capitalism vs the free market

Another name for corporatism is crony capitalism.  That is the failing system we have now.  We don’t have a free market, and we never did at least since the early 1900’s and maybe even then we didn’t.  America adopted many of the crony capitalist/mercantilist institutions of the pre-colonial American which came from England.  The idea of l’aissez faire and free market didn’t become popularized until Adam Smith’s Wealth of Nations in 1776.  Meantime mercantalism remained the dominant economic system until the mid 1800s in America and in the developed world --- and then we went from Mercantalism almost straight to crony capitalism.  We have been a crony capitalist system since the 1860’s thanks to Lincoln’s war economy which set the stage for the public / private cronyism to gain a strong foothold in political economy.  the Gilded Age and the rise of the robber barons naturally and seamlessly followed Lincoln’s war economy.  government awarded sweetheart land deals to railroad developers in the name of national development.    The robber barons are supposed to be a natural result of free markets when in fact they were born and bred by government policies aimed at promoting “internal development.”  Sounds like China not America.  The more I study each economy the more similarities I see than differences in terms of political centralization and power of the state.  Washington has accumulated totalitarian type powers becoming increasingly like China and China is opening up so it is less totalitarian than 20 years ago.  Meantime, the US is catching up fast.

Capitalism, Corporatism, and the Freed Market

by SHELDON RICHMAN

This article originally appeared at TheFreemanOnline.org.

When a front-running presidential contender tells the country that thanks to Barack Obama, “[w]e are only inches away from ceasing to be a free market economy,” one is left scratching one’s head. How refreshing it is, then, to hear a prominent establishment economist—a Nobel laureate yet—tell it straight:

 The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system . . . is . . . an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.

Columbia University Professor Edmund S. Phelps, who won the 2006 Nobel Prize in economics, and his coauthor, Saifedean Ammous, assistant professor of economics at the Lebanese American University, write that the U.S. economy ceased to be a free market some time ago, yet the free market is blamed for the economic crisis. (The real question is whether the American economy was ever really free.)

Phelps and Ammous condemn corporatism unequivocally:

In various ways, corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusiveness. It maintains lethargic, wasteful, unproductive, and well-connected firms at the expense of dynamic newcomers and outsiders, and favors declared goals such as industrialization, economic development, and national greatness over individuals’ economic freedom and responsibility. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, hedge funds, and much more has [sic] at some point been deemed too important to weather the free market on its own, receiving a helping hand from government in the name of the “public good.”

It’s great that their list includes the corporate state’s declaration of goals. Too many people are willing to accept government-set goals (such as energy independence) so long as the “private sector” is induced to achieve them. Regardless of how the goals are achieved, if government sets them, that’s statism.

The cost of corporatism is high, and Phelps and Ammous provide a partial list:

dysfunctional corporations that survive despite their gross inability to serve their customers; sclerotic economies with slow output growth, a dearth of engaging work, scant opportunities for young people; governments bankrupted by their efforts to palliate these problems; and increasing concentration of wealth in the hands of those connected enough to be on the right side of the corporatist deal.

Again, kudos to them for noting the increasing concentration of wealth. The corporate state, after all, is a form of exploitation, the victims of which are workers and consumers, who would have been better off (absolutely and comparatively) without anticompetitive privileges for the well-connected and without government-induced recessions.

The authors are optimistic that time will work against the corporate state. Young people coming of age in the Internet’s decentralized and wide-open market of ideas and merchandise can’t be expected to show enthusiasm for a system that protects entrenched corporations from the forces of competition. Moreover “the legitimacy of corporatism is eroding along with the fiscal health of governments that have relied on it. If politicians cannot repeal corporatism, it will bury itself in debt and default. . . .”

My main beef with Phelps and Ammous’s essay is their use of capitalism to name the economic system that corporatism corrupted. Like many others, they believe that word “used to mean” the free market. To be sure, it was used that way beginning in the mid-twentieth century. But there was an older usage (of capitalist specifically), coined by free-market liberals like Thomas Hodgskin who predated Marx, associating it with government privileges for the capital-owning class. That undertone has never left. (Longtime Freeman writer and historian Clarence B. Carson expressed misgivings about the word.)

…

And that, I suggest, is the function of these terms: to blur the distinction between the free market and neo-mercantilism. Such confusion prevails because it works to the advantage of the statist establishment: those who want to defend the free market can more easily be seduced into defending neo-mercantilism, and those who want to combat neo-mercantilism can more easily be seduced into combating the free market.

“Either way,” Long concludes, “The state remains secure.”

Read more: http://www.fee.org/the_freeman/detail/capitalism-corporatism-and-the-freed-market#ixzz2Cmaefkkv

READER RESPONSE …  hits the nail on the head.

Are we realizing that “Free Enterprise” and “Capitalism” are two distinctly different systems, that capitalism is a system of market enslavement to corporate/government interests in direct opposition to free enterprise and liberty? Are we coming to the conclusion that the mid 20th century capitalist efforts to blot out free enterprise from our lexicon by substituting the word capitalism in its place does not change the long standing nature of what capitalism has always been, a government assisted rapacious system of market exploitation and domination and that the only freedom that can rightfully be associated with capitalism is the freedom to exploit and dominate?