The corporate-state nexus

The Workings of the Party-State, Part 3

At various points over the long course of writing this series, several items were in the news. Bud Light suffered a boycott from consumers after initiating a social media affiliation with the transgender influencer Dylan Mulvaney. A few weeks later (even after the damage to Bud Light’s bottom line was evident), Bud Light’s competitor Miller Light released an ad featuring seething feminist beer-makers claiming that beer was invented by women. The gritty brewers and hop-farmers (actresses, of course) righteously smash Miller Light’s own previous promotional images from a more benighted era that featured women in bikinis. This ad, too, led to a consumer backlash. The two beer makers are competitors, but what exactly are they competing for?

At roughly the same time, Fox News fired the personality that drew its largest audiences, and suffered a mass exodus of viewers. Are these the actions of “market actors” as understood in free market doctrine? Whatever else they accomplish, these episodes indicate that power is circulating in ways not accounted for in the official story we tell about ourselves.

The theory of the free market presumes a universe of small proprietors such as Adam Smith was acquainted with. It has little purchase on a corporate economy such as ours, in which ownership is divorced from control. Individual stockholders don't determine the actions of the corporation, its managers do, largely in response to demands by asset managers and institutional investors. Woke signaling may damage the brand with consumers, but enhance it with capital markets. Such signaling may be advantageous to actors within the corporation who correctly view their career prospects as depending not on the long-term fortunes of the firm, nor even on its short-term stock price, but on their standing within a nomenklatura whose members float between posts in the party-state and routinely “fail upward.”

How does this work? To understand the field of forces that creates such career opportunities, one must first understand what a corporation is, and how towards the end of the twentieth century they started to get more thoroughly folded into state purposes.

In an important article in the American Political Science Review, political theorist David Ciepley reminded us that corporations are, in legal fact and historical origin, creatures of the state, a collectivized form of property created by government charter and enjoying legal privileges that cannot be comprehended under the rubric of private property and contract.[i] In medieval times, a charter was granted by the crown to a group of investors to carry out some project in the public interest, such as building a road. Private investors undertook the financial risk, and in exchange were granted certain immunities such as limited liability. Once the purpose was accomplished, the corporation was dissolved. At some point, government charters became generic and permanent, no longer tied to a specified public purpose. Corporations also became “persons” with constitutional rights in the United States, but were shielded from responsibility in various ways. (In addition to limited liability, they enjoy privileges called “entity shielding” and “asset lock-in.”) The resulting bad behavior has mostly been an object of criticism from the Left.

It is from the Left that Ciepley makes a crucial point that needs to be grasped by the Right, if it is to stop soothing itself with the kind of hopes expressed in the slogan “Go woke, go broke.”:

If the corporation were a private, contractually established business entity—a kind of glorified partnership—it would respond to market forces like one. But in key respects it does not, for reasons directly related to its governmental provenance. Specifically, because government places corporations under different rules of property and liability, they malfunction when the logic of market liberalism is indiscriminately applied to them, even turning toxic —displaying elevated irresponsibility and depressed productivity.

Defenders of “the free market” have for the most part simply ignored the features of a corporate economy that make it fundamentally different from the imaginary thing they prefer to talk about, and stayed within the dichotomy of private-public that structured economic debate between liberals and socialists during the Cold War. In this counterfactual universe of ideal types, the “free market” was superior to “state planning” for reasons that were ultimately epistemic: market transactions generate and communicate information, in the form of prices. No state planner could hope to survey the whole universe of transactions between butchers, bakers, and their customers, and thereby arrive at an accurate picture of the supply and demand of meat and bread. Lacking such an accurate picture, the planned economy will suffer massive misallocations of resources: rotting, excess meat and not enough bread, or the reverse.

In 1990, with the Berlin Wall fallen and the Soviet Union on the verge of disintegration, free market economists were feeling triumphant. James Buchanan, who had received the Nobel Prize in economics in 1986, gave a speech in Australia that has recently been dug up by Christopher Caldwell, who offers it as an exhibit of the times (in an article forthcoming in First Things, October 2023). In a remark that was revealing, Buchanan conceded that the information advantage of the market is fragile, and obtains only if it is not “interfered with” by exogenous political forces or ideals. He said,

The only proviso here is that the value scalar, the measure through which disparate goods and services are ultimately compared, must be that which emerges from the voluntary exchange process itself. If the value scalar is, itself, determined by the centralized socialist planners, there is, of course, no reason to think that the private ownership economy will “‘work better”’ in generating more “‘value”’ along this measure.

This is not a minor proviso. If capitalism must remain pure of politics to function as advertised, then it must dissolve all rival systems of value, as Caldwell points out. It cannot admit one chosen by socialist visionaries, but neither can it tolerate culturally specific traditions and heterogeneous human aspirations that resist reduction to a common scalar. All must become fungible through abstraction, made commensurate in the medium of money. This is the critique of capitalism common to Marx and to many European conservatives, cheerfully admitted by the Chicago economist.

Capitalist economy  seems to require as its partner a liberal state, then -- one that is scrupulously agnostic on matters of “values” so as not to interfere with market valuations. The cultural revolution of the 1960s had released Americans from all manner of moral restraints, and in this respect the body politic had been brought into greater alignment with the value-agnosticism of liberal theory. But a funny thing was happening to the liberal state even as Buchanan and the free marketeers were celebrating their victory, as Caldwell also indicates. The Civil Rights Act of 1964 established one moral principle that, by the 1990s, stood as a new moral absolute: non-discrimination against minorities. Logically, this left the majority as the antipode of absolute value. Over the following decades, the non-discrimination principle would shape-shift into “diversity” and become a prominent principle of American institutions. As “protected classes” multiplied, by a process of subtraction the majority emerged as the malevolent thing they needed protection from. The new regime could not operate without promoting and maintaining a kind of moral scalar among parts of the body politic, rival to the value scalar that would arise from “pure” exchange (for example in labor markets, absent affirmative action). This moral hierarchy, founded on an implicit animus against the majority, is at odds with the mutual identification (and levelling) that makes the “imagined community” of the nation possible (see Part 2 of this series).

The remainder of this post is for paid subscribers. I go on to consider the role of ESG in coordinating capital markets with the party-state. If you find such arguments interesting, I hope you will consider becoming a paid subscriber. In any case, thanks for reading thus far.

-Matt