Imagine a situation in which a single industry, dominated by a coalition of producers, captures the regulatory apparatus and the politicians who fund it. They rig the system against would-be competitors, pushing buttons and pulling levers.
If that doesn’t work, there are always the courts in which government can serve as plaintiff. Even if the defendant prevails, the business is still ruined. We call it lawfare in our times. The process is the punishment.
You can surely think of many examples presently. That’s because we now have access to information in ways that were never previously possible. But now that we know this is common in mixed-system economies, what are some examples from history?
If you doubt it, consider what came next with the interstate highway system. It was a national road network that continued wartime-style public spending, three-quarters of a trillion dollars in today’s terms. It represented an abandonment of the already well-developed passenger train model of transportation in favor of the new thing, the automobile.
The new system redistributed wealth coast to coast, causing old towns to decay and new suburbs to arrive everywhere. The lobbying for real estate was intense. If you think about the times and the American ethos of free enterprise, which would seem to eschew this sort of industrial plan, it was truly remarkable that it happened at all.
No question that this was both a symbol and a full realization of the power of the automotive industry in the United States. But one consequence of this was the strangulation of competition.
The movie tells the story of Preston Tucker and his vision for an improved car. The old automakers had no real intention of innovating after the war because they had diverted so much in the way of resources for the war effort. They wanted to keep selling what they had already designed in 1941.
Tucker was from Michigan but foresaw a new type of car. It was to be beautiful, fast, and safe. He imagined a water-cooled aluminum block, a flat-6 rear engine, disc brakes, four-wheel independent suspension, fuel injection, the location of all instruments within reach of the steering wheel, seat belts, a padded dashboard, and center light. He was also a marketing genius and created a tremendous public fuss about the glorious new thing on the way. He managed the financing to buy a factory in Chicago.
After a disastrous initial presentation in which the car on display did not actually work, he eventually did create a wonderful car, fully 49 of them, which were called the Tucker 48 after the year in which they rolled off the factory floor. Today a restored Tucker 48 will run you $2 million-$3 million at auction, but they are rarely available.
In many ways, it was a wonderful car but the industry came after him hard to pull it from production. They tried restricting his access to steel. They tried to restrict access to financing. Finally they got him through back-channeling a Securities and Exchange Commission investigation into stock and dealership sales. After years of litigation, Preston Tucker prevailed in court with a not-guilty verdict. But by then, the goal of driving him out of business was done.
The movie presents all of this with great accuracy but for the timeline which was compressed for purposes of moviemaking. There are some exaggerations along the way of course too. But generally speaking, the movie is not fictional. It tells the true story of how industry itself throttled free enterprise.
When it first came out, I was truly taken aback. By then I had become a convinced partisan of free markets. But in those days, the politics lined up such that all of us generally assumed that the corporate world and the Chamber of Commerce were our friends. There was business and there was government and their interests were naturally opposed. It was a simple and Manichean model that seemed to explain all surface reality.
Therefore this movie confused me when I first saw it. It was pro-enterprise but anti-corporate. I could not understand the ethos and what the intent of the film was. At first I assumed it was a fiction. Surely business would not use government as a mechanism to restrict enterprise and consolidate control the same way a state might! I was stunned to realize it was a true story. But in my mind, I just put it on the shelf and went on with my life and delusions.
The problem of corporate capture of agencies and politicians has presented itself as never before in our times. It is not only the well-known case of pharmaceuticals. It applies to big everything: tech, education, energy, agriculture, real estate, housing, and nearly everything you can imagine. Industry has become wildly influential.
And here’s the ominous point for any traditional defender of free enterprise. As you examine the actual operations of the cartels and the mixed system we have today, it is not always clear which is the hand and which is the glove. In other words, the whole point of the agency has become in many cases a service project for industry itself. This is not the government intervening in the economy. It’s the economy intervening in government.
No question that the system breeds corruption. Some people think it is strangely implausible that an old-left guy like Robert F. Kennedy, Jr., could ally with old-right defenders of business enterprise. That’s because the old categories made them opposed but a realization of the tactile workings of the system had made them understand that the combination of business and government corrupts both. Therefore they have common cause in something like a classically liberal system of small merchants and small governments.
This new understanding represents a huge departure from the settled Reaganism of the past. But it also represents a departure for the naive left that once believed that more regulation was the answer to all problems of business corruption. That did not work out as they expected because, as it turns out, the dominant player in the regulatory game is always the most well-heeled corporations.
This understanding of the situation even traces back to the earliest regulations concerning meatpacking. You know who wanted them the most and lobbied for them the hardest? It was the dominant firms in the meatpacking industry itself. They wanted to impose high regulatory costs on their competition.
As we look back, we can retell the whole history of the last century and a half of the growth of the industrial state as one long story of agency capture, from food and drug regulation through central banking to the rise of the postwar car industry. In that sense, it seems like the left and right have a similar story to tell about both the problem and the solution.
