Wednesday, May 21, 2014

Gabriel Kolko, RIP...

On the occasion of Dr. Gabriel Kolko's recent death and Reason's eulogy of his work (which includes a letter from him, baldly stating that he was a socialist), I came to my blog looking for my posts on Kolko-- and to my surprise, I have only made reference to him once! The key omission: I forgot to blog on this essay from two years ago!

It should be on the blog, so here goes...

Happy Centennial to the 1912 “Bull Moose Progressive Party”. This short-lived political party[1] had its most notable connection to Teddy Roosevelt—a former president who was its standard bearer and claimed to be “as fit as a bull moose.” Beyond surviving an assassination attempt[2], Teddy had the best showing for a “third-party” presidential candidate: he is the only candidate to out-poll a Democrat or Republican since the Civil War.[3] (UPDATE: This was not the best wording. Perot "out-polled" Clinton and Bush throughout June 1992. It would be clearer to say that Roosevelt is the only 3rd-party candidate to "out-poll" a Dem or GOP candidate in November, at the ballot box!)

The most popular political use of the term “progressive” is for the “Progressive Era”—a period of significant policy changes from the 1890s into the first part of the 20th century. “Progressive” policy interests ranged widely—from purifying water to child labor laws, from meat inspection to laws promoting eugenics[4], from the income tax to anti-trust legislation. This movement embraced modernization, seeking “progress” through science and “scientific” approaches to policy. But it was also a response to modernization, in its opposition to the power of large corporations and corruption in American politics.[5]

Today, “progressivism” is a related political movement that has extended beyond the Progressive Era. Adherents embrace a mishmash of social, political, environmental and economic reforms—from environmentalism to social justice, from civil rights to “gay” rights, from feminism to electoral reform. The term is usually self-applied by those who are relatively liberal within the Democratic party—or are so principled, that they are “to the left” of Democrats on issues of importance.[6]

In a broader sense, “Progressives” are reform-minded—wanting society to “progress”—more than belonging to a particular part of the political spectrum or working on behalf of a special interest group. And their title implies that they are not interested in “conservatism”—in the sense of conserving or preserving a corrupt and harmful status quo in economics and politics.

Different Types of Progressives
Progressives have consistently pursued a more significant role for government, particularly at the federal level. But as with conservatives, liberals, and libertarians, there are different types of Progressives.[7] Let me divide them into four categories.

First, many of the original Progressives saw natural market power as inevitable and even desirable—when large-scale production is efficient. But they wanted government to regulate those producers, so the resulting monopoly power was not easily abused. This was the impetus behind the Progressive Era’s anti-trust laws on mergers, market concentration, and monopoly power. It is also behind the objective pursuit of stronger labor unions—to counter the perceived or real power of individual employers. (Labor unions, as a cartel among labor suppliers, can easily be pursued subjectively out of greed and narrow self-interests.)  Likewise, Progressive Era labor market reforms—e.g., the eight-hour work day and improved safety conditions in factories—stem from this mindset.

Second, Progressives often want government to step into a perceived void, creating something valuable which they see as under-provided by the market. The provision of public, compulsory K-12 education was one prominent example.[8] In the late-19th century, we also transitioned from effective but limited private charity—to government efforts which tried to replicate that success on a larger scale. The Progressive Era also had the largest government-funded conservation projects in U.S. history (e.g., national parks)—and environmentalism continues to be important to many Progressives.

Third, progressivism often implies “paternalistic” policy—the idea that progress might entail the use of government force to help people make good decisions and avoid bad decisions. Prohibition against alcohol is an infamous example. Since alcohol damaged drinkers, families, and society, it limited our ability to “progress” and should be heavily regulated.

One of the most famous examples of Progressive Era legislation—“child labor” law—serves all of the above. These laws were designed to prevent children from being exploited by business; provided them the opportunity to attend school; and implicitly questioned the decisions of some parents.

In all of the above, Progressives have been relatively optimistic about government activism. They want to regulate or produce economic activity, shaping policy to reach social goals. In this, they assume a relatively benevolent and knowledgeable government—at least when it’s under their influence. Not surprisingly, then, progressivism can extend into “statism”—an overarching belief that government activism is typically ethical and effective.[9]

Another strain of progressivism can temper this faith. Many Progressives focus on undesirable market outcomes as unnatural artifacts of business acting in concert with government. They are relatively cynical about government—at least in the context of “crony capitalism”, where powerful interest groups work with politicians and bureaucrats to benefit themselves at the expense of society. The obvious remedy is to reduce these uses of government. But more imaginative activists have pursued substantive electoral (voting) reforms, so the will of the people and the social good will be more easily achieved through the political process.

In all of the above, education is near the top of any Progressive agenda. They reason that a successful democracy requires a good education for its leaders and the general public. Along the same lines, an educated and benevolent public would lead to energetic grass-roots movements, as people would call for reforms against special interests and corrupt governance.

So, Progressives are motivated by a high view of populism, local governance and direct democracy—at least in theory. The average citizen should have more control over his government—thus, the call to elect judges and to promote voter initiatives such as referenda and recall. If so, the government should be more responsive to the direct voice of the people. The power of machine politicians and political bosses would be weakened. And journalists (“muckrakers”) would be helpful in unveiling economic privilege, political corruption and social injustice.

But those who would exercise democracy must have decent knowledge and be driven by the general welfare. This leads to a Catch-22. How do you achieve such reforms when people are not (yet) smart enough to help you reach those goals? The only option is to give power to a knowledgeable and (it is hoped) benevolent elite in the meantime—often, bureaucrats at the state and federal levels of government. But this militates, at least in the short-term with the quest for democracy, by giving power to the non-elected and the non-local. Centralized decision-making by trained experts and reduced power for local wards might make government more effective. But it would also make it more distant and isolated—and more prone to abuses of power.

Kolko’s The Triumph of Conservatism
This brings us to Gabriel Kolko’s seminal 1963 book, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916.[10] Kolko is a “New Left” socialist historian who argued in this book that business leaders, rather than “reformers”, were the chief catalysts behind the Progressive Era’s regulation of business. Instead of a “progressive” era, it “was really an era of conservatism…a conservative triumph” (2). In sum, “It is business control over politics rather than political regulation of the economy that is the significant phenomenon of the Progressive Era.” (3)

This assumes that businesses are willing and able to influence policy. It turns out that both are common. The incentive to influence policy is universal: it is always in the best interests of suppliers to restrict competition from current or potential rivals. In some cases, the desire for federal regulation in the Progressive Era also came from a desire to escape burdensome state regulation. But generally, the idea was to limit entry—or to indirectly hinder competitors, by imposing costs on them. The benefits are obvious; if the costs are modest, then we can expect self-interested political activity.

The ability to influence policy is clear from theory and in practice. One of the most powerful observations of Public Choice economics is that political activity typically features concentrated benefits and subtle costs. Even though the costs are larger in aggregate, they are smaller per person—and this subtlety makes their occurrence likely, especially in a democracy. Voters are “rationally ignorant and apathetic”—and will tolerate small-per-person costs, if they even notice them. Interest groups will passionately pursue such laws and engage in mutually beneficial trade with politicians and bureaucrats.

One of the supposed reasons for government activism in the Progressive Era was the enormous market power of corporations. But Kolko argues that “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. [And] competition was unacceptable…It was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.” (4, 5)

Potential competitors always face natural (economic) and artificial (political) barriers. If the barriers are large enough, entry into the industry is limited; producers can earn above-average rates of return; and with the subsequent monopoly power, consumers may be vulnerable to higher prices, lower quality, less choice, etc. With then-impressive advances in communication and transportation, declining transaction costs made most markets more and more competitive. Even important emerging industries—such as oil and steel—had more competition than is usually assumed.

Even with competition, mergers can create trouble. But Kolko provides the data to argue that “the merger movement declined sharply after 1901…[and] was largely restricted to a minority of the dominant American industries.” (18-19) Manufacturing firms increased by 29% from 1899-1909. (26) Manufacturing mergers earned no more than an average rate-of-return from 1903-1910. (27) And so on. He concludes: “Mergers were not particularly formidable and successful, and surely were incapable of exerting control over competitors within their own industries. (28)

Another measure is the (limited) extent to which anti-trust laws were actually applied. They are vastly over-rated in their historical importance. Teddy Roosevelt’s historical reputation with anti-trust stems from his activity in an early case. But overall, his activity was light and intermittent—with three antitrust suits in 1902, two in 1903, and one in 1904. (74) In a word, in this arena, Teddy talked loudly but carried a small stick.

Another bedrock of microeconomic theory is that firms want to charge higher prices and exercise monopoly power. One common mechanism is the cartel, where sellers collude to restrict quantity—to increase price and thus, profit. The problem is that insiders have an incentive to cheat on the collusive agreement and outsiders have a tremendous incentive to enter a highly profitable industry. (This is one of many areas where “greed” works to promote efficient and equitable market outcomes!) As such, Kolko documents failed attempts to form voluntary cartels in many key industries—steel, oil, automotives, agricultural machinery, phones, copper, meat packing, and life insurance. There were strong incentives to collude, but without government assistance, there was not enough ability to keep cartels together.

The upshot? Business frequently turned to government to achieve its goals. Kolko argues “It was not a coincidence that the results of progressivism were precisely what many major business interests desired.” (280) “If business did not always obtain its legislative ends in the precise shape it wanted them, its goals and means were nonetheless clear. In the long run, key business leaders realized, they had no vested interest in a chaotic industry and economy in which not only their profits but their very existence might be challenged.” (6)

Today, we see the same principles play out—from the rampant practice of crony capitalism to particular regulations in tobacco, alcohol and health insurance. In tobacco and alcohol, suppliers are more than happy to have restrictions on their ability to advertise. They don’t have to spend money, battling over market share. And the limits on advertising make it much more difficult for new competitors to emerge. This is a wonderful collusive arrangement they could never maintain on their own. In health insurance, ObamaCare drives up the demand for health insurance, while insurance mandates require more services to be covered and regulations make it difficult for insurers to compete across state lines.

Kolko observes that “Important business interests could always be found in the forefront of agitation for such regulation, and the fact that well-intentioned reformers often worked with them—indeed, were often indispensable to them—does not change the reality that federal economic regulation was generally designed by the regulated interest to meet its own end, and not those of the public…” (59)[11] In a word, government—then and now—is far busier enhancing monopoly power, than reducing or regulating it.

One final example: Kolko devotes a section to the most famous reform of the Progressive Era—regulation of the meat packing industry (98-108). He cites the conventional narrative which centers on the importance of Upton Sinclair’s 1904 newspaper articles and his subsequent novel, The Jungle. “The meat inspection law of 1906 was perhaps the crowning example of the reform spirit and movement during the Roosevelt presidency, [but] the full story reveals much of the true nature of progressivism.” (98) As Kolko notes, the movement for federal meat inspection began 20 years earlier, “initiated as much by the large meat packers themselves as by anyone. The most important catalyst…was the European export market and not, as has usually been supposed, the moralistic urgings of reformers.” (98) The law was a clever way to meet European import standards and to retaliate against European import restrictions on American meat (98-99). But the regulations did not impact domestic non-exporters, so the dominant industry players wanted the same costs imposed on their competitors (100-102).[12] Even Sinclair noted that the regulations came at the request of the packers, with their avid support and for their benefit (103).

All of this is completely consistent with concepts from Public Choice economics—that interest groups and politicians will often act in concert, to the detriment of the general public. In fact, both will use good-sounding ideas to conserve and protect their markets at the expense of consumers and potential competitors. “Progressivism” and the Progressive Era are no exceptions.[13]

[1] The Progressive Party largely dissipated after 1912. Two other candidates ran for President under the Progressive label: Wisconsin Senator Robert LaFollette in 1924 and former vice-president Henry Wallace in 1948.
[2] The bullet was slowed by the steel case for his eyeglasses and a single-folded copy of his 50-page campaign speech.
[3] H. Ross Perot led the polls during the summer of 1992 against Bush I and Clinton, but faded down the stretch and finished third with 19% of the vote.
[4] The history of eugenics had an important centennial five years ago—and it involves Indiana! See:
[5] Although relatively fond of government in their own way, Progressives were distinct from Socialists—as evidenced by Eugene Debs’ 6% of the popular vote in the 1912 election.
[6] Putting it another way, these are generally the people who are not embarrassed to be called “liberals” and are willing to voice critiques of both major political parties.
[8] Today, the existence of K-12 public education (with its arbitrary compulsory requirements) and a commitment to statism are far more important than its quality, as evidenced by the apathy or even opposition of “Progressives” to serious reform efforts.
[9] This points to the potential for idolatry toward the State. “New Left” historian Gabriel Kolko roots this observation in history, describing blindness in the Progressive Era as unsurprising after the fact and “an understandable reaction” to then-dominant Social Darwinism: “for if the state could be said to be the highest form of cooperative human evolution, or a divine institution, then its actions could only be legitimized and declared good.” (Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916; Free Press: New York, 1977; p. 214)
[10] Gabriel Kolko, The Triumph of Conservatism, Free Press: New York, 1977.
[11] Kolko (78) cites a WSJ op-ed from 1904 which expected antagonism from railroads, but instead saw their support, for regulation.
[12] Kolko (107) notes that Sinclair’s primary concern was the plight of workers, not the standards of meat. And he quotes Sinclair in his sad assessment of his own impact: “I am supposed to have helped clean up the yards and improve the country’s meat supply—though this is mostly delusion. But nobody even pretends to believe that I improved the condition of the stockyard workers.”
[13] Kolko notes that historians have had difficulty explaining why Progressivism faded. His explanation is that the goals of interest groups had been reached—and then were extended by World War I’s economic policies. By the 1920’s, the goals of progressivism had been codified into law. “Progressivism did not die in the 1920s, but became a part of the basic fabric of American society.” (286-287)


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