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Wednesday, November 12, 2008

Capitalism vs. Corporate Power

Roderick Long's essay at Cato Unbound is a must-read, particularly in light of Hugh's interesting post on Toronto's ongoing war against would-be street vendors.

In the essay, Long asks the question: "Defenders of the free market are often accused of being apologists for big business and shills for the corporate elite. Is this a fair charge?"

Perhaps surprisingly, his answer is a qualified "yes."

Big corporations, Long argues, are not very big fans of the free market.

Throughout U.S. history corporations have been overwhelmingly hostile to the free market. Indeed, most of the existing regulatory apparatus—including those regulations widely misperceived as restraints on corporate power—were vigorously supported, lobbied for, and in some cases even drafted by the corporate elite.

To support this claim, Long runs through the list of ways in which government intervention in the economy benefits large, well-established firms. Some of these are obvious: government subsidies to certain industries (*cough* Bombardier) are a direct transfer of wealth to the businesses in those industries from the rest of us. Businesses like those subsidies, and who wouldn't? Free money is a pretty good deal.

But Long also points out less direct ways government and corporate power go hand-in-hand. Government regulation, for example:

The existence of regulations, fees, licensure requirements, et cetera does not affect all market participants equally; it’s much easier for wealthy, well-established companies to jump through these hoops than it is for new firms just starting up. Hence such regulations both decrease the number of employers bidding for employees’ services (thus keeping salaries low) and make it harder for the less affluent to start enterprises of their own.

The health insurance industry in the United States is heavily regulated, at both the state and federal level. State legislatures have enacted "insurance mandates" that require insurers to offer an unnecessarily high degree of benefits to their customers. Predictably, these mandates drive up the cost of both providing and procuring health insurance. In turn, this cuts down on the competition, and keeps smaller start-ups from even entering the field.

If government truly got out of the way, Long predicts:

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.

The corporate elite has much to lose from the free market, even if -- as some would claim -- we all would be better off in the long run without the government on our backs. This explains the tepid support true free market reforms receive from the business community.

So why are defenders of the free market perceived as apologists for corporate power? Long blames three groups: the left, the right, and libertarians themselves.

The left views the world through a particular narrative. In that narrative, the interests of business and the interests of workers are intractably opposed to one another. In a war between the employers and the employees, people have to pick a side. If you are on the side of the proletariat, then you will favor increased government control over business as a way of protecting the interests of the worker from the predation of business. Libertarians, to the extent they want to reduce government control over the economy, are choosing the other side. Hence, they are villains in the narrative.

At the same time, the conservative right has helped link laissez-faire with increased corporate power. As Long says:

Conservative politicians in their presumptuous Adam Smith neckties have managed to get themselves perceived—perhaps have even managed to perceive themselves—as proponents of tax cuts, spending cuts, and unhampered competition despite endlessly raising taxes, raising spending, and promoting “government-business partnerships.

As an example, Long cites "privatization schemes" that involve "contracting out" a service for which government previously held a monopoly to a private company that still gets to keep the monopoly over the provision of that service.

There is nothing free-market about privatization in this latter sense, since the monopoly power is merely transferred from one set of hands to another; this is corporatism, or pro-business intervention, not laissez-faire.

Finally, and most intriguingly, Long places the blame for the identification of free market capitalism with corporate power on the shoulders of libertarians themselves. For example, libertarians do this when they contrast the government-monopoly on health care provision in Canada with the supposedly "free market" system in the United States.

(As an aside, I've had to combat this tendency even among American libertarians, who should know better. Looking at the labyrinth of of insurance mandates, tax subsides for employers, and so on, one might say that the American health care system is socialized in the worst way possible, as the costs and harms fall almost entirely on responsible customers and the benefits accrue to the largest corporations.)

Another example Long uses is the tendency libertarians have to defend companies like Wal-Mart against left-wing critics. I don't think it is wrong for us to do this. But, at the same time, libertarians should perhaps be more honest about the battery of subsidies, direct and indirect, Wal-Mart receives from the government. Even the government's funding of highways acts as a subsidy for Wal-Mart, allowing them compete against local businesses more successfully.

Long's point is that by focusing on the costs government imposes on corporations while ignoring the benefits those very corporations receive from it, there is some justification to the idea that all libertarians are interested in is defending corporate power.

One thing I've been interested in for some time now is the project of claiming and inverting Marxian rhetoric. Consider the "proletariat." Proletariat doesn't really refer to the poor. It refers to those with a certain relationship to the means of production. The guy working at Wal-Mart is one of the proletariat. Dustin Boyd of the Calgary Flames is also one of the proletariat.

They both pay taxes, and those taxes are used at least in part to prop up a corporate power structure that would likely not exist without the help of the government.

The bourgeoisie includes those who survive and flourish from such political favoritism, as well as those bureaucrats who help redistribute the wealth to their favored parties. This includes not only the corporate elite, but also "community organizers" whose main purpose is to organize interest groups to more efficiently extract wealth from the rest of the population.

As I interpret Long's essay, his point is that libertarians should be defending the real proletariat from the exploitation of the bourgeoisie. But this means advocating for lower taxes, smaller government, less regulation, and a better allocation of the costs of government power to those who benefit the most from it.

Posted by Terrence Watson on November 12, 2008 | Permalink


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I got in an argument recently about the free market. My opponent's thesis was that Karl Marx was right that capital would become increasingly controlled by a small number of people in a free market. I tried to argue something similar to this but didn't say it very well, thanks for posting it. I now have something to counter him with.

Posted by: Hugh MacIntyre | 2008-11-12 12:11:53 PM

"For example, libertarians do this when they contrast the government-monopoly on health care provision in Canada with the supposedly "free market" system in the United States."

Hell no! I'm constantly trying explain the differences between the free market and US-style health care. People smugly assume libertarians are aspiring to replace our medicare clusterf*** with a US style clusterf***. That's simply not true.

Posted by: K Stricker | 2008-11-12 4:04:46 PM

The entire article seems to not include the idea that more than defending free markets and big business...Libertarians are dead against government subsidies and handouts. Do the math...Libertarians can't be one way and then the other and still be true to Libertarian platforms.
Big business and / or laissez faiire free markets
should have to make it on their own...or fail.
The basic idea is still....no government involvement and no "Central Planning", Kamrade! :)

Posted by: JC | 2008-11-12 7:03:07 PM

Anyone keeping track of the total "accounting correction" the government is pouring into "private" businesses and banks here in Canada? And big surprise! The Loonie took the biggest dive on record...probably just a coincidence though.

Posted by: JC | 2008-11-12 8:54:38 PM

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