Wall Street vs. Main Street Democrats?

Although buried in marking doing some work on my paper on American liberalism and capitalist development based on my recent Sydney presentation to a symposium on social democratic governments and business. One aspect is the relation between the Democrats and business and the question of ‘corporate liberalism’ apparent in current debates about financial regulation.  We could draw a parallel between the current debate about financial regulation and the trusts debate of the late 19th and early 20th century. The rise of corporate capitalism challenged the Jeffersonian and Smithian vision of a society of small producers, farmers, artisans and merchants. As Chandler put it the ‘visible hand’ of administrative coordination within the large-scale enterprise replaced Smith’s ‘invisible hand’ of the market. However contrary to Marxist predictions complete monopolization did not emerge and from the mid twentiethth century many large corporations engaged in decentralization. Oligopolistic competition between large scale enterprises was as Galbraith noted an embarrassment for mainstream economists. Transaction cost economics sought to resolve the contradiction between allocative and productive efficiency. The economic upheavals that commenced in the 1970s seemed in some descriptions to mean a return to the invisible hand as large enterprises were broken up, divisions were spun off as subsidiary firms and the financial sector increasingly took over the coordination of economic activity. But the recent financial crisis has demonstrated that the new financialised economy was not a revival of Smith’s society of merchants, farmers and artisans. The accommodation between the Democrats and Wall Street is limited, according to a 2006 report:

Wall Street is eyeing new leadership in Congress, according to a research group that says contributions from the financial services industry have tilted slightly toward Democratic candidates and committees in the last 18 months. The Center for Responsive Politics (CRP) says donations to Democratic Party candidates from January 2005 to June 2006 have risen to about 51 percent of total contributions versus 47 percent for Republicans. The remaining 2 percent has gone to Sen. Joseph Lieberman, a Connecticut Democrat who is running for re-election as an independent. This represents a change from the 2004 presidential election when 52 percent of Wall Street donations went to Republicans and 48 percent went to Democrats, according to Massie Ritsch, spokesman for the nonpartisan CRP.

It is apparent that the Democrats’ social liberalism gives them an entree to a significant section of high income earners. Andrew Gelman has shown that culture and region are much more important drivers of electoral behaviour among the affluent than the poor. This pattern was apparent in the late 19th century as the Democrats won support from southern business and from many mercantile and financial interests and middle-class reformers unhappy with the Republicans’ centralism, corruption and high-tariff policy. However the Democrats’ populist turn in 1896 drove many from the party to either support the Republicans or the Gold Democrats. By the 1910s however the Democrats were reunited and the problems of unregulated capitalist development apparent in the rise of the trusts and financial panics such as that of 1907 had led many formerly conservative Democrats, such as Woodrow Wilson, to accept key aspects of the populist critique; hence progressivism (an equivalent of the leftward drift of many former Clinton staff such as Brad de Long).  Today the Democrats face similar economic divisions to those of the 1890s with many in Wall Street unhappy with the administration’s regulatory proposals and left-leaning Democrats complaining about the influence of Wall Street. Could we argue that the current upheaval will led to reconstruction of American capitalism as significant as that which emerged during the era of the ‘trust’ debate?

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