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 it 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 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….”
Capitalism versus the Freed Market
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. (Long-time Freeman writer and historian Clarence B. Carson expressed misgivings about the word here.)
It’s tempting to dismiss this as mere semantics. But we are trying to communicate, aren’t we? Libertarian theorist Roderick Long, however, shows that more than semantics is involved. For Long, capitalism is what Ayn Rand called an anti-concept, a term that confuses rather than enlightens. One kind of anti-concept is the package deal, “referring to any term whose meaning conceals an implicit presupposition that certain things go together that in actuality do not.”
As a thought experiment, Long asks us to consider his coinage of zaxlebax, which he defines as “a metallic sphere, like the Washington Monument.” Obviously this is incoherent. Nevertheless,