by Intern Steven Payne
During the duration of Senator Bernie Sanders’ presidential campaign, the cause of Socialism was carried by the senator and many of his supporters, especially among the millennial voters. It was spoken of as a cure for American corruption in both the economy and the government. For the supporters of the Democratic-Socialist movement, Capitalism is the sickness which is plaguing American society, giving an unfair advantage to the rich and powerful while also neglecting the poor and stealing from the destitute. It allows Fortune 500 companies to buy their way into political power and shape the future of America, ignoring whatever the will of the people may be. Their solution is to eradicate the “failing Capitalist Party” and replace it with a Democratic-Socialist Party that would grant the federal government ownership of, and the right to regulate, the means of production, distribution, and exchange in the American economy; Or in the case of those who subscribe to the Marxist theory of Socialism, to enact a transitional social state between the overthrow of capitalism and the realization of communism.
But the truth is that Capitalism is not the true enemy they claim to fight. While it is true that there exists a problem of Old Money and big businesses lobbying members of Congress and other political activists, as well as the problem of the federal government manipulating business practices toward an unclear agenda, this is not a result of Capitalist success. The actual cause of this problem is Corporatism — the control of a state or organization by large interest groups. In more simpler terms it can be described as the union of Big Government and Big Business. Corporatism is not purely an economic practice, but is a form of federal control of the market. According to a report from the San Jose State University Department of Economics, “The basic idea of corporatism is that the society and economy of a country should be organized into major interest groups (sometimes called corporations), and representatives of those interest groups settle any problems through negotiation and joint agreement. In contrast to a market economy which operates through competition, a corporate economic works through collective bargaining.” A corporatist party did exist in America during the time of the “New Deal” under President Franklin Roosevelt during the years of 1933-1945. The end goal of the New Deal was to lift America out of the Great Depression by way of increasing presidential power and expanding the federal government. Under the New Deal, the federal government made relief payments, served school lunches, and ran pension programs. Corporatism made the federal government in charge of the general welfare, instead of the State. Corporatist systems from the New Deal which are still in place today include the National Pension System, Oversight of Labor Practices, Agricultural Price Supports, Protection for Savings, and Regulation of the Stock Market.
But despite the contribution made by the New Deal in lifting America out of the Great Depression, there have been severe drawbacks from Corporatism on the American free market of the 21st Century. Some examples of Corporatism in America include the ownership of 90% of all media outlets by only six companies: GE, Newscorp, Disney, Viacom, Time Warner and CBS. With six corporations controlling nearly all of the news output, these CEOs can easily manipulate the reporting of news to fit their political views. Many Americans also remember the Auto Industry Bailout of 2008-10, a result of the energy crisis that substantially increased the price of automotive fuels. This resulted in the demand for large vehicles with low fuel economy to plummet. Rather than promote their vehicles that have higher fuel economy, or work to improve the fuel economy of their larger vehicles, the three largest auto industries — General Motors, Ford, and Chrysler — asked for a $50 Billion bailout from the federal government in order to avoid bankruptcy, of which nearly $20 Billion was given. This was not a capitalist maneuver, but an example of corporatist manipulation of the natural process of the free market. In regards to the effects of Corporatism in the 21st Century, Edmund Phelps and Saifedean Ammous had this to say in their report of “Blaming Capitalism for Corporatism” on the Economist’s View,
“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 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.’ The costs of corporatism are visible all around us: 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.”
What this means is that Capitalism is not the issue that needs to be addressed, but rather, the infesting of the free market by Corporatism which is the real problem. The more that the general public allows the government to have a foothold in how the free market is run, the more corrupt, unfair and unbalanced the system becomes. Even though it saw some success during the decade of the New Deal, the good intentions of President Roosevelt have been replaced with opportunism and personal greed. So what does a capitalist free market operating without the influence of Corporatism look like? In its basic form, Capitalism is an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. It operates with little to no influence or regulation from government, relying on the competitive nature of business owners and companies to succeed. The end goal of a philanthropist in a capitalist free market is to sell as much of their product to the highest amount of customers in order to make the best profit. This is achieved through the equation of “Supply and Demand.” A high supply of a product with a low demand will equal a lower price. A low supply of a product with a high demand will equal a higher price. If consumers feel that they can purchase a product for a cheaper price elsewhere, then business owners will be naturally encouraged to lower the price to attract consumers back to their business. In this way, the price of a product is determined by the consumer’s interest. As a consumer, you are looking for the cheapest place to buy a product. As a business owner, you are looking to sell your product for the highest price possible. Where the two meet in the middle — equilibrium — is the agreed price, with fluctuations depending on competitive business.
When a free market operates independent of the government, it helps maintain the political and economic freedom of the populace by securing the freedom of opportunity which comes with a Capitalist economy. It operates on a simple premise: “equality of opportunity, but not equality of outcome.” Each person is guaranteed the equal opportunity to succeed in a Capitalist market, provided they are determined to succeed, willing to sacrifice, and understanding of the hardships which can come with chasing success. Those who go above and beyond their peers and reach high levels of success will be considerably more well off than those who didn’t take the risk. A man who succeeds in becoming a doctor or a large-business owner will make more money than a construction worker or a fast-food restaurant employee. The outcome between these professions is different because the doctor and business owner took a higher risk and faced more competitive hardships in the free market than the construction worker or restaurant employee, meriting them more financial success. This is how Capitalism establishes a Meritocracy, a system where power is held by people selected on the basis of their skills and abilities. In a Meritocracy, the person most capable of getting the job done is most likely to be hired, promoted, and more likely to accrue wealth in the job market regardless of their race, gender, sexual orientation, religious beliefs, or socioeconomic background. Competition in the job market ensures that businesses always work to sell the best products for the best price in order to attract the most consumers, or else be punished by the natural lack of revenue that comes with poor business decisions. So long as competition thrives, the job market will be constantly refined so that those who succeed will continue to climb while those who fail will make room for the next generation. It is in these ways that Capitalism has become the most successful economic system in the world.
It is true that the economic system which currently operates in America is very flawed and unfair against the common individual, but this is not a result of Capitalism, but rather, the result of federal tampering in the free market system. The solution, however, is not to abolish Capitalism, but to remove any and all federal or state influence on the free market. Adam Millsap, a PhD student in economics and graduate instructor at Clemson University in Clemson, SC, described the acceptable role of government in a free market economy when criticizing Huffington Post’s Robert Reich in an article he wrote for the America’s Future Foundation called “No, Government Doesn’t Create The Free Market.”
“Mr. Reich’s claim that markets are not free of rules is really a straw man; no one who understands markets would ever argue that they are. However, just because a market needs rules does not mean that it needs rules created by a government. Supporters of free markets do allow for a government role, but the government in this case is a referee, not a player or organizer. The government must enforce the rules set by the participants of the various markets. For instance, the government guarantees the terms of trade, such as contracts agreed to by the various producers and consumers, and it enforces property rights. The government is also responsible for enforcing the non-aggression principle — that is, the principle that a person is free to pursue their own ends provided that they do not forcibly interfere with another person’s ability to do the same.”
Millsap described in the above excerpt the only allowed involvement of government in the free market — the role of a referee. The Federal government ensures that everyone plays by the rules, and if anyone cheats they are either penalized or pulled out of the game. One example of this role was when President Theodore “Trust Buster” Roosevelt wrote into law a number of anti-trust bills to fight corporate monopolies. This was done to make sure that competition was allowed to prosper and to prevent big businesses from becoming corporate titans that wipe out the competitive market. It helped keep the job market open to new arrivals and maintained an even playing field for all competitive businesses.
Both Corporatism and Socialism rely on heavy, if not absolute, government influence in the market in order to succeed. Capitalism requires as little as possible. It is thanks to Capitalism that the United States of America is among the Top 10 Richest Countries in the World, even beating the United Arab Emirates in 2013 as #7. China has even seen massive economic growth in recent history after switching to a more Capitalist-friendly system, despite still keeping its official status as a Socialist state. Even Canada and Sweden, both among the richest Socialist countries in the world, use a free market system born out of Capitalism, but only retain their Socialist status due to their extensive welfare programs. Former British Prime Minister Winston Churchill once said on the subject of Capitalism and Socialism, “The inherent vice of Capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.” Capitalism is not perfect, and it will likely never be perfect due to human nature, but it is still the best and most successful option available. Once the market is able to operate with absolute independence from government intervention, America’s free market economy will be purged of the corruption which young voters have cried foul over ever since their parents bought them their first smart phones.