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Michael Lind and the Forgotten Consumer

In The New Class War: Saving Democracy from the Managerial Elite, Michael Lind argues that the broad American working class—those without a college degree—has been systematically excluded in the last generation from sharing power in economics, politics, and culture. It wasn’t always this way. During World War I and the Great Depression, the U.S. government administered a form of inter-class cooperation, or “corporatism.” This corporatist system, Lind claims, lasted through the 1960s, only ending in the 1970s due to resurgent economic and cultural “neoliberalism.” This neoliberal revolution was imposed “from above” by technocratic elites—whom Lind defines as people holding a college degree. This new system serves the interests of this technocratic elite at the expense of the working class majority. According to Lind, this system of governance by technocratic managers ultimately prompted the populist revolt that ushered Donald Trump into the presidency.

The solution to this, for Lind, is to re-include the working class in power-sharing arrangements in economics, politics, and culture. He would do this through a form of corporatism that he terms “democratic pluralism.” His pithy summary of his overall argument is this: “Demagogic populism is a symptom. Technocratic neoliberalism is the disease. Democratic pluralism is the cure.” But despite Lind identifying the consequences of this ostensible class war, he does not provide a sufficient account of how the technocratic elite attained power. Further, Lind’s major economic proposal—to (re)cartelize the U.S. economy not only ignores the economy’s major stakeholder—the American consumer—but mistakes America’s robustly mixed economy for a neoliberal, free market economy. As a result of these incorrect diagnoses, he prescribes the wrong remedies for America.

Class War, or Class Deference & Delegation?

The language of “class war” initially suggests that the respective classes promote unified class interests. Lind adopts the central argument of James Burnham’s 1941 work, The Managerial Revolution:

What is occurring in this transition is a drive for social domination, for power and privilege, for the position of ruling class, by the social group or class of the managers. . . . At the conclusion of the transition period the mangers will, in fact, have achieved social dominance, will be the ruling class in society.

Burnham, however, doesn’t really mean, as Marx seems to mean, that class identification solves the collective action problem across individual class members, allowing otherwise disparate individuals to act in concert to advance class interests. Burnham writes, “we must remember that the language of a struggle for power is metaphorical.” Managers “never got together to decide, deliberately and explicitly, that they were going to make a bid for world power.” Lind follows Burnham in this, writing this comedic reductio: “The libertarian economist James Buchanan did not meet with the Beat poet Allen Ginsberg . . . to plan a transfer of power in all three realms of politics, economics, and culture from working-class majorities to the university-credentialed overclass in the US and other Western nations.”

Yet recognizing that the technocratic-managerial class is not a unitary actor raises a more daunting prospect for Lind’s argument: If the current arrangement arose as a result of millions of uncoordinated, individual decisions among both the college educated and non-college educated, then what prospect exists for reversing the arrangement, except via a populist strongman, a remedy that Lind also decries?

Here’s the problem. Consider incentives that induce rational non-voting, rational-non-participation, rational ignorance, and other barriers to coherent collective action for Lind’s working-class majority. What if technocratic managers were not so much driven to “take over” as they simply had the skills and orientation to perform functions that others could not or did not want to perform? What if today’s social and political arrangement evolved from uncoordinated individual choices rather than as a result of a “takeover”?

For example, Lind writes about how unelected judges and executive bureaucrats “usurped” the power of legislatures. And there is certainly a story there, particularly with judicially-created constitutional barriers to social regulation.

Yet Lind too easily lets legislatures off the hook. Particularly in the economic realm, legislators craft legislation in which the legislators themselves choose to delegate legislative or quasi-legislative power to courts and executive agencies. Consider, for example, the story of intentional congressional deferral to and empowerment of courts in George Lovell’s Legislative Deferrals: Statutory Ambiguity, Judicial Power, and American Democracy. Legislative deferrals to executive branch agencies occur in similarly consensual ways. Solutions must address incentives legislators face that induce them to give legislative power away to technocratic managers.

Lind further argues that government-created cartels in economics, politics and the culture will provide opportunities for participation in these realms to working-class Americans.

Yet we need only recall the lessons Burnham drew from Berle and Means’ book, The Modern Corporation & Private Property. Berle and Means argued that managers “took over” in the corporate realm, with the result dividing corporate ownership from corporate management. This was no forcible takeover. Owners—stockholders—had neither the inclination nor the ability to run the companies in which they owned shares. So they delegated to managers. Lind may romanticize formal control being placed in the hands of working-class citizens, but it will be full-time, college-educated staff who will still be running things. Not because they wrest control from the working-class citizens, but because, like business owners before them, working-class folk will cede effective control to the managers.

This becomes a central barrier to Lind’s goal of enhancing effective worker participation: When aspirations to increase stakeholder participation in governance ignore the time-constraints and asymmetric information these same stakeholders face, the result is more elite capture, not less. Lind’s proposal would almost certainly increase the effective power of the technocratic managers whose power he seeks to decrease.

Lind’s Cartelized Economy

The centerpiece of Lind’s economic proposals is facilitating business-labor cooperation through the resurrection of something like the depression-era National Industrial Recovery Act. (The U.S. also saw this form of industrial organization in WW I.) The Act created hundreds of industry “codes.” Economists Jason Taylor and Peter Klein observe that “Most industrial codes contained… specific provisions controlling prices, quantities, capacity, advertising, hiring, and other policies.” The industry codes also required increased wages.

Essentially, the NIRA established government-organized and enforced business cartels. But that is a virtue for Lind, not a vice. He argues that the cartel structure would replace harmful competition with salutary cooperation. And not only competition between businesses, but between capital and labor as well. While the cartel system was struck down by the U.S. Supreme Court, Lind argues that Congress subsequently re-enacted the essence of NIRA regulations on an industry-by-industry basis. These, he suggests, continued through the 1960s and ended only with the resurgence of neo-liberal deregulation in the 1970s.

Where to start?

First, Lind is simply wrong to suggest that the U.S. economy became neo-liberal in the 1970s. As I pointed out a couple of weeks ago, elite governing philosophy in the U.S. is Rawlsian, not Hayekian. That is, it is a philosophy of social autonomy combined with a mixed economy. The handful of industries deregulated in the 1970s represented prudential adjustment in the mixture of markets and management, not the wholesale abandonment of a mixed economy. Economic regulations continue to increase.

But of course establishing cartels can promote peace between capital and labor in an industry. Government power prevents price competition and thereby creates economic profits (that is, profits in excess of what economist call “normal profit”). Businesses can split economic profits with labor through higher wages, and everyone in the industry would be happy.

Yet if the boards dictating prices, wages, and production in industries were truly representative, they would include not simply labor and management. There is another crucial set of stakeholders: consumers.

Consumers, however, would not be as happy with Lind’s cartelized economy as business and labor. As I pointed out a couple of weeks ago, market competition socializes economic profit. That is, because of market competition, businesses are induced to share economic profits with everyone in the form of lower prices. To be sure, businesses don’t want to give away their economic profit to consumers, and neither do workers who work for governmental-protected companies. But competition means that everyone benefits through lower prices (and by the elimination of dead-weight efficiency losses that result from cartelization).

Consider just one of the industries who’s deregulation Lind laments—airlines. Since 1978 airfare in constant dollars has declined by fifty percent. Tens of millions more Americans can afford to fly today because of the price decrease than could afford fly in the era of governmentally-controlled prices. No doubt airline companies and industry labor unions would prefer to keep those profits and divvy them up among themselves. Markets democratize those gains, however.

Lind seems to have a picture in his mind of a more cooperative, more Tocquevillian America. It’s a praiseworthy aspiration. The problem with his book is that the means he posits to achieve that aspiration would instead sacrifice the many for the few, in reality accomplishing the opposite of what Lind desires.

Reader Discussion

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on March 18, 2020 at 12:05:00 pm

Of course the move toward technocratic management went hand-in-hand with financialization. I don't think we can say which is the chicken and which is the egg in that partnership. If the principal goal of any corporation is to maximize shareholder profits, and if capital is mobile can so be moved quickly for short term gains, then of course it's going require experts who know how to target money and squeeze for efficiency, whereas in a previous era the company, ideally, was an institution within a local society, creating community of managers, employees, and even customers.
Rogers here correctly describes the problem with Lind's analysis: simply turning companies or industries into partnerships between management and labor still doesn't create a balance which serves 'the public', even if seems to work fairly well for German corporations. But is there some other way that industry and corporation might be refocused on long-term goals, without being always at risk of investment raiders? Who, if not the raiding capitalists, or technocrats in state bureaucracies, should have the power to say what the long term goals are?

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Chuck McClenon

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.