Authoritarian capitalism as a viable alternative for long-term economic growth

Allied Visions: The Success of the Atlantic Charter, Breton Woods, The Keynesian Economy and How to Recapture It

Any fan of William Faulkner will remember a quote of his from Requiem for a Nun where observes "The past is never dead. it's not even past (Requiem for a Nun)." While frequently quoted out of context, it was spoken by character Gavin Stevens in defense of southern traditionalism. In this case, some are packaging old political economy in new packages. The author of this essay would humbly observe that this is exactly the situation that exists now with regard to the evaluation of "authoritarian capitalism." This essay will examine whether or not authoritarian capitalism is a viable alternative to its Western liberal version (Bretton Woods style, classic Keynesian economics, now in need of resuscitation) in order to promote long-term economic growth and development. Unfortunately, the biggest failure of authoritarian capitalism is that it relies upon force and not human self-interest or freedom.

Unfortunately, the question is largely a non-sequitur, because it is the author's opinion that most of the liberal aspects of traditional Western capitalism have largely died out. However, if Swedish and Swiss examples are followed, along with some other innovations, it should be possible to recapture the prosperity of Breton Woods and the stability of capitalism that existed under the U.S. regime of the Glass-Steagall Act.

In bygone days, when people were not politically correct, authoritarian capitalism was referred to as corporatism, a term coined by Benito Mussolini. Today, when we have huge bailouts of corporations mandated by law by two different presidential administrations, it is crucial that we step outside of the left-right paradigm and look critically at the historical record of authoritarian capitalism and its present variations. Like a modern Matteoti, any objective investigation of the modern bailouts in most of the Western countries will find out that they are a spoils system for corporate elites. The reason that this author steps out of the left-right paradigm is that he does not see any baseline difference between the policies of George W. Bush and Barak Obama. Both have favored huge taxpayer giveaways to large banks and investment houses, with none of this money being given to people at the lower end of the spectrum in terms of loans on houses, businesses and what have you. In addition, the Obama administration is engaging in two activities that is absolute heresy in the eyes of orthodox Keynsianism. First, the continuation of the permanent war economy and second is the abolition of the destructive types of speculative investments in banking that would have been illegal under the Glass-Steagall Act of 1933 by FDR to combat the abuses that brought about the Wall Street Crash of 1929.

In this essay a historical myth, probably one of the biggest of the twentieth century, needs to be blasted into oblivion. The myth involves the idea that fascism was created by two lunatics named Mussolini and Hitler. These two evil men then started World War II and the good guys from the allies put them out of our misery.

What the best historical research actually reveals is that corporations such as Ford Motor Company, Standard Oil, General Motors, Dupont and IBM not only actively aided and abetted the rise of Hitler and Mussolini. Indeed, Hitler and Mussolini garnered massive corporate support on both sides of the Atlantic and business was very good. The very corporate international globalism that was supposed to avert war via appeasement in actuality brought about the very war that was feared and dreaded. Unfortunately, globalism since the beginning of the deterioration of the Breton Woods system in the 1970's has taken on most of the economic attributes that led us into the tragedy of the Second World War, minus some of the more venal aspects brought on by overt fascism.

In the first part of the essay, a historical case study will be considered from Nazi Germany regarding IBM and its functioning on both sides of the Atlantic as an indispensable tool of Hitler's Nazi Germany. Then, the author will consider recent experiences in authoritarian capitalism mandating billions of dollars to bail out failing corporations during the administration of George W. Bush. These policies have largely been continued by the administration of Barak Obama. Finally, the essay will consider how to recapture the halcyon days of Keynesian optimization of the capitalist economy realized under the administration of John F. Kennedy that was literally killed by Lyndon Baines Johnson in the rice paddies of Vietnam.

The revolving door between corporate CEO and U.S. government servants is illustrated explicitly when former Goldman Sachs executive and then U.S. Treasury Secretary Henry Paulson oversees a multi-billion dollar bailout that specifically benefits Goldman Sachs. Given the sorry performance of this authoritarian capitalism and its survival into the Obama administration, it is hard to see how it will promote long-term economic growth and development.

Historical Case Study of Corporatism and Nazi Germany

Like in abnormal psychology, it is frequently necessary to examine extreme cases of human behavior in history in order to see behaviors in stark relief. Similar to the extreme cases in abnormal psychology, this section of the essay will exam-ine the cor-po-rate rela-tion-ships between Ger-man and Amer-i-can firms that were crucial in the rise of the Third Reich. This cartel system allowed the Nazi war machine to navigate a course through the efforts to boycott and economically isolate Nazi Germany. The number of companies is seemingly with out end, but examining IBM will suffice to make the author's point. It will also serve as an example of corporatism at its worst and how the failure to control its excesses provided faults in the postwar system that eventually undid Bretton Woods and the Keynesian paradigm.

The behavior of IBM is just such a clear cut and all encompassing case. The relationship between IBM began in the first few weeks of Hitler's rise to power and then continued well into the Second World War. When Germany started on its campaign of murderous conquest, IBM and its European subsidiaries tailor made the technologies and equipment that facilitated the Final Solution.

While this is the main thrust of the book IBM and the Holocaust, what is more interesting to the author is the fact that IBM's role was critical in Hitler's rearming and the marshalling of resources in order to go to war. There was definitive collusion between the Third Reich and IBM's Thomas J. Watson, the popular American CEO of IBM. For his and IBM's spectacular provision of services to the economy of Germany, he was awarded by Germany the "Merit Cross of the German Eagle with Star. This was the highest award that the Reich could confer on any non-German (2001, p. 131)."

Like many of the country's biggest industrialists, financiers and influential companies, the IBM crew was openly supportive of the fascist countries of Europe. IBM knew exactly where all of its Hollerith data-processing machines were

While IBM and its German subsidiary was instrumental in processing data about Jews and other undesirables, it is more interesting to consider how IBM was playing both ends against the middle in the pull between the West and the Axis powers. Above and beyond IBM's role in keep track of the victims of the Nazi persecutions, the Hollerith data processing technology was irreplaceable in the Nazi drive to centralize and coordinate German industrial and civic operations. Truly, with the IBM data processing technology, they were able to streamline and realize previously undreamed of efficiencies and rather than prevented war, made it much more likely by its coordination and operation of the Third Reich's war economy (ibid, p. 86 -- 89).

What makes the IBM example so prescient is that Watson's services went far beyond the provision of machines and technical know how to prosecute the German war effort and to suppress and liquidate German enemies. What made his services so ultra-modern are corporate negotiated agreements that would be later ratified by countries without election or public consideration. Watson openly advocated for an "arrangement" between off the record meetings between corporate representatives from the U.S., U.K., France and the Axis countries. "Trade agreements" like this are authoritarian in nature. Watson claimed that such a trade agreement was meant to make it possible to move strategic, vital raw materials between the non-Axis and Axis nations. In IBM and the Holocaust, Edwin Black notes that the exchange of "the raw materials were needed by Axis powers solely for the sake of waging war (ibid, pp. 176-177)." It should also be noted that the business arrange-ment was to be made basically exclu-sively between busi-ness-men of the six nations. This type of appeasement arrange-ment, as well as the ratio-nal for it (i.e., "avert-ing war"), is definitely antic-i-pat-ing some of the inter-na-tional "free trade agree-ments" that have char-ac-ter-ized world com-merce in the last twenty years (ibid, p.p. 176-177).

IBM, like so many other corporations was so extensive with the Axis powers as that the economic Warfare Section of the Department of Justice attempted to frustrate the cooperation of American industry with the Nazis (ibid, 348-350). In IBM's case, the Department of Justice found that their efforts were mired in failure. Unfortunately, IBM was so central to the economic operations of Germany and occupied Europe that it was necessary to preserve IBM's role in the economy of Europe so as not to jeopardize the postwar occupation.

Part II-Present Corporatist America and Comparisons with Fascist Italy-

When the Wall Street Journal, the United States' newspaper of record for financial affairs makes an explanatory note, it gives us all pause. Gerald F. Driscoll in "An Economy of Liars" takes aim at both the Obama and George W. Bush administrations when he speaks about the present economic reality and asserts "We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith ("An Economy of Liars" 2010)."

If a communist agitator on the proverbial soapbox spouted this statement, it could be easily dismissed. However, now the major economic beacons of the country are sounding in shrill alarm, realizing what has happened. They understand that the country is in deep trouble and that the initial $700 billion dollar bailout is just the beginnings of the problems.

Every administration in U.S. History wants to be perceived as outsiders and populists. Both the Obama and second Bush administrations, like Mussolini before them, have presented themselves as populist regimes that would benefit the majority of the population. Like the Fascist corporatist state of Italy, the present U.S. system is now actually a spoils system that is designed to reward the economic and political elites that elevated the political officials to prominence.

To further elaborate upon this, columnist Sean Olender in a San Francisco Chronicle op-ed piece described the $700 billion dollar bailout "nothing short of a final step on the path to the end of the republic. The secretary (Treasury Secretary Paulson) claims he can only be effective if his decisions are beyond judicial review (Bailout Tests How Much the American Public Will Tolerate Theft" 2008).

If the government is now beyond judicial review, we have entered the defined zone of fascism and there is no measurable limit to how far things can be pushed. Before things go too far, we must recover the basis of liberal Western economics.

In the history of the United States, there is hope in recapturing the legislation, innovation and wisdom of the last Great Depression's leadership (yes, let us call the present economic downturn by its actual designation). FDR in a message to Congress on April 29, 1938 delivered a speech on curbing monopolies and observes:

Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people.

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism -- ownership of Government by an individual, by a group, or by any other controlling private power.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living

Once it is realized that business monopoly in America paralyzes the system of free enterprise on which it is grafted, and is as fatal to those who manipulate it as to the people who suffer beneath its impositions, action by the government to eliminate these artificial restraints will be welcomed by industry throughout the nation (Webpage).

The pathetic performance of the present Washington administration current bailout schemes against the New Deal of 1933 is stark by contrast. The administration claims to basing its policies on John Maynard Keynes and FDR's New Deal is truly specious. A quick referral to the historical record will illustrate this immediately.

For instance immediately with the first "Hundred Days," FDR's administration churned direct relief to get the speculation out of the banking system and restore confidence. We have mentioned the Glass-Steagall that eliminated speculative investment products and securities from being sold in banks. The fact that the inaugurations were then in March and not in January shows the immediacy of the New Deal program (2006, p. 305). The liberal Western model worked sixty years ago and can again now.

Part III -- the Atlantic Charter, Bretton Woods, and Financial Resurrection:

World War II grew out of the unsatisfactory resolution of World War One. The economies of the West were irrevocably molded by these world wars. For this reason, before World War II and indeed before the official U.S. entry into the war, the two Western Allies began planning the postwar order. This had two reasons.

First of all, something had to be offered to the civilians on the home front and the fighting men on the fighting fronts that they had a new world worth fighting for. Secondly, it was necessary to make sure that a new economic order was constructed that would not invite the mistakes of the past.

In essence, what needed to corrected was the collapse of economic internationalism in the 1930's. The new economic order was meant to deal with these problems and to make sure that the causes of them never happens again.

A key component of this was Keynsianism. The economic philosophy of John Maynard Keynes as expressed in the General Theory of Employment, Interest and Money became an instantaneous classic at the time, but also a point of controversy. Keynes' construct was seen as a counterpoint and a middle ground between Nazi and Soviet totalitarianism. In Keynes' reckoning, the key problem of the Great Depression was due to insufficient demand. To rectify this might involve additional government expenditure or financial redistribution to raise the incomes of the potential consuming class (2006 pp. 21-30).

While Keynes was not completely original, he was the most successful of his school of economic philosophy. Both Soviet Russia and Nazi Germany were venally repugnant to Keynes. The European country closest to his philosophy is probably Sweden and Keynesians had been already anticipated in the theories of Knut Wicksell and his disciples. Agreements between unions and employers' organizations by 1938 provided the foundation for the new social harmony of the postwar world.

Wicksell's ideas contributed directly to the institution he founded the so called Stockholm School of Economics that influenced various economic "schools" in the rest of Europe and America, including the famous Austrian school. Their ruminations provided the basics for the practical crafting of agreements in many European countries, but with particular success in Sweden in 1938 (the Saltsjobaden Agreement) between business and labor. This laid the basis for a hard-won social harmony. This harmony is critical to any economic order. Both parties have to realize that growth helps both of their causes and that infighting will only compromise things (1996, p. 189-190).

Wicksell anticipated the modern central bank monetary policies when he convincingly argued that interest rates must be manipulated to control prices. He was in favor of price stabilization. This was because he was of the opinion that inflation and deflation were regressive income redistribution devices. Unfortunately, in this case, some gained at the expense of others. The economic rule was very simple. If prices rise, then interest rates are too low. If prices are falling, then rates are too high. His analysis and exposition of the quantity and marginal productivity theories give him a permanent place in the modern macroeconomic thought's development. The success of Keynesian ideas during the administration of John F. Kennedy will be considered later on in the essay.

The breakdown in the economic order that happened in the 1930's caused the old system to fall and fueled the rise of Nazi Germany's economic order negotiated and created by Hitler's economics minister, Hjalmar Schacht. While this was advantageous to the smaller nations of Europe where the troubles of Europe always seem to begin, they also brought about an almost colonial dependence upon the Hitler's fortress Europe where the captive nations were forced to buy the goods of the allies of the Axis powers (ibid, 190).

American proposals were based upon the belief that the collapse of the international economic order in the 1930's was the cause of the war. This is why they argued that only a liberal trading order could serve as an adequate foundation for the post-war order. During the course of wartime diplomacy, the U.S. began by implementing the vision that came from the Atlantic Charter, Lend Lease, the Marshall Plan and Bretton Woods flowed out of this same font.

In August 1941, the Atlantic Charter was drafted during a summit between U.S. President Franklin D. Roosevelt and then British Prime Minister Winston Churchill to implement Keynesianism. At the summit, FDR put into motion a group of ambitious goals for the reconstruction of the postwar world. The Charter confirmed the right of all countries to have equal access to raw materials and trade, freedom of the seas, disarmament of aggressor nations and the establishment of a better world economic system.

In the next two and one-half years, the U.S. entered the worldwide struggle for survival against totalitarian Fascism. Over that time, the treasury departments of both Great Britain and the United States were working out the details necessary to reconstitute the world's economic system without the defects that resulted in the world holocaust. This international system of payments would allow trade to be done without fears of sudden currency depreciations and wild fluctuations in currency exchange, all issues that brought about the crisis in world capitalism called the Great Depression.

The nations of the world determined to make sure that the tragedy of World War II would never happen again. It was widely assumed, especially by the United States that the failure of the old economic order that brought in the Great Depression brought about the Second World War. In this spirit, the Bretton Woods Conference of July 1944, forty-four nations, united in the struggle against Fascism, came together to fashion a new economic order to replace the old.

While a liberal economic order was to be retained, membership in the International Monetary Fund and the World Bank imposed upon countries with surpluses the obligation to assist less developed countries. Currencies were to be fixed relative to each other ("fixed par values") to prevent competitive devaluation and speculations that had brought down the old order of the 1930's.

This "fixed par value" maintained the exchange rate of the country's currency within a fixed value (plus or minus one percent) in terms of gold and the IMF's ability to bridge small and temporary imbalances of payments. The goal of the system was to promote free trade and to limit the restrictive tariffs that brought about the Great Depression. This free trade and lack of tariffs along with this regulation of exchange rates was the foundation of the U.S. based vision of postwar global free trade. This was all very favorable to capitalism.

In essence, the developed countries with market economies agreed with the United States' vision of what post-war international economic management. In fact, this was an attempt to return to something akin to the pre-war gold standard, except this time, U.S. dollars were the world's new reserve currency until the world gold supply could be redistributed by international trade activity (1996, 192).

In theory, this would make the new system devoid of government meddling in currency supplies and it was during the Great Depression. Rather, governments would guard the production of their currencies, ensuring a real and not an artificial price level. In a defacto fashion, Bretton Woods went back to a period where there was no governmental intervention in economies and currencies. The system represented some two years of planning by the Roosevelt administration and was a central part of the recovery strategy for the world economy to prevent the previous collapse of the 1930's.