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September 16, 2005

When Democracy and Capitalism Cohabitate

A look at U.S. history is a sobering experience. Government generally defends the property of the wealthy against everyone else. But occasionally things shift.

Adam Smith was prescient when he wrote: “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”

Of course, most Americans prefer not to believe this. We like to think our government is “of the people, by the people and for the people.” Would that it were so. The present reality is that the state has been captured by profit-maximizing corporations. This capture isn’t an accident, or the fault of George Bush. It is, alas, inevitable. It’s what happens when capitalism inhabits a republic.

The history of America is, in a sense, the history of the corporation’s rise to dominance. Until the early 19th century, corporations were rare, individually chartered, and limited in power and duration. By the late 19th century, they’d gained perpetual life, limited liability and ‘person¬hood’ under the U.S. Constitution. Today they’re ubiquitous, and a few hundred dominate both the American and the global economy.

Of course, the growing power of corporations didn’t go unnoticed. Populists and progressives screamed and schemed, and the result was government regulation.

In theory, government has many ways to protect the public from corporate misdeeds. For example, it may require timely disclosure of toxic releases, ban some pollutants altogether, or tell companies what technologies to use. It may divide the landscape into “zones” and specify what kinds of activities can take place in each zone. It may divide monopolies, stop mergers and tax certain activities.

This wide array of tools — plus the power to punish rule-breakers — seemingly creates in government a formidable counter-weight to profit-maximizing corporations. Yet history has shown that, in the context of America’s democratic political system, government is not the regulatory tiger it appears to be.

Time after time, regulatory agencies have been “captured” by industries they were intended to regulate. This happened to the first such agency, the Interstate Commerce Commission, created in 1887 to curb price-gouging by railroads. It happened to the Federal Communications Commission, the Agriculture Department, the Interior Department and the Food and Drug Administration. It’s happening now to the Environmental Protection Agency.

The process of regulatory capture has been described by many scholars. Details vary, but the plot is always the same. First, a new agency is created to regulate an industry that’s harming the public. At first the agency acts boldly, but over time, its zeal wanes. Reformers who originally staffed the agency are replaced by people who either worked in the industry before, or hope to do so after a stint in government. Lobbyists meet constantly with staffers in Washington, at seminars, on junkets. Meanwhile, the public has no clue what’s going on. And it’s not just regulatory agencies that get captured.

Congress itself has been badly infected. According to the Center for Public Integrity, the “influence industry” now spends over $5 billion a year on lobbying, campaign contributions and phony ‘grassroots’ campaigns. It employs more than 12,000 registered lobbyists, over 120 of whom are former Congress members who enjoy easy access to their erstwhile colleagues. Unorganized, cash-poor and ill-informed citizens stand little chance against this formidable armada.

There’s an even deeper problem. Democracy responds at best to voters, at worst to money. Not even seated at democracy’s table — not organized, not propertied and not enfranchised — are future generations, ecosystems and non-human species. It’s little wonder these vital interests are consistently short-changed.

What, then, to do? My reading of American history is that anti-corporate forces gain power once or twice per century, and as soon as they lose power, corporate dominance resumes. It thus behooves anti-corporate forces, when they next gain power, to create institutions that outlast their political ascendance. Laws, regulations and taxes corporations don’t like are easily rescinded or weakened. Property rights, by contrast, tend to endure, as do self-perpetuating institutions that own them.

It will take more than a few wand strokes to bring capitalism into harmony with nature. For 20 to 30 years, we must be locked on a steady course. For this reason, I wouldn’t place much faith in government agencies, or slim and fickle majorities in Congress. I would place it in the hands of trusts, endowed with common property rights and bound as much as humanly possible to generations hence.