Capitalism is not corporatism

The word “capitalism”, like most political terms, engenders a lot of confusion and loading. It is a loaded “bad” word, evoking all sorts of social ills, egoism and greed (although I do not think those are bad things, of course). But it is also often equated with corporate exploitation or an anti-populist point of view. The reason for this confusion is in itself difficult to divine, since capitalism as a system does not correspond at all to these things. We must therefore endeavour to explain the difference.

One-dimensional confusion

Capitalism, simply defined, is an economic system where the state has only the power to protect individual rights : or, from the individual point of view, where people have the freedom to trade with each other in all ways desired, without coercion. The implication of this is that the only existing state intervention in the economy is protective, not redistributive, and private systems fulfill the markets that are needed.

What this means in practice is that a lot of government waste and regulations which are problematic today, would no longer be a burden on the economy. Thanks to Friedman’s Law, which states that private systems only cost half as much as public systems (mostly due to private motivation and competition), a part of the problems, poverty and general cost of living which we have today would go down. People would be free to economically assemble in the way they desire. And of course, since social freedom is dependant on economic freedom (and the reverse also), we would also see a lot more social freedom.

I must here make a small distinction. Libertarianism, of course, does not imply a particular economical system. However, capitalism is the most efficient and moral system, and therefore we tend to uphold the virtues of capitalism, as it would be finally possible in a libertarian system and no doubt many people would desire to keep it.

Corporatism, on the other hand, is the idea that society and the government should be led or influenced by corporations. Of course, this is not a perfect definition, since “corporations” is a collective entity. The objective way to interpret this is to say that corporatism is the rule of people who own corporations. This implies a disbalance of power between corporation owners and other people.

It seems difficult to understand why the two have been confused. While capitalism considers everyone equal under the law, corporatism tries to disbalance society towards corporation owners, just like syndicalism, its opposite, tries to disbalance society towards the “workers”. The proper capitalist answer is that we don’t care which corporate model wins, as long as it is done without coercion – that is, as long as the ideas are tested on the free market instead of imposed by the state.

Since corporatism is often decried as being against individual freedom, it is hard to understand why they have been confused. The source of the confusion may lie in the typical one-dimensional “right-left” thinking. Basically, the consequences of this is that we tend to dichotomize political systems and this influences our whole way of thinking. For example, communism and fascism are seen as opposite, but to a libertarian they are both extreme forms of statism.

But this also places corporatism and syndicalism as the only two possible options. And since it is more obvious that capitalism is not syndicalist, it seems that the only way to make it fit in the model is by assuming it is a form of corporatism. Most liberals, who see “the enemy” in capitalism, and many conservatives, who see capitalist as a divisive element, are seeing politics thru their limited one-dimensional lens.

While in this article I discuss corporatism as anti-capitalist, I do not mean to say that syndicalism is good. Both notions are based on the inherently offensive and false notion of “class struggle”, which is based on nothing except prejudice and the assumption that vertical mobility in the economy is irrelevant. In libertarian theory, the two-dimensional model of the Nolan Chart replaces the outdated one-dimensional model (for more information on the Nolan Chart, see this outside page).

Capitalism is not a system biaised towards any group of people, but emphasizes on a level playing field for all to progress in.

Good greed, bad greed

The disadvantages of corporatism are obvious. The main one is to give political power to a group of people. This tendancy is manifested in today’s pressure groups, which often include big corporations. These corporations can manipulate the system to obtain results which are incongruous with the free market, as for example Microsoft and the Digital Millenium Copyright Act, which prevents its corporate customers from switching easily from Windows to another system.

There are side-effects of this tendancy also. One blatant example is the notion of “moral person” – that is, that a corporation may be given a personhood. This is, of course, blatant collectivism, but most importantly it twists the notion of justice and personal responsability. It whitewashes corporate crime by putting its burden on an abstraction, instead of real people.

Now, corporatism may have its flaws, but the objection might be raised that some bad sides of corporatism also apply to capitalism. We must dispell this idea if we are to establish the distinction and supremacy of capitalism over corporatism. The fundamental argument behind every of these examples is that, as explained before, capitalism is not a system biaised towards any group of people, but emphasizes on a level playing field for all to progress in.

The most popular argument is that of “wage slavery”. I have already addressed this argument in many places (for example, see the second-to-last section of An evaluation of capitalism vs statism). The basic answer is that slavery by definition is the disrespect of individual rights. A slave is someone who does not own himself (and by extension cannot act freely or own freely). While slavery may be possible to a small extent in a corporatist system, such a thing cannot exist if individual rights are respected.

Another argument turns around the capitalist disapproval of minimum wage. This may be seen as a corporatist type of measure. The contrary is in fact the case : minimum wage and fair wage laws are politically profitable but create more unemployment for the poor. The consensus with economists is that young and unskilled workers are the most affected, and on the other hand, studies indicate that 62% of the people who benefit from minimum wages live with their parents, and therefore are already relatively well-off (Jason Clemens, Minimum Wage Equals Minimum Opportunity, 1999). Capitalism permits everyone to be free to fix their own prices without bias, and thus does not hurt any group of people.

Another important argument I want to mention is monopolies. It is often argued that monopolies favour corporations, and that the capitalist distrust of anti-trust laws is unfounded. However, this is a miscomprehension of basic economy. Monopolies exist mainly in situations where either demand or offer is low – the usual cause is a lack of resources. In these situations, maintaining more than one company on that market is less effective because more overhead is needed for a relatively low quantity of products being moved.

Another situation is where a company offers a product that is superlatively better than its competitors. In such a situation, only corporatism makes problems, as the outpaced competitors can band together and get laws made in their favour – in a free market, there would be nothing to prevent the superior product from becoming dominant.

Greed is often decried as a human flaw. Yet there is good greed and bad greed. The former , which is an integral part of capitalism, appeals to the customer to buy his products and makes profit from what it gives to society : the latter, the staple of corporatism, grapples with others in order to get laws passed in his favour, and uses coercion as his method of profit. One must be wary of not confusing the two.