Conservatives have had a field day over Obama's comments in Roanoke, Virginia, where the president said:
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business -- you didn't build that. Somebody else made that happen.
Obama's defenders say the conservative interpretation is uncharitable because Obama meant that entrepreneurs "didn't build" the social infrastructure they need, not that they did not create their own businesses.
You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
The implication is clear: The state protects business interests so taxpayers have a partial claim on the wealth produced.
Putting aside the mundane -- roads, police, firefighters -- there is a deeper truth. Many businesses do not merely benefit from state intervention, but would sink without it. Big business's dependence on government has only increased as government has grown.
Yet liberals like Obama and Warren rarely confront the corporate interests that most rely upon Washington's redistribution of wealth to the powerful and socialization of risk. They love taking credit for subsidizing American businesses, but never address (or admit any responsibility for) the full reality of the corporate state. Perhaps they don't want the inequality they decry traced back to them.
In the nineteenth century, monopolists and politicians pushed for privilege and corporate welfare. They especially wanted subsidies financed through high tariffs for corporations to build canals, waterways, and railways. Henry Clay called this program the "American System" -- words Obama fittingly used in his controversial quote. Clay's agenda finally won out in the Civil War era, particularly through the Morrill Tariff and the Pacific Railroad Acts.
The 1800s saw two types of capitalists, described by Burt Folsom, professor of history at Hillsdale College, columnist and historian at the Foundation for Economic Education, as "political entrepreneurs" and "market entrepreneurs." The former, like steamship pioneer Robert Fulton and railroad mogul Henry Villard, relied on monopoly grants, subsidies, and privileged loans. Government support created perverse incentives, such as the reckless and failed railway construction by the politically favored Union Pacific and Central Pacific Railroads. Market entrepreneurs, in contrast, were unassisted, even opposed, by government. James Hill built a more efficient, durable, and cheaper railway in the Pacific Northwest, buying land peacefully from American Indians rather than seizing it.
Folsom explains in The Myth of the Robber Barons: A New Look at the Rise of Big Business in America that before antitrust and other regulations, businessmen like John D. Rockefeller became fabulously wealthy through competitively serving the masses. With a 90 percent market share, Rockefeller drove the price of oil down from 58 to eight cents per gallon.
Radical competitiveness prevented monopoly. One day's winners quickly lost to new competition. So big business interests sought regulation to secure economic stability. Gabriel Kolko wrote in his highly influential book on the Progressive era, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916:
Despite the large number of mergers, and the growth in the absolute size of many corporations, the dominant tendency in the American economy at the beginning of [the 20th] century was toward growing competition. Competition was unacceptable to many key business and financial interests... Ironically, contrary to the consensus of many historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.
Corporate leaders rallied for regulation in railroads, banking, trusts, consumption goods, and more. Kolko demonstrates beyond question that top progressive politicians like Teddy Roosevelt allied with the biggest business interests to advance their agenda.
The tendency of the corporate elite toward "managerial liberalism" was further explicated in James Weinstein's important book, The Corporate Ideal in the Liberal State: 1900-1918. The conscious effort of big business to favor progressive reform even pervaded seemingly egalitarian functions of the welfare state. For example, as Weinstein notes, in 1911 "no state had an effective [employee] compensation law, yet by 1920 every state but six in the South had one... This sweeping achievement was made possible by the concerted activity of the National Civic Federation, with the strong support of its big business affiliates." Corporate giants had every reason to extend the reach of government into the economy.
The early New Deal featured more of the same. President Franklin Roosevelt courted big business and forced mergers through the National Recovery Administration designed by General Electric president, Gerard Swope. The oil industry, represented by the Independent Petroleum Association, agitated for regulation of its sector, as did the steel, coal, and textile industries, all fearing competition. Business interests favored "both the general trade-regulating machinery of the NRA and the more specific legislative programs designed to deal with particular conditions," as Butler Shaffer shows in his book, In Restraint of Trade: The Business Campaign Against Competition, 1918-1938. FDR moreover joined forces with big business to create the permanent military-industrial complex that still survives.
So it is today. A thousand policies prop up the rich -- licensing laws, regressive taxes, outright giveaways, farm aid, military spending contracts, absurd patent and copyright laws, secured higher education loans, banking regulations and credit expansions.
"Liberal" politicians have long advanced their own power while serving the very monopolists they claim to oppose. They thus claim a stake in wealth creation, rationalize higher taxes, and yet veil their close relationships with the economic power elite.
No wonder that Obama is mandating purchases from the health insurance industry, that he has worked so hard to please military contractors, Big Ag and the auto industry, that corporate profits have risen as unemployment has remained dismally high, that Goldman-Sachs and other firms have poured money on his presidential campaigns, that Obama and Bush have cozied up to many of the same characters passing through the Wall Street/White House revolving door. Today's America has a mixture of honest wealth and political privilege. Obama's agenda favors the latter by expanding government power.
The liberals and big business created the corporate state together. Business couldn't do it alone. "Somebody else made that happen," to quote the president.
Obama's detractors should demand a separation of business and state. Let businesses rise or fall without subsidy, as much as possible. Unfortunately, a move in this direction is unlikely. Politicians and their beloved fat cats gain too much from their current arrangement.