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The sufferings caused by the Great Depression of the 1930s, quickly followed by the horrors of the Second World War, generated a broad consensus in the developed countries of the need for public intervention to protect people against the instability and criminality that results from the accumulation of economic and political power by great corporations. Franklin Roosevelt, four times elected president of the United States, had this dangerous power in mind when he addressed the US Congress in 1938:
Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic State itself. That, in its essence, is fascism—ownership of government by an individual, by a group or by any other controlling private power. The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living. Both lessons hit home. Among us today a concentration of private power without equal in history is growing.
The advanced industrial countries, especially the United States and the United Kingdom, have reached the point at which private power has become stronger than "their democratic state”. This private power is manifested in so-called financial markets, which is a thinly disguised reference to unconstrained corporate power that over-rides democratic decisions. Fundamental reform is required to prevent that unconstrained corporate power from a latter-day fulfilment of Roosevelt’s warning against fascism.
During and after the Second World War even prominent economists recognized the dysfunctionality and anti-democratic nature of excessive private power. In 1947 in the premier English language economics publication, the Economic Journal, K. W. Rothschild wrote,
…[W]hen we enter the field of rivalry between [corporate] giants, the traditional separation of the political from the economic can no longer be maintained. Once we have recognised that the desire for a strong position ranks equally with the desire for immediate maximum profits we must follow this new dual approach to its logical end.
Fascism…has been largely brought into power by this very struggle in an attempt of the most powerful oligopolists to strengthen, through political action, their position in the labour market and vis-à-vis their smaller competitors, and finally to strike out in order to change the world market situation in their favour.
While history does not repeat itself, it carries lessons. The link between excessive corporate power (“oligopoly”) and reactionary political power is an obvious lesson.
Controlling corporate power requires four fundamental reforms, whose purpose is to severely restrict the economic and political power of capital. These four measures are little more than what was in the UK Labour Party programme for the election of 1945. First, the financial system should be taken into public ownership to prevent the tendency inherent in finacial capital to proliferate into vehicles of speculation. The governments of the United States and the United Kingdom had the opportunity to do this in 2008 and 2009, and did not, even though a Swedish right-of-centre government had provided the model for banking nationalization in the early 1990s. With control of the banking system the state could focus capital on production.
Nationalisation of the financial system is essential because public action to reduce the severity of crises would have contradictory results. The instability created by the financial system produces the failures of banks and related institutions such as occurred at the end of the 2000s. These were followed quickly by generalized failure of private sector demand. The public sector can act to maintain demand, using Keynesian monetary and fiscal policy, and this can prevent the severe contractions such as the European countries are now entering. However, this is done at the cost of maintaining a fragile, inefficient and dysfunctional financial system. Preventing recession also prevents the collapse of corporate giants that would facilitate the efficient reorganization of private capital. Control of the financial system provides the public sector with the vehicle for a guided restructuring of productive capital in place of the catastrophic and ineffective market-generated crisis mechanism.
Second, the nationalisation of the banking system must be complemented by public sector management of external trade and capital flows. This management would include a fixed exchange rate and controls over capital inflows and outflows. The fixed exchange rate would reduce currency speculation to the marginal role it played in the 1950s and 1960s, and effective implementation of a fixed rate requires controls on capital inflows and outflows.
Third, government regulation of internal markets would be based on the principle one finds in the constitution of the International Labour Organisation that "labour is not a commodity". The apparent inconsistency between this principle and wage employment could be resolved by various programmes that eliminate unemployment as a form of labour discipline. The most effective of these would be the universal guaranteed minimum income programme. A universal income programme would not eliminate unemployment, but it would reduce the repression of labour that unemployment facilitates.
Fourth, and the basis for the others would be the protection of the right of workers to organize. A program of fundamental reform would be based on the political power of the working class, in alliance with elements of the middle classes. This is the political alliance that brought about major reforms throughout Europe after the Second World War and in the United States in the 1930s. An effective reform of capitalism that eliminates its economic and social outrages requires a democracy based on labour and its allies in which the political power of capital is marginalised.
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