The tubez this morning are filled with discussion of a "senior White House aide" attacking organized labor for labor's support of Bill Halter, who nearly unseated incumbent Arkansas Senator Blanche Lincoln in the Democratic primary yesterday.

Two weeks ago, I explored the problem of why President Obama's administration has so little concern for the problems of working Americans, in The Obama administration as “managed democracy". I used Thorstein Veblen's insights into the Leisure Class to extend Sheldon Wolin's analysis of "managed democracy" (a new form of authoritarianism developed in the past two or three decades, which most of us would also call corporatism). The fundamental point I was trying to make is that there is nothing in the education or life experiences of someone like Barack Obama or Larry Summers that would provide them an understanding of industrial economics or real (not politically expedient) empathy for the working class. (Let me qualify that, because I had hoped, and still cling to a hope, that Obama's experience as a community organizer might have given him a reservoir, not yet drawn upon, of support for industrial economics, or at least enmity for, or the very least suspicion of, financial economics.)

Forthwith, my post in full:

In his important 2008 book, Democracy Inc.: Managed Democracy and the Specter of Inverted Totalitarianism, Princeton professor emeritus of politics Sheldon S. Wolin has identified and dissected the emergence of a new type of authoritarian political system in the United States.

The new constitution conceives politics and governance as a strategy based upon the powers that technology and science (including psychology and the social sciences) have made possible. Exploitation of those powers enables their owners to redefine the citizenry as respondents rather than actors, as objects of manipulation rather than as autonomous.

This new political type has arisen as the revolving door between government and the private sector as spun faster and faster, infusing the government with the morals and social customs of the American managerial class, while suffocating the older, more noble idea of civic virtue. In short, American politics has been “managerialized.” To fully understand this, Wolin first recounts the history of the concept of civic virtue and the emergence of the polis:

Over the centuries politicians and political theorists-starting with
Plato's Republic have emphasized disinterestedness, not personal advantage, as the fundamental virtue required of those entrusted with state power. In recognition of the temptations of power and self-interest a variety of constraints -- legal, religious, customary, and moral -- were invoked or appealed to in the hope of limiting rulers or at least inhibiting them from doing harmful or evil acts. At the same time rulers were exhorted to protect and promote the common good of society and the well-being of all of their subjects. With the emergence of democratic ideas during the seventeenth and eighteenth centuries, it fell to the citizen to assume responsibility for taking care of political and social arrangements, not only operating institutions but "cultivating" them, caring for them, improving them, and, ultimately, defending them. Democracy presumed the presence of a "popular culture," not in the contemporary sense of packaged pleasures for a perpetually adolescent consumer, but culture in its original meaning: from the Latin cultus = tilling, cultivating, tending. The ideal of a democratic political culture was about cooperating in the care of common arrangements, of practices in which, potentially, all could share in deciding the uses of power while bearing responsibility for their consequences. The assumption was that if decision-making institutions of a community were left untended, all or most might suffer.

Wolin does not get into enough details to actually name names, but the basic trajectory of America’s descent is clear enough. In the era immediately after World War Two, the U.S. political establishment -- or at least, the foreign policy arm of it -- was dominated by an easily identfied group of patricians, beginning with Walter Isaacson’s The Wise Men (Dean Acheson, Averell Harriman, George Kennan, John McCloy Jr., Charles Bohlen, and Robert Lovett) who hand-crafted the post-war posture of the Cold War, and ending with David Halberstam’s The Best and the Brightest (Dean Rusk, Robert McNamara, Clark Clifford, George Ball, McGeorge Bundy, Walt Rostow, William Bundy and others), who muddied the U.S. political establishment in the rice paddies of Vietnam.

Of these latter, Ford Motor Co. CEO McNamara stands out, for bringing modern business management theories and practices, including cost-benefit analysis, into the Pentagon, and the government generally. However, Wolin does not mention McNamara and his Whiz Kids (including Charlie “Tex” Thornton, founder of Litton Industries, America's first major corporate conglomerate since the Morgan trusts of the late 1800s and General Motors of the 1920s). Instead, Wolin fingers the Reagan administration as the first major example of business managers transforming American politics.

The examples of McNamara and Lovett show there have always been businessmen present in top levels of the U.S. government. This particular point -- of exactly when a business mentality gained ascendance in U.S. government -- is more than an interesting academic question. It brings us to an subject that Wolin fails to consider: just how American capitalism itself has been transformed. Simply stated, there has been a fundamental shift from industrial capitalism to financial capitalism, and it has huge implications for cultural and political norms of behavior, not just in government, but in the entire society. Basically, while it has become the dominant type of culture in the United States, business culture, as foreseen and explained by Thorstein Veblen, has degenerated to lower forms of barbarism, dragging the rest of society down with it. Veblen’s understanding of the politico-sociological, as well as economic, differences between industrial producers, as distinct from financial predators, gives us a far more powerful means of socio-economic analysis than Marxism does, which fails to distinguish between productive and predatory economic and social behaviors. Marxism’s obsession with ownership of the means of production blinds Marxists to the crucial differences and deadly conflict between real industry and predatory financial and monetary systems.

According to Wolin,

Corporate culture might be defined as the norms and practices operative at various levels of the corporate hierarchy that shape or influence the beliefs and behavior of those who work in a particular institutional context. Today corporate culture is not confined to the corporation. Managed democracy depends upon managers, and managers are the product and creators of corporate culture. The question is this: what are the characteristics of the culture that corporate managers bring to government? How are the corporatists likely to approach power and governance, and how does that approach differ from political conceptions?

Wolin’s approach here is basically that of Veblen’s institutional analysis. Wolin compares corporate culture to the civic culture he discussed above.

In contrast, the ethos of the twenty-first-century corporation is an antipolitical culture of competition rather than cooperation, of aggrandizement, of besting rivals, and of leaving behind disrupted careers and damaged communities. It is a culture for increase that cannot rest (= "stagnation") but must continuously innovate and expand. It accepts as axiomatic that top executives have to be, first and foremost, competition-oriented and profit-driven: the profitability of the corporate entity is more important than any commonality with the larger society. "The competitor is our friend," according to an Archer Daniels Midland internal memo," and the customer is our enemy." Enron had "visions and values" cubes on display; its chief financial officer's cube read, "When Enron says it will rip your face off, it will rip your face off."

The ADM internal memo exactly defines the political culture in the U.S. Congress, and its uneasy relationship with its citizen constituents. Remember how Joe Lieberman was welcomed back by his fellow Senators after running as an “independent” to beat back Ned Lamont’s challenge. And “the customer is our enemy" mentality goes a long way in explaining Rahm Emanuel’s notorious antipathy to political progressives.

A little later, Wolin writes,

The essential skill that a corporate executive brings to his firm and to a top-level governmental position is the skill of devising and implementing strategies of aggrandizement. . .

Here, Wolin’s work would be made vastly more powerful if he incorporated Veblen’s insight about the essential difference between “industry” and “business.” As economist Douglas W. MacKenzie explains in a November 2007 paper, Veblen examined the functional and cultural differences between financial and industrial institutions, contrasting the profit-driven process of financial capitalism, to the workmanship and science-driven machine process of industry. In general, once an industrial firm falls under the sway of “business managers” and financiers, its focus becomes one “of acquisition, not of production; of exploitation, not of serviceability”.

Moreover, unlike industrialists, business managers and financiers dislike the uncertainty and unpredictability created by technological innovation. American folklore is rife with stories and myths of breakthrough technologies that were suppressed by corporate behemoths. Rather than creating wealth through increased and less imperfect production (here, think of the Japanese concept of kaizen), business managers and financiers instead seek to acquire wealth “by a shrewd restriction of output,” causing privation and unemployment. This actually establishes and perpetuates a process of financial sabotage of industry. In the first chapter of Veblen’s 1921 book, The Engineers and the Price System, he writes:

Without some salutary restraint in the way of sabotage on the productive use of the available industrial plant and workmen it is altogether unlikely that prices could be maintained at a reasonably profitable figure for any appreciable time. A businesslike control of the rate and volume of output is indispensable for keeping up a profitable market and a profitable market is the first and unremitting condition of prosperity in any community whose industry is owned and managed by business men. And the ways and means of this necessary control of the output of industry are always and necessarily something in the nature of sabotage: something in the way of retardation, restriction, withdrawal, unemployment of plant and workmen, whereby production is kept short of productive capacity. The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear; that is to say, what will yield the largest net return in terms of price to the business men who manage the country's industrial system.

(To see how mainstream economics today veers far and violently away from Veblen’s ideas, pick up any introductory economics textbook and read the first two or three paragraphs, which invariably describe economics as the study of “how society allocates scarce resources.” Such a definition immediately launches the student away from any serious consideration of modern industry and its near-miraculous productive potentials, into pastures more congenial to the ever status-conscious “leisure class.”)

The reality and effects of industrial sabotage by financiers and business managers is all too familiar to anyone who has examined the effects of the leveraged buy-out binge and corporate raiding of the 1980s, which mainstream economists have strived to hide from public view behind academic arguments that these predatory financial practices actually represented a “more efficient use of capital” that “increased shareholder value” – a crime of active misinformation that the economics profession has yet to answer for. (Two excellent books that rip the economists’ pretty façade to shreds are the 1992 series of investigative reports by Philadelphia Inquirer Pulitzer Prize-winning reporters Donald L. Barlett and James B. Steele, America: What Went Wrong?; and the 1990 history by Max Holland of how one of America’s largest machine tool companies was destroyed in a series of buyouts, When the Machine Stopped : A Cautionary Tale from Industrial America, which has been republished under the new title, From Industry to Alchemy: Burgmaster, A Machine Tool Company.)

In short, Veblen saw finance as an acquisitive process similar to the barbaric practices of leisure classes in earlier civilizations. (For further discussion of Veblen’s views on this point, see this diary and its thread on EuroTrib: The Credit Bubble theory of the Business Cycle (I: Veblen) especially this comment.)

It is worth peering even deeper into the business manager’s mindset, since it has come, since the 1980s, to so completely dominate America’s political elites, and because it has absolutely crucial implications for the making and practice of national economic policies. James Crotty, a heterodox economist at the Political Economy Research Institute (PERI), has a July 2003 paper, The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era in which he examines a number of negative effects on general economic performance by large U.S. non-financial corporations (NFCs) (not exactly industrial firms, but as close as we can hope to get, as we shall see as Crotty’s analysis unfolds). Crotty stresses

two aspects of the changing relation between financial markets and large NFCs. The first is a shift in the beliefs of financial agents, from an implicit acceptance of the Chandlerian view of the large NFC as an integrated combination of illiquid real assets – that is, physical and organizational assets that cannot be sold for cash quickly and without a major loss in value – assembled to pursue long-term growth and innovation, to a “financial” conception in which the NFC is seen as a ‘portfolio’ of liquid subunits that home-office management must continually restructure to maximize the stock price at every point in time. The second is a fundamental change in management’s reward structure, from one that linked pay to the long-term success of the firm, to one that links it to short-term stock price movements.

The 1960s conglomerate merger movement initiated a change in the perception of the proper role of top management, from one in which managers were expected to be experts in the main business of the firm, to an evolving view of top executives as generalists who knew how to buy and sell subsidiaries as business conditions changed. This shift remained incomplete, however, until the hostile takeover movement of the 1980s, which forced NFC insiders to either divest units whose stock price fell below the level demanded by Wall Street or yield control of the firm to corporate raiders. Raiders relied primarily on debt to finance takeovers, while managers of targeted firms often defended their turf by loading the firm with debt-financed stock buybacks and special cash dividends to deter potential raiders. These developments pushed NFC debt burdens to historic highs. They also forced a change in managerial goals, from concern with the long-term success of the firm to a short-term obsession with keeping the stock price high enough to deter a hostile takeover.

Crotty’s phrase, “the Chandlerian view of the large NFC as an integrated combination of illiquid real assets” is extremely important because it points to something that very few economists ever consider: the immense difficulty and length of time required to assemble a well-functioning industrial enterprise. Consider that it takes at least ten years to train a competent tool-and-die maker. Or how long it takes to train a competent airline pilot. Why would any industrial enterprise want to invest in years of educating someone, if that industrial enterprise is likely to be sold off like a commodity in a few years?

In fact, as an industrial enterprise grows and matures, its trained and skilled employees make the surrounding community a pool of technical talent that is highly conducive to the creation of other industrial enterprises that use the same or similar skills. That’s why certain towns and cities become known as centers for specific industrial products. Sheffield in England was known for its highly specialized alloy irons and steels. Delft in Holland is known world-wide for its blue pottery. The Hocking River valley in southern Ohio became known in the 1800s as a center of brick manufacture. The Connecticut River valley was known for almost a century as “Precision Valley” because it was a center of designing and making high-precision metal-working machine tools. Detroit became known for making automobiles. Today, almost every high-speed, high-volume printing press in the world comes from Heidelberg, Germany. The southern part of the San Francisco Bay area became known as Silicon Valley.

How much is it worth to have a locale or city renowned for the technical excellence of its local enterprises and workers? What value can be assigned to having a few hundred wizened old men around who can train entire generations of new, highly-skilled workers? Or who have a few different ideas than their boss, and decide to start up their own company? The value must be very high, because thousands of national, regional, and local governments around the world have spent hundreds of billions of dollars over the past two decades trying to create “incubators” of new technologies, new companies, and new “employment opportunities.” Such a great irony: finance capitalism is unleashed and destroys the social organizations of industrial enterprises in which technical excellence is revered and rewarded, and the public worldwide has been forced to pay billions of dollars to fund a poor replacement.

How is it possible that political elites would allow financiers and business managers to pillage and destroy industry, and then spend billions trying to repair the damage that could have been prevented in the first place by simply preserving the regulatory legacy of Franklin Roosevelt’s New Deal? Why did the Democratic Party turn its back on organized labor in the 1970s and 1980s, and embrace instead Friedman / Thatcher / Reagan policies of “free trade” and “free markets” that have destroyed the American working class?

“Destroyed the American working class” is not hyperbole. It is now widely known that Americans’ earnings have stagnated for the past four decades. The December 2007 report Economic Mobility: Is the American Dream Alive and Well?, by the Economic Mobility Project of The Pew Charitable Trusts showed conclusively that American men now have less income than their fathers’ generation did at the same age. Even more troubling is that income mobility has been falling over the same period – meaning that it is less and less likely that a person born into a poor family will ever earn enough to also avoid being poor. (Trends in U.S. Family Income Mobility, 1967–2004, Federal Reserve Bank of Boston Working Paper No. 09-7, September 2009.) Why is it that American political elites, including President Obama and his economics team, seem so unresponsive to this national calamity?

Here again, we can turn to Veblen for answers. Political elites are members of the Leisure Class or Predatory Class, along with financiers and business managers, according to Veblen. The Leisure Class sets themselves apart from the unwashed masses with a refusal to get their hands dirty doing the actual work of procuring and producing the necessities of everyday life.

The institution of a leisure class is found in its best development at the higher stages of the barbarian culture; as, for instance, in feudal Europe or feudal Japan. In such communities the distinction between classes is very rigorously observed; and the feature of most striking economic significance in these class differences is the distinction maintained between the employments proper to the several classes. The upper classes are by custom exempt or excluded from industrial occupations. . . .

. . . . A distinction is still habitually made between industrial and non-industrial occupations; and this modern distinction is a transmuted form of the barbarian distinction between exploit and drudgery. . . .

During the predatory culture labour comes to be associated in men's habits of thought with weakness and subjection to a master. It is therefore a mark of inferiority, and therefore comes to be accounted unworthy of man in his best estate. By virtue of this tradition labour is felt to be debasing, and this tradition has never died out. On the contrary, with the advance of social differentiation it has acquired the axiomatic force due to ancient and unquestioned prescription.

--The Theory of the Leisure Class, Chapter One – "Introductory." (The text of the book in full has been made available online by Project Gutenberg at www.gutenberg.org.)

What makes Veblen far superior to Marx is that Veblen recognizes that the essential characteristic of modern industrial societies is a culture of tools, workmanship, and machine processes.

In more than one respect the industrial system of today is notably different from anything that has gone before. It is eminently a system, self balanced and comprehensive; and it is a system of interlocking mechanical processes, rather than of skilful manipulation. It is mechanical rather than manual. It is an organization of mechanical powers and material resources, rather than of skilled craftsmen and tools; although the skilled workmen and tools, are also an indispensable part of its comprehensive mechanism. It is of an impersonal nature, after the fashion of the material sciences, on which it constantly draws. It runs to "quantity production" of specialized and standardized goods and services. For all these reasons it lends itself to systematic control under the direction of industrial experts, skilled technologists, who may be called " production engineers," for want of a better term.

This industrial system runs on as an inclusive organization of many and diverse interlocking mechanical processes, interdependent and balanced among themselves in such a way that the due working of any part of it is conditioned on the due working of all the rest. Therefore it will work at its best only on condition that these industrial experts, production engineers, will work together on a common understanding; and more particularly on condition that they must not work at cross purposes. These technological specialists whose constant supervision is indispensable to the due working of the industrial system constitute the general staff of industry, whose work it is to control the strategy of production at large and to keep an oversight of the tactics of production in detail.

Such is the nature of this industrial system on whose due working depends the material welfare of all the civilized peoples.

--The Engineers and the Price System, pp 52-53.

In his 1993 book Elegant Technology: Economic Prosperity from an Environmental Blueprint, Veblen scholar Jonathan Larson zeros in on the exact point of interface between human beings and the modern industrial system of mechanical processes:

Nothing can be manufactured without the use of tools. Hand-made is only a term to describe goods that are made with primitive tools. Some items, like sweaters and furniture, can be made with primitive tooling and still compete in the marketplace.

Most items can only be manufactured with advanced tooling. There are no primitive options for making a color picture tube . . . Understanding the levels of sophistication in tools is to comprehend a very great deal about industrialization.

. . . . Sophisticated products can only be made with sophisticated tools. A computer cannot be made with a stone axe. The primary producer motivation for increased sophistication in tools is to permit the production of sophisticated products. Peoples who can fabricate sophisticated tools usually dominate peoples who cannot.

. . . . The most interesting fact about tools is that it takes tools to make tools. Making primitive tools with sophisticated tools is a simple proposition. Making a pair of pliers is easy if there is a steel mill and a drop forge. Making sophisticated tools with simple tools is an extremely difficult proposition. The ability to go up the ladder of tool sophistication is the essential story of industrial development.

As we noted earlier, Veblen draws a distinct line between business and industry. So, a curious thing happens as societies progess industrially. In his 1904 book, The Theory of the Business Enterprise, Veblen observes

Conversely as regards the men in the pecuniary occupations, the business men. Their exemption from taking thought of mechanical facts and processes is likewise only relative. Even those business men whose business is in a peculiar degree remote from the handling of tools or goods and from the oversight of mechanical processes as for example bankers, lawyers, brokers, and the like have still at the best to take some cognizance of the mechanical apparatus of everyday life they are at least compelled to take some thought of what may be called the mechanics of consumption. . . Their exemption from mechanical thinking from thinking in terms of cause and effect is therefore materially qualified. But after all qualifications have been made the fact still is apparent that the everyday life of those classes which are engaged in business differs materially in the respect cited from the life of the classes engaged in industry proper. There is an appreciable and widening difference between the habits of life of the two classes and this carries with it a widening difference in the discipline to which the two classes are subjected. It induces a difference in the habits of thought and the habitual grounds and methods of reasoning resorted to by each class. There results a difference in the point of view in the facts dwelt upon in the methods of argument, in the grounds of validity appealed to, and this difference gains in magnitude and consistency as the differentiation of occupations goes on. So that the two classes come to have an increasing difficulty in understanding one another and appreciating one another's convictions ideals capacities and shortcomings. (pp 316-18)

Now, if Veblen is correct about 1) how the Predator Class abhors actually having to do real work, and in fact does not even like to think about it, and 2) political elites are part of the Predator Class and embody that class’s ways of thinking and understanding the world, what would be the results as manifested in national economic policies? Would we expect to find any sympathy for the plea of industrialists to prevent Wall Street from forcing them to focus on quarterly and annual earnings gains? Would we expect to find any understanding of the opposition of industrialists to short selling of stocks or floating exchange rates and currency futures trading? Would we expect to find any consideration for industrialists’ desire for low, fixed interest rates below the natural usury point? Would we expect to find any serious consideration of a coherent national industrial plan that would revive the nation’s manufacturing base? How much weight would we expect political elites to actually give to the views and concerns of trade unions of machinists, steelworkers, assembly line workers, maids, and bus drivers? Would we expect to find any real concern for a national employment picture where the unemployment rate in the working class is five times higher than in the Leisure Class?

Earlier, I quoted Veblen on the origins of the Leisure Class. Veblen’s reference to "barbarian" is crucial, because the more advanced a society becomes industrially, the more removed from real industry the elites become. In a very real sense, the elites become more barbaric. This devolution of business culture is clearly seen in how the meme of "ripping their faces off" has spread from the trading floors of Wall Street in the 1980s (as captured in Michael Lewis's first book, Liar's Poker: Rising Through the Wreckage on Wall Street), to the rest of the business world. As the elites drive the culture downward into ever more primitive barbarism (think of what modern art and modern architecture have become), the very idea of civic virtue comes under explicit attack. We see this in the assaults by "conservatives" on the idea of the common good being a "liberal codeword" for nazism or socialism, i.e., Glen Beck's recent warning to his followers about the dangers of their churches preaching the gospel of social justice.

Which brings us back to the theme Sheldon Wolin develops in Democracy Inc.: Managed Democracy and the Specter of Inverted Totalitarianism. Whether or not President Obama is a sell-out is not the real question we must face. The real question is: what are we going to do about the corporate culture that has come to dominate our politics?

Cross posted from Real Economics.