On Crooked Timber they're reviewing Hacker and Pierson's new book, American Amnesia. Their thesis, as I understand it, is that the government has relinquished its role as both a guide for and countervailing power against the free market. And they explore why.
I think it might be fruitful to flesh out these two ideas with some empirics.
In the post-war years, the expansion of mega-size public corporations (which, by definition, are not attributes commonly associated with the “Adam Smith” style free market — Ronald Coase recognized this decades ago) were accepted, finally, as a necessary — if not evil — compromise if we wanted to pursue a certain level of economic growth. They survived the trust-busting of late-19th century and matured into a settled part of our economic landscape after the New Deal.
But then the 1970s came. For whatever reason (history of course is overdetermined!) — free trade, overseas competition, etc. — our corporations were seen to have become less profitable. They weren’t pulling their weight, weren’t justifying their existence by serving as the motors of our national wealth. But at the same time, CEOs were seen as power-grabbers, merging and growing and gobbling up the market to aggrandize personal ambition.
And so government stepped in to act like the countervailing power it has always been. It empowered finance to hold corporations accountable, to serve their social purpose, viz., to generate economic growth. Here, Katharina Pistor’s legal theory of finance is particularly instructive, but anyone familiar with the discourse surrounding the hostile takeovers of the 1980s will be familiar. Who better to make CEOs and boards accountable and responsible than the shareholders who elect them?
The solution, while pragmatic, is of course in hindsight drastically flawed. Quis custodiet ipsos custodes?
At the same time, government is fulfilling its “guide” role by encouraging the development of a comparative advantage in a service industry (finance). Like it subsidized and encouraged railroads. Like it created a national central bank back in post-revolutionary days.
My own question remains: what makes people think that “finance,” an essentially *legal* phenomenon, is an example of a “free market”? And why do people anthropomorphize the giant corporation, pretending it really *is* the black box that neoclassical economics only pretend that it is?
Scott Bowman has a wonderful history of intellectual thought on the corporation, and I also recommend Dalia Tsuk Mitchell’s work on this.
