Tuesday, August 13, 2013

The Tyranny of Corporatism

(Image Courtesy of Google Images)

Most of today’s economic and political discourse has been promulgated by the interested sophistry of government and myriad interest groups, more prominently, business and labor. Moreover, these selective group interests conflict with the interests of the individual and limit the natural market protections for the individual laborer and the consumer. The only mechanism that protects both the consumer and the worker is individual self-interest by virtue of competition between firms for their products and services. Both corporations and unions can only benefit from the tacit cooperation with government to limit the competitive forces of the marketplace on both the input and output ends of production. Therefore, aligned with government and their coercive power, special interests privatize the profits and socialize the costs. Far from being a partisan issue, both Republicans and Democrats work similarly on both ends of production.

Corporatism is beneficial to politicians of both parties. Every business/organization wants to succeed, whether it creates a product or service the public demands or not. A pure free market system of profit and loss benefits only the consumer and those businesses that turn a profit. This creates demand by floundering businesses and or labor, for favorable political support against market forces, i.e. competition, that otherwise would not survive. Their rallying cry is usually “unfair competition” from other firms, or the preservation of the jobs in that particular firm or industry (also the argument for protectionism). Of course their only concern is their own business or their own job, congruous to the concerns of government and the politician, creating a perpetual partnership between both special interests and government that is antithetical to the self-interest of the individual. Eventually, the interested sophistry of special interests and government is promulgated and repeated by the politicians that benefit from their increased influence over the marketplace.

In the words of Adam Smith nearly two and half centuries ago, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” (The Wealth of Nations. Book I, pg. 12) The self-interest of the individual is what makes this country and our economy strong, it allows for the freedom of the individual to choose whatever economic arrangement best suits the needs of himself and his family, allowing for maximum freedom in the marketplace, as long as competition exists as a check. These arrangements work towards two ends, political and economic freedom. As Milton Friedman once wrote, “Freedom in economic arrangements is in itself a component of freedom broadly understood, so economic freedom is an end in itself… Economic freedom is also an indispensable means towards the achievement of political freedom.”(Capitalism and Freedom pg. 8).  An American citizen under various state laws may be unable to join an occupation such as law (BAR association) or medicine (AMA) without a state issued license, surely is deprived of freedom.(state licensure) Moreover, under federal commerce laws, the dairy farmer that cannot sell raw milk or the wheat farmer that cannot grow the amount of wheat he would like, are not without deprivation of their freedoms from the state.

There is an intimate relationship between economic, political and civil freedoms. Political freedom is the absence of force or coercion by man of his fellow man. The fundamental threat to freedom is the use of force by any central authority, or the forced will of the temporary majority over the minority. Civil liberties are best outlined by the Bill of Rights, private property being the cornerstone of all economic arrangements; if one were unable to reap the rewards of his labor, this would limit the incentive to work at all. As Thomas Sowell rightly points out, “For economic activities… property rights are a prerequisite, so that those who farm or invest in business can feel assured that the fruits of their activities will be theirs. “ (Economic Facts and Fallacies pg. 218). By keeping the economic arrangements out of the hands of the politicians and in the hands of a free people, diffuses the power of the government. Moreover, it limits the possibility and plausibility of coercion by the state over the individual. This verity directly correlates to less power for government politicians and bureaucrats, and although the need for politicians will continue to remain, this threatens the existence of and size of the bureaucracy altogether, and thus is anathema to those individuals in the bureaucracy.

We often think of politicians/government as looking out for the best interest of the people as a whole. Rarely do we think of politicians or government as looking out for their own self-interest, political power and longevity. Rarely, throughout human history do we see governments advocating for less power and less influence over the body politic (one rare instance being the Constitutional convention). What power would a politician have in government under the function of purely free market forces, in lieu of government intervention via regulations, what is now called “crony capitalism” or more aptly called corporatism. Both Republicans and Democrats are famous for employing this strategy for their own interests. Most notably, and the brain trust of the Republican party, the U.S. Chamber of Commerce is famous for its support of Republican politicians and the corporatist interests of the business community.

It is in the best interest of both the politician and the bureaucracy to grow and increase their power, otherwise risk losing their jobs. “Crony capitalism” is a phrase that refers mainly to business interests. Businesses will kick back money to politicians for campaigns, which serves their interests, and in return business will receive favors from government in the form of permits, grants, tax breaks or even subsidies and bailouts. Businesses that would otherwise fail due to competition in the marketplace as a result of either high prices, inferior products or a shift in demand can now do business in perpetuity on the taxpayers dime.

The success and subsidization of business is in the self-interest on the politician that receives the funds the business otherwise does not have to spend, essentially at the expense of the taxpayer, solely for the interests of the politician and the business. One cannot blame businesses for trying to limit the repercussions of competitive capitalism, the only market force that protects the individual at the expense of bad business; after all, a pure free market is a profit and loss system. Losing sucks for those involved and invested in a particular business, no doubt, but this type of corporatism limits the market for competitors and discourages entry of a firm that could offer better quality, lower prices or both to the consumer. Moreover, the government has initially taken money from the individual (through the power of taxation) with the threat of force, and used it to benefit a business he or she otherwise would not patronize. Thus, the self-interest of business and government through coercion, violate the rights of the individual for their own personal gain. Not only does this stifle competition and hurt the consumer, it also limits the amount of money the taxpayer has to spend. Unfortunately, business has far more company in its collusion with politicians and government.

Corporatism is favorable treatment not just to business, but to other special interest groups that otherwise would not succeed in the market or want to limit the competitive threat to their products or services using the coercive force of government. Labor unions operate in a similar fashion, insofar as their control over input. Most, if not all big labor unions heavily support the Democratic party on the national level. However, Republicans are also guilty of favoring unions at the local level for much the same reasons. In order to earn higher wages, in the absence of increased production or demand, labor unions must restrict the input for that particular firm or industry. The higher wages and benefits earned by the union come at a cost to the non-union laborer, concentrating the benefits and dissipating the costs, respectively. Due to the higher costs paid by a firm to their union employees (above and beyond their actual production) less access to a particular trade or firm is afforded to non-union laborers, mitigating the competition and thus decreasing the pool of human capital with the necessary skills to compete for jobs elsewhere in the marketplace.

Although, unions certainly have the right to free assembly and in my opinion most certainly should, union membership should always be voluntary; this is not the case in many state and local governments or in a closed shop (or union shop -whatever terminology unions use to circumvent the law and exploit labor). A union member must pay dues; these dues are in turn contributed to politicians that will favor union policy, and in the case of most public unions, come at the expense of the taxpayer. The greater the union membership, the more money can be kicked back to a politician, increasing the power of the politician in exchange for increased wages and benefits, at the expense of non-union labor. Unions concern lies invariably with dues paying members, and their own self-interest in the same way corporations are with their (voluntary) shareholders, and through the coercive force afforded only to the government, they collude and limit the freedom and choice of the individual in the marketplace.

There is however, one huge difference in business colluding with government and labor colluding with government insofar as a corporation/business can certainly put their hand in the taxpayers till, however they still cannot coerce demand. For instance, government can subsidize the car company Fisker all it wants without my consent, but for the time being, it cannot force my hand in purchasing said vehicle. On the other hand, unions coerce participation by only allowing members to retain their jobs, collecting dues regardless of the opinions or predilections of the individual laborer with little to no accountability to the union representation. What kind of freedom is that? And what system is really exploiting the “proletariat”? The power afforded to these businesses, unions and politicians by government (not capitalism) are the very reason so many economic myths are perpetuated and promoted by statists, and naturally politicians’ and bureaucrats. (Union PR, corporate PR, and government PR) The concentrated focus, organization and incentives of these special interests and politicians are an advantage over the dissipated costs to the much broader taxpaying public. 

One of the major objectives of this blog is to dispel these myths and reintroduce logic and empirical evidence in the prevailing economic discussions and debates throughout the media, the intelligentsia and academia. 

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