The Impact of the Reagan Administration

The Impact of the Reagan Administration

When one business executive was asked what he thought about the Reagan Administration, he responded that he thought he had died and gone. to heaven.17 It is easy to see why. The Administration followed clearly anti-union policies, starting by breaking a strike by air traffic controllers and destroying their union and continuing by appointing resolutely pro-management people to agencies regulating lab our relations. Strong supporters of business’s contention that environmental, health and safety regulations were too strict were appointed to run the agencies responsible for these regulations. In case these appointees proved after all to be insufficiently sympathetic to business, their agencies had their budgets cut, making any growth in their activities impossible, and the agencies were placed under the close supervision of the critical Office of Management and Budget, which is part of the Executive Office of the President. The Administration asked Congress to reduce business taxation; the Congress responded by trying to out-bid the Administration in the generosity of the allowances it offered to business. The triumphs of business in the early years of the Reagan Administration were considerable. Yet a number of considerations suggest that the political problems of business did not disappear. The public interest groups, which had seen their memberships decline in the 1970s, re-grouped in the 1980s and had some success in attracting new members who were frightened by the threat the Reagan Administration posed to their values. A number of accidents halted the drive to weaken the social regulatory agencies. Scandals or alleged scandals overtook the Director of the Environmental Protection Agency and the Secretary of Labor. The Secretary of the Interior was too indiscreet about his views on racial minorities, Jews and women. In order to cut the Administration’s political losses, the top officials involved in these scandals were replaced by moderates more acceptable to Congress and the public interest groups. The vast budget deficits produced by the 1981 tax cuts coupled with the Reagan Administration’s appetite for certain types of federal spending (such as defense spending) produced rapid demands for tax increases and tax reforms to make such increases fairer. The 1986 Tax Reform Act in fact increased the tax burden on business considerably, although the opposition of corporate executives was attenuated by vast reductions in tax rates for very highly paid individuals such as themselves. Above all, business discovered that although the challenges to its collective interests had weakened in the 1970s, the imperative for corporations to protect their individual interests remained. Changes in the tax system tended to affect corporations differentially. For example, large tax allowances for investments benefited capital-intensive industries. The abolition or reduction of such allowances in return for lower tax rates would therefore set corporations in capital-intensive industries against those in lab our-intensive industries. Similarly, while some corporations feared the rising tide of foreign competition, others with a lively export trade or large investments overseas remained attached to free trade. In consequence, business politics in the 1980s was both active and individualistic. The reduction in the threat of public policies contrary to the collective interests of business consequent upon the election of the Reagan Administration did not result in any reduction in the general level of business political activity in Washington. The quest for federal contracts, tax changes and trade protection which would benefit individual corporations was more vigorous than ever. The drive towards building organizations to defend the collective interests of business in contrast all but disappeared. The Business Roundtable became just one of several organizations claiming to represent business in Washington as its novelty and glamour faded. The NAM and the Chamber of Commerce came to differ sharply on a number of issues. The general business organizations, like the trade associations, frequently found themselves immobilized by differences of interest and opinion among member corporations; in American business organizations, individual corporations can often veto a policy commitment by the organization for fear the corporation will resign and its dues be lost. The diminished opportunities for organizations representing collective business interests to play a prominent role increased the opportunities for individual corporations to be more prominent politically. Lobbyists for individual corporations supplemented by Washington lawyers or contract lobbyists pressed their cases vigorously on politicians rendered attentive to their clients’ needs by ever more numerous PAC contributions. Individual corporations paid what to ordinary Americans were fabulous sums to contract lobbyists thought to be able to reach the appropriate official. Thus TWA paid Michael Deader, who had left the Reagan White House to make his fortune as a contract lobbyist, $250 000 to make a single phone call to the Secretary of Transportation, Elizabeth Dole. Even President Nixon’s disgraced Attorney General, John Mitchell, was able to secure $75 000 from a business .that thought that Mitchell could help obtain it a federal contract to build subsidized housing. Former Secretary of the Interior James Watt collected $300 000 from one client. Corporate PACs continued to buy the attention — and possibly the goodwill — of politicians with campaign contributions; the larger the federal contracts received by a corporation, the larger its PAC tended to be. By the end of the 1980s, many Americans wondered where the boundary between corrupt and normal business practices had been drawn. Indubitably, however, the decade had witnessed a shift away from business politics being routed through business organizations towards greater emphasis on political activity by individual corporations. This did not constitute a return to the situation which had prevailed in the 1950s and early 1960s, however. In the 1950s, individual corporations had been much less actively involved in politics than in the 1980s, while even by the end of the 1980s, general business organizations or trade associations had not been reduced to the same condition of weakness that characterized them earlier. Politics mattered more to most corporations than it had in the 1950s. The early years of the Bush Administration also seemed to promise some return to those issues which unite business by threatening its collective interests. The President’s own talk of a ‘kinder, gentler society’ seemed to hold out hope to critics of business behavior such as environmentalists. The President’s comments almost certainly reflected an upsurge of popular concern about nuclear accidents following Chernobyl, the effect of chlorofluorocarbons on the earth’s atmosphere, and a damaging oil spill off Alaska from the Exxon Valdez. In contrast to the 1950s, American business remained politically alert and well equipped should any important challenges re-emerge. Yet in a different sense to their original intent, Schoolman and Tierney’s comment on changes in the general American interest group system, ‘More of the same’, could be applied to business interest groups. As noted earlier, American business has always seemed disorganized by international standards. There is no single organization which speaks for business authoritatively comparable in status to employers’ groups in other democracies. Though much strengthened, business
Business and Politics in the USA 57
groups in the USA remain fragmented, competitive and lacking in authority.

Governmental Regulation of Industry

Governmental Regulation of Industry

It has been commonplace to note that few industries in the USA have been owned by government. It has been less frequently noted that American government regulated industry more than governments elsewhere.I8 Understanding regulation has been vital to understanding the business—government relationship in the USA. The nature of the regulatory relationship between government and business in the USA has prompted much contradictory theorizing. The older theories on regulation were concerned to explain the failure of regulation due to the ‘capture’ or domination of regulatory agencies by the industry they supposedly controlled. A variety of reasons were advanced to explain the demise of the regulatory agencies. Some stressed the practical and administrative difficulties of operating without the goodwill of the regulated. Regulations are harder to devise if industry is unwilling to share information with the regulators; regulations cannot be enforced effectively unless most firms co-operate voluntarily, for the number of inspectors is never adequate to cover every workplace. Other writers stressed the temptation held out to officials of better-paid jobs in industry in the future in return for their sympathetic treatment of the industry in the present — a system known as the ‘revolving door’. Yet others stressed the importance of the fact that regulatory agencies, given independence of the president and Congress by law, could rely on neither for support in conflicts with business. Bernstein summarized these discontents in what is perhaps the single most influential book on the subject. 19 Bernstein argued that regulatory agencies passed through a life cycle of vigorous youth, conciliatory middle age and senility. In youth, the regulatory agency, supported by a political movement which had secured its creation, fought many battles with its industry. In middle age, the decline of the political movement which had created it, and the mounting practical, administrative and legal difficulties of fighting the industry if confronted, induced a more conciliatory attitude in the agency. In old age, the agency succumbed to the steady pressures from its industry, not matched by any pressures on behalf of the public, and adopted pro-industry attitudes. Ironically, most writing on regulation in the USA in the 1980s was concerned with the problem of ‘regulatory unreasonableness’.2° Regulators in the USA were likely, it was argued, to impose ridiculously costly requirements on industry in return for negligible benefits. Regulators in the USA were also likely to impose these regulations in a harsher, less sensible manner than regulators in countries such as Sweden or Britain. The unreasonableness of regulators in the USA was a function of both culture and law. The culture of the USA is adversarial; individuals assert their rights against each other vigorously, frequently resorting to law to resolve differences, and being less likely to compromise differences (especially with government) than peoples of other countries. Moreover, the emphasis in American law on equal treatment for all inhibits the exercise of sensible discretion by regulatory agencies. Instead, officials of regulatory agencies are more likely to ‘go by the book’, applying regulations in an arid, uncompromising manner. The diametrically opposed nature of these two arguments probably reflects the weakness of both. Too much theorizing about regulation in the USA overlooks the importance of politics. The theories of regulatory failure referred to a period when there were few powerful critics of business in the USA. The theories of regulatory unreasonableness refer to the period in which the critics of business, particularly in the public-interest groups, were at their strongest. The nature of regulatory legislation, the pressures exerted through the presidency, courts and Congress, differed accordingly. It is important to note in this context how the election of President Reagan emasculated the regulatory agencies which had incurred the wrath of business. The OSHA and EPA reversed policy completely, passing from being regarded as anti- to pro-business in a matter of months, discarding in the process former friends in the unions and environmental protection groups.
The change also reminds us that the nature of regulation can vary tremendously. Calls for ‘deregulation’ came both from the left and right in American politics. Yet the question `Who benefits?’ draws different answers from agency to agency. The Civil Aeronautics Board (CAB) helped airlines maintain high fares and profits at the expense of the public. The EPA, prior to the election of President Reagan, exerted a substantial downward pressure on business profits because of the vigor with which it pursued environmental protection. Like many aspects of government, regulation is a weapon which can be used to the advantage or disadvantage of different interests. The impact of regulation, therefore, is determined by political conflicts, not by the nature of the process itself.
many commentators to argue against direct assistance to industry. Removing legal barriers to international competitiveness such as the very stringent anti-monopoly laws inhibiting co-operation between American firms might be more effective than providing government aid: this approach was in fact adopted in the semiconductor industry.

Industrial Policy

Industrial Policy

The election and re-election of President Reagan seemed to confirm the commitment of the United States to its traditions of reliance on market mechanisms to secure economic growth. The tentative interest of the Carter Administration, and more explicit advocacy of a more direct role for government in steering economic development of the unsuccessful Demo-critic candidates for the Presidency in 1984 and 1988 through an industrial policy were apparently crushed by the election returns. Yet a number of commentators continued their advocacy of an industrial policy in the United States and, somewhat surprisingly, signs of interest were detected in President Bush’s Commerce Department at the end of the decade. In the dominant regulatory paradigm of government—business relations, industry and government ideally have an `arms length’ relationship. In practice, a ‘revolving door’ may allow regulators to take up lucrative posts working for industries they regulate or, as we have discussed, regulatory agencies may be captured. Yet the ideal regulatory relation-ship in the United States implies distance, policing of industry, and when necessary, punishment to secure compliance in the future. Advocates of industrial policy have argued • for replacing this paradigm with one based more on co-operation and concentration between government and industry. Industrial policies range from those — such as that operated in Japan in the 1950s — in which government, backed with significant legal powers, steers corporations into specified markets or investments to policies such as Sweden’s active lab our market policy, in which governments facilitate the working of market forces. It is more or less impossible to imagine the stronger type of directive industrial policy in the United States. Not only would government ‘interference’ be seen as illegitimate but American political institutions are particularly ill-adapted to the task. A former Speaker of the House of Representatives, Tip O’Neill, was fond of saying that all politics is local. While that saying is an exaggeration even for the United States, it does remind us that American legislators are expected to produce benefits for their districts or states, not just the nation in general. By their nature, industrial policies involve declaring that some industries are tomorrow’s winners, and others are tomorrow’s losers. In practice, winners and losers are likely to be concentrated in different parts of the country. It is impossible to imagine American legislators from parts of the country in which losers are concentrated voting for euthanasia for those industries so that resources can be switched to tomorrow’s winners. In practice, Congress would gradually declare every industry a winner. Those countries which have operated the stronger forms of industrial policy (eg Japan and France in the late 1940s and 1950s) were characterized by weak elected politicians or attenuated party competition and a strong permanent bureaucracy, which could implement industrial policies without much ‘interference’ from elected politicians. In contrast, in the USA, political competition is considerable, elected politicians are strong, and the permanent bureaucracy is weak. Picking winners and losers would be an impossibly politically charged task. Yet not all forms of industrial policy are thereby invalidated. It can be argued that all governments have industrial policies in the sense of operating knowingly or unwittingly policies that affect industries. Most tax, trade and environmental policies help some industries and hurt others. Moreover, industrial training, retraining and relocation policies can be designed which reinforce market forces rather than conflict with them. Even such weaker forms of industrial policy would be difficult to establish in the United States. The federal government has little control and experience in running education, training or retraining programmers. Any policy which clearly and predictably had a differential impact on the regions of the country would encounter the forces of localism to which we have referred. If there is to be industrial policy in the United States, it may be possible only at the state, not the national, level. In spite of all the peculiar difficulties of operating industrial policy in the USA, it can be argued that in a world in which other nations have an industrial policy, the United States has no choice but to follow. If some countries promote the rapid growth of new industries such as semiconductors or high definition television through an industrial policy, then the United States would find its infant industry overwhelmed by foreign competitors before the invisible hand of market forces had time to establish it. The length of time during which the superiority of American science might give its industries a technological lead is diminished by the rapidity of technological diffusion in the modern world; technological innovations are more likely to be copied in months rather than years. It is not surprising therefore that by the end of the 1980s, the United States was attempting to find a way to help and protect infant industries such as semiconductors or high definition television even while the Bush Administration supposedly maintained hostility to industrial policy in principle. The question which would remain, however, would be the capacity of the American political system to allocate resources rationally. In earlier periods of American history, individual industries had received great help from the state through the imposition of high tariffs on competing imports. Such assistance had been allocated on the basis of the political power of the industry or Congressional maneuvering — as the Smoot—Hawley tariff in the inter-world-war period illustrated. Might not resources in a modern industrial policy be allocated on a similar, non-rational basis? This fear prompted

State and Local Governmental programs

State and Local Governmental programs

One third of government expenditures are made by state or local governments. In addition, many federal programs are administered by state or local governments on behalf of the federal government with substantial discretion allowed to the states. State and local government is therefore a natural target for business lobbying. States have their own policies on topics as diverse as employment practices, the permissibility of investments in South Africa by corporations in which the state invests (eg through pension funds) and pollution controls. Even large cities such as New York or Chicago have a similar range of policies. Both cities and states are a valuable source of contracts for a wide variety of businesses. As we have seen, the fight between those who believed that the USA was ruled by an elite including business and those who believed it was a genuinely pluralist democracy was fought out through studies of cities. Dahl’s study of New Haven, Who Governs? was particularly influential, although it might be doubted that if there were a power elite in the USA it would care very much who governs New Haven. In general, however, there is a dearth of studies of business’s attempts to influence politics at the local or state level. Perhaps the practical difficulties of conducting research in the hundreds of major cities and fifty states discourages scholars. It has generally been assumed that business enjoys greater advantages at the local or state than federal level. This is thought to be true for a number of institutional and structural reasons. First, state and local governments have in the past had notably weaker institutional _capacities than the federal government. Most states have had weaker, less expert bureaucracies than the federal government; legislative staffs were small, legislators were part time, amateur politicians and state executive branches fragmented into numerous auto-enormous, often conflicting, agencies. There was in general a shortage of the expertise and institutional strength required to confront powerful corporations. Moreover, corporations were further strengthened by the plausibility of threats to move production to other states or cities if confronted with unwelcome policies.21 In recent years, however, state government has become a much more vital force in American politics. Although some states, such as New Hampshire, still have legislatures which provide the nation with amusement, most state legislatures are filled with ambitious, younger legislators, eager to make a mark by promoting an issue, and supported by much larger professional staffs to provide policy analysis. The 1970s witnessed a clear improvement in the quality of state governors, and in the degree of control those governors have over ‘their executive branches. Moreover, most states now have modernized tax systems capable of generating sufficient revenue to support a more active role for state governments. The revival in state government in the United States has both welcome and unwelcome consequences for business.–On the positive side, states are extremely active in promoting their economic growth by trying to attract new investment not only through tax concessions but through donating land for development, starting new training programs to meet the needs of new industries, and making investments in infrastructure such as new roads which will mesh with the needs of corporations.22 Most American states now have overseas offices charged with attracting investment to the state. Some argue that this activity might be considered the American version of an industrial policy. Individual states can overcome the problem of localism which prevents the creation of a national industrial policy. It is also possible to argue that states have become embroiled in a bidding war with each other which is costly to the nation. If Nissan, for example, plans to build a car plant somewhere in the USA, the competition between states to offer the largest tax concessions, low interest loans, free land or other subsidies no matter how rational for the individual state, constitute an unnecessary subsidy from the national perspective. If Nissan would have invested somewhere, it is pointless from the national perspective to offer subsidies to settle anywhere in particular.23 The bidding war for new investment between the states is obviously, however, very welcome to corporations. Less welcome to business is the reforming activism evident in the states in the 1980s. As in national politics, issue-orientated state politicians have been building reputations and political careers by looking for problems to solve. The modern state legislator is comparatively young, and is trying to build his or her future political career by claiming credit for solving a real or imagined problem. The activism this produces has been more evident in the 1980s when comparatively little program innovation was occurring in national politics. Consumer and environmental groups, blocked by the Reagan Administration at the national level, have turned to the state government for action on their concerns, and have often found the new breed of state legislator eager to address their concerns. In the late 1980s, corporations found their interests challenged less at the national level and more at the state level than in the past. This change has posed problems for business. Few corporations are adequately represented in all state capitals, and the quality of trade or general business organizations varies greatly at the state level. Business sometimes loses at the state level, much as it used to at the national level, without realizing the danger until it has lost. Moreover, the worst possible outcome for many industries in a conflict over regulation is to have different regulations adopted in different states so that, as has happened, cars which can be sold in Arizona cannot be sold in California. Ironically, corporations have recently discovered the advent-ages of national regulations, which not only are implemented usually by pro-business, Republican Administrations but also at least offer uniformity of standards across the nation. In general, however, the fragmentation of authority implicit in American federalism probably still works to the advantage of business. The frantic competition between states for business investment in the 1980s makes any state reluctant to be tagged ‘anti business’. Even progressive states such as
Wisconsin have redesigned their tax systems to reduce the level of taxation on corporations, although ironically it may well be the level of taxation falling on individuals that matters more to the corporate executives who make investment decisions. Nation states can be blackmailed by threats from corporations to invest elsewhere if states adopt policies unwelcome to them but it is even easier to blackmail a state that way.

Business and politics in the USA

Business and politics in the USA

As the continued popularity of the United States for European (particularly British) and Japanese investors reveals, the United States is probably the country in which capitalism is most secure. Unions have never been very strong, and are now much weaker. There is no socialist movement of any significance. The federal system reinforces the structural power of corporations which can threaten to invest only in states with a ‘good business climate’. Yet there are two problems which confront business. The first is that middle-class reform movements such as the consumer and environmental groups have mounted a more effective challenge to business in the United States than in any other country. As we have seen, regulatory agencies created in response to pressures from public interest groups have often been tougher in the USA in their treatment of business than have been similar agencies in countries such as Sweden or Great Britain. The absence of a socialist movement has not prevented the articulation of significant challenges to business in the USA. The second problem confronting business in the United States is the peculiar difficulty which has existed there in achieving a structured, co-operative relationship between business and government geared to long-term growth. American business is very politically active today, but in a very fragmented manner. Although the American economy performed well overall in the 1980s with comparatively high growth rates and lower unemployment than Europe, the decade also witnessed great concern about whether the USA could. Retain a competitive manufacturing base. For many observers, the traditional unstructured relationship between government and business was a handicap in achieving American competitiveness. Yet whether the fundamental fragmentation of both American government and business groups could be overcome to produce a more structured relationship remained doubtful.

Government and Business in Britain

Government and Business in Britain

It is particularly difficult to classify the relationship between business and politics in Great Britain. A whole series of fundamental questions about the relationship between business and politics has no easy answers. These questions include how hostile or supportive is the political culture of capitalism, the degree to which the relationship between business and government is institutionalized, and the character of the ‘industrial culture’ prescribing what should be the purposes of the government—business relationship. Britain was often said by industrialists and commentators before the advent of the Thatcher Government to have an anti-business culture.’ Yet the political party closely associated with business, the Conservative Party, has ruled Britain for over half the period since the Second World War. Early comparative studies of interest group politics pointed to the close consultation and partnership which characterized relations between government and economic interests in Britain. Political scientists influenced by neocorporatist theory have often placed Britain extremely low on their scales of how closely government and economic interests are integrated.2 Other political scientists have argued that the British ‘industrial culture’ is biased against government becoming involved in detail in making decisions about investment or industrial development.3 Yet British governments in the last thirty years have spent billions of pounds on assistance to industries, and at times have taken a very. Detailed interest in industrial restructuring.

Attitudes to Business in British Society

Attitudes to Business in British Society

Do the British dislike capitalism in general or manufacturing in particular? Militant, even violent, behavior by striking workers and the rhetoric of the left of the Labor Party sometimes seem to indicate that there is a major constituency for a radical challenge to capitalism in Britain. The version of modern British history favored by many supporters of Mrs. Thatcher is that Britain was drifting into either socialism or chaos or both until resolute action by the Thatcher Government saved the situation. Yet the reality is much more complicated. The bitterest strikes in Britain — such as the coal miners’ strike — have generally been directed against government-owned industries. The Labor Party has had a more modest commitment to socialism than the rhetoric of its left wing suggests. The argument — promoted by both Thatcher’s admirers and critics — that she created or mobilized support for ‘popular capitalism’, in which for the first time large numbers of Britons were enthused by capitalism, is at best over-stated and probably wrong.4 It is important to cut dispassionately through the millenarian assumptions that `Thatcherism’ constituted a major change in British attitudes to capitalism. Richard Rose has shown that the British give “two and one half cheers” for the market economy.5 Socialism produces more favorable responses than capitalism amongst the British in the abstract: socialism evokes more favorable and fewer unfavorable responses as an abstract doctrine than does capitalism. But when the British are asked to make judgments about the real world rather than abstract doctrines, socialism is overwhelmingly rejected, an interesting inversion of the situation in the USA. Only 5 per cent of Rose’s sample wanted all industry to be owned and controlled by the government, and only another 13 per cent wanted the government to be involved in the ‘day-to-day planning of companies’. A private enterprise system ‘with enough government controls to curb abuses’ or with ‘a minimum of government regulation’ attracted the support respectively of 39 per cent and 38 per cent of Rose’s sample. In the USA, the public was much attracted to capitalism in the abstract and favored stronger government action in practice. In Britain, a substantial proportion of the public (though still a minority) favored socialism in the abstract, but in more practical terms socialist measures were over-whelming rejected. It is not surprising, therefore, that only intermittently has the Labor Party seemed to promise a break with capitalism. It is true that the Party’s Constitution declares in the famous Clause IV that the party is dedicated to taking into public control the means of production, distribution and exchange. Yet in practice Labor governments have nationalized few industries which were not in major financial difficulty; other industries which are, or have been, in public ownership such as electricity generating, broadcasting, or Rolls Royce have been nationalized by Conservative governments for similarly pragmatic reasons. Indeed, in spite of the fact that between 1945 and 1979 the Labor Party held power for as long as the Conservatives, Mrs. Thatcher inherited a situation in which the proportion of industry owned by the government, or the proportion of gross national product spent by the govern-mint, was lower than in other European countries such as France and Italy in which socialist parties had not enjoyed similar electoral success. For much of its history, the Labor Party has been a coalition of socialists, reformers and union leaders in which

pure socialists have been a minority. In the early 1980s, the left wing of the Pay seemed to break through to dominance with the help of some of the most important union leaders. The Labor Party changed its constitution and rules in ways which advantaged the left in the selection of the Party leader and Parliamentary candidates. Simultaneously, the Party adopted much more left-wing policies for its 1983 Election Manifesto. The results for the Party were catastrophic. Several well-known politicians on the right wing of the party broke away to form a new political party which, though short-lived, helped lose Labor the 1983 and 1987 elections. The unpopularity of Labor’s left-wing policies were a major factor in Labor’s share of the vote in 1983 and 1987 plummeting to the lowest levels since the 1920s. By the late 1980s, the Party had resumed the task of trying to convince the electorate that the Party, while seeking to achieve social justice, accepted that capitalism and the market system would remain. Similarly, the strength and radicalism of British unions is easily over-stated. Unionization rates in Britain are higher than in the USA, Japan, France and Germany, but lower than in Austria and the Scandinavian countries. As noted above, most of the militant strikes waged by British unions have been in the public, not the private sector. British unions have been more concerned in practice with maintaining traditional wage differentials or working practices than in pressing for the transformation of capitalism. Except for periods such as the late 1970s, the number of days lost per thousand workers due to strike activity in Britain has been about average for western democracies. The argument that there is an antipathy to manufacturing has been very popular in recent years. Wiener, in a much-debated book, argued that British culture was basically hostile to manufacturing.6 The British fantasized about country life and country virtues, not urban life and industrial success. The best and brightest in Britain were attracted to the professions, the civil service or possibly finance, but not to industry. A disproportionate share of successful entrepreneurs in Britain has been immigrants creating companies such as Marks and Spencer or ICI. Many British institutions such as the public (private) schools, and Oxford and Cambridge universities, inculcated values even in the sons of successful industrial entrepreneurs more in line with the values of pre-industrial elites than with the demands of modern management. Entrepreneurial success was derided as coarse, vulgar and greedy. The British gentleman did not run a factory with a smoking chimney, noisy machinery and nasty smells; he was ideally a land owner living off rents or investments. Wiener’s portrait of British culture contains much truth. Yet it also leaves important questions unresolved. It might be said that Wiener’s perspective is very American. For societies characterized at least as much as Britain by traditional cultures have in fact done very well industrially. Germany, France and especially Japan are not exactly indifferent to traditional values, but have thrived industrially. Traditional values can be used to reward industrial success through honors such as knighthoods or the Queen’s Award to Industry which is given to successful exporters. In a wide variety of fields such as car building, aerospace and pharmaceuticals Britain has not lacked innovators but success.

The Thatcher approach of promoting Britain’s economic

The Thatcher approach of promoting Britain’s economic

The advent of the Thatcher Government served as a reminder that Britain, the home of liberal economic thought in the early nineteenth century, remained more influenced by it than most European countries. The Thatcher approach of promoting Britain’s economic recovery through strengthening market forces has much in common with Reaganomics but has been emulated to only a limited extent in the rest of Europe. The admirers of Mrs Thatcher argue that she has achieved a major change in British culture. Not only has popular support for capitalism been increased according to this view, but the anti-industrial or entrepreneurial values described by Wiener have been eroded. A higher proportion of the British population own stock in corporations than ever before, thanks in large part to the government’s privatization of such formerly government-owned industries as the telephones, natural gas, electricity and British Airways. The number of small businesses has increased considerably. Successful entrepreneurs are more likely to be given honors or appointed to the House of Lords than in the past. The tax system has been changed to encourage initiative and enterprise. Unfortunately for admirers of the Thatcher Government, these changes have not produced a revolution in popular attitudes. Indeed, surveys indicate that the British are more supportive of the welfare state and government assistance to the less well off than when Mrs Thatcher took office.’ Popular suspicion of the government’s privatization program me increased as the list of industries to be sold off lengthened to include natural monopolies such as the water supply with whose performance the public was basically satisfied. The public seemed ready to forgo tax cuts in order to protect popular services such as the National Health Service from expenditure cuts. In short, just as the radicalism of the British had been over-estimated by socialists in the past, so supporters of Mrs. Thatcher over-estimated the cultural change she had brought about in the 1980s. As before, the British response to capitalism was ‘Yes, but . . . ‘

Relationship between business and government in Britain

Relationship between business and government in Britain

A comparison of Britain and the United States would indicate a much clearer institutionalization of the relationship between business and government in Britain than in the USA. A number of factors produce this contrast. First, functional representation has been more clearly and generally accepted in Britain than in the USA. That is to say, representation based on occupation or economic interest has been accepted as enjoying a greater legitimacy compared with representation through the electoral system than ‘special interests’ enjoy in the USA.8 Government Departments have considered it good and wise practice to consult major interest groups before defining their policies. Indeed, government Departments in Britain have often depended on interest groups for information and technical assistance which the bureaucracy itself lacks. In return, Departments have seen it as part of their duty to act as advocates for interest groups with whom they interact in debates within government.9 Second, British economic interests appear to be much more clearly organized than their American counterparts. There is generally one organization which is clearly the spokesman for the major economic interests in society. That organization is recognized as the authoritative voice of that interest by top bureaucrats and government ministers. The Confederation of British Industry, for example, generally enjoyed a clear status as the spokesman for industry in the 1960s and 1970s. The fact that the CBI was created by merging three organizations representing business with the assistance and encouragement of a Labor government indicates how widely the belief in functional representation discussed above has been. Both Labor and Conservative governments in the 1960s and 1970s showed such willingness to work closely with the CBI that it became fashionable to suggest that Britain was becoming corporatist. The CBI had regular meetings with government officials and senior ministers to discuss economic policy. The CBI also acquired the right to appoint hundreds of people to government committees including those responsible for policy on health and safety (the Health and Safety Commission) and training (the Manpower Services Commission). Why, then, have political scientists approaching Britain from a background in neocorporatism argued that the business—government relationship in Britain is comparatively un-institutionalized? A number of considerations lead them to that conclusion. Although belief in the legitimacy of functional representation is more common in Britain than in the USA, it is still limited. Suggestions in the 1970s that Britain was becoming neocorporatist were seen as cause for alarm in a way that would not have been true in, say, Austria. Suggestions that power is shifting to economic interest groups arouse concern that ‘Parliamentary supremacy’, meaning in practice the power of elected politicians of the governing party, is threatened. The Confederation of British Industry also turned out to look more impressive at first sight than on closer examination. Commitments made by the CBI were not seen as binding or particularly authoritative by member companies. The ability of the CBI to influence government policy was less than its members had hoped. The CBI could thus neither deliver the co-operation of corporations to government, nor deliver the co-operation of government to corporations. 10 Above all, the CBI never really spoke with any authority for the financial sector.” The financial sector in fact has had more access to decision makers on its own than manufacturing industry obtains through the CBI. The Governor of the Bank of England, though answerable to the Chancellor of the Exchequer, defined his role in practice as also representing the interests and views of the financial institutions to govern-mints. Governments of both parties tended to listen to the advice because of the strategic location of the financial sector in the British political economy. Links between financial institutions and Conservative MPs have usually been closer than between manufacturing industry and MPs. Not only was the financial sector (the City) one of the few successes in the British economy after the Second World War, but its opinions had tremendous short-term power. If the City thought badly of government policy, huge quantities of British pounds would be sold as the City ‘hedged’ against what it believed to be the inevitable consequences of poor policy. Pressures on Britain’s foreign currency reserves or the value of the pound on the foreign currency exchanges would often bring the government to its senses. Since the 1970s, the City itself has formalized its links to government.12 Conventional interest group organisations have developed as the City has found the old, less formal linkages unsatisfactory. There are a number of reasons for this trend. As governments have used monetary policy more, the Bank of England has become clearly an agency of government policy. Moreover, the City itself has changed. Much of the City’s success has involved its internationalization with the arrival of large numbers of foreign financial institutions. The internationalization of the City was both promoted and signified in the 1980s by the ‘Big Bang’ of deregulation of financial institutions and trading. Interestingly, although the Department of Trade itself retains significant powers in preventing fraud, most of the regulation of the City, in contrast to the situation in the United States, involves ‘self regulation’ by financial institutions in which the regulators are representatives of the regulated. This somewhat privileged position is a reminder that although financial institutions and their relationship with government have changed consider-ably, they have by no means been reduced to the point where they enjoy merely the same status as other industries. Finance remains separate and different from the rest of British industry. A further factor damaging to the status of the CBI was the disorganized state of trade associations representing individual industries. Whereas general business organizations in many countries are ‘peak’ organizations linking strong trade associations, membership of the CBI was often held by individual companies. Trade associations were often poorly developed with small budgets and low quality staffs in competition with similar organizations for the right to
represent the same industry.” British civil servants found that only a handful of trade associations could give them much practical assistance or useful advice. The CBI’s own Devlin enquiry into trade associations showed how unimpressive they were when compared with European counterparts. Large corporations in Britain, like their American counterparts, have moved to open a direct dialogue with government departments, by-passing the trade associations which would form the natural conduit for such talks in many European nations. In the 1980s, in a manner again reminiscent of their American counterparts, many corporations also made increasing use of their contract lobbyists who would attempt to promote corporations’ interests in Parliament or the bureaucracy. Grant has characterized the British system of government—industry relations as a ‘company state’ in that government—industry relations are increasingly between government and individual corporations rather than between government and business organisations.14

Limiting the role of government to macroeconomic management

Limiting the role of government to macroeconomic management

Perhaps because of Thatcher’s free market rhetoric,. it was common to link Britain with the USA in the 1980s as examples of states which intervened to only a limited extent in specific industries, limiting the role of government to macroeconomic management. This reluctance to intervene was often contrasted unfavorably with the practices of countries such as Japan and France.15 The reluctance of British governments to engage in detailed intervention was often seen as a reflection of an industrial culture which was hostile to such policies, and institutional practices which re-enforced the culture. In this view, British economic policy makers continued to subscribe to the skepticism of liberal economic theory about the desirability or wisdom of government trying to be wiser than market forces in allocating resources for investment or production. Moreover, the capacity of the British state to intervene intelligently was thought to be limited. The structure of capital markets in Britain gives government little leverage over the allocation of investment funds. How easily that situation could be changed has been debated,16 but all participants in the debate would agree that British governments, unlike Japanese or French governments, have lacked the means to promote what they believe to be the industries of the future through making credit easier or cheaper for those industries than for others. Most top bureaucrats in Britain lack the background or training for making detailed industrial decisions. Most politicians share the same weakness. The strength of party competition and the power of elected politicians in Britain makes detailed intervention in industrial or investment decisions easily subject to calculations about what will help the governing party. One of the largest bridges in Britain was built as a result of a promise made by a Minister of Transport in order to win a crucial Parliamentary by-election. There is no reason to believe that other governments would have acted differently. In Britain, as in the United States, politicians and elections shape policy more and more easily than in a country such as Japan with, in effect, only one major political party.’
Yet the truth is that British governments have made numerous detailed interventions in industry. Particular products such as Concorde have been made as a result of government wishes. Intervention in the day to day running of nationalized industries for social or political reasons has been frequent. As in the United States, defense expenditure accounts for such a large proportion of the orders of certain corporations that their fate is settled by the Ministry of Defense. It is true that British industrial policy has been inconstant and often ineffective. Yet at times British governments of both parties have approached the level of intervention and planning which some political scientists have admired in other countries.
The machinery for neocorporatist consultation was created by the Macmillan Government in 1963. The National Economic Development Council (NEDC) provided a forum for consultation and co-operation between the government, employers, and the Trades Union Congress (TUC). The attempt to move in the direction of the much-admired French system of indicative planning was strengthened by the interest of the 1964-70 Labor government in producing a National Plan to assist the achievement of increased economic growth. Although neither the National Plan nor the Department of Economic Affairs created to supervise its implementation took root, the 1964-70 Labor government continued to favor detailed intervention in industry as exemplified by the creation of the Industrial Reorganization Corporation (IRC). The IRC promoted mergers and restructuring when it thought these would increase efficiency. Although the Conservative government led by Edward Heath (1970-74) initially favored a move toward greater reliance on market forces and abolished the IRC, it soon re-equipped itself with powers to make loans or grants to industries and, until blocked by the 1973-74 miners’ strike, attempted to move in the direction of neocorporatist collaboration with economic interest groups. That tendency was given added force by the 1974-79 Labor government whose attempts to construct a ‘Social Contract’ linking government with economic interests were even more serious. As the economic difficulties of British industry mounted in the 1970s, so did government spending on industry.
It is quite incorrect, therefore, to suggest that British government has consistently maintained an ‘arm’s length’ relationship with industry. The situation up until 1979 was rather that governments of both political parties were constantly drawn into close relationships with industries, even though those relationships were neither purposive nor effective. By tl* late 1970s, British industrial policy was expensive but ineffective, distributing subsidies to many doomed industries in response to political pressures from them.