'-J?:",-~,-:'"'-';:'::~5c": ",

*"SuicidaJCorporation 348

TswtajleVa 410

WORLD &1P8ATURBD BOOK

The Suicidal Corporation PaulH.~ver

EXCERPTCOMMENTARY

,Twocheers~Ycf~m~~131:1'0Bind and UI e e r Samuel T.Francis

L.!"IardAdvice to Follow John HovingR8VI1IW8

The Rise of Big Business In America RobertHiggsEntrepreneurs vs. the State: A New Look at the Rise of.Big Businessin~ 1840-1920 BurtonIN.Fulsom,Jr.

Imagination Goyerns the World MichaelScammellA CaptilleLion BaineFeinstein '

The Sel8cted Fbems of Marins Tswtayeva £JaineFeinstein.trans.

Perestroika: Opium for the Intellectuals MikhailTsypkinPsrestroika:New ThinkingforOurCountryandthe ~Mikhail Gorbachev

Loye and Tyranny, Romanian Style DonaldJamisonRed HorizOM Gen. Ia1MihaiPacepa

Ending the Confrontation in Europe PeterSharfmanConsolidating Peace in Europe IvfortonA Kaplan.ed.MtlIet3h6din Europe JonathanDean '

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350

381395399

404

410

419

426

431

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BOOKWORLD .

COMMENTARY on The ScJiddGJ CotpoIation

Two Cheers!

Paul Weaver rightly challenges corporations to take a moreactive role in defending the marketplace.

BY FRED L. SMITH, .JR.

Grea~crises will surely come again, asthey have from time to time through-out all human history. When they do,government will almost certainly gainnew powers over economic and socialaffairs. . . . For those whocherishindividual liberty and a free society,the prospect is deeply disheartening.

Robert Higgs, Crisis and Leviathan

Joseph Schumpeter once asked the ques-tion-"Would capitalism survive?"His an-swer-"Probably not." Schumpeter be-

lieved that many factors mitigated againstthe survival of a free market economy.Among various debilitating factors, he listedthe loss of political and socialsupport for thissystem that he believedwould likely accom-pany the emergence of the modern corpora-tion. He also noted that capitalism encour-aged the emergence of an intellectual classthat wouldprove inherently hostile to its sur-vival. Finally, Schumpeter believedthat cap-italism was a rationalizing force that wouldeventually destroy the ideologicaland moralunderpinnings vital to its survival.

History bears out Schumpeter's pessimism.As Robert Higgs notes in his insightful book,every crisis of the last hundred years has

Fred L. Smith. Jr., htads the Competitive EnterpriseInstitute. a promarktt public interest group organizedto advance free enterprise policies. and has writtenand spoktn uridtly on the relationship of business andpolitics.

ratcheted upward the power of governmentover the economy.Power continues to gravi-tate from business to political centers, fromthe world of voluntary agreements to that ofcoercive mandates. America, in terms madefamousby Frederick Hayek, has traveled faralong The Road to Serjdmn.

A free societyis not stable. There is alwaysa tension between those groups now enjoyingpower and prestige and the emerging forcesof change. The status quo forces always seekto preserve the old regime, using politicalmeans to that end. Sincepoliticiansnaturallyrespondto the visiblepresent rather than thepromised future, politics generally supportsthe past against the future. The historic re-sult is that the conditions for a free societyhave rarely been met and even more rarelysustained for any length of time. Onlyunusualconditions-an open frontier, strong re-straints on government, commitment by sig-nificant groups of intellectual and moral lead-era to decentralization and free markets, avigorous and independent business sector, agrowingand diversepopulation,rapid techno-logicalchange, war or someother chronicdis-ruption undermining the status quo-havepermitted the dynamism that is necessary(but of coursenot sufficient)for a free society.

Paul H.Weaver's TheSuicidal Corporation:How Big Busi~ Fail.<;America addressesone aspect of this questionby asking whetherthe corporation has played a positive role inthe war for economicfreedom. As his titlesuggests, Weaver believesit has not. Weaver

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BOOKWORLDCOMMENTARY on TIre Suicidal CorpoI ation

sees corporate America as too quick to seekpolitical entitlements and too slow to combatgovernment attempts to cripple its independ-ence. Based on his experiences at Ford Mo-tor and a review of recent economic history,Weaver develops this theory in the first twoparts of the book. His concluding sectionargues that the political-economic climate has

changed and that the corporation should, in-deed must, assume a more responsiblerole indefending our free enterprise system.

Weaver sketches his theories in broadbrush and there is much to quarrel with inthe details. His indignation and his limitedresearch into other periodsand other compa-nies lead him well afieldof what the evidencejustifies. Thus, his book is best read in con-junction with other books addressing the in-teraction of markets and politics.For exam-ple, Burton W. Folsom,Jr.'s EntrepreneursVB.the'State[see "Reviews"]is a valuable historicaccount of the differencebetween those busi-nessmen whobecamewealthy via market en-

382 THE WORLD & I

trepreneurship and those who sought (and of-ten gained) wealth via political favoritism.Folsom provides a necessary balance to theWeaver book pointing out that there havebeen corporate heroes as well as villains. Rob-ert Higgs, (the reviewer of the Folsom book)authored Crisis and Leviathan: Critical Epi-sOda in the Growth of American Gavernment,which addresses the growth of governmentfrom a variety of perspectivesand merits con-siderable attention. Finally, Marvin N. Olas-ky's recent title, Corporate Public Relations: ANewHistmical Per~tive, expands upon thefailures of corporate public affairs, a topicalso addressed by Weaver.

Overview

Weaver is a talented business journalist,well able to provide an informative and in-teresting story of the modem corporationandits relation to the politicalworld.The first ofhis three sections,"DearbornDays,"describeshis experiencesin corporate publicaffairs atFord. The sectiondocumentsWeaver's transi-tion from an impassioned(self-described)neo-conservative defender of American businessto a harsh libertarian critic of the "patholog-ical" corporation. His second section, "Man-agement vs. the Market," generalizes fromthis experience and presents what mightbest be classified (despite Weaver's libertar-ian claims) as a neopopulist critique of themodem corporation. His concluding section,"Towards Capitalism," summarizes recenttrends that Weaver believes will force cor-porations to adopt more rational policies,and presents his recommendations.

'Dearborn Days'

Weaver's account of his experiences as apublic affairs director at Ford is intriguingand illustrates well the risks a firm runs inhiring intellectuals. Weaver played the game-but he also played at the game, takingnotes and noting names. The resulting obser-vations,both pithy and pertinent, willcertain-ly disturb some former colleagues.The chap-ter titles indicate the section's tone-"Lies,"

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"Passivity," "Narcissism," "Deals," "Career-ism," and finally "A Neoconservative'sRepentance."Weaver cameto Ford, he states,to defendthe companyand capitalism.Hewasshocked to find that Ford was less eager tomount the strategic defense of the West.

Weaver's disillusionmentwas total, as washis condemnationof Ford. He condemnsFordfor its failure to developa more effectivepub-lic affairs program-in particular, its failureto reach out to workers, stockholders, andother potential allies. Weaver views Ford'spublic affairs work as self-defeating. Issueswere either avoided,dealt with internally, oraddressed via some special accommodation.Weaver illustrates this in an extended discus-sion of Ford's response to the newer feder-al safetY, environmental, and energy reg-ulations of the 1970s, as well as themore traditional tax and trade policies.

An example was the way that Ford react-ed to the Corporate Average Fuel Economy(CAFE) standards, originally imposedon theauto industry during the Carter years. CAFEregulations required that the "average" ~soldby Ford in each modelyear attain a spe-cifiedfuel efficiency.Weaver was involvedinthe questionofwhat relief, if any, Ford shouldrequest in response to the changed conditionsbrought about by falling energyprices. Lowerenergy prices, not surprisingly, ledconsumersto seek out larger, more comfortable,better-perfonmng, and safer cars. The CAFE regu-lations, however, made it difficultfor Ford tobuild them.

Weaver was surprised and disappointedtofind that Ford sought onlyreliefand made no~ort to repeal CAFE. Weaver might havebeen even more disappointed if he had real-ized just how strong the case is for such re-peal. CAFE not only seriously distorts consu-mer choice,it alsocreates specialproblemsforFord and GM.Thesefirms sufferbecausetheymanufacture a full lineof automobiles.CAFErequires Ford to balance large and small caresales; every Lincolnsoldmust be balancedbythe sale of one or more Escorts. Moreover,CAFE standards require.Ford to design carsfor future modelyears with no guarantee thatthey can be sold. High performance cars are

sometimes downgraded to achieve CAFEstandards. Even worse,by forcingAmericansinto smaller (and statistically less safe) cars,CAFE has indirectly increased traffic fatali-ties considerablyover the last decade. More-over, even as an energy conservation meas-ure, CAFE is inefficient.In brief, the publicinterest case for repealing this law is obviousand Qramatic.

Ford, in particular, would benefit fromsuch repeal. Not onlydoesCAFErequire Fordto sacrifice market share, restrict design op-tions, and lose performance ratings, it alsoprovidescompetitivefirms major advantages.CAFE is less an issue for most foreign firms.Many European firms have operated for dec-ades in economieshandicapped by extremely

Weaver came to Ford to

defend the company andcapitalism, but was

shocked by the company'sself-defeating public

affairs work.

high energy and automobiletaxes; moreover,many such cars fall into the luxury categorywhere CAFE standards are less significant.Japanese and Korean manufacturers producesmaller cars that easily meet CAFE stand-ards. CAFE is an extremely anti-U.S., anti-competitiveness policy-yet, it remains thelaw of the land; in part, Weaver argues, be-cause Ford has never challenged it.

But is Weaver right? Is there any reasonFord should avoid a repeal fight? Possibly.Weaverwas at Ford for onlya short time, andhe hasn't providedus a history of how theseissues had .been addressed in earlier years.Had Weaver checked out this history, hewould have found that neither the firstnor the second Henry Ford toadied to gov-ernment. In many ways, the Fords played the

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MARCH1988 383

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COMMENTARYon 1heSuicidalCDrpaarion

game the way Weaver wouldhave wished.ABrelated in The Forrk An American Epic byPeter Collierand David Horowitz,during theNew Dealperiod,Henry Ford I rejecteda per-sonal appeal from Pierre Du Pont to join andsupport the National Recovery Administra-tion pIan to carte1ize American industry;Ford's' publications chortled when the Su-preme Court knocked down the plan. UnderHenry Ford II, the companytook the lead in

organizing Detroit's response to Ralph Na-der's safety challenge.Henry Ford ITarguedthat the safety issue was misleading.He not-ed: "We can build a tank. . . . If you want toride around in a tank. you won't get hurt. Youwon't be able to afford one, though. And neith-er willl" Despite the opposition of its Wash-ington representatives, who sought .an earlycompromise, the Ford leadership argued thatDetroit had always sought to make safe carsand had every intention of making even safercars in the future. Ford's attitude was notconsidered "positive," and Congress went on toenact a series of mandatory safety regula-

384 THE WORLD & J

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tions.Perhaps, Weaver should rethink his posi-

tion. Is it possiblethat industry cannot simplyget what it wants, even when it argues onprincipled grounds; that industry might lackthe credibility and stature necessary to pre-sent an effectivecase for rational safety, en-vironment, and energy policies?What's goodfor GM is, indeed, often good for the UnitedStates, but dowe really believethat GMis thebest group to make that point?Weaver mightwell argue that, had Ford done a better job,they might have won. However, they didn't.Weaver had joined a battle that had beengoing badly for some time. He had joined anindustry that had been battered for over adecade by Congress, the press, and an ex-tremely hostile public interest movement.Charging the machine-gun nests once againmuSt have looked pretty silly to the olderhands at Ford.

Weaver's disillusionment with Ford soonbroadenedto a critique of American businessin general. Weaver initially sought that Gol-den Age in which businessmen were virtuousfree enterprisers eschewing governmenthandouts and special privileges. Instead,Weaver found that:

From the very beginning, it [the corpo-ration] had taken the kinds of politicalpositions I'd seen at Ford. The corpora-tion had never been for markets, limit-ed government, private property, orthe other values associated with thebusiness cause. It had always spokenof the "social responsibilities" of busi-ness. It had always tried to deriveprivate advantage from public policy.It had never been the rock-ribbed, pro-market, straight-talking institution Ihad imagined.

Weaver concludedthat "[t]hecorporation is Eoflawedinstitution, that democraticcapitalismis a flawed system, and that both.are in needof criticismand reform."Weaverwas angeredto find that his new anticorporate sentimentswere not well receivedby his former neocon-servative friends. "It made me sick to my

stomach," Weaver states, "that these oldfriends [the neoconservatives]were trying toprotect organizations like the onerd gotten toknow in Dearborn."

Despite Weaver's disgust at Ford, he endsthe Dearborn section with an incongruouscommendationof Ford's turnaround. The end~ing lacks continuity. Ford hasn't changed. Itstill favors protection from "unfaho"Japan-ese competitionvia continued "voluntary"re-straint agreements. It has yet to seek therepeal of the CAFE standards or any othercar-related saftey, health, or environmentregulation. It has no obviousstrategic plan forits political future. Why then has it been ableto do well? Why hasn't it been forced, asWeaver argues American industry eventuallymust be, to turn back to the marketplace?Weaver doesn't say and we are left confused.

'Management vs. the Market'

In the secondpart of the book,Weaver fur-ther developshis thesis that Ford typifiesthemOdemcorporation, which, in turn, is large-ly responsible for the growth in government.Weaver first catalogs the sins of the earlycorporation from the turn of the century on-ward, then those of modern "big"business.ToWeaver, the corporation was created by am-bitious men who sought to slip the "surlybonds of traditional capitalism" [feudal capi-talism?] and "seize the soaring opportunitiesof modern technology and markets." (Thesecomments, I believe, are intended to be crit-ical.) Weaver accepts the populist "RobberBaron" version of history-the Folsom bookprovides a useful counterview. These individ-uals, he notes, were "contemptuousof existingways of doing business and unmoved bythe ideals of individual rights, limited gov--ernment, free markets, and the rule of law."All this, Weaver suggests, means that fromthe very beginning, "the corporation has al-waySbeen up to its hips . . . in politics."

Weaver, thus, views the emergenceof themodem Corporationas a significant and neg-ative event in American history. Precedingthis event, he asserts "liesthe Americanpolit-ical tradition as we usually imagine it-the

world of Madison and Jefferson, market cap-italism, limited government, and individual-ism." The arrival of the corporation signalsthe beginning of the end, the modem worldin which amoral businessmen manipulate thepolitical system to the detriment of both socie-ty and, ironically, even themselves. Corporatemanagers dehumanize the workplace in theirobsessive drive for efficiency, seeking littleinput from the workers involved.

Weaver would have done well to have readmore history. Rent seeking isn't a modern in-vention. For hundreds of years prior to theevolution of the modern corporation, firms-often small firms-sought, and often ob-tained, special privileges from their local pol-iticians. Adam Smith spent considerable time

Weaver initially soughtthat Golden Age in

which businessmen were

virtuous free enterpriserseschewing governmenthandouts and special

privileges.

discussing the problems such favors createdfor the rest of society. Smith was not naive.He knew full well that some businessmenwould seek profits by whatever means wereavailable. He merely thought society shouldmake it hard for them to do so. Smith, likeMadisonand other market-oriented individu-als, was well aware that the citizenry wouldhave to resist the expansion of special privi-lege seeking and wrote to strengthen that re-sistance. Weaver is too quick to see the mod-ern corporation as a problem.

The emergenceof the modern corporation,after all, strengthened the relative power ofthe market vis a vis the political world. Cor-porations were the largest economicentitiesever lmownand, thus, less subject to negativepoliticalentitlements. Grasping politicalboss-

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BOOKWORLDI COMMENTARYon 'I7teSuidtIaI C'DrpGfarion

es could be bypassed or ignored readily (theFoJsombook provides some excellent exam-ples of this). Still, corporations,like their non-corporate predecessors, often sought entitle-ments from government (the railroad landirants are a well-knownexample), but thescale and strangeness of the corporation en-sured more negative media attention than at-tended similar favors granted earlier to"small"businesses.Politicianstherefore facedsomewhat higher costs in granting such fa-vors and this may have made them some-what more cautious. (The empirical questionhiprobablyunanswerable-favors at the localand state level are often managed in waysthat leave lessvisibletraces than the "naked"subsidies awarded the robber barons.) Cer-

Today, corporations findit far too easy to gain

special favors, as do thegroups who favor

antibusiness programs.

tainly, the.muckrakers focusedtheir guns on"Big Business"-they weren't interested inwriting about "local"monopolies.

We need not overstate the case. Weaversh9uld only have presented a more balancedaccount. As FoJsomnotes in hjs book. someearly corporate leaders such as Vanderbiltand James J. Hill recognizedvery early thatpolitical preferences had strings attached.They stuck with the market and didvery well.Avoiding the political tar baby also allowedthem to escape being handicappedby federal"negative"entitlements (FoJsommentions theproblemsthat UnionPacificfacedin not beingallowed to build spur lines). Unfortunately,the freedom of even these market en-trepreneurs was gradually reducedas federal

politicians used the abuses of the robberbarons-abuses encouraged by the enti-tlements these same politicians had earlierenthusiastically endorsed-to justify greatergovernment control over the economy. Forexample, Hill's pro-consumerpro-competitiverail policies were curbed by the ShernmnAnti-Trust Act (the antitrust laws wereargued as necessary to curb the excesses ofthe robber barons but have been used consUlt-ently to restrict competition).

Still, federal intervention was limitedin thelate nineteenth and early twentieth centuries.Over time, of course, the federal governmenthas becomeat least as creative at designingand enacting programs-both favoring andharming business interests-as state and lo-cal governments. Today, corporations find itfar too easy to gain special favors, as do thegroups who favor antibusiness programs.This situation hi serious and the corporationshave heiped bring it about.

Weaver seems concerned by the massivepower corporations wield. Had Weaver readRobert Hessen's In Defense of the Corporatian,he might have been less concerned.As a lib-ertarian, he might have consideredthe refer-ence from .AynRand quoted there:

What is economicpower?It is the pow.er to produce and to trade what onehas produced. In a free economy,where no man or group can use physi-cal coercion against anyone, economicpower can be achieved only by volun-tary means, by the voluntary choiceand agreement of all those who par-ticipate in the process of productionand trade . . . Economic power is exer-cised by means of a positive, by offer-ing men a reward, an incentive, apayment, a value; political power isexercised by means of a negative, bythe threat of punishment, injury, im-prisonment, destruction.

We need not fear market power. Weaver'should have noted that, even today, most busi-

. nessmen rely on their market expertise, rare-ly resorting to political influence. They recog-

386 THE WORLD & I

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nize that their comparative advantage lies inmarket, not political,entrepreneurship.

Weaver is right, however, to challenge thebusiness communityto playa more activerolein defendingthe marketplace. Academicsandfree market ideologues are critical to thisfight, but they lack the resources to mount afull-scalebattle. Moreover,free market intel-lectuals will always be a minority-most in-tellectuals benefit, at least, in the short runby an expanding state. A brief discussionofsome of today's market entrepreneurs-KenIverson of Nucor Steel, Sam Walton of Wal-mart, or Fred Smith ofFederal Express-andhow these men could contribute to the warfor economicfreedomwouldhave beenuseful.Such modern entrepreneurs form the groupwithin the business communitymost aware ofthe value of the competitiveprocess and mostlikely to value its survival.

In Weaver's secondsection,his central andmost controversial point is raised. Weaverargues that the major problemsfacedby busi-ness today result from its ownsuicidalbehav-ior. Business creates the antibusiness envi-ronment. Now,as notedearlier, Schumpeter'stheory alludes to a similar point, but Weav-er is arguing something rather different. Heargues that business has acted against itsown best interests, that busineSshas been ir-rational. Weaver recognizesthat this claim iscontroversial and specificallyaddresses threealternative explanations on why business sooften capitulates to-antibusiness policies:thefree rider, rational acquiescence, and risk-avoidance theories. Weaver argues that thealternative explanations are interesting butwrong-as he puts it: "Nicetry, but no cigar."

The free rider explanation is that while astronger separation of business and politicsisdesirable, no individualfirm will find it in itsbest interest to pursue that objective.If onedoes and succeeds,he pays the costs and ev-eryone benefits. The altruistic firm may finditself committing all of its resources and gar-nering only a fraction of the benefits. Whythen, shouldany business seek to bell the gov-ernment cat?

Weaver attacks this argument directly.Might it not be rational for even a single firm

to take on issues that impact heavily on itsown economicsituation? CAFE, for example,is an expensive proposition for Ford alone.Ford managers must devoteconsiderabletimeto reviewing this regulation for its implica-tions: Product quality must be compromisedand prices must be distorted to manipulatedemand. Moreover, CAFE greatly com-plicates Ford's design and marketing prob-lems.A two-tieredCAFEbattle plan in whichFord would continue to fight the tacticalshort-term battle for eased regulations, whilesimultaneouslymounting a strategic fight fortotal repeal (possiblein conjunctionwith al-lies) might well represent an investment at-tractive to Ford alone. That such a strategywould also benefit other firms should affectFord's calculations only if such a campaignwouldweaken the companyvis-a-visits com-petitors or if a victory would tilt the decksagainst Ford in the future. Neither seemslikely.

Weaver also suggests a type of "reversefree rider" argument. There are costs, henotes, of not defending oneself.That point issometimesrecognized;firms doprosecute sho-plifters evenwhen the specificlossesincurredwould seem not to justify the expense. Theydo prosecute,of course,to deter future thefts.Doesn't government action deserve at leastthe same degree of commitment?

Moreover,it may not be necessary to go italone. Weaver suggests that the costs of or-ganizing groups that share a common com-plaint (negatively impacted by some specificlaw) have been overstated. It may be entirelyfeasibleto create issue-specificcoalitionsthatcould effectively fight antibusiness policies.In fact, American industry has occasionallywaged such battles. Examples include GM'sfight overthe Department ofTransportation'scondemnation of their X-car's braking sys-tem, and Sears'refusal to settle a "discrimina-tion" suit brought against it by theEqual Employment Opportunity Commis-sion.Unfortunately, few such examples cometo mind. Nor are companies quick to gener-alize from these experiences.Clearly compa-nies feel uncomfortableopposingfoolishpoli-cies advancedby "motherhood"agencies.

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BOOKWORLDCOMMENTARYon The SuiddtIl C«poI ation

"

Business needs other groups to cover itwhile it takes on someof these very difficultbattles. The business community should ac-tively encourage independent groups withinthe public interest and academic communityto assess the merits of various governmentprograms. Third party views can be helpful in .

m~t1g policy change possible. Transporta-tion deregulation. for example, moved for-ward in part because the press finallyrecognized that the Interstate CommerceCommission and the Civil Aviation Boardwere not acting in the consumer interest.Business should assist academics and otherfree market advocates to soften specificpoli-cy areas before it takes the offensive.Casestudies of past battles where corporationshave taken principledstands wouldbe useful.

Weaver's refutation of the rational-surrender school is straightforward. Heargues that business has overrated the risksof opposing government policies.He may beright. Still, there are aspects of this questionworthy of deeper consideration.Corporationsfind it difficult to win disputes with gov-ernment "safety" agencies. Front-page dis-cussionsof how many peoplemayor may nothave died using your product don't improvequarterly profits. Customersreact sharply tothe publicity surrounding the issue and paylittle attention to the corporation's rebuttal.For many Americans, if someonein Washing-ton says it, it must betrue. Agenciesthereforehave considerableleveragewhendealingwithany firm. Is a business incorrect to considersurrendering? H it believedthere were somechance that it might gain a strategic victory,then it might responddifferently;but Weaverprovidesno convincingevidencethat businesscan win these fights.

Weaver is aware of the agency problem;the risk to the firm opposingthe governmentmay be much less than the risk to the firm'semployees. The Washington representativewants to get along, to be reasonable.Like thediplomat engaged in arms control work, hiscareer goal is to reach an agreement. Opposi-tion, especiallyvigorousopposition,is likelytoenrage the bureaucrat, the committee chair-man, the agencyhead, key staffers. Recogniz-

ing this reality, some Washington lobbyistshave proudly announced that their companynever opposes anything-that would be toonegative. Still, risks are real. Political war-fare, like other conflicts,results in casualties.Yet, most Washington lobbyistsare recruitedfrom the politicalworld; they have no obviousskills elsewhere in the corporation. (As Mi-chaelDeavernoted,hewas unlikelyto becomea brain surgeon.) Thus, the Washingtonrepresentative's reluctance to charge con-gressional machin&gunnests-regardless ofthe value of taking such positionsfor the firm-is understandable.

To address this problem, firms might con-sider integrating the political and public af-fairs team into the overall corporate manage-ment structure. Tradeoffs between knowingthe Washington terrain and knowing the cor-porate interest in negotiating that terrainare unavoidable and should be made 'Wisely-Weaver reviewsthis problemnoting a "pleas-ant, thoughtful, highly regarded young fi-nance staff director who had lead responsibil-ity for our relationship with the CouncilonWage and Price Stability."Weaver commentsthat, regardless of the interests of Ford, thatindividualcertainty benefitedfrom the contin-uation of federal wage and price programs.This tensionbetween the interests of the firmand the interests of the Washington officede-serves far more attention than it has receivedto date.

Weaver's argument against the riskiness ofprincipledaction is that firms take risks else-where-why not in the political arena? Inpart, of course, the answer is that businessrarely treats public policy investments aseconomicdecisions.Weaver argues that theyshould-to do otherwise is suicidal. My ownexperiencereinforceshis. For example, in theSuperfund fight, firms were facing annualtax increases in the tens of millionsof dollarsannually. Superfund itself was a programthat would do little more than massively ex-pand pork-barrel waste throughout the na-tion. Business was heavily involved-not inseeking to defeat the bill-but rather in de-terming which business sectors would bearthe major burden. I sought funds to take on

388 THE WORLD & I

that larger fight, to mount the educationalcampaign that might have resulted in defeat-ing this bill or, at least, in less wasteful andcostly legislation. My calculations indicatedthat a number of firms in the oil and chemicalindustry would have profited by several mil-liondollars had the bill been delayedevenonemonth. The cosU3of an educationalcampaignwere, of course, far less. My arguments gotnowhere. Those public and government af-fairs officialswilling to listen-mostly in theoil and chemical industry-raised the predict-able counterarguments-"we've already lostthat battle," "we want a Superfund bill now,things will only get worst next year," "we'reworking on a specialdeal to reduce our taxesvis-a.-vis'Others"and so forth. There were, ofcourse, reasons for these arguments. Manyofthese peoplehad told their chief executiveof-ficers that the battle was lost-a victorymight have proven embarrassing. Others hadpositionedthemselves to claim credit' for los-ing less than other companies-a "youshouldhave seen the other guy" tactic. Others sin-cerely believedthat their companywas guiltyof crimes against nature. Like so manyWashington representatives, they viewedtheir job as akin to the task of a F. LeeBailey-get your client off the hook if youcan, but plea bargain at the earliest possibleopportunity and for God's sake don't haveany sympathy for him. This reflects a seri-ous problem that Weaver only touches upon-the ignorance of many within the world ofpublic affairs about the nature of capitalismand its moral underpinnings. Ignorance andpersonal distaste make it hard for most pub-lic affairs types to mount an effective de-fense of their company. My experiencestrongly supports Weaver's criticisms inthis area.

But here, he should have pointed out thata firm need not commit itself fully to a prin-cipled stand; it need not place all its eggs inone basket. A corporation could continue toseek~tical~co~~ti~~an~ewMeworking to wage the long-term fight. Thattwo-tieredapp~h is often used to dealwithproduction and marketing policies; for in-stance, a firm may do the best it can with an

older plant, yet be working to rep~e it witha more productive facility when circum-stances allow.

'Toward Capitalism'

Weaver's last section reviews his findingsand presents his reco~endations. Weaveris optimistic about the future of free marketcapitalism. He believes.that current trendswill require corporations to turn away fromseekingpoliticalfavors. "Inan environmentofcompetitivemarkets and unprincipled mediapolitics,"he argues, "the corporation's effortsto get entitlements and go along doesn't makeany sense."As the United States has becomemore competitiveand politicsless dependable,market entrepreneurship becomesattractive

The Washingtonrepresentative wants to

get along-like thediplomat engaged in armscontrol work, his career

goal is to reach anagreement.

again. The weakening ability of large firmsto secure subsidies resulting from growth in"participatory democ~ (here, Weaver isreferring to the openingup of American polit-ical processto a widerange ofinterest groups,many opposedto businesspreferences) is alsocited as further grounds for optimism. Thechanges Weaver addresses are real; it is lessclear whether they consistently enhance theprospects for a less-politicizedeconomy.

Weaver's evidencefor increased U.S. com-petitiveness is not totally convincing. Heargues that since World War II, the UnitedStates has becomeless unionized,less regu-lated, more open to foreign competition, andmore willingto disciplineinefficientcorporatemanagers. Here, Weaver draws a highly se-lective picture. As Henrik Houthaker noted

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BOOKWORLDCOMMENTARY on The SuiddaI Corpotation

over a decadeago at an AmericanEnterpriseInstitute discussiononthe courseof deregula-tion, while we have deregulated by the foot,we have regulated by the yard. Important,but nonethelessminor, postwar reductions intransportation, financial,and telecommunica-tion regulation have been dwarfed by majorexpansions of government regulation in thehealth, safety, and environmental fields dur-ing this same period.The U.S. record in freetrade gives even less ground for comfort.When there 'Wasno effective world compe-tition, U.S. politicians tolerated free trade.However, as other nations began to recoverfrom the war and offer effectivecompetition,politicianshave been quick to grant industryafter industry specialtrade protection.Today,

Firms that seekentidements become

weaker and then seek(and achieve) the further

protection thisentidement-induced

weakness necessitates.

large sectors of the U.S.markets are shieldedfrom foreigncompetition;we may yet see theenactment of a major newprotectionistbillbythis Congress. Weaver is correct that suchprotectionistpoliciesmerelyshift the problemto someother sector ofthe economy-but thatis true of all special-interest legislation.

On the entitlement issue, he has a moredecisive case. He argues that special favorsweaken rather than strengthen the firm andthat, moreover, modern politics has becomefar too unreliable to justify any major in-vestment in rent seeking. In this Brave NewWorld,he argues, there are onlytwo rules forsurvival: "becompetitive,and press for publicpoliciesencouraging companies to stay thatway."

The instability of politicalgains is certainly

correct. Ai!.Richard Stroup of Montana's Po-litical Economy Research Center has notedtime and time again: "Businessmen have aproblem. You can't buy politicians, you canonly rent them." Today'spolitical process hasbecome a frenetic struggle to retain oldspecial privileges while gaining new ones.Since federal programs have become perva-sive, a firm may find that it gains in the taxauction while losing in the regulatory arenaor-like Ford-it gains a favorable trade pol-icy but pays via oppressive energy and envi-ronmental restrictions.

Nor in this era of pervasive government isit possibleto defend every front. The individ-ual defendingthe corporation against federalregulatory actionmay have little contact withhis counterpart guarding the legislativefront.Business has not yet realized the scale of theconflictin whichit is engaged nor the needforan integrated offensivestrategy.

Weaver, however, is a little too quick todismiss the political process as fickle. Asevidence of the "now you see it, now youdon't" nature of politics, he presents the re-moval of the Voluntary Restraint Agree-ment on autos. Yet, here, he is wrong on thefacts. These restraints were not lifted, al-though up till now other factors have madethem nonbinding.Ai!.has been typical of thelast seven years, the Reagan administrationrhetorically advanced an aggressive freetrade policy, while it was enacting an all-too-effective protectionist program. In thisarea, the U.S. government simply en-couraged the Japanese government (moreexplicitly the Japanese Ministry of Interna-tional Trade and Industry) to enforce thequota directly.

Weaver makes an excellent point that afirm receiving government largess benefits,at best, for only a short time:

Markets are information-exchangesystems in which producers and consu-mers, sellers and buyers, learn aboutthe products in question, one another'spreferences, people's expectations ofthe future, and so on. The comparative -advantage that is so vital to a compa-

390 THE WORLD & I

ny's prospects consists of knowledge;it is something a company builds outof, OJ'with the help of, the informationand learning that a competitive mar-ket provides. Entitlements, which low-er a company's ability to hear whatthe market is saying, are therefore asource of competitive disadvantage. Inthe marketplace, the entitled corpora-tion faces a riskier future than theunentitled corporation.

Weaver should note, however, that firmswill be disciplined onlyto the extent that thecompetitive process is permitted to operate.The risk is that firms will seek entitlements,become weaker and then seek (and achieve)the further protection this entitlement-induced weakness necessitates. Weaver isright-this process is self-destructive. Un-fortunately, history books are filled withaccounts of societies that have destroyedthemselves. Indeed, Mancur Olson in his1982 book, Th8 Decline and Fall of Natiom,argues that nations are fated to such de-structive downward spirals.

Nor should one be necessarily sanguineabout the value of increased participation inthe political process. Here, Weaver placesfar too much weight on the corporation asthe sole villain in America's economictrage-dy. Corporations have been far more passivein this game than he recognizes. Consider,for example, Superfund or the Clean AirAct, or indeed almost any of the varioushealth, safety, or environmental regulationsenacted in recent years. These massive pro-grams provide major areas for rent seeking,and some corporations have taken advan-tage of them to "beggar their neighbors."Weaver mentions Do Pont's effort to shiftcosts upstream, and he might have notedthe success of eastern coal companies (andtheir union allies) in biasing the Clean AirAct to encourage the use of high-sulfur coal(see, for example, Clean Air, Dirty Coal byBruce Ackerman). Some businessmen cer-tainly took advantage of these laws; how-ever, it was not business but the envi-ronmentalist lobby that forced through

this legislation. Business would have beenhappy had these laws never been in-troduced.

Participatory democracy, after all,means merely that the range of special in-

. terests influencing the political process hasincreased. It says nothing about whethersuch increases will enhance or furtherweaken the free market. Unfortunately,the most aggressive and politically adeptgroups that have gained power in thepostwar era-the Naderites, consumeristgroups, and environmentalists-generallyfavor government over the marketplace.While these groups are likely to oppose sub-sidy programs designed to help businesssuch as the Ex-1m Bank, Synfuel, and theChrysler bailout, their opposition reflectsmore a distaste for business than any sym-pathy or understanding of free market val-ues.

Moreover, since .many of the newer in-terest groups are populists, they are all toolikely to push for expanded government reg-ulation of the economy. Everyone of thesenew regulatory programs creates a widerange of indirect opportunities for the cor-porate political entrepreneur to gain at theexpense of his market-oriented competitor.Such indirect business subsidies are oftennot opposed. Indeed, populists have oftensided with established corporate interestsagainst more market-oriented firms.Market-oriented firms lack the "social con-science" that firms attuned to the politicalprocess ape so convincingly. Competitivefirms are seen as failing to provide ade-quate quality, a suitable work environment,or other social amenities. Folsom notes thatJames J. Hill and William K. Vanderbiltwere attacked by the Left and :Right fortheir "cutthroat" (read: lower price) policies.Nader, similarly, attacked the Corvair andt}le Pinto-not the Cadillac.or the Lincoln.The genius of market capitalism, after all,rests in serving average consumers, not inpandering to the rich. Vanderbilt's greatsuccess in the trans-Atlantic trade was dueto his introduction of third-class passage;Henry Ford I brought the automobile into

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BOOKWORLDCOMMENTARYon 7he SuidGaI ec.po.atian

every garage; Hill made it possible to farmthe Great Plains; today, Sam Walton offerswholesale prices to low-incomeretail cus-tomers. None of these entrepreneurs havebeen loved by reformers.

I should note that Weaver is not totallysanguine. He defines two situations in whichcorporations may continue to seek ourspecial favors even in this more competitive,politically unreliable world: where the com-

petitive process has already been suspendedand where a firm has already decided thatprotectionism is the only way that it cansurvive. These loopholes,however, are mas-sive. How many businessmen believe thatthey have lost to "fair" competition? Howmany businessmen voluntarily risk theirsurvival in the competitive struggle?

Weaver's final chapters are the weakest.He has not adequately defined a strategythat would allow the corporation to decidewhere and how to fight. His primary adviceis to do it better. Business has consistentlyfailed over the last decade to fend offfoolish

392 tHE WORLD & I

policies. All too often it has collaborated inthese defeats. That it has not fought thesebattles well is obvious, but Weaver seessuch failures as evidence of stupidity. Hedoes not fully understand the institutionalforces that lead business--especially largebusinesses-to see the world in the market-share distributionalist terms, so akin to p0-litical favoritism, nor does he fully rec-ognize the difficulties of staffing andmanaging the Washington office that pro-motes corporate objectives. Finally, he doesnot give adequate weight to the anti-business bias that permeates the politicalworld nor to the lonely, lowly status busi-ness assumes in battles where the "best andthe brightest" are on the other side.

Weaver concludes with a series of rec-ommendations that vary from the radical(eliminate restrictions on insider trading) tothe sensible (examine the profit potential ofalternative public-policyoutcomes and planyour strategies accordingly), to thenaive (corporate managers should opposeantitakeover statutes), to the dangerous (in-dustry associations should playa strongerrole in determining business policy), andto the merely controversial (corporationsshould not back the arts). A number of theserecommendations address the need to inte-grate a firm's public policymore effectiyelyinto the overall corporate structure. Thatneed is critical and Weaver might have em-phasized those recommendations even more.

Although he might have offered more de-tailed advice, his consistent theme is thefailure of corporate America to play an ad-equate role in defending the nation's freeenterprise system. Recently, two organiza-tions have been formed to assist in that ef-fort: the Capital Research Center and theInstitute for Educational Affairs. These or-ganizations report on philanthropic trends,critique the corporate outreach programsof individual firms, and assist businessesin more effectively encouraging market re-sults. The Capital Research Center recent-ly published a summary report by MarvinH. Olasley, Patterns of Corporate Philanthro-py: Public Affairs Giving and the Forbes 100,

in which he critiques current corporate phi-lanthropy practices.

Weaver does discuss the tendency ofAmerican business to hide behind "acceptedcauses": the arts, schools, liberal causes (seehis chapter "Retreat from Responsibility");however, he could have argued this pointeven more strongly, given Henry Ford IT'sdisagreement with the Ford Foundation.Ford's resignation from the family founda-tion is significant. In his resignation letter,he accepted the foundation's autonomy andflexibility but found fault with its neutrality-even hostility-toward the market: "rmjust saying that the system that made theFounda~on possible is very probably worthpreserving." After harvest, the first act of awise farmer is to set aside enough seedcorn to ensure next year's crops. SuccessfulAmerican entrepreneurs might consider set-ting aside sufficient reserves to ensure thecompetitive conditions that have fosteredtheir success. As Schumpeter warned yearsago, a capitalist society must be accepted aslegitimate; a continuous educational effortdedicated to that end is therefore required.

Significantly, Weaver's book addressesthe critical question-how can businesswork to defend our market economy.Yet itdoes not provide a detailed plan that willencourage most corporations to changetheir operations. It merely posits that cor-porations must change. As he notes: "Thetime has comefor the corporation to becomea faithful citizen of the marketplace anda sincere advocate of capitalism." But thissounds all too much like the street evangel-ist crying, "Repent ~ow, the End is near!" IfWeaver is to lure America's corporate lem-mings away from the cliff, he must develophis ideas more fully.

Moreover, he assumes that business cango it alone, that the only decision that busi-ness needs to make is the decision to re-sist government predation. That positionis naive. Corporations cannot win this battlealone. In today's world, anyone having an

obvious economic stake in a policy area isseen as suspect. Drug companies !lave littlestanding in any dispute with the Food andDrug Administration; oil and chemical com-pany research is rejected when questions ofhuman health arise; automobile companiesare seen as profiting from killing off theircustomers. If capitalism is to be effectivelymarketed, I believe, market~riented busi-nessmen must develop creative new ar-rangements with its ideological friends inthe free market. community. Just as a firmseeks third-party endorsements to marketits products, it will need such independentsupporters to advance its policy interests.As in other conflict situations, allies will bevital in the war for economicfreedom.

A continous educationaleffort is required to

convince the nation thata capitalist society is

legitimate.

Still, we cannot expect one book to doeverything. Weaver has written only thefirst chapter in what must becomeextensivecorporate reeducation. literature. He hasraised the central question-how can busi-ness defend its interests?-It should con-cern everyone thoughtful about economicfreedom. While others will continue thiswork, the business community should itselfrespond to his attack and initiate the self-examination necessary for current practicesto be reformed. Capitalism is too valuable tobe endangered by the continuation of suici-dal corporate practices..

1u.u8TflAT1OH8 8' WOJc,aCH WOf,..NSKI

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