Academic journal article The Cato Journal

Political Capitalism

Academic journal article The Cato Journal

Political Capitalism

Article excerpt

Political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. The economic elite influence the government's economic policies to use regulation, government spending, and the design of the tax system to maintain their elite status in the economy. The political elite are then supported by the economic elite which helps the political elite maintain their status; an exchange relationship that benefits both the political and economic elite.

Political capitalism as an economic system was explicitly implemented in the fascist and corporatist economies of Germany and Italy between the World Wars, and as he was leaving office, President Eisenhower warned, in 1961, of the dangers of the military-industrial complex, a manifestation of political capitalism. The idea of the differing interests of the elites and masses has a long history in political science and sociology, but has been less recognized in economics. Economics tends to use individuals as the unit of analysis, so is oriented toward recognizing that different individuals have different interests, rather than that groups of people might work together to further their interests, and that group boundaries might be determined by social divisions. However, an examination of the academic literature in economics shows that the building blocks for a theory of political capitalism are already in place. This article draws together several strands in the academic literature to show how they can be woven together to understand political capitalism as a distinct economic system.

The Concept of Political Capitalism

Political capitalism is a concept introduced by Max Weber (1922) to describe the political and economic systems in ancient Rome. However, Love (1991: 4) argues that Weber did not fully develop the concept: 'Whereas Weber developed the ideal type of rational capitalism to a high degree, ... unfortunately the same cannot be said of his concept of political capitalism." Love defines Weber's concept as "the exploitation of opportunities for profit arising from the exercise of political power (ultimately violence)." In a more modern setting, Kolko (1963) adopted the term to describe the American political and economic systems that developed during the Progressive Era, which he dates from 1900 to 1916.

The conventional wisdom on the Progressive Era is that government imposed regulation on business to limit the ability of those with concentrated economic power from using it to the detriment of the masses. According to Higgs (1987), the Progressive Era represented a change in American ideology. Prior to the Progressive Era, Americans viewed the role of government as protecting individual rights. Progressives expanded that view and held that government should look out for people's economic well-being in addition to protecting their rights.

Government regulation of concentrated economic power, according to the conventional wisdom, was a part of looking out for people's economic well-being. Kolko (1963: 2-41) challenges the conventional wisdom, noting:

   Progressivism was initially a movement for the political
   rationalization of business and industrial conditions, a movement
   that operated on the assumption that the general welfare of the
   community could be best served by satisfying the concrete needs of
   business. But the regulation itself was invariably controlled by
   leaders of the regulated industry, and directed toward ends they
   deemed acceptable or desirable.... It is business control over
   politics (and by 'business' I mean the major economic interests)
   rather than political regulation of the economy that is the
   significant phenomenon of the Progressive Era.

This is what Kolko calls political capitalism. (1)

The concept of political capitalism has been recognized in political science, although not as a dominant paradigm and not under that name. …

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