Jon Taplin's Blog

Blowback IV-The New Federalism

This is the fourth in a series outlining the economic and foreign policy challenges for the coming election. The previous installments are: Part 1, Part 2, Part 3. To those of you who expect blog entries to be short and sweet, I apologize. What I am attempting here is to publicly test some ideas I have been thinking about for a few months. These concepts are hard to corral into 500 words. Bear with me.

In Wall Street lingo, we are in “confession season” and day by day the Big Banks announce their earnings and confess their egregious errors of judgement. Essentially, the Big Banks invested about $2 Billion in a dodgy enterprise, securitizing Sub Prime loans. Now, because Citi, Merrill, UBS, JP Morgan et al are public companies, they are required to publicly admit their mistakes–unlike the privately held Hedge Funds who still hold billions of this Toxic Waste and don’t have to fess up.

To continue my business analogy, unfortunately the firm of Bush, Cheney,LLC is not a public company and so they don’t have to ”confess” to the massive $2 trillion investment in a dodgy enterprise called the Iraq War. When we are all finished (assuming the success of the surge does not dissipate) we will have restored the “Status Quo Ante”at this staggering cost of $2 Trillion. What is the Status Quo Ante?– A relatively stable Iraq that is too weak to be a menace to regional stability. The irony, that Saddam was of course too weak (without weapons of mass destruction) to be a menace to regional stability, is lost on the Neocons. But Bush, Cheney, LLC never lets facts get in the way of spin. That’s why the liability for screwing up is so limited. Their election was the final triumph of corporatism.

In 1991 when the neocon scholar, Francis Fukuyama proposed that we had reached The End Of Historywith the fall of the Berlin wall, there was relatively little debate that the triumph of the American industrial machine (our new version of corporatism), over all other ways of organizing economic society, was permanent. As the Wall Street Journal proclaimed, “The U.S. triumphed in the great struggle of the 20th century because it demonstrated a market-oriented economy with limited government could do more for the “masses” than either communism or the mixed and managed economies of Europe and Asia.” As Alfred Chandler stated in his seminal history of industrial capitalism, the American advantage flowed from the “potential for exploiting the unprecedented cost advantages of the economies of scale and scope.” The centralized hierarchical model of the American corporation was seen as the natural way to organize human activity and the model was applied to all aspects of both business and government organization. It was no accident that John F. Kennedy appointed the President of the Ford Motor Company, Robert McNamara, his Secretary of Defense or that CEO’s like Dick Cheney and Donald Rumsfeld rose to the top rungs of political power.

But now, with ten years left in the American Century of dominance (starting with our entry into World War I in 1917) there are signs that history may not have reached Fukuyama’s endpoint and that the pressures of globalization may overwhelm the social equilibrium of our country. Fukuyama himself has admitted as much. As I have tried to explain in this series, market capitalism’s voracious appetite to consume the world’s natural resources and grow at all costs (the marketing treadmill) is beginning to put stress on both the ecology and the economy of the new millennium, sending tremors through both the canyons of Wall Street and those of the Colorado River. As Warren Buffet recently warned, our present fiscal policies are leading us towards “a sharecropper society.” By which he means that we will owe the Asian, European and Middle Eastern financial powers so much that we “will be working for the man.”

Some major changes are obvious; that the digital revolution in communications and finance have ushered in an era of globalization that cannot be contained and that the devolutionary forces of the Internet are pushing power to the edges of almost every organization, often eliminating the advantages of scale and completely upsetting the top-down management model of the American Century (eg-Auto Business, Music Business, etc). We have been here before. Writing of the start of the 20^th Century, Richard Hofstadter noted that the progressive reform movement “was the effort to restore a type of economic individualism and political democracy that was widely believed to have existed earlier in America and to have been destroyed by the great corporation and the corrupt political machine.” 100 years later, the brief victories of the Teddy Roosevelt administration over the forces of great corporate power and political corruption have faded into historical memory.

But our task of reform against these same powers is more complicated. Notions of economic individualism and autonomy are continually under attack by the quiet invasions of privacy brought about by business and government data mining technologies. And these great powers (corporate and government) still control the major organs of media and they have long since mastered the control of imagery on the grounds that all reality is malleable. Even given the power of the massive media megaphone, the citizens sense that something is profoundly wrong with our nation. Recent polls show that 75% of the populace thinks the country “is on the wrong track” and the election of 2006 was an early warning sign that a new interregnum is at hand.

The question before us–Will technology be put in service to the further centralization and bureaucratization of our society or will it be used to decentralize the society in such a way that the passivity and alienation that has become a central feature of modern life might be reduced? I have come to the conclusion that we have to use the same devolutionary technology that has transformed business to transform our republic. I call the movement, The New Federalism and its principle comes from Thomas Jefferson’s belief that “The true theory of our Constitution is that the states are independent as to everything within themselves, and united as to everything respecting foreign nations.” I have written about it in the context of California’s desire for a true reform agenda. In four years the state has passed laws on auto emissions, CO2 levels, stem cell research, personal data privacy and appliance energy standards all of which have clashed with the neoconservative agenda of the Bush administration. As the governor pointed out, the power and size of the California economy has allowed the state to create defacto national standards that the corporate sector has been forced to follow. And although both the auto, oil and banking industries have joined with the Bush administration to sue for relief from the California standards, to date the courts have not struck down any of the state laws.

The process of the state’s reclaiming both their taxes and their power is at the core of our ability as citizens to slow down this terrible force that is militarizing American society. Only by shrinking federal power will we be able to combat the “great corporation and the corrupt political machine” that both Hofstadter and Eisenhower warned us about. The question for Part 5 of this series will be to see if the California model of New Federalism can be applied throughout the country and what it’s effects might be on Washington power and federal vs. state taxation policies.