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Why ‘Crony Capitalism’ is as American as Apple Pie

Conservatives are supposed to cherish tradition, to draw on customs and policies which worked well in the past to guide what office-holders ought to do in the future. So it is ironic, if not hypocritical, that they constantly peddle a notion about the separation of business and government that has no basis in American history. “The voters,” asserted Mitt Romney, after his victory in the Washington caucuses, “want a conservative businessman who understands the private sector and knows how to get the federal government out of the way, so that the economy can once again grow vigorously.”

In fact, the Republican nominee-to-be is distorting a long and bipartisan tradition of government support for big business in America. Conservatives now object to “crony capitalism,” but for much of U.S. history, businessmen have been hungry for it. Since the early nineteenth century, the government has helped fuel economic growth and corporate profit-making, and savvy businessmen and, recently, businesswomen have lobbied hard to keep those benefits coming.

Public money and support were essential to creating the nation’s infrastructure in the decades before the Civil War. State and federal funds helped build every major turnpike, canal, bridge, dock, and railroad line. As the historian Steve Fraser writes in The Princeton Encyclopedia of American Political History, all these enterprises were thus “quasi-public creations … Governments granted them franchises, incorporated them, lent them money, invested in them, provided them with tax exemptions and subsidies and land grants, and even, at times, shared in their management.” And where would Sears and Roebuck or the publishers of books and magazines have been without the postal system? The efficient and egalitarian federal mail knit American manufacturers and consumers into a continental market. 

All this was merely a prelude to the Gilded Age, when the U.S. government boosted industrial growth, and corporate profits, in a multitude of ways. Congress appropriated over half the capital for the transcontinental railroad and donated huge land grants to the companies which built it. That famous golden spike might as well have been stamped with the words, “Made in D.C.” At the same time, Republican majorities in both Houses subsidized American industrialists by erecting high tariffs on goods made by their European competitors.

The federal executive was also a trusted ally of employers who faced labor unrest. When railroad workers went on strike across the nation in 1877, President Rutherford Hayes, a Republican, dispatched the army to put them down. In 1894, President Grover Cleveland, a Democrat, sent the troops to crush another uprising by the men who built and operated the trains. Meanwhile, the Supreme Court obligingly brushed aside legislation by states to rein in big business by ruling that such laws violated the rights of corporations to due process under the Fourteenth Amendment, which had been enacted to give citizenship to freed slaves. This was how corporations, in Romney’s memorable phrase, became “people too.”

By the turn of the century, a sizeable number of Americans were calling for an end to the torrid affair between business and government. Before World War I, progressives pushed through measures to curb the trusts, regulate the money supply, and protect consumers from unsafe meat and drugs. Yet the largest meatpacking corporations also welcomed the FDA, knowing it would signal that their products were safe to eat while raising the costs of production just enough to drive smaller firms out of business. And even those private bankers who had protested the creation of the Federal System soon recognized the value of a stable currency for planning future investments.

Conservatives detested the Keynesian policies that every president from FDR to Nixon adopted. But major corporations were quite happy to gorge themselves at the federal banquet table. Agribusinesses got crop subsidies and irrigation projects, aerospace and defense firms got lavish, cost-plus contracts to manufacture everything from H-bombs to lunar modules, and drug companies kept their prices high with the blessing of patent monopolies. The Federal Highway Act enabled the building of 41 thousand miles of interstates—a great boon to construction, real estate, and trucking firms, which together composed what might be called the “suburban-industrial complex.”* All this government largesse, funded by high marginal tax rates, helped produce a quarter-century of growth that some economists refer to simply as “the golden years.”

Thus, the private sector that Romney and his fellow Republicans love to celebrate became large and prosperous only with aid—financial, legal, even regulatory—from public officials. The real political question has never been, should government be large or small but whose interests should it serve?

Corporate executives have always understood this fact and learned how to work the system that right-wing ideologues would have us believe is a recent invention of “socialist” Obamaites. For example, the health insurance industry paid billions of dollars to lobbyists since the 1990s to guarantee that any universal health care law would not damage their business. As Ezra Klein writes in The New York Review of Books, this kind of money “gives you an opportunity to shape the way members of Congress think—an opportunity that is not available to those who don’t have $4.86 billion to spend on lobbying.” And so the Affordable Care Act, which has many virtues, does not include a public option.

Even if he knew this history, Mitt Romney would probably still spend the next eight months promising to free the economy from the shackles of “big government.” But if that rhetoric ever became reality, there would be nothing conservative about it.

Michael Kazin’s most recent book is American Dreamers: How the Left Changed a Nation. He teaches history at Georgetown University and is co-editor of Dissent.

*This article has been corrected. The orignal version stated that the The Federal Highway Act enabled the construction of 41 million miles of road. The actual number is 41 thousand miles of road. We regret the error.