WEBVTT NOTE Political Capitalism: The Elephant in the Parlor 1 00:00:00.000 --> 00:00:06.720 I was involved in 1979 and 1984 in a kind of an interesting experiment, and that is, 2 00:00:06.720 --> 00:00:10.720 I was president and CEO of a thing called the Council for a Competitive Economy, and 3 00:00:10.720 --> 00:00:15.600 it was an organization that was dedicated to the idea that if we could bring all the 4 00:00:15.600 --> 00:00:22.960 really true free market businessmen together, maybe we could lobby or at least make the 5 00:00:22.960 --> 00:00:28.980 case in Washington for a pure free market. And the idea was that there must be a lot 6 00:00:28.980 --> 00:00:33.680 A lot of free market guys out there, but maybe they're in different industries and all that, 7 00:00:33.680 --> 00:00:37.180 and we could pull them together. 8 00:00:37.180 --> 00:00:43.080 After five years as president, I discovered that there were some problems with that model, 9 00:00:43.080 --> 00:00:46.880 but there were also some ways that we might be able to approach it. 10 00:00:46.880 --> 00:00:52.520 Unfortunately, by that time, Charles Koch, who had been one of the early supporters of 11 00:00:52.520 --> 00:00:57.060 it, felt that it was a lost cause. 12 00:00:57.060 --> 00:01:00.500 And while he hadn't put a lot of money into it the last three or four years he still controlled 13 00:01:00.500 --> 00:01:02.460 it legally. 14 00:01:02.460 --> 00:01:09.120 So he wanted to give the mailing list to Rich Fink who had ideas of starting a grassroots 15 00:01:09.120 --> 00:01:12.420 organization called the Citizens for a Sound Economy. 16 00:01:12.420 --> 00:01:17.980 So our organization was given over and all our assets to the Citizens for a Sound Economy. 17 00:01:17.980 --> 00:01:23.500 Fred Smith who worked for me took some of our stuff and started the Competitive Enterprise 18 00:01:23.500 --> 00:01:24.500 Institute. 19 00:01:24.500 --> 00:01:30.420 Both of those organizations are the spawn of the Council. 20 00:01:30.420 --> 00:01:37.600 The Council isn't talked about much, it's not heard of, it was not mentioned in Brian 21 00:01:37.600 --> 00:01:42.780 Doherty's book, Radicals for Capitalism, except in one line, in which he talked to 22 00:01:42.780 --> 00:01:49.500 Charles Koch, and it wasn't even mentioned in Rob Bradley's new book on Political Capitalism. 23 00:01:49.500 --> 00:01:53.700 So it's kind of a secret, and this is not a paper that I'm planning to publish as an 24 00:01:53.700 --> 00:02:01.700 This is an article in a journal. It's part of a book that I'm writing. And before I die, I'm going to tell the story of the council. 25 00:02:01.700 --> 00:02:08.700 Okay, my, whoops, whoops, my, here we go, my, whoops, there we go. 26 00:02:08.700 --> 00:02:15.700 My, this is a, this is a, just an acknowledgement for those people who think that I might be a business banisher. 27 00:02:15.700 --> 00:02:27.700 I want to put it out there that I believe that the capitalist system, market system, commercial and financial interests are vital to the functioning of the world. 28 00:02:27.700 --> 00:02:34.700 Our very survival depends on that. So I'm not business bashing, okay? That's the first point. 29 00:02:34.700 --> 00:02:40.700 My second point though, and really the point of this paper, the takeaway, is twofold. 30 00:02:40.700 --> 00:02:47.740 One, economic and financial interests are deeply involved in all legislation and regulation. 31 00:02:47.740 --> 00:02:51.740 Anything that's applicable to business, there will be business people involved in it, whether 32 00:02:51.740 --> 00:02:56.660 it's the state level or the national level. 33 00:02:56.660 --> 00:03:00.140 Because of that, they aggrandize the state. 34 00:03:00.140 --> 00:03:08.780 Business is what upholds and energizes and aggrandizes the state in all 8,000 legislative 35 00:03:08.780 --> 00:03:09.780 members around the country. 36 00:03:09.780 --> 00:03:25.780 There's about 7,500 state representatives. There's about 540 people in Congress. I defy you to find one of those people who doesn't have strong support from some commercial or financial interests. 37 00:03:25.780 --> 00:03:37.780 It's vital to them. And so it's not only that they're involved, but they uphold and they are part of what Albert J. Nock would say the greater state. 38 00:03:37.780 --> 00:03:51.780 The government, but we also have the state, which is the king in his court, and all the groups that special interests that aggrandize and uphold the state business or commercial and financial interests are right in the middle of that. 39 00:03:51.780 --> 00:03:58.780 Okay. There are some principle free market people out there in business. No question about it. 40 00:03:58.780 --> 00:04:09.780 But my experience after over five years and about 20 years as a state lobbyist in Kansas and Maryland and Kentucky 41 00:04:09.780 --> 00:04:17.780 and five years on Capitol Hill is that the overwhelming majority are in that position because of circumstance more than ideology. 42 00:04:17.780 --> 00:04:24.780 Bill Gates at one time was very much a guy who didn't believe in being involved in government. He didn't need government. 43 00:04:24.780 --> 00:04:29.780 in the trade companies, in a new industry, and most of the people who are, we found in 44 00:04:29.780 --> 00:04:38.780 that way, were again, were a result of circumstance more than principle. But it doesn't really 45 00:04:38.780 --> 00:04:42.820 matter. Whether we have a lot of them or a little, that's not the point. The point is 46 00:04:42.820 --> 00:04:47.140 whether there's only a small number of businessmen who are involved or business interests who 47 00:04:47.140 --> 00:04:53.180 are involved in legislation or regulation, or a lot, the fact is they're all out there. 48 00:04:53.180 --> 00:04:59.460 There's nothing that isn't a test, and that's the commercial point, or the essence, rather, 49 00:04:59.460 --> 00:05:06.860 is that they're riveted on these things, the policies are continuous, professional, widespread, 50 00:05:06.860 --> 00:05:15.100 very effective, you know, I flew down here, if there's one thing I hate, it's the Transportation 51 00:05:15.100 --> 00:05:17.180 Safety Administration. 52 00:05:17.180 --> 00:05:20.660 Now, we all blame government for that. 53 00:05:20.660 --> 00:05:26.000 The airlines not only could have stopped it, they were in favor of it. Why? For the same 54 00:05:26.000 --> 00:05:29.780 reason that the Packers wanted the Packers and Stockyards Administration and the security 55 00:05:29.780 --> 00:05:36.140 bankers wanted the SEC. They wanted government to convince people that their industry was 56 00:05:36.140 --> 00:05:41.460 safe. You should eat meat because the government is showing that it's good. You should invest 57 00:05:41.460 --> 00:05:47.940 with us. We weren't the problem of the stock market crash. It's now safe. We're now regulated. 58 00:05:47.940 --> 00:05:52.780 And the airlines wanted the federal government to say, don't worry about terrorists, we're 59 00:05:52.780 --> 00:05:53.820 going to control it. 60 00:05:53.820 --> 00:05:57.460 And they wanted to do it at public expense and not their own. 61 00:05:57.460 --> 00:05:58.700 And you can hear that all the time. 62 00:05:58.700 --> 00:06:05.180 I heard a baggage guy from Delta saying, hey lady, look, it's not me, it's not Delta, it's 63 00:06:05.180 --> 00:06:07.900 federal regulations, you can't put that bag on there. 64 00:06:07.900 --> 00:06:12.820 They always want to pawn it off on the federal government. 65 00:06:12.820 --> 00:06:15.140 I'll never get through these. 66 00:06:15.140 --> 00:06:22.140 Okay, now there are people who have argued that this business has not been so involved. 67 00:06:24.580 --> 00:06:29.060 A great quote I just got to share with you. This is from George Stigler, 68 00:06:29.060 --> 00:06:32.860 who was no Austrian, but he was an economic historian, a very funny guy. 69 00:06:32.860 --> 00:06:36.660 Anyway, he wrote, imagine the railroad industry under the unwilling control of the 70 00:06:36.660 --> 00:06:39.380 Interstate Commerce Commission in 1890. 71 00:06:39.380 --> 00:06:42.100 The industry had 700,000 employees, 72 00:06:42.100 --> 00:06:48.080 Ten billion dollars worth of capital, dozens upon dozens of powerful, able entrepreneurs. 73 00:06:48.080 --> 00:06:54.940 The ICC had five commissioners, a staff of 61, a budget of 150,000, and infinite respect 74 00:06:54.940 --> 00:06:59.740 for the members of Congress, who in turn were not lacking in respect for the great industry 75 00:06:59.740 --> 00:07:04.800 of railroading. If told that the ICC controlled the railroads, the Duke of Wellington would 76 00:07:04.800 --> 00:07:09.820 have repeated himself. Anyone who believed that would believe anything. 77 00:07:09.820 --> 00:07:14.740 And the arguments against Stigler's thesis and that of Gabriel Kolko is, hey, we don't 78 00:07:14.740 --> 00:07:17.020 think that the railroads got everything they wanted. 79 00:07:17.020 --> 00:07:20.540 Well, the problem with that is, first of all, you don't know what the railroads wanted. 80 00:07:20.540 --> 00:07:22.700 And secondly, this is a big tug of war. 81 00:07:22.700 --> 00:07:23.700 There are other interests. 82 00:07:23.700 --> 00:07:27.580 So there are always commercial and financial interests tugging. 83 00:07:27.580 --> 00:07:34.460 One of the things that the railroads wanted was uniform rates, so that if you were a shipper 84 00:07:34.460 --> 00:07:43.100 and you wanted to try to use the fact that you were in Richmond and it was farther for you to ship from Richmond to Chicago, 85 00:07:43.100 --> 00:07:50.700 the people in Baltimore said, hey, we got an advantage, we're closer to Chicago than Richmond is and if these guys can't make special deals 86 00:07:50.700 --> 00:07:55.500 and whether the rates have to be equal, we're home and that's what they did. 87 00:07:55.500 --> 00:08:02.220 So they wanted equal rates so that the shipping industry in Baltimore had the right to out-compete 88 00:08:02.220 --> 00:08:10.460 Richmond, and some of these other, Charleston, all these other ports, in New Orleans even. 89 00:08:10.460 --> 00:08:21.820 So it's not, it's not, okay, people say, well, all the lefts would say, we don't have capitalism, 90 00:08:21.820 --> 00:08:24.220 and they have fascism. 91 00:08:24.220 --> 00:08:25.820 Well, it rings true 92 00:08:25.820 --> 00:08:29.020 because people can see that. 93 00:08:29.020 --> 00:08:31.020 They see business involved in all these things. 94 00:08:31.020 --> 00:08:33.900 They see Goldman Sachs and all these companies 95 00:08:33.900 --> 00:08:36.700 wanting bailouts and the GM and all that. 96 00:08:36.700 --> 00:08:42.740 So the arguments of the left are hard to dispute. 97 00:08:42.740 --> 00:08:44.140 But does it really matter? 98 00:08:44.140 --> 00:08:46.980 I mean, does it matter whether we're 10% fascist or 80%? 99 00:08:46.980 --> 00:08:49.700 I mean, hardly the point. 100 00:08:49.700 --> 00:08:54.420 Okay, also a lot of defenders often discount political power, commercial, financial interests, 101 00:08:54.420 --> 00:08:59.300 either because they're ignorant or because they don't want to reinforce those critics. 102 00:08:59.300 --> 00:09:05.180 You know, as I said, it's like people think wife-beating reports are just a ploy to discredit 103 00:09:05.180 --> 00:09:07.420 males or marriage or something. 104 00:09:07.420 --> 00:09:09.260 That's not the point. 105 00:09:09.260 --> 00:09:14.180 All wife-beaters are husbands, so let's acknowledge that. 106 00:09:14.180 --> 00:09:20.500 Okay, where does the elephant in the parlor come in? 107 00:09:20.500 --> 00:09:26.780 The problem is not what business, apart from the aggrandizement of government, the problem 108 00:09:26.780 --> 00:09:30.580 is not their individual achievements. 109 00:09:30.580 --> 00:09:38.700 It is that this whole climate, this whole atmosphere, spawns a powerful urge to rationalize. 110 00:09:38.700 --> 00:09:48.700 You know, people have said to me, don't you understand business needs to understand that what they should be after is the general welfare, not their own personal interest. 111 00:09:48.700 --> 00:10:00.700 I never met a lobbyist, 20 years of state houses and five years of Congress, who didn't say, hey, I can make the argument that what we're asking for is good for people. 112 00:10:00.700 --> 00:10:04.700 I can make the argument that it's good, five minutes? Oh, that's great. 113 00:10:04.700 --> 00:10:10.700 I'm out of time? Thanks Pete, thank you very much. That's what he did yesterday, I saw it. 114 00:10:10.700 --> 00:10:15.700 I never met anybody who didn't say, I can rationalize how this is good. 115 00:10:15.700 --> 00:10:22.700 One of the first things I did when I became president of the council was I went up to Detroit 116 00:10:22.700 --> 00:10:32.700 to actually have a televised debate against the executive director 117 00:10:32.700 --> 00:10:37.700 by the director or something of the Wayne County Economic Development Commission 118 00:10:37.700 --> 00:10:40.700 against the Chrysler bailout. 119 00:10:40.700 --> 00:10:45.700 Talk about in the lion's den. 120 00:10:45.700 --> 00:10:51.700 But anyway, this guy argued that yes, it's a billion and a half dollars in loan guarantees, 121 00:10:51.700 --> 00:10:54.700 but I can argue that this is good not only for the economy, 122 00:10:54.700 --> 00:10:56.700 not only for the auto workers, 123 00:10:56.700 --> 00:11:00.700 not only for general welfare, 124 00:11:00.700 --> 00:11:05.300 Not only for taxpayers, not only for the economy, I mean there was almost nothing that I could 125 00:11:05.300 --> 00:11:11.980 say that he couldn't rationalize as a part of the general interest or the general welfare. 126 00:11:11.980 --> 00:11:18.140 And this powerful urge to rationalize political capitalism is a bigger problem than what they 127 00:11:18.140 --> 00:11:19.860 actually achieve. 128 00:11:19.860 --> 00:11:27.220 And the other thing is that they also, not only are they spawning this powerful urge 129 00:11:27.220 --> 00:11:34.220 In order to rationalize, they discourage any discussion of the moral or ethical issue related to using government. 130 00:11:34.220 --> 00:11:41.220 So what would happen when I was in Washington is we would find a company or an industry that was very much on the free market side 131 00:11:41.220 --> 00:11:48.220 and they didn't want to talk about ideology, they didn't want to talk about the morality or the ethics of it all 132 00:11:48.220 --> 00:11:53.220 because I might be back. I might have to be on the other side of this issue. 133 00:11:53.220 --> 00:12:01.220 So they have a very strong urge to eliminate any ideas, any ethics, or any morality, they just don't want to be. 134 00:12:01.220 --> 00:12:08.220 They just want to see the government as a tool, like a shovel, that anybody has the right to pick up and use. 135 00:12:08.220 --> 00:12:11.220 It's totally a neutral approach. 136 00:12:11.220 --> 00:12:21.220 Most managers or executives tend to see their own industries as unique, so that if you go to it, and there are over 40,000 industry associations, 137 00:12:21.220 --> 00:12:26.020 40,000, and the majority of them are in the D.C. area. 138 00:12:26.020 --> 00:12:31.620 Every industry, every segment of industry, every regional interest, they're all there. 139 00:12:31.620 --> 00:12:35.620 And if you go and talk to them, as I did, they would say, 140 00:12:35.620 --> 00:12:38.620 hey, we're a free market, we're free enterprise right down the line. 141 00:12:38.620 --> 00:12:40.020 We'll say, what about this? 142 00:12:40.020 --> 00:12:42.120 Well, you don't understand. 143 00:12:42.120 --> 00:12:44.620 Our industries are kind of unique in that respect. 144 00:12:44.620 --> 00:12:46.220 We do need this. 145 00:12:46.220 --> 00:12:47.420 They all see that. 146 00:12:47.420 --> 00:12:53.420 The rationalization is impossible to get around. 147 00:12:53.420 --> 00:13:02.420 Legitimate progress, okay, hampered by the power of business interest to reinforce, continue the need for, and the perceived majesty of the state, obviously. 148 00:13:02.420 --> 00:13:08.420 Unwilling to brag of relative purity or to criticize others. 149 00:13:08.420 --> 00:13:22.920 My feeling was after those five years was there's only one hope and that is that we're not going to get people to say that their businesses are pure. 150 00:13:22.920 --> 00:13:33.420 Even Charles Koch, famous libertarian, philanthropist and all that, he'd never argued that Koch Industries was pure. 151 00:13:33.420 --> 00:13:37.420 He was a libertarian to the core of his boots, he would say. 152 00:13:37.420 --> 00:13:44.260 But, you know, coke is under certain problems, we have certain conditions, we just can't 153 00:13:44.260 --> 00:13:45.260 be pure. 154 00:13:45.260 --> 00:13:49.180 I never met a businessman who said, my company can be pure. 155 00:13:49.180 --> 00:13:55.380 And it's not just a big versus little, and it's not also a owned versus public corporation. 156 00:13:55.380 --> 00:13:56.540 It's all of them. 157 00:13:56.540 --> 00:13:59.300 They're all guilty of it. 158 00:13:59.300 --> 00:14:03.700 So they can't be pure as a business, but they can aspire. 159 00:14:03.700 --> 00:14:09.620 And so my model, my model at the end of five years was, I said here's what we have to do, 160 00:14:09.620 --> 00:14:16.020 we have to change this organization to more of a business round table and we want to tell 161 00:14:16.020 --> 00:14:24.140 business people, I had some lists here, I just remembered, yeah, we want to get some 162 00:14:24.140 --> 00:14:30.700 of these CEOs that believe, because I would, Ben Edwards was a chair and CEO of A.G. Edwards 163 00:14:30.700 --> 00:14:38.060 Company, and he said, Wagey Edwards can't be pure. But he said, I believe in what you're doing. 164 00:14:38.060 --> 00:14:47.740 Ernest Williger was the CEO of Seeley Company, Seeley Mattresses. He believed, Seeley's not pure, but I believe. 165 00:14:47.740 --> 00:14:58.740 Getty Oil, even Chevron, Porter Paints, Steinway Pianos, Gifford Hill, Morton Buildings, New Core Steel. 166 00:14:58.740 --> 00:15:04.300 I mean there were a whole bunch of them, money more than Charles and some of these guys understood 167 00:15:04.300 --> 00:15:07.440 of individual executives who believed. 168 00:15:07.440 --> 00:15:12.580 And so what I proposed to do at the end of five years was, look, let's take this organization, 169 00:15:12.580 --> 00:15:17.300 let's restructure it as a business round table organization. 170 00:15:17.300 --> 00:15:25.680 And then each of these members, if there's 50 or 75 or 100, will be very prominent and 171 00:15:25.680 --> 00:15:31.220 And they will say, I'm on here as an individual because I believe in this ideal. I believe 172 00:15:31.220 --> 00:15:36.560 that this is an ethical approach. I'm not saying my company is pure, but I believe in 173 00:15:36.560 --> 00:15:42.680 this ethic. And we had 18 members of the board, I'm getting more personal than I meant to 174 00:15:42.680 --> 00:15:49.680 be, but we had 18 members of the board, they voted 17 to 1 to go in that direction. Unfortunately, 175 00:15:49.680 --> 00:16:09.680 Unfortunately, the one was Charles Koch, and Charles owned the corporation, it was unbeknownst to our board, it was an actual stock corporation, and he owned it, and so he had the right to eliminate the board and start over, so we didn't do it. 176 00:16:09.680 --> 00:16:15.960 but the point the final point is that I believe that socialism won the case 177 00:16:15.960 --> 00:16:20.880 because of a moral and ethical ideal we have to get that it's not going to be 178 00:16:20.880 --> 00:16:29.200 good enough just to argue intellectual arguments on this practicality or any of 179 00:16:29.200 --> 00:16:33.680 these other things it has to be the moral issue has to be injected into that 180 00:16:33.680 --> 00:16:38.680 milieu and I think only moral outrage will cause public revolt and undermine 181 00:16:38.680 --> 00:16:45.680 and the vitality is what I see as a lamentable symbiosis.