Corporations vs. the Market; or, Whip Conflation Now
Dan Clore
http://groups.yahoo.com/group/smygo
http://tinyurl.com/5op46j
Corporations versus the Market; or, Whip Conflation Now
by Roderick Long
Lead Essay
November 10th, 2008
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?
No and yes. Emphatically no—because corporate power and the free market
are actually antithetical; genuine competition is big business’s worst
nightmare. But also, in all too many cases, yes —because although
liberty and plutocracy cannot coexist, simultaneous advocacy of both is
all too possible.
First, the no. Corporations tend to fear competition, because
competition exerts downward pressure on prices and upward pressure on
salaries; moreover, success on the market comes with no guarantee of
permanency, depending as it does on outdoing other firms at correctly
figuring out how best to satisfy forever-changing consumer preferences,
and that kind of vulnerability to loss is no picnic. It is no surprise,
then, that 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.[1]
Corporate power depends crucially on government intervention in the
marketplace.[2] This is obvious enough in the case of the more overt
forms of government favoritism such as subsidies, bailouts,[3] and other
forms of corporate welfare; protectionist tariffs; explicit grants of
monopoly privilege; and the seizing of private property for corporate
use via eminent domain (as in Kelo v. New London). But these direct
forms of pro-business intervention are supplemented by a swarm of
indirect forms whose impact is arguably greater still.
As I have written elsewhere:
One especially useful service that the state can render the
corporate elite is cartel enforcement. Price-fixing agreements are
unstable on a free market, since while all parties to the agreement have
a collective interest in seeing the agreement generally hold, each has
an individual interest in breaking the agreement by underselling the
other parties in order to win away their customers; and even if the
cartel manages to maintain discipline over its own membership, the
oligopolistic prices tend to attract new competitors into the market.
Hence the advantage to business of state-enforced cartelisation. Often
this is done directly, but there are indirect ways too, such as imposing
uniform quality standards that relieve firms from having to compete in
quality. (And when the quality standards are high, lower-quality but
cheaper competitors are priced out of the market.)
The ability of colossal firms to exploit economies of scale is also
limited in a free market, since beyond a certain point the benefits of
size (e.g., reduced transaction costs) get outweighed by diseconomies of
scale (e.g., calculational chaos stemming from absence of price
feedback)—unless the state enables them to socialise these costs by
immunising them from competition – e.g., by imposing fees, licensure
requirements, capitalisation requirements, and other regulatory burdens
that disproportionately impact newer, poorer entrants as opposed to
richer, more established firms.[4]
Nor does the list end there. Tax breaks to favored corporations
represent yet another non-obvious form of government intervention. There
is of course nothing anti-market about tax breaks per se; quite the
contrary. But when a firm is exempted from taxes to which its
competitors are subject, it becomes the beneficiary of state coercion
directed against others, and to that extent owes its success to
government intervention rather than market forces.
Intellectual property laws also function to bolster the power of big
business. Even those who accept the intellectual property as a
legitimate form of private property[5] can agree that the ever-expanding
temporal horizon of copyright protection, along with disproportionately
steep fines for violations (measures for which publishers, recording
firms, software companies, and film studios have lobbied so
effectively), are excessive from an incentival point of view, stand in
tension with the express intent of the Constitution’s
patents-and-copyrights clause, and have more to do with maximizing
corporate profits than with securing a fair return to the original creators.
Government favoritism also underwrites environmental irresponsibility on
the part of big business. Polluters often enjoy protection against
lawsuits, for example, despite the pollution’s status as a violation of
private property rights.[6] When timber companies engage in logging on
public lands, the access roads are generally tax-funded, thus reducing
the cost of logging below its market rate; moreover, since the loggers
do not own the forests they have little incentive to log sustainably.[7]
In addition, inflationary monetary policies on the part of central banks
also tend to benefit those businesses that receive the inflated money
first in the form of loans and investments, when they are still facing
the old, lower prices, while those to whom the new money trickles down
later, only after they have already begun facing higher prices,
systematically lose out.
And of course corporations have been frequent beneficiaries of U.S.
military interventions abroad, from the United Fruit Company in 1950s
Guatemala to Halliburton in Iraq today.
Vast corporate empires like Wal-Mart are often either hailed or
condemned (depending on the speaker’s perspective) as products of the
free market. But not only is Wal-Mart a direct beneficiary of (usually
local) government intervention in the form of such measures as eminent
domain and tax breaks, but it also reaps less obvious benefits from
policies of wider application. The funding of public highways through
tax revenues, for example, constitutes a de facto transportation
subsidy, allowing Wal-Mart and similar chains to socialize the costs of
shipping and so enabling them to compete more successfully against local
businesses; the low prices we enjoy at Wal-Mart in our capacity as
consumers are thus made possible in part by our having already
indirectly subsidized Wal-Mart’s operating costs in our capacity as
taxpayers.
Wal-Mart also keeps its costs low by paying low salaries; but what makes
those low salaries possible is the absence of more lucrative
alternatives for its employees—and that fact in turn owes much to
government intervention. 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.[8] Legal restrictions on
labor organizing also make it harder for such workers to organize
collectively on their own behalf.[9]
I don’t mean to suggest that Wal-Mart and similar firms owe their
success solely to governmental privilege; genuine entrepreneurial talent
has doubtless been involved as well. But given the enormous governmental
contribution to that success, it’s doubtful that in the absence of
government intervention such firms would be in anything like the
position they are today.
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.
So where does this idea come from that advocates of free-market
libertarianism must be carrying water for big business interests? Whence
the pervasive conflation of corporatist plutocracy with libertarian
laissez-faire? Who is responsible for promoting this confusion?
There are three different groups that must shoulder their share of the
blame. (Note: in speaking of “blame” I am not necessarily saying that
the “culprits” have deliberately promulgated what they knew to be a
confusion; in most cases the failing is rather one of negligence, of
inadequate attention to inconsistencies in their worldview. And as we’ll
see, these three groups have systematically reinforced one another’s
confusions.)
Culprit #1: the left. Across the spectrum from the squishiest mainstream
liberal to the bomb-throwingest radical leftist, there is widespread
(though not, it should be noted, universal)[10] agreement that
laissez-faire and corporate plutocracy are virtually synonymous. David
Korten, for example, describes advocates of unrestricted markets,
private property, and individual rights as “corporate libertarians” who
champion a “globalized free market that leaves resource allocation
decisions in the hands of giant corporations”[11]—as though these giant
corporations were creatures of the free market rather than of the
state—while Noam Chomsky, though savvy enough to recognize that the
corporate elite are terrified of genuine free markets, yet in the same
breath will turn around and say that we must at all costs avoid free
markets lest we unduly empower the corporate elite.[12]
Culprit #2: the right. If libertarians’ left-wing opponents have
conflated free markets with pro-business intervention, libertarians’
right-wing opponents have done all they can to foster precisely this
confusion; for there is a widespread (though again not universal)
tendency for conservatives to cloak corporatist policies in free-market
rhetoric. This is how 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.”
Consider the conservative virtue-term “privatization,” which has two
distinct, indeed opposed, meanings. On the one hand, it can mean
returning some service or industry from the monopolistic government
sector to the competitive private sector—getting government out of it;
this would be the libertarian meaning. On the other hand, it can mean
“contracting out,” i.e., granting to some private firm a monopoly
privilege in the provision some service previously provided by
government directly. 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. (To be sure, there may be competition
in the bidding for such monopoly contracts, but competition to establish
a legal monopoly is no more genuine market competition than voting—one
last time—to establish a dictator is genuine democracy.)
Of these two meanings, the corporatist meaning may actually be older,
dating back to fascist economic policies in Nazi Germany;[13] but it was
the libertarian meaning that was primarily intended when the term
(coined independently, as the reverse of “nationalization”) first
achieved widespread usage in recent decades. Yet conservatives have
largely co-opted the term, turning it once again toward the corporatist
sense.
Similar concerns apply to that other conservative virtue-term,
“deregulation.” From a libertarian standpoint, deregulating should mean
the removal of governmental directives and interventions from the sphere
of voluntary exchange. But when a private entity is granted special
governmental privileges, “deregulating” it amounts instead to an
increase, not a decrease, in governmental intrusion into the economy. To
take an example not exactly at random, if assurances of a tax-funded
bailout lead banks to make riskier loans than they otherwise would, then
the banks are being made freer to take risks with the money of
unconsenting taxpayers. When conservatives advocate this kind of
deregulation they are wrapping redistribution and privilege in the
language of economic freedom. When conservatives market their
plutocratic schemes as free-market policies, can we really blame
liberals and leftists for conflating the two? (Well, okay, yes we can.
Still, it is a mitigating factor.)
Culprit #3: libertarians themselves. Alas, libertarians are not innocent
here—which is why the answer to my opening question (as to whether it’s
fair to charge libertarians with being apologists for big business) was
no and yes rather than a simple no. If libertarians are accused of
carrying water for corporate interests, that may be at least in part
because, well, they so often sound like that’s just what they’re doing
(though here, as above, there are plenty of honorable exceptions to this
tendency). Consider libertarian icon Ayn Rand’s description of big
business as a “persecuted minority,”[14] or the way libertarians defend
“our free-market health-care system” against the alternative of
socialized medicine, as though the health care system that prevails in
the United States were the product of free competition rather than of
systematic government intervention on behalf of insurance companies and
the medical establishment at the expense of ordinary people.[15] Or
again, note the alacrity with which so many libertarians rush to defend
Wal-Mart and the like as heroic exemplars of the free market. Among such
libertarians, criticisms of corporate power are routinely dismissed as
anti-market ideology. (Of course such dismissiveness gets reinforced by
the fact that many critics of corporate power are in the grip of
anti-market ideology.) Thus when left-wing analysts complain about
“corporate libertarians” they are not merely confused; they’re
responding to a genuine tendency even if they’ve to some extent
misunderstood it.
Kevin Carson has coined the term “vulgar libertarianism” for the
tendency to treat the case for the free market as though it justified
various unlovely features of actually existing corporatist society.[16]
(I find it preferable to talk of vulgar libertarianism rather than of
vulgar libertarians, because very few libertarians are consistently
vulgar; vulgar libertarianism is a tendency that can show up to varying
degrees in thinkers who have many strong anti-corporatist tendencies
also.) Likewise, “vulgar liberalism” is Carson’s term for the
corresponding tendency to treat the undesirability of those features of
actually existing corporatist society as though they constituted an
objection to the free market.[17] Both tendencies conflate free markets
with corporatism, but draw opposite morals; as Murray Rothbard notes,
“Both left and right have been persistently misled by the notion that
intervention by the government is ipso facto leftish and
antibusiness.”[18] And if many leftists tend to see dubious corporate
advocacy in libertarian pronouncements even when it’s not there, so
likewise many libertarians tend not to see dubious corporate advocacy in
libertarian pronouncements even when it is there.
There is an obvious tendency for vulgar libertarianism and vulgar
liberalism to reinforce each other, as each takes at face value the
conflation of plutocracy with free markets assumed by the other. This
conflation in turn tends to bolster the power of the political
establishment by rendering genuine libertarianism invisible: Those who
are attracted to free markets are lured into supporting plutocracy, thus
helping to prop up statism’s right or corporatist wing; those who are
repelled by plutocracy are lured into opposing free markets, thus
helping to prop up statism’s left or social-democratic wing. But as
these two wings have more in common than not, the political
establishment wins either way.[19] The perception that libertarians are
shills for big business thus has two bad effects: First, it tends to
make it harder to attract converts to libertarianism, and so hinders its
success; second, those converts its does attract may end up reinforcing
corporate power through their advocacy of a muddled version of the doctrine.
In the nineteenth century, it was far more common than it is today for
libertarians to see themselves as opponents of big business.[20] The
long 20th-century alliance of libertarians with conservatives against
the common enemy of state-socialism probably had much to do with
reorienting libertarian thought toward the right; and the brief
rapprochement between libertarians and the left during the 1960s
foundered when the New Left imploded.[21] As a result, libertarians have
been ill-placed to combat left-wing and right-wing conflation of markets
with privilege, because they have not been entirely free of the
conflation themselves.
Happily, the left/libertarian coalition is now beginning to
re-emerge;[22] and with it is emerging a new emphasis on the distinction
between free markets and prevailing corporatism. In addition, many
libertarians are beginning to rethink the way they present their views,
and in particular their use of terminology. Take, for example, the word
“capitalism,” which libertarians during the past century have tended to
apply to the system they favor. As I’ve argued elsewhere, this term is
somewhat problematic; some use it to mean free markets, others to mean
corporate privilege, and still others (perhaps the majority) to mean
some confused amalgamation of the two:
By “capitalism” most people mean neither the free market
simpliciter nor the prevailing neomercantilist system simpliciter.
Rather, what most people mean by “capitalism” is this free-market system
that currently prevails in the western world. In short, the term
“capitalism” as generally used conceals an assumption that the
prevailing system is a free market. And since the prevailing system is
in fact one of government favoritism toward business, the ordinary use
of the term carries with it the assumption that the free market is
government favoritism toward business.[23]
Hence clinging to the term “capitalism” may be one of the factors
reinforcing the conflation of libertarianism with corporatist
advocacy.[24] In any case, if libertarianism advocacy is not to be
misperceived—or worse yet, correctly perceived! —as pro-corporate
apologetics, the antithetical relationship between free markets and
corporate power must be continually highlighted.
—
Roderick Long is Associate Professor of Philosophy at Auburn University.
Notes
1 For documentation and analysis see Weinstein, James, The Corporate
Ideal in the Liberal State, 1900-1918 (New York: Farrar Straus & Giroux,
1976); Kolko, Gabriel, The Triumph of Conservativm: A Reinterpretation
of American History, 1900-1916 (Glencoe: The Free Press, 1963); Kolko,
Gabriel, Railroads and Regulation, 1877-1916 (Princeton: Princeton
University Press, 1965); Weaver, Paul, The Suicidal Corporation: How Big
Business Fails America (New York: Touchtose, 1988); and Shaffer, Butler
D., In Restraint of Trade: The Business Campaign Against Competition,
1918-1938 (Lewisburg PA: Bucknell University Press, 1997). For briefer
accounts see Childs, Roy A., “Big Business and the Rise of American
Statism,” Reason, February 1971, pp. 12-18, and March 1971, pp. 9-12
(online: http://praxeology.net/RC-BRS.htm), and Stromberg, Joseph R.,
“The Political Economy of Liberal Corporatism,” Individualist (May
1972), pp. 2-11 (online: http://tmh.floonet.net/articles/strombrg.html).
2 This is especially true if, as some libertarians argue, the corporate
form itself (involving legal personality and limited liability) is
inconsistent with free-market principles. (For this position see Van
Dun, Frank, “Is the Corporation a Free-Market Institution?,” Freeman 53
no. 3 (March 2003), pp. 29-33 (online:
http://www.fee.org/pdf/the-freeman/feat7.pdf); for the other side see
Barry, Norman, “The Theory of the Corporation,” Freeman 53 no. 3 (March
2003), pp. 22-26 (online: http://www.fee.org/pdf/the-freeman/feat5.pdf
).) For the purposes of the present discussion, however, let us assume
the legitimacy of the corporation.
3 Long, Roderick T., “Regulation: The Cause, Not the Cure, of the
Financial Crisis” (online:
http://www.theartofthepossible.net/2008/10/09/regulation-the-cause-not-the-cure-of-the-financial-crisis)
4 Long, Roderick T., “Those Who Control the Past Control the Future,” 18
September 2008 (online:
http://www.theartofthepossible.net/2008/09/18/those-who-control-the-past-control-the-future);
cf. Long, Roderick T., “History of an Idea; or, How an Argument Against
the Workability of Authoritarian Socialism Became an Argument Against
the Workability of Authoritarian Capitalism,” 2 October 2008 (online:
http://www.theartofthepossible.net/2008/10/02/history-of-an-idea), and
Carson, Kevin A., “Economic Calculation in the Corporate Commonwealth,”
Freeman 57 no. 1 (June 2007), pp. 13-18 (online:
http://tinyurl.com/6cm3wo). For a more detailed case see Carson, Kevin
A., Studies in Mutualist Political Economy, Booksurge (2007; online:
http://mutualist.org/id47.html), and Carson, Kevin A., Organization
Theory: An Individualist Anarchist Perspective, forthcoming (online:
http://mutualist.blogspot.com/2005/12/studies-in-anarchist-theory-of.html).
5 Another disputed issue among libertarians; see, e.g., Cato Unbound’s
June 2008 symposium on “The Future of Copyright” (online:
http://www.cato-unbound.org/archives/june-2008-the-future-of-copyright).
6 Rothbard, Murray N., “Law, Property Rights, and Air Pollution,” Cato
Journal 2 no. 1 (Spring 1982), pp. 55-99 (online:
http://www.cato.org/pubs/journal/cj2n1/cj2n1-2.pdf).
7 Ruwart, Mary J., Healing Our World In an Age of Aggression (Kalamazoo:
SunStar, 2003
pp. 117-119.
8 On this latter point see Johnson, Charles, “Scratching By: How
Government Creates Poverty as We Know It,” Freeman 57 no 10 (December
2007), pp. 12-17 (online:
http://www.fee.org/pdf/the-freeman/0712Johnson.pdf).
9 For some of the ways in which purportedly pro-labor legislation turns
out to be anti-labor I practice, see Johnson, Charles, “Free the Unions
(and All Political Prisoners),” 1 May 2004 (online:
http://radgeek.com/gt/2004/05/01/free_the).
10 Especially given that many anti-corporate libertarians identify
themselves as part of the left, e.g., the Alliance of the Libertarian
Left (online: http://all-left.net).
11 Korten, David C., When Corporations Rule the World, 2nd ed. (San
Francisco: Berrett-Koehler, 2001), p. 77.
12 Long, Roderick T., “Chomsky’s Augustinian Anarchism” (online:
http://www.theartofthepossible.net/2008/09/04/chomskys-augustinian-anarchism)
13 Germà Bel, “Retrospectives: The Coining of ‘Privatization’ and
Germany’s National Socialist Party,” Journal of Economic Perspectives 20
no. 3 (Summer 2006), pp. 187-194. Bel’s article unfortunately shows
little sensitivity to the distinction between libertarian and
corporatist senses of “privatization.”
14 Rand, Ayn, “America’s Persecuted Minority: Big Business,” Capitalism:
The Unknown Ideal (New York: Signet, 1967), pp. 44-62. In fairness to
Rand, she was not entirely blind to the phenomenon of corporatism; in
her article “The Roots of War” (Capitalism, pp. 35-44), for example, she
condemns “men with political pull” who seek “special advantages by
government action in their own countries” and “special markets by
government action abroad,” and so “acquire fortunes by government favor.
. . which they could not have acquired on a free market.” Moreover,
while readers often come away from her novel Atlas Shrugged (New York:
Penguin, 1999) with the vague memory that the heroine, Dagny Taggart,
was fighting against evil bureaucrats who wanted to impose unfair
regulations on her railroad company, in fact Taggart’s struggle is
against evil bureaucrats (in league with her power-hungry
brother/employer) who want to give her company special favors and
privileges at its competitors’ expense. For an analysis of what Rand got
right and wrong about corporatism, see Long, Roderick T., “Toward a
Libertarian Theory of Class,” pp. 321-25, in Social Philosophy & Policy
15 no. 1 (1998), pp. 303-349 (online:
http://praxeology.net/libclass-theory-part-1.pdf and
http://praxeology.net/libclass-theory-part-2.pdf).
15 See Long, “Roderick T., “Poison As Food, Poison As Antidote,” 28
August 2008 (online:
http://www.theartofthepossible.net/2008/08/28/poison-as-food-poison-as-antidote).
16 Carson, Kevin A., “Vulgar Libertarianism Watch, Part 1,” 11 January
2005 (online:
http://mutualist.blogspot.com/2005/01/vulgar-libertarianism-watch-part-1.html).
17 Carson, Kevin A., “Vulgar Liberalism Watch (Yeah, You Read It Right)”
21 December 2005 (online:
http://mutualist.blogspot.com/2005/12/vulgar-liberalism-watch-yeah-you-read.html).
18 Rothbard, Murray N., Left and Right: The Prospects for Liberty (Cato
Institute, 1979; online:
http://www.lewrockwell.com/rothbard/rothbard33.html)
19 The relationship between big business and big government is like the
relation between church and state in the Middle Ages; it’s not an
entirely harmonious cooperation, since each would like to be the
dominant partner (and whether the result looks more like socialism or
more like fascism depends on which side is in the ascendant at the
moment), but the two sides share an interest in subordinating society to
the partnership. See Long, “Poison As Food,” op. cit.
20 See Long, Roderick T., “They Saw it Coming: The 19th-Century
Libertarian Critique of Fascism” (2005; online:
http://lewrockwell.com/long/long15.html)
21 John Payne, “Rothbard’s Time on the Left,” Journal of Libertarian
Studies 19 no1 (Winter 2005), pp. 7-24 (online:
http://mises.org/journals/jls/19_1/19_1_2.pdf).
22 See, for example, the group blogs LeftLibertarian.org and
TheArtOfThePossible.net.
23 Long, Roderick T., “Rothbard’s ‘Left and Right’: Forty Years Later”
(2006; online: http://mises.org/story/2099)
24 William Gillis has likewise suggested abandoning “free market” in
favor of “freed market”:
“You’d be surprised how much of a difference a change of tense can make.
‘Free market’ makes it sound like such a thing already exists and thus
passively perpetuates the Red myth that Corporatism and wanton
accumulation of Kapital are the natural consequences of free association
and competition between individuals. . . . But ‘freed’ has an element of
distance. . . . It moves us out of the present tense and into the
theoretical realm of ‘after the revolution,’ where like the Reds we can
still use present day examples to back theory, but we’re not tied into
implicitly defending every horror in today’s market.” Gillis, William,
“The Freed Market,” 31 July 2007 (online:
http://williamgillis.blogspot.com/2007/07/freed-market-one-of-tactics-ive-taken.html).
--
Dan Clore
My collected fiction: _The Unspeakable and Others_
http://tinyurl.com/2gcoqt
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Skipper: Professor, will you tell these people who is
in charge on this island?
Professor: Why, no one.
Skipper: No one?
Thurston Howell III: No one? Good heavens, this is anarchy!
-- _Gilligan's Island_, episode #6, "President Gilligan"