Capitol Dome through trees

Crony Capitalism Has Deep Roots

Main St. Agenda by from The Weekly Standard, September 22, 2014

Well, this was predictable. House Republicans last week acceded to an extension of the Export-Import Bank for at least the next nine months. The Export-Import Bank is far from the worst example of government-business cronyism. I just completed a history of American political corruption and actually had to leave Ex-Im on the cutting room floor. Its cronies are pikers compared with the corporate moguls that take advantage of tax preferences like the G.E. and Apple loopholes. They also cannot hold a candle to the American Medical Association, which is basically free to write the reimbursement rates for Medicare Part B. And nothing compares to Fannie Mae and Freddie Mac from 1991-2008. The two mortgage giants kept the entire D.C. political class bent over a barrel for almost 20 years as its top executives reaped enormous bonuses while putting the broader economy at risk.

What makes Ex-Im noteworthy is how narrow its coalition of beneficiaries is. With most modern corruption, you see some sort of logroll. The farm bill, for instance, ensnares not only dozens of commodity groups but also a vast array of interests that have seemingly little to do with agriculture. Similarly, Fannie Mae and Freddie Mac survived for so long by roping in realtors, primary mortgage lenders, and home builders, all of whom benefited from the same sorts of policies.

Ex-Im’s list of beneficiaries basically starts and ends with Boeing. This should in theory make it more vulnerable. Our perverse system of interest group pluralism tends to favor policies that rally multiple groups. Ex-Im does not really do that. Further, its economic justifications are slender indeed. On top of that, all congressional Republicans have to do is nothing; absent action by Congress renewing the bank, it disappears.

Ex-Im is the lowest of low-hanging fruit in the sprawling tree of American political corruption. And yet House Republicans cannot seem to pluck it.

There is a lesson in this—an unhappy one, but one that must nevertheless be learned if conservative reformers hope to win: The Republican party is part of this problem, and always has been. Today, the foundation of the party’s electoral coalition is the conservative movement, but that’s a historical novelty. The forebears of today’s conservatives used to be spread between the two parties (with Southerners in the Democratic party and small-town Midwesterners in the GOP). The Republican party predates the conservative movement, and in important respects simply tacked on its voters to an extant set of interests.

The purpose of the party at its creation was to oppose the Kansas-Nebraska Act and generally halt the spread of slavery. The GOP succeeded in this, and much more, but by the 1870s it had lost its motive force. Initially opposed to the machine-style politics of the Buchanan administration, it came to embrace the patronage regime wholeheartedly. Under Ulysses S. Grant this system metastasized into a full-blown epidemic of corruption.

As Senator James Grimes of Iowa put it in 1870, “It looks at this distance as though the Republican party were going to the dogs. .  .  . Like all parties that have an undistributed power for a long time, it has become corrupt, and I believe that it is today the [most] corrupt and debauched political party that has ever existed.”

This corruption was quite different from the modern variety, currying favor with business interests. Of course, Republican machines in Michigan, New York, and Pennsylvania did deal with businesses. But they had their own streams of revenue to manage their operations, so they were not in hock to them. Ultimately, party bosses in the Senate relied on the federal spoils system to take control of state government patronage, thereby setting themselves up as satraps. Businesses could be part of the process, but bosses like Roscoe Conkling were just as likely to use the Port of New York to extort businesses as to favor them.

When corruption reached a whole new level under Grant, it pushed a faction of the Republican party toward reform. The dam finally broke after the assassination of James Garfield in 1881. That led to sweeping civil service reform, and the old revenue streams quickly dried up. This was an enormousproblem for Republicans in the North. The Southern plantation class solved the collective action problem inherent to winning elections by systematically disenfranchising anybody who disagreed with them, not only black Republicans but also poor, white populists. This was impossible in the North, so how were Republican bosses supposed to hold the line, especially in states like Indiana, New York, and Ohio, where the parties were evenly matched? It required a massive campaign effort, which in turn required millions of dollars. With federal patronage now (mostly) illegal, something had to be done.

Enter James G. Blaine—the “continental liar from the state of Maine” (as his critics tagged him). Actually an opponent of the old patronage machines, Blaine nevertheless spearheaded a new method of campaign finance: currying favor with industrial magnates. This operation would be replicated across Republican-dominated states of the North, and it was a pretty tidy way to do business. Rather than buying off a seemingly endless array of ignorant state legislators and avaricious members of Congress, big business dealt with party bosses like Blaine, Tom Platt, and Matt Quay, who took charge of keeping their loyalists in line.

The system was enormously successful, and much more stable than the machine politics of the Grant era, which ultimately depended upon a compliant chief executive to keep the patronage funds flowing. So, for instance, by the late 1870s, railroad loans were coming due, and titans like Jay Gould and Collis Huntington did not want to pay them back. What to do? Deploy Blaine in Congress to rally his troops to kill a repayment plan. Blaine’s actions prompted Vermont Republican George Edmunds to comment:

It is my deliberate opinion that Mr. Blaine acts as the attorney of Jay Gould. Whenever Mr. Thurman and I have settled upon legislation to bring the Pacific railroads to terms of equity with the government, up has jumped James G. Blaine, musket in hand, from behind the breastworks of Gould’s lobby, to fire in our backs.

The point of this history lesson is the following: While the Republican party repudiated Grantism 130 years ago, it has never done the same to Blaineism. Instead, the party too often behaves as though this form of corruption does not exist.

The modern Republican party is a marriage of convenience. The ideological similitude between its constituent groups is stronger than among the strange bedfellows of the Democratic party. But still, there is a tension. Grassroots conservatives support business because they believe that free enterprise is the best way to establish broad-based prosperity and individual liberty. Blaine-style Republicans support business—full stop.

And this is why you see Republicans in Congress so often doing things that Republicans in the heartland oppose. Immigration reform—with its massive amnesty as well as a huge increase in the number of legal immigrants—is good for business owners but bad for lower income workers struggling to rise to the middle class. Grassroots conservatives and their allies in Congress opposed it. But Republican politicians more in the Blaine mold were amenable to it.

Ditto Ex-Im. It is one more instance of the divide between conservatives and the Blaine faction. And the news last week shows you who is still in charge.

What is so troubling is that Blaine-style Republicanism has precious few followers, and virtually none outside the Beltway. It sustains itself primarily via a logroll between connected industry groups who buy their way into the process. Again, the farm bill is illustrative. House Republicans—at the height of their reformist zeal—basically killed farm subsidies in 1996. But they slowly brought them back. Was there a compelling reason for this? Of course not. It was the subtle operation of scores of interest groups over time that pushed the congressional GOP into buckling, which it did most recently in the winter with a massive new payoff.

At its core, Blaine-style Republicanism is not so much a vision of a prosperous, dynamic, and free nation as it is a management tool designed to keep the money rolling in. It really has no defenders, at least out in the open air. Its payoffs are either studiously covered up or couched dishonestly in the rhetoric of conservatism. To wit, the first choice of Blaine Republicans is not to talk about Ex-Im. But, barring that, they will always defend the program in terms of jobs and prosperity.

So American conservatives often feel a bit like George Edmunds. We stand up to fight the corrupt cronies in the Democratic party. And then from behind the breastworks, up pop the heirs to James G. Blaine, muskets in hand, ready to fire in our backs.

There is a lesson in all this. Ultimately, reformers cannot strike at corruption by going after even its most egregious manifestations, like the Ex-Im Bank. The entire regime is the product of corrupt processes, and the only way to take that regime apart is to reform those processes.

Currying favor with special interests at the expense of the public good is a way for politicians to fund their campaigns and secure their future for when they leave government. It has been firmly enshrined as the primary source of money for politics since the Sherman Act did away with patronage. So long as politicians are able to tap special interests for these purposes, they will find ways to reward them with public policy—and they will do whatever it takes to protect the programs they have already put in place. What reformers really need to do first is attack the way the business of politics is conducted, rather than focusing on the products of that business. Then, and only then, will the cancer of cronyism be removed from the body politic.

 © 2014 Weekly Standard LLC. Reprinted with permission.