Family Capitalism and the Small Business Insurrection

For much of the 2016 presidential campaign, progressive commentators struggled to comprehend the foundations of Trump’s popular support. Many assumed that the strident right-wing populism he unleashed was a long overdue reaction to the decades of wage stagnation endured by the industrial working class. True enough, Trump assiduously targeted this demographic during his campaign. Guided by Steve Bannon, he selectively presented himself as an advocate for a blue-collar welfarism of the kind briefly entertained by Richard Nixon—erstwhile friend of the hard-hat worker—and later embodied by Nixon adviser Pat Buchanan. It was this incarnation (one of several personae Trump adopted in 2016) that explains much of the early confusion regarding his political intentions. But while Trump’s pandering to Rust Belt Democrats won him critical margins in Ohio and Pennsylvania, the few hundred thousand industrial workers who voted for him were hardly sufficient to constitute a long-term advantage. Nor were they representative of Trump’s crusaders as a whole, the most passionate of whom were first politicized by the Tea Party movement.

Arising in the aftermath of the housing crash of 2007, the Tea Party targeted a perplexing range of enemies, from subprime mortgage holders, unemployed workers, and public-sector unions to investment banks and corporate giants. In the eyes of Tea Partiers, who saw themselves as quintessential producers and taxpayers, these heterogeneous enemies were united in their dependence on government welfare, be it in the form of public assistance, state-funded wages, or corporate bailouts. As with Trumpian populism, the eclecticism of Tea Party animosity confounded progressive critique. If Tea Partiers were so enraged by the bailouts of AIG and General Motors, could they not be reeducated as leftists?

The specificity of Tea Party grievances makes more sense if we understand it as a movement of small business owners, many of whom saw the values of their housing and business assets depreciate overnight as a result of the subprime crisis. The Trump diehards who cut their teeth in the Tea Party were not wage workers, nor even misclassified independent contractors, but small businesspeople concentrated in the blue-collar residential construction sector and its white-collar satellite professions of homeware retail, real-estate services, mortgage brokerage, and accounting. It was the meteoric rise and fall of the small business sector—not the long saga of deindustrialization—that gave birth to the current cycle of far-right populism.

When the first wave of Tea Party Republicans swept into Congress in the 2010 midterm elections, some of the most prescient observers pointed to the growing rift between the small and big business wings of the Republican Party and pondered its implications for the future of American capitalism. Writing for Bloomberg BusinessWeek, the journalists Lisa Lerer and John McCormick observed that established trade associations such as the Business Roundtable were distancing themselves from Tea Party candidates, fearing that their willingness to sabotage the basic workings of government risked destabilizing the entire American economy. A group of leading corporations including General Electric, DuPont, Alcoa, and Duke Energy expressed their support for an emissions reduction bill in 2009, only to be faced with a barrage of invective from congressional Republicans accusing them of colluding with big government. Tea Party candidates saw big government and big business as acting in unison to suppress the freedoms of the small business owner. In the words of Dick Armey, chair of the Koch-funded organization FreedomWorks, “Big Business is sitting there on fat, pushy duffs looking for government to keep them in business.” Only “incompetent companies need bailouts. People who run corporations are basically taking care of themselves. They’re not very reliable people and they’re very comfortable with Big Government that greases the skids for them.”

This same cleavage between small and big business can be seen in Republicans’ current war against “woke capitalism”—the stakeholder-driven expression of political preferences on the part of large corporations—which Senator Ted Cruz recently described as a devil’s bargain between the “left and its big business allies.” In the same op-ed for the Wall Street Journal, Cruz urged Republicans to abandon these “fair-weather” friends. True defenders of market freedom would be better off without corporate PAC money constraining their every move. “When the time comes that you need help with a tax break or a regulatory change, I hope the Democrats take your calls,” Cruz wrote, “because we may not.”

This style of business (or libertarian) conservatism has a long history on the American right, one that has been documented in detail by Kim Phillips-Fein. When the largest publicly listed corporations and their trade associations—chief among them the Business Council, progenitor of the Business Roundtable—made their peace with the New Deal state in the wake of the Second World War, small business conservatives remained aloof, convinced that big business was just as responsible as big government was for the growth of tax and regulatory burdens. The Business Roundtable continued to collaborate with both major parties even as it rebelled against the Fordist consensus in the 1970s. By contrast, small business conservatives have always rubbed shoulders with the nativist, theocratic, and white supremacist currents of the American far right. Their relationship to the Republican Party, mediated by such figures as Barry Goldwater and Newt Gingrich, takes the form of antiestablishment insurrection.

The long misunderstood but enduringly influential supply-side movement has always had its elite and its popular wings. Establishment figures such as President Gerald Ford’s Treasury Secretary William E. Simon and Harvard economist Martin Feldstein celebrated “capital formation” and called for cuts to the capital gains and corporate income tax, while academic and political mavericks such as Arthur Laffer, Jude Wanniski, and Jack Kemp sought to forge an improbable alliance between blue-collar workers and small business by calling for cuts to the individual income tax. Under the renegade leadership of Richard L. Lesher, the U.S. Chamber of Commerce (the largest lobbying group in the United States) created an effective hybrid of hard-right social conservatism and supply-side economic populism. The Chamber’s monthly magazine, the Nations’ Business, addressed all workers—especially blue-collar workers—as self-employed business owners in waiting, and railed against the federal agencies that would violate their constitutional freedoms. The magazine featured articles on tradesmen who had done battle with federal health and safety regulators, long-haul truckers who had freed themselves from union oversight to build their own fleet, and door-to-door salesmen who had escaped the drudgery of nine-to-five employment. In this way, the blue-collar producer was reimagined as an aspirational small business owner rather than a wage worker—a slippage that helps explain the American right’s strangely capacious understanding of the working class today. The Chamber’s ideal entrepreneurial form was not simply the small business, but the small family business, whose natural labor hierarchies and personalized property relations stood in contrast to the suspect anonymity of the corporation.

Not incidentally, the Chamber of Commerce had close links with Amway, the direct sales company cofounded in 1958 by Chamber board member Jay Van Andel and his childhood friend Richard DeVos. In an interview with the Nation’s Business, Van Andel explained the origins of the company’s name, an abbreviation of the American Way: “We decided to use the idea of free enterprise—of the small businessman being able to go off on his own. We believed then, and we still do, that this is the heart and soul of the American ideal—to make your own way. You can start your own business, whether a fruit stand, a farm or whatever, and you can do your own thing in life.” The son of a car dealer and an electrical contractor, respectively, Van Andel and DeVos claimed to be orchestrating a free association of small businessmen. In reality, Amway was perfecting a unique way of organizing business into an elaborate structure of self-replicating contractual relationships, one in which everyone who was not a company leader assumed the hybrid identity of exploiter and exploited.

Posted in Uncategorized | Tagged , | Comments Off

The Economy During Wartime

During the Second World War, the United States had a centrally planned economy. Strategic resources were produced in quantities set in Washington, and allocated among end users by the public officials sitting on the War Production Board. Key prices and wages were administered, not left to markets. The large majority of investment was directed, financed, and, in most cases, owned by the federal government. Thousands of private businesses that failed to comply with the planners’ instructions were simply taken over by the government—including some of the country’s largest corporations, like Montgomery Ward. For millions of Americans, the photograph of Ward’s adamantly anti-Roosevelt chairman Sewell Avery being carried from his headquarters by a squad of soldiers crystallized the new relationship between government and capital.

What are we to make of the fact that economic life was “quite completely regimented” (in the approving words of Admiral Harold Bowen) during the war? For novelists of the front lines, it could appear as part of a vast impersonal machine, consuming human lives as means to an inscrutable end. Think of Corporal Fife in The Thin Red Line, watching his transport ship coming under attack by Japanese planes: “A regular business venture, no war at all. It was weird and wacky and somehow insane. . . . It was as though a clerical, mathematical equation had been worked out, as a calculated risk.” For historian Mark Wilson, whose attention is fixed on the home front, there’s no such ambivalence. His new book Destructive Creation is a defense of the management of the war economy by “clerical, mathematical equation,” against those on the right, who attribute wartime production to the genius of private business, and those on the left, who see the wartime state as an engine of profiteering and monopoly. The book is animated by the idea that wartime planning represents a lost model for effective public direction of the economy: “If American policymakers had applied the lessons of World War II mobilization to the toughest challenges of the later twentieth century, people around the world would be better off today.”

The Second World War was certainly an economic success story, in that it coincided with the most rapid economic growth in U.S. history. Much of this growth came not in the recovery from the Depression, but in the post-1940 period, when the country was already more or less at full employment. Between 1938 and 1944, unemployment fell by about 10 million. (This includes people leaving the Works Progress Administration and similar jobs programs.) Over the same period, private employment and military employment each rose by 10 million, implying 10 million new entrants to the labor force—mostly women. At the same time, workers shifted from less productive activities (especially agriculture) to more productive jobs in industry. Industrial productivity—output per hour—also rose rapidly.

Wilson is certainly right that the federal government played a central role in this vast expansion of productive capacity. Even before Pearl Harbor, it was clear to the leaders of the mobilization effort that the peacetime system of allocating industrial inputs by markets was breaking down in the face of a rapid expansion of military production. Materials like steel, copper, aluminum, and rubber were in short supply, exacerbated by hoarding by contractors who wanted to ensure that their own orders were filled. Even more critically, investment in new industrial capacity—after 1940, almost all directed and financed by Washington—could only be decided if future supplies of critical raw materials were known. (There was no point in building a new bomber factory if there wouldn’t be enough aluminum for it to make planes from.) Ad hoc price controls and the crude “priority” system reserving key materials for military use were not enough—an explicit planning process was needed.

Economic planning during the war also led to a broader rationalization of economic life. Much macroeconomic data begins around 1945—it was first collected to aid in wartime planning. The estimates of actual versus potential output that guide so much macroeconomic policy today emerged out of the “feasibility debates” between civilian economists and military planners—a fascinating story barely touched on by Wilson but told in detail in Paul Koistinen’s Arsenal of World War II (2004), which remains the definitive history of wartime economic planning. The same goes for other belligerents. Richard Werner (in Princes of the Yen, 2003) convincingly argues that the planning apparatus that guided Japan’s postwar economic miracle was the product of the war—early twentieth-century Japanese capitalism more closely resembled the freewheeling liberal, market-centered American system than what we have come to think of as the “East Asian model.” Turning back to the United States, it’s clear that much of what the businesses objected to as “red tape” was simply that in order to win government contracts, they had to adopt explicit cost accounting, wage schedules, and other hallmarks of the modern managerial firm.

It’s easy to see the attraction of making the fight against Hitler exhibit A in a broader argument for the public sector. If government planning was essential for developing and mobilizing real resources for the war, why not for its moral equivalents today, such as climate change? Wilson doesn’t explicitly make this argument—his story stops in the 1950s—but it’s safe to say he’d be on board.

There’s plenty of useful material in this book, but its case would be stronger if it were not so narrowly focused on the business-government interface. Wilson offers a comprehensive account of the ways in which public officials interacted with business: as customers, as financiers, as regulators, as rivals for the favors of public opinion. But he has nothing to say about two critical questions that lie, so to speak, on each side of this interface: how the planning apparatus actually functioned, and how American industry was able to generate such big increases in output and productivity. Wartime productivity gains get, literally, one aside (“economies of scale, improving production techniques, or other factors”) tucked into a discussion of how prices were set for military procurement. Similarly, the operations of the planning apparatus—the War Planning Board and its predecessors—gets less than two pages. By contrast, a dozen pages are devoted to how payments were handled on prematurely canceled contracts. Wilson is very interested in how much the government paid for tanks and ships, not so much in how so many of them were produced.

Posted in Uncategorized | Tagged | Comments Off