What if the economy were organized in corporations, one for each trade and industry, each including owners and workers? Would capitalism’s fierce competition and wasteful failures be replaced by a cooperatively managed system?
As world economies struggled to recover from the Great Depression in the summer of 1933, politicians looked for alternatives to free-market capitalism.
In capitalism, "force plays the chief part in the settlement of industrial disputes and victory belongs to the stronger party, quite irrespective of the merits of the cases," the New York Times wrote. On the other hand, communism "recognizes no rights but those of the workers."
Italian fascism strove to find a middle way between the claims of capital and labor. Prime Minister Benito Mussolini chose the summer of 1933 to form corporatism’s key institutions: state-managed national corporations that would centralize control of production.
How to do this was a genuine puzzle, though. Guiding the process was the National Corporations Council, which was divided into sections -- agriculture, commerce, industry, land transportation, navigation, banking, liberal and artistic professions. If the sections could agree on policy, the council could regulate prices, production and markets.
Yet this didn’t entail only top-down control. If in any sector the employer and employee associations wished to restrict production by closing a factory, they could apply to their corporation on the council.
Noting the Italian program's partial resemblance to U.S. efforts to manage industrial output, competition, wages and consumption, the Economist drew several worrisome conclusions from the experiment.
First, such regulation would eventually be extended across the economy. The Soviet Union, Germany and the U.S. all confronted the Italian dilemma: How much control would be sufficient to kick-start economic renewal?
Second, only a relatively small group could guide economic management if it was to be efficient, and that group would have to interact with a network of smaller regulating bodies. Information would have to flow up the hierarchy for workable policies to be enacted. Yet, as Americans discovered, it often wasn’t easy to determine the right information for decision-making. Worse, officials disagreed about what the data meant.
Third, what happens to consumers? The choice of what and whether to buy rests with individuals and families outside corporatism’s control. The imbalance between managed production and poorly measured consumption was a potential weak spot.
If consumer goods were simply allocated through comprehensive regulation, the price system would wither. The market’s role as a place for economic learning -- about what’s needed, what’s missing and what’s not wanted -- would also vanish.
"Is free competition’s automatic machinery going to be succeeded by the sixth sense of the economic dictator?" the Economist asked.
Managing national economies was going to be harder than it seemed.
(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog.)
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