Corporatism Is NOT Capitalism

|Peter Boettke|

Several leading classical liberal and libertarian thinkers have over the past few years suggested abandoning the name capitalism because of the connotation that it implies caputre by the corporate elite.  I fully understand the point being made, and I also agree that classical liberals and libertarians should represent themselves as true progressives and not as conservatives in the least.  Hayek's "Why I am Not a Conservative" is as important today, if not more so, then it was in 1960.  And the epistemological point upon which that essay is built --- found in Hayek's "Errors of Constructivism" --- explains both the balance that must be struck between intellectual radicalism and the epistemic constraints we face as social thinkers.

But I think there is an alternative intellectual strategy that should be pursued as well, and that is clarifying the meaning of the term capitalism, exploring its logic, and sorting out the historical record.   Columbia University's Center for Capitalism and Society is more or less accepting that challenge.  And over at Project Syndicate, Edmund Phelps and Saifedean Ammous have posted an article, "Blaming Capitalism for Corporatism".  And they correctly argue that corporatism chokes off the dynamism of markets in the effort to protect various entities from the forces of competition, and they also correctly argue that corporatism permeates western democratic welfare states, including the USA. Furthermore, they point out that the dysfunctions of corporatism are evident throughout the global economy.  As they conclude:

The legitimacy of corporatism is eroding along with the fiscal health of governments that have relied on it. If politicians cannot repeal corporatism, it will bury itself in debt and default, and a capitalist system could re-emerge from the discredited corporatist rubble. Then “capitalism” would again carry its true meaning, rather than the one attributed to it by corporatists seeking to hide behind it and socialists wanting to vilify it.

 

HT: Claire Morgan

 

 

Comments

[Tom]

Corporations don’t have jails, they cannot force you to buy their product, they cannot bomb their competitors, and they cannot force the government to do what they want. But they do have influence over the government. And why would a corporation want to influence the government to do things in their favor? It is because government has power to things the corporation by itself cannot do. The more power the government has over the economy and individuals, the more tempting it is for corporations to increase their influence over the government. But what if the government had little power over the economy and individuals, then there would be little reason for corporations to try and manipulate the government.

As government expands and gets involved in every aspect of the economy and people’s lives, corporatism gets worse, which lead to more calls from the left for more government power. This just creates even greater incentives for corporate influence over government. The real solution is to limit the power and scope of government.

[Josh S]

The problem with the whole "libertarians and classical liberals aren't conservative in the least" line is that quite a few of the values embedded in founding American documents are in fact core values of classical liberalism, predicated on self-ownership and property rights, hence something you'll always have in common with American conservatives.

The other problem is that classical liberals and libertarians simply aren't "true progressives." "Progressive" is an answer to the question of "How shall socialism be achieved?" i.e., via gradual change rather than revolutionary transformation. And then within progressivism is a further debate over what that socialism will look like, although the Bismarckian etatists have almost won out over the communists. Embedded in the term "progressive" is the acceptance of Marx's "stage" theory of history and the belief that quaint notions like "property rights" and "individual liberty" are things to be outgrown as the era of "laisse-faire" recedes into the past.

[Troy Camplin]

There is such a confusion in our terms. In the U.S., the founding ideology was liberalism, so in that sense, true American conservatism is liberalism. However, there is also European conservatism -- which can in fact be found in the U.S., particularly in the American South. It is religiously founded and pro-hierarchy and is fundamentally royalist in nature. I would steer clear of the term "progressive" for the reasons Josh gives -- and for many more reasons related to many of the very nasty things the original progressives supported. Today's postmodern progressives are much like the postmodern Marxists -- more analytical Marxists than supporting a communist eschatology. Further, the progressives are reductionists, while liberals are emergentists.

As for the term "capitalism," I do understand both the desire to move away from it and the desire to reclaim it. Those who wish to move away from it think that with a new term, they can get away from the criticisms of their critics. But this is like our constantly renaming the toilet -- we have commode, toilet, throne, etc. that is in the water closet, bathroom, restroom, etc. -- as though renaming the thing will change its nature. It won't. If we all stop using "capitalism" and instead use "free markets," the critics will make all the same criticisms, and all we will end up with is free markets being equated with cronyism. Might as well reclaim "capitalism."

My own strategy is to theorize other spontaneous orders, show how they work without government interference, and then extrapolate to the catallaxy.

[Becky Hargrove]

Corporate entities of all kinds have lulled governments of all sizes into a false sense of security, for a long time. Only as governments realize the mistakes of pension promises and dwindling tax returns does it make sense to allow the playing field to come back to the level of the individual. But will governments be courageous enough to do that?

[Daniel Kuehn]

My issue with the term isn't that I have concerns with how people view it - it's just that it seems to have an industrialization connotation to it.

I find that talking about a "market economy" is much more natural for me than a "capitalist economy", not because I have a problem with capitalism but because "market economy" seems to get at what I have in mind better.

The problem with "market economy" of course, is that market order is only one of many important institutional arrangements that are relevant to consider when we talk about the economy. But I still think it gets at the basic idea.

[Daniel Kuehn]

"Corporatism" is tricky to use and apply too, though.

Too often people don't carefully distinguish between corporate capture of government and free, constitutional, democratic governance where corporations play a role simply because they are operated by people and people have a role in their own governance in such a democratic order.

"Corporatist" often gets flung at anyone who is advocating something in the democratic order that another person doesn't approve of.

It's a very slippery term to apply.

[Bill Stepp]

You mention "sorting out the historical record."
Corporatism goes back at least to the Constitution, which did a lot to enshrine it, especially Art. 1, sec. 8, which might as well be called the monopoly clause. Hamilton, the first predecessor of Geithner, was at the center of it. As E. James Ferguson put it, "The funding of the public debt consummated the Nationalist effort to achieve political centralization by fiscal reform" (The Power of the Purse: A History of American Public Finance, 1776-1790, p. 292). The BUS was the first predecessor of the Fed.
If we want to get rid of corporatism and reclaim free market capitalism, the only way is to roll back the State to about seven street constables. That means assuming the mantle of Spooner and burning the Constitution, an absurdity, a usurpation, and a crime if ever there were one.
Marc Joffe is going to email me for selling out in accepting the seven coppers.

[Allan Walstad]

Crony capitalism is phony capitalism.

[Jim Rose]

The libertarian right and the socialist left both like to dance on the head of a pin.

Both excuse real world manifestations of their preferred system as imperfect and unrepresentative.

The Left dismisses and excuses Eastern Europe and the former USSR as degenerate forms of socialism, not true socialism.

The libertarian right also side-step criticism of contemporary capitalism as imperfect and unrepresentative and degenerate forms of their ideal.

What is the difference?

[FC]

"...corporatists seeking to hide behind it and socialists wanting to vilify it"

But most socialists love corporatism. That's certainly the impression I get from the Obama administration-MSNBC-The Nation collaboration.

Not to mention the Italian Fascists, the Attlee government in the UK and the Muldoon government in NZ.

[McKinney]

Jim, it’s true that socialists disown every form of socialism that has existed, and capitalists disown what is called capitalism today. But I assume you’re not asserting that we can’t know the truth, that we can’t know what true socialism and capitalism are.

Capitalism began in the Dutch Republic of the 16th century. Adam Smith distilled its principles, using the Dutch as the best example of his system. England and the US implemented much of the Dutch system for a century, though not perfectly. So we have a pretty good historical picture of what capitalism is and the modern US ain’t even close.

While the principles of capitalism were distilled from real historical experiments, socialism originated originated in the fevered imaginations of “intellectuals.” The founders of socialism were intentionally vague about the details of implementation. As a result, several schools of socialism developed and produced different attempts at implementing the ideology.

We got German socialism in the late 19th century, which some called the welfare state. German socialism morphed into the democratic socialism of Europe today. Then we got Soviet socialism which called itself communism to distinguish it from German socialism. Then came National Socialism and Fascism. All were attempts at implementing a very vague idea of how to structure society.

Socialists can easily claim that none of the children are true heirs. Who can say for sure? What they cannot say is that all of the children were honest attempts at implementing the fathers’ ideology.

Capitalism is different in that we have historical examples and clear writings with great details on implementation. So while it’s impossible to know what true socialism is, it’s trivial to know what true capitalism is.

As for the strategy of changing the name to something other than capitalism, that won’t help at all. The chief technique of socialists is to define terms in such a way that they win any discussion by default. Socialists have defined capitalism as corporate control of the system, even though that is the definition of fascism, a variation on socialism. If you change the name to anything else socialists will just redefine the term. Since the mainstream media is sympathetic to socialism, socialists will always succeed.

That leaves us with only one strategy: always define your terms at the beginning of a debate. Don’t refer to the US as a capitalist country. Don’t use oxymorons like “crony capitalism” or “state capitalism” which are nothing but variations on socialism.

[McKinney]

PS, did anyone catch Squawk Box on CNBC this morning? Fred Smith of Fedex presented a chart showing the tight relationship between investment in equipment and software with private jobs. Very impressive confirmation of the ABCT. I’m trying to find it online but if someone beats me to it please post a link here.

[Daniel Kuehn]

McKinney -
What theory of the business cycle is that not a confirmation of?

I think it confirms all of them, which makes me question your choice of adjective to describe that confirmation.

[Allan Walstad]

Jim Rose:

"The Left dismisses and excuses Eastern Europe and the former USSR as degenerate forms of socialism, not true socialism.

The libertarian right also side-step criticism of contemporary capitalism as imperfect and unrepresentative and degenerate forms of their ideal.

What is the difference?"

Well, one difference is that the West had much more of a market economy, and another difference is that the West enjoyed a much higher standard of living--not coincidentally, in my view.

[McKinney]

Daniel, It doesn’t confirm theories that attribute cycles to sticky wages and prices, search costs, asymmetric information, psychology, aggregate demand or money demand.

[George Machen]

Screen shot (Real Equipment & Software Spending vs. Private Employment):
http://desmond.imageshack.us/Himg163/scaled.php?server=163&filename=realequipmentsoftwaresp.jpg&res=medium

Squawk Box video:
http://video.cnbc.com/gallery/?video=3000070059

This is known in philosophy of science as a critical experiment. (When an experiment doesn't just corroborate a theory, it also decisively trumps other theories.)

[McKinney]

Thanks George!

[McKinney]

Daniel, after more thought I can see your point. I interpreted the graph to show cause/effect between investment and employment. However, one could easily interpret it as evidence that the two vary together but a third factor causes the two to vary, such as a fall in aggregate demand. Just goes to show that data always has to be interpreted and has little explanatory power outside that interpretation.

[Josh S]

Jim, there is a huge difference between the way libertarians and socialists respond to real-world manifestations of their systems.

Real-world socialist systems are freakish disasters. Not "Gosh, GDP sure is stagnant" disasters. "Gosh, I sure am starving to death" disasters. "Gosh, the dictator sure has killed 10% of the population" disasters. "Gosh, we only have electricity three days a week" disasters. Real-world socialism is a horror show, and the closer any government tries to approximate the prescriptions in Communist Manifesto, the more millions of people die of murder and starvation. Socialists make the implausible claim that the more "pure" socialism is approximated and the more accoutrements of market economy are abolished, the worse it gets, but once the purity is achieved, everything will become wonderful just like that.

By contrast, real-world capitalist systems are amazingly good by world-historical standards. Fairly reasonable approximations of "pure" laissez-faire do an astoundingly good job at providing people with food, shelter, medical care, transportation, and entertainment. Of course, none of them do that perfectly, and they all have significant flaws. The fact that in our current recession, Americans are on the whole better off than the people of any Iron Curtain country had in their best years bespeaks that truth. The argument of laissez-faire advocates is that our current "corporatist" economies are, while comparatively pretty good, flawed rather than ruined and could be significantly improved with more freedom, not that our current societies are disastrous horror shows that need to be entirely overthrown.

[McKinney]

China’s history should have settled the debate. 30 million Chinese starved to death under communism in the 1960’s. The US Fed China through the 1970’s. Since reforms over 500 million have been lifted from near starvation to relative abundance. NPR recently had an interview with one of the farmers that started the revolution in agriculture. It’s a very interesting story.

[Daniel Kuehn]

McKinney/Josh S -
I agree strongly with Josh S's comment. The verdict on socialism is decidedly in and has been for quite some time. Many credit Hayek with that sort of thing. There are others that said it even earlier. That's not the point - the empirical record is clear.

What we're dealing with here is various flavors of defenders of capitalism. That is harder to sort out, of course, because the examples are so much closer together. I see the twentieth century as a vindication of constitutionally limited, decentralized government of a non-libertarian classical liberal variety. Others think there's evidence out there that actually we oughta be backing a constitutionally limited, decentralized government of a libertarian classical liberal variety. You can see why empirically differentiating the two is quite messy. Much different from the socialist case.

[Josh S]

Not to mention that people who react with such revulsion to the word "capitalism" that they turn their ears off to any further discussion are not people you're going to win over by discarding the word, because they also react that way to words like "markets," "property," "trade," and "liberty." Remember, Rothbard utterly failed to win over the radical leftists to the libertarian cause, and wouldn't even if he'd written dozens of obituaries for Communist mass murderers. They remained communists through and through, because what they wanted wasn't generic "radicalism;" they wanted collectivism.

The broader American public, by contrast, still generally likes the idea of being able to earn money, compete in a marketplace, and make their own decisions. Milton Friedman made a lot of headway with public opinion in the 70s and 80s without trying to be the "true radical" or the "true progressive."

It would be nice to have someone like him on Fox News instead of wall-to-wall Rush Limbaugh wannabes.