Posted by TCW
Did you miss previous parts?
Capitalism – an economic system based on private ownership of the means of production and the creation of goods and services for profit – has lost some allure in recent years. However, it is important to know that capitalist systems are not all the same – there are substantial differences among them. Furthermore, the term free market is often used interchangeably with capitalism, but this is a mistake. An article Difference Between Capitalism and Free market clears the confusion:
“Free market is mainly concerned with wealth exchange while capitalism leans more on wealth creation. Free markets are a key component of capitalism although they do not fully define what capitalism is. A free market is driven by ‘demand and supply’ leading to free competition without interference while in capitalism, capital owners can at times influence the terms of trade.”
We can recognize two distinct dimensions here, which are present in the economy of every country and each runs separately on a continuum from one extreme to another (thus different combinations are possible in the economy):
- Private ownership (capitalism) vs. State & collective ownership (socialism)
- “Demand and supply” (free market) vs. State intervention (planned economy)
My position on this is rather complicated: I’m much more in favor of the free market and capitalism than socialism and planned economy. However, I strongly reject free-market capitalism in its purest, libertarian form (even though I have a positive sentiment for some libertarian positions, when not taken to the extreme). I’ll explain my position in detail:
I think that at this stage of human social, spiritual and technological development, free market is simply more efficient than a planned economy, and private ownership gives people better incentives to be productive than socialism would (folks from the Zeitgeist Movement would disagree with me here).
However, there are some parts of an economy where state ownership is perfectly reasonable. I will not discuss here at length about which areas could be defined as key state infrastructure and should therefore be in public sector – I’ll just give one example where privatization is a colossally bad idea: prison system. If you privatize prisons, you give private corporations an incentive to try to influence legislators and judges in such a way that more people would be sent to jail. More prisoners equals bigger profit. Simple. Anyone can see that this would make the whole legal system a joke and would disrupt the very fabric of society. It’s completely unacceptable, even in theory.
A functioning legal system, law enforcement institutions, and reasonable defense capabilities are a necessary part of every society. They should be exclusively in public domain and under tight democratic control. There are many other systems that could be regarded (or not) a public good – such as water resources, fire service, roads, healthcare, education, and social security. I will return to this question later in this series.
On the issue of the second economic dimension (free market vs. state intervention), I also don’t agree with libertarian position. While I’m not in favor of a planned economy, I believe that some regulation of markets is absolutely necessary – especially when public health or safety could be at risk, directly or indirectly (for example via environmental pollution).
Free market alternative seems just absurd to me: under pure free market system, restaurants would follow strict hygienic procedures voluntarily, because they would not want that their customers get sick from food poisoning, as this would lead to losing future customers and possibly get into lawsuits. So, everything is fine, right? Not exactly.
The biggest flaw in libertarian position is that it sees people as entirely rational, all-knowing creatures. But we are not. Some business owners are blinded with short-time gains and don’t even consider long-term consequences. Some are ignorant, because they are preoccupied with other work. Some just like to gamble: if we loosen sanitary measures a little, we can make more money, as probably no one will get sick anyway.
I believe that it’s simply immoral to deregulate markets to such an extent, that people’s health or lives could ever be put in danger because of that.
One libertarian position that makes sense to me is the notion that there isn’t a problem with capitalism per se, but with the type of capitalism that we currently have – which is often not a free-market capitalism at all: in many countries, the existing economic system is closer to state capitalism, where big private corporations capture the power of the state to generate more demand for their goods and services (government contractors), exclude competitors or subsidize losses (e.g. bailout of banks).
The policy-making relationship between special interest groups (representing corporations), legislature, and executive branch of government, is known as the iron triangle. In essence this means that special interest groups give electoral and political support to certain people within the government, who in turn pay them back with friendly legislation, low regulation and special favors.
The best-known example of the iron triangle is probably the military–industrial complex in the United States, which is defined as: policy and monetary relationship between legislators (Congress), national armed forces (Pentagon), and the military industrial base (defense contractors). The sheer size of U.S. military budget is very inviting to the spread of political corruption, but what’s even more important is that the military–industrial complex is quite literally “armed and dangerous”; which is why president Dwight D. Eisenhower warned America in his farewell speech in 1961: “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist.”
Yet another example of how corporations can benefit at the expense of public good is through “loopholes” in the tax code that save them tons of money. Perhaps most of loopholes are due to incompetence of legislators and their advisors, but we can be pretty sure that some are quite deliberate. The problem is only exacerbated with complicated tax code that even senators and representatives barely comprehend. In my opinion, tax code should be as simple as possible – every adult should be able to understand it.
The world increasingly resembles a corporatocracy (an economic and political system controlled by corporations or corporate interests), where money can buy legislation and pervert the free market. Add to the mix crony capitalism (preferential regulation and other favorable government intervention based on personal relationships) and you’ll get a total mess that is our current system. These dishonest practices can lead to concentration of wealth and political power in the hands of a small, well-connected elite, which by itself puts democracy in jeopardy.
As I have said earlier, I support regulation of markets where it makes sense (consumer protection, environmental regulations, etc.), and I can even live with direct government intervention (government subsidies, tariffs, state monopolies…), if it is done in a transparent way and is subject to democratic control.
However, we should fight political corruption of all shapes and sizes. I realize that it’s a fight that cannot be won; corruption will never be eradicated completely, but it can be contained.
The challenge is twofold: firstly, there are acts that are already illegal (fraudulent business practices, corruption…), but are often – for whatever reason – not being criminally prosecuted, or sentences are inadequate to serve as a deterrent. Secondly, there are acts that are not illegal (in some countries), but should be – the prime example being “institutional corruption”, such as campaign contributions to politicians or political parties.
I believe that the corporate funding of political parties should be completely prohibited. In fact, political parties and candidates should be, for the most part, publicly financed. Private funding should be limited only to political parties’ membership fees and donations from individual citizens, which should be publicly disclosed.
There’s one type of corruption that is particularly insidious, because it’s very hard to fight against it. We can call it an implied payoff. It works like this: lobbyists try to influence a public official to take the action that would benefit a particular corporation or industry sector tremendously; during the conversation they hint, that they would be happy to hire him after he leaves his office. The official then takes the action that was proposed to him. When this official leaves his public office, they hire him for a huge amount of money.
With this type of corruption it doesn’t help much if former public officials are obliged to disclose their income for a number of years after leaving their offices, because all of their income will be earned legally. Yet we have an obvious conflict of interest here. This situation can be described with the metaphor of a revolving door.
I can understand why libertarians are so deeply frustrated with government. However, I don’t share their view that free market can solve every problem. (I will explore limitations of markets in the next part of this series).
As soon as liberty is complete, it dies in anarchy.
– Will Durant
To resolve the problems associated with political corruption, some schools of thought advocate a society with no state at all. Anarchism has historically been an anti-capitalist movement and thus a radical left-wing ideology. Similarly, the libertarian movement has been the anti-statist wing of the socialist movement, so outside the United States, the term libertarianism is commonly considered to be synonymous with left-wing anarchism.
But in the United States, classical liberalism has largely been renamed to libertarianism, which is now generally associated with advocacy of limited government and free-market economy (as well as civil liberties and political freedom). This kind of right-wing libertarianism is a tamer version of anarcho-capitalism (free market anarchism): a radical libertarian political philosophy that advocates the elimination of the state in favor of individual sovereignty in a free market.
For right-wing libertarians a state is a necessary evil that needs to be reduced to a bare minimum, while anarchists from across the political spectrum want to outright abolish it. They believe that living in a stateless society will bring humanity the ultimate freedom and prosperity. I disagree completely.
I think that some sort of government is absolutely necessary to ensure public order and safety in a large-scale society. Modern societies cannot be compared to pre-state tribal societies where everybody knew each other (and these ancient societies shouldn’t be idealized, either).
If state was to disappear, and no other form of government took its place, we would see a huge rise in crime and civil unrest, as there would be no law enforcement. Chaos and instability would force people to organize armed neighborhood watches for protection from gangs, mafias, and ordinary criminals. Alternatively, people would pay these same gangs and mafias to “protect” them (you can substitute the word mafia with private defense agency if you like – in a world without a government that would regulate these agencies, it doesn’t make any difference). Sooner or later some powerful warlords would emerge in different areas. They would conduct occasional warfare between each other and collect “protection fees” from people living in territories they controlled. Effectively, we would return to feudalism.
That’s just one of the possible scenarios of what could happen if state was to disappear. I’m not saying that this hypothetical example is even the most probable. The point that I want to make is that anarchy is an unstable state (no pun intended) – sooner or later its instability will bring about some sort of government; but it may not be the kind that we would like.
Continue to Part 5: Limitations of markets.