All Commentary
Friday, October 12, 2007

Atlas Shrugged and the Corporate State

This week marks the 50th anniversary of the publication of Ayn Rand's stunning novel, Atlas Shrugged. So many words have been written about the book that the task of saying something new is daunting. It is a celebration of the creativity that is required for the production of material goods no less than for the production of music, art, and literature. And it is an elaboration of the precondition for that creativity: individual freedom, which necessarily includes property rights. In sum, Atlas Shrugged is a literary brief for the proposition that human beings can live fully as human beings only in a society founded on the freedom philosophy, i.e., on self-ownership, private property, privacy, consent, free trade, and peace — in a phrase, laissez faire.

What sometimes goes unappreciated by readers of the novel is the extent to which Rand targeted business people as potentially the most egregious saboteurs of freedom. While many of the novel's heroes operated businesses, key villains did also. It is no exaggeration to say that Atlas Shrugged can function as a guide to how the corporate state, or mixed economy, works. Rand well understood that liberty is threatened by business owners who seek privileges from the state in order to gain protection from open competition, domestic as well as foreign. Those privileges don't merely limit the selection of consumer goods and raise prices higher than they would be. They also reduce competition for workers' services and suppress self-employment opportunities. Moreover, they encourage others to seek countervailing privileges. If businesses are protecting their market positions with protectionist licensing, taxes, regulations, subsidies, trade restrictions, patents, and the like, why shouldn't labor and other interest groups also seek protection? Before you know it, the state is involved in all aspects of life.

Endless trouble is wrought by focusing only on the later interventions and forgetting about the earlier ones. (That is what Kevin Carson calls vulgar libertarianism.)

Persecuted Minority?

Not all of Rand's work demonstrated such a sound intuition about real-world capitalism. While her fiction and some of her essays astutely describe the system generated by the businessman-as-privilege-seeker — she called it the new fascism — some of her nonfiction work takes another tack, lamenting big business as America's persecuted minority. But as the late Roy Childs documented in his 1971 Reason magazine article, Big Business and the Rise of American Statism, historically business was the major impetus to centralized control of the American economy. The advocates of corporatism in the business world are usually overshadowed by the German-educated American intellectuals who espoused statism in lofty philosophical terms. But in fact, corporatism was mostly the handiwork of business leaders' efforts to protect their market positions from upstart competition. Childs's article (which I heartily recommend) draws substantially on work of New Left historian Gabriel Kolko (The Triumph of Conservatism and Railroads and Regulation), who demonstrated that despite earlier pro-business protectionist regulation at the state and, to a lesser extent, federal levels, dominant businesses were under vigorous competitive challenge in the late-nineteenth and early twentieth centuries.

Ironically, Kolko writes, contrary to the consensus of historians, it was not the existence of monopoly which caused the federal government to intervene in the economy, but the lack of it. Innovative entrepreneurs found ways to win customers and take market share from incumbent firms. A strategy of mergers and acquisitions failed to stem that challenge. Competition was unacceptable to many key business and financial leaders, and the merger movement was to a large extent a reflection of voluntary, unsuccessful business efforts to bring irresistible trends under control. hellip;As new competitors sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could [control and stabilize] the economy, Kolko writes.

This is the origin of the Progressive-Era reforms: the Interstate Commerce Commission, Federal Reserve, Federal Trade Commission, and most of the rest of the new regulatory state. Well-connected corporate leaders favored measures that would cartelize their industries and inhibit competition in the manner of FDR's later, short-lived National Recovery Administration. (Many of the same business leaders applauded the New Deal. See America's Engineer.) Centralized government supervision of industry, finance, and agriculture, which those business leaders reasonably expected to influence, was vastly preferable to both laissez faire and state-level regulation.

Readers of Atlas Shrugged can gain valuable insights into this process, and for that we have one more reason to praise Rand's novel.

The biggest threat today is not from communism or state socialism or even terrorism. No one in America is proposing to nationalize industry or collectivize agriculture. The threat is from the concentration of power in the hands of pedestrian centrist politicians on the pretext of national and economic security. This has a powerful corporatist element that must not be overlooked. For example, all the so-called top-tier presidential candidates favor a comprehensive energy policy designed to cut back the use of imported oil and to stimulate development of alternative fuels. Who stands to gain most from the subsidies, tax preferences, and market manipulations that will constitute such a policy? You guessed it. The energy companies, which have never stood on their own, independent of government. And who is pushing hard for deeper government intervention in medicine and pensions? Big corporations, which are competitively burdened by the obligations they've taken on over the years. Who will stake these beneficiaries? Consumers, workers, and net taxpayers.

The message of Atlas Shrugged is that human creativity and the good life it provides require freedom and that state coercion, always justified in terms of self-sacrifice, is contrary to our rational interests. If you haven't already done so, read the book. Then join the struggle for freedom, free markets, and peace.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.