business. Thus it was an oppressive system. The idea of corporatism inspired systems of varying totalitarianism (to use Mussolini’s own term) that turned most participants back into sheep.
1. See Sidorsky’s “Modernism and the Emancipation of Literature from Morality” and his “The Uses of the Philosophy of G. E. Moore in the Works of E. M. Forster.”
2. Tönnies witnessed this disruption as a youth in rural Schleswig. He further distanced himself from Marx in arguing that specialization had existed in communities for centuries and had actually strengthened them. Neither was he a fascist. He joined the Socialist Party in 1932 just to spite the Nazis. Tönnies’s magnum opus, in German, was first published under the title Gemeinschaft und Gesellschaft in Leipzig in 1887, when he was still young. Though Gesellschaft often refers to a business, so one might think the title meant “Community and Business,” Tönnies used Gesellschaft to mean modern civilization, business included. Editions in 1912 and 1920 gained wider attention. A new 2001 translation into English is Community and Civil Society.
3. Freud, Civilization and Its Discontents (p. 50). He wanted aggressions to be constructive, lest another war broke out. The title of the 1930 German original, Das Unbehagen in der Kultur, raised the problem of translating Unbehagen. (Freud suggested “discomforts.” His 1930 translator Joan Riviere proposed “discontents.”) What Freud meant by Kultur was the entire acquisition of knowledge, practice, attitudes, and even “tools.” Today, tools and even technology are usually kept out of “culture” but included in “civilization.”
4. The classic study is the 1925 essay by Franz Roh, reprinted in 1995. Many examples of the period are reproduced in Silver, Chaos and Classicism. Silver’s earlier book Esprit de Corps covers some of this ground.
5. There was an ethnic dimension to the politics of protection. The competition from which the Christian Social Party sought to protect the Catholic lower class came from predominantly Jewish businesses. The German nationalist parties wanted government to use its power to protect people of their ethnic background against competition from Slavs and especially from Jews. The socialists were no different. The Social Democratic Party boasted that it, not the corporatist group, was the true opponent of the “Jewish big capitalists,” “Jewish exploiters,” and “rich Jews.” It went out of its way to characterize its targets as Jewish where the targets were disproportionately Jewish. Anti-Semitism was endemic in Europe during this period. See Muller, The Mind and the Market (p. 353). It is fair to ask whether the advancing entrepreneurs were opposed because they were Jewish or the advancing Jews were opposed because they were entrepreneurs. The answer would appear to be the former, since Europe had long exhibited a bias against Jews. It was more than that, however. The problem that the corporatists later called the “Jewish question” was not the Jewish identity of so many in Germany but rather that many successful Jews were mostly in the “liberalism” camp, which was integral to the birth of economic modernity, rather than in the corporatist camp. The first solution was to take over their businesses, the “final solution” was the Holocaust.
6. Some scholars define “corporatism” in terms of its structure rather than its aims. In a 1974 paper, “Still the Century of Corporatism?” Philippe Schmitter writes that corporatism could be defined as “a system of interest representation in which the constituent units are organized into a limited number of singular, compulsory, noncompetitive, hierarchically ordered and functionally differentiable categories, created, recognized, or licensed by the state and granted a deliberate monopoly” (p. 97).
7. Sardinia’s Statuto Albertino, which King Charles Albert’s son had imported to all of Italy on his ascension to the throne, did not create review.
8. His main speeches in the early 1930s and a sort of handbook of the structure of the corporatist economy were published in the original Italian in Mussolini, Quattro Discorsi sullo Stato Corporativo (1935), and in English translation the same year under the title Four Speeches on the Corporate State. (“Corporatist” or “corporative” would have avoided a seeming reference to corporations in the English sense.)
9. Mussolini, Four Speeches on the Corporate State (pp. 81–82).
10. James, Europe Reborn (p. 99).
11. Four Speeches on the Corporate State (p. 83).
12. Four Speeches on the Corporate State (p. 33).
13. Quoted in Heinz Lubasz, Fascism: Three Major Regimes (p. 78).
14. See Nocken, “Corporatism and Pluralism in Modern German History”; Abelshauser, “The First Post-Liberal Nation” (p. 287).
15. Salgado and his Integralistas wanted to abolish self-interest and put in its place pity, charity, and sympathy. Vargas needed them for a crackdown on the communists and the success of his 1937 coup establishing a single-party state, the Estado Novo. Once in power, however, he had no more use for them. The Integralistas, in a midnight attack on the presidential palace, attempted a takeover, called the Pajama Putsch. The army arrived barely in time to put down the assault, and the Integralistas were finished.
16. Walter Lippmann, The Good Society (p. 139). Lippmann, whose newspaper columns made him a household name, was immortalized (along with Schopenhauer) in the burlesque number “Zip” in Rodgers and Hart’s Pal Joey. Hart clearly drew on his courses at Columbia.
17. Quoted in Schlesinger, The Coming of the New Deal (p. 115).
18. One historian of the period writes, “Three years after [Hitler’s] accession to power the German economy was booming. Unemployment was reduced so drastically that labour shortages became a problem.” See Nicholls, “Hitler’s Success and Weimar’s Failure” (p. 156).
19. Adam Tooze, The Wages of Destruction (2007, p. 65). Tooze referred to 1928 and 1935 rather than the bracketed dates 1929 and 1936, but both versions are true, and it is the recovery from 1929, not 1928, in which we are interested.
20. To a varying degree, employment rose slower than output did, owing in part to productivity growth.
21. Hitler likely had in mind the years 1935–1941 when U.S. output rose at a torrid pace, punctuated by the 1937–1938 recession, while Germany hit a soft patch after the door was closed to trade in 1938. Hayek may have had that in mind when he wrote in Road that German producers would suffer from corporatism.
22. Robert Paxton, The Anatomy of Fascism (p. 186).
23. The German results do not prove that competition is necessary either. Spain provides an intriguing case. Though notorious for an economic system and economic policies that were considered disadvantageous by a range of economic opinion, Spain nevertheless posted phenomenally rapid growth both in real domestic product per person employed and in real hourly earning in manufacturing consistently over the period 1960 to 1980—much faster than the German growth.
24. H. Adamsen, quoted in the useful survey by Berghahn, “Corporatism in Germany in Historical Perspective” (p. 117).
25. Over that same span, Germany’s government consumption-type expenditure, that is, purchases of good and services, rose from about 13½ percent of GDP to about 20½ percent. And social security outlays (benefits under old-age, sickness, and family allowance programs, plus social assistance) rose from 12½ percent to 17 percent (OECD 1983, tables 6.2 and 6.3). Italy’s employment statistic started higher, at 9 percent, and its government expenditure statistic started lower, at 10 percent, but both statistics ended precisely at Germany’s levels in 1981.
26. The red tape estimates were published in The Economist, July 1999. The scores were United Kingdom, 0.5; United States, 1.3; Netherlands, 1.4; Sweden, 1.8; Spain, 1.8; Germany, 2.1; Belgium, 2.6; France, 2.7; and Italy, 2.7.
27. Groom, “War Hero Who Became Captain of British Industry” (p. 7). The second sentence is from Groom, “Gloom and Boom” (p. 16). “Jimmy” Cleminson was an industrialist and later president of CBI from 1984 to 1986. Incidentally, fame came to him as a parachute captain at the battle of Arnhem. His exploits are a part of Richard Attenborough’s 1977 film A Bridge Too Far.
28. The classic indictment is Howard, The Death of Common Sense. The quotation is from Howard’s The Collapse of the Common Good (2001).
29. Something like this emerged in economics during the 1970s when it became fashionable to suppose that the entire workforce of the country was in a lifetime implicit contract with existing employers. In every community the employers were seen as providing insurance to their employees in the event of poor business prospects warranting layoffs, and banks in the community provided employers insurance when conditions warranted some rationing of credit. This new wave of theorizing made it seem as though the feudal economy, with its lifetime employment and “relational banking” was the economic optimum after all, not laissez-faire with all its rigors—its cold showers and thin gruel.
30. That high share prices usually lead to high investment activity and thus high employment—they induce the investment or they reflect impulses to invest inside the companies—is shown in Phelps, “Behind This Structural Boom” (1999).