Corporatism is to Blame for the Growing Bipartisan Distrust of Markets

In essence, corporatism is the blending of public policy preferences with private-sector or market mechanisms.

The Internet and social media ecosystem have a tendency to promote the idea that capitalism is a failing economic framework, which is greatly rejected by the younger generation. While the latter may appear true on the surface, the truth is far more ambiguous. Fundamentally, the challenge for proponents of capitalism is correctly defining capitalism and portraying Adam Smith’s work in the proper light, while appropriately refuting claims that conflate corporatism with capitalism. At its core, capitalism is the emphasis on property rights and the free exchange of goods between two consenting parties.

Capitalism provides for the “right of ownership and the exclusive use of something.” It relies on the government protecting private property rights and enforcing contracts between parties. It follows then that “no person may be forced or defrauded into an exchange, trade, or associative relationship.” Within this framework, the government ensures contracts are executed and property rights are respected.

Often, it is the government, not the market, that mandates specific actions or exchanges, such as the requirement to own health insurance under the Affordable Care Act. Moreover, the recent tussle between Apple and the Federal Bureau of Investigation (FBI) over backdoor encryption technology and smartphone unlocking is emblematic of the government seeking to compel action and infringing on the property rights of the technology giant, Apple.

Corporatism is a prevalent facet of our modern economy; corporatism blends government preferences with corporate or private-sector assistance. For example, Elon Musk’s brainchild, Tesla, has been built “with the help of billions in government subsidies,” a form of rent-seeking. The Los Angeles Times notes, Tesla uses “a public-private financing model underpinning long-shot start-ups.” This example underscores the problems with corporatism.

Some benefit from taxpayer subsidies, while others are less fortunate and must generate profits without the government’s assistance. In essence, corporatism is the blending of public policy preferences with private-sector or market mechanisms. Examples include, but are not limited to, government subsidies, company-specific tax incentives and grants, and legislation banning competition outright under the guise of “consumer protection.” Such examples are used to undercut the complexities and inherent instability of markets.

Proponents of corporatism often overlook the incentives at the heart of capitalism, as noted by Adam Smith in The Wealth of Nations: “that the butcher and the baker do not provide the rest of us with food out of the goodness of their hearts…but rather apply their particular skills and industry to benefit themselves, which in turn winds up benefiting the rest of who need to be fed.” In The Theory of Moral Sentiments, Smith writes, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

Markets function according to the exchange of goods or information between parties, as addressed in The Wealth of Nations; while forms of volunteerism like charity operate according to the principles in The Theory of Moral Sentiments. If Adam Smith, sometimes called the father of capitalism, can successfully espouse these beliefs, then it appears that capitalists must work harder to defend the morality of markets.

The greed of the profit motive has been used as a weapon against our market economy, as encapsulated in Matt Taibbi’s progressive book, Griftopia: “In the new American ghetto, the nightmare engine is bubble economics, a kind of high-tech casino scam that kills neighborhoods just like dope does, only the product is credit, not crack or heroin. It concentrates the money of the population in just a few hands with brutal efficiency, just like narco-business, and just as in narco-business the product itself, debt, steadily demoralizes the customer to the point where he’s unable to prevent himself from being continually dominated.” (Page 11, Griftopia)

Even some on the American right have blamed free markets for the collapse of the American Dream, the manufacturing sector, and even the decline of religious faith. Most recently Senator Marco Rubio, a conservative Republican, released a report that thoroughly discusses the large-scale implications of the predominant theory in today’s market economy, shareholder primacy theory.

Senator Rubio’s critique of markets intends to assist the American labor market and combat inequality. The Financial Times addresses Senator Rubio’s sentiments: “The blame for the losses of innovation behind slowdowns in productivity lies with the spread of corporatist values, particularly solidarity, security and stability. Politicians have introduced regulation that stifles competition; patronised interest groups through pork-barrel contracts; and lent direction to the economy through industrial policy.”

Even Senator Rubio’s fellow Republican, President Donald J. Trump, famously said of Wall Street, they’re “getting away with murder” and that business elite has “bled our country dry.” Although President Trump’s critique is geared more towards government-led international trade deals, his anti-Wall Street sentiments, coming from a Republican, are indicative of the growing, bipartisan (emphasis added) hostility toward the “unfairness” of free markets.

Often, public policy is overlooked as a possible manipulator of markets. Some scholars, like law professor Robin Feldman, have done extensive research that demonstrates how government interventionism and incentives have warped free markets to create a form of “crony capitalism;” the type of “crony capitalism” or corporatism often derided by Senators Elizabeth Warren and Bernie Sanders.

While these Marxist critiques of capitalism may sell well to voters, these critiques overlook public policy’s effect on markets, such as tariffs and trade wars. Steve Forbes notes how the Great Depression was furthered by the “draconian Smoot-Hawley Tariff Act” and a “global trade war that devastated economies.” Similarly, the rampant inflation of the 1970s came as a result of the Federal Reserve’s monetary policy.

Maybe a reboot to the capitalist brand is necessary. Despite polls showing Millenials are less favorable of capitalism than other generations, Millenials are described as “the most entrepreneurial generation based on their desire to start new businesses.”

Successful entrepreneurs are a critical ally. Corporations such as Facebook, which began as Mark Zuckerberg’s start-up, and Google, which began as a Ph.D. research project, can explain how their platforms utilize data to create some of the most innovative tools the world has ever seen.

Google “organizes information about web pages in a search index, which contains more information than ‘all of the world’s libraries put together.’ In a fraction of a second, the algorithm sorts through hundreds of billions of web pages to find the most relevant results for the user.” In order to provide this content to users for free, Google sells advertisements. Essentially, users trade their attention for what is essentially unlimited information.

Facebook engages in a similar process relying on user-provided information to generate revenue. Facebook users create profiles on the platform and engage in socialization with friends, family, and others. Facebook collects the information published on its platform and sells advertisements according to the interests and predicted interests of the user.

Social media platforms and data collection are just the latest iterations of capitalist ideas. Facebook is just one such example of capitalist philosophy. One key feature of this philosophy is to create products, goods, or services that address useful purposes and provide a monetizable means to create a vibrant marketplace.

Today’s conversation too often overlooks the beneficial creations of capitalism, while instead droning in on “market failures” that often result from poorly crafted public policy. As such, corporatism is partially to blame for populist uprisings and for decreasing confidence in capitalism and democracy. Winston Churchill once said, “democracy is the worst form of government, except for all of the others;” the same goes for capitalism. Corporatism has shown to be a failure in recent years, as encapsulated in “the Great Recession.” As Chris Schelling writes, “We don’t have too much capitalism; rather, we have far too little.”