In general, a lot of people think some quite absurd thoughts about what terms like “free market” and “capitalism” mean. Many have severe difficulty recognizing distinctions between terms such as “business” and “corporation”, and think that “rich members of corporate boards” translates directly to “free market capitalists”. They typically think “capitalist” means “person who is obsessed with increasing collections of dollars and cents”, and that this is in fact what corporations do (both of which assumptions are incorrect). Bollocks.
I’ve found myself engaged in a number of discussions on the nature of economics lately, and am inspired to comment on some common misconceptions, using direct quotes of something someone said in one of these discussions as my springboard:
I like many other non-Americans don’t have faith in market forces. This is mainly because I understand that the power behind market forces is the Dollar/Euro/Yen (and the like), so the person(s) who really controls market forces are the people who possess the most Dollars/Euros/Yen.
Wrong. The reason many non-Americans (and many Americans) don’t have “faith” in market forces is, simply, they don’t know what the term “market forces” means. It’s not a reference to who or what forces anyone or anything else to do whatever. It’s not about power. “Market forces” refers not to centers of power, but to the socioeconomic equivalent of the laws of physics. Market forces operate no matter what economic system has been imposed on your life and the lives of your neighbors. The key is to arrange to live within an economic system within which the equilibrium-corrective aspect of market forces doesn’t end up encouraging coersive behavior, and instead encourages production and distribution of wealth. That’s why soviet socialism was such a dismal failure: it treated the market as a zero-sum game (in reference to game theory, closely related to economics, and not to Space Invaders or Texas Hold’em Poker). As a result, the economy was divided into producers and consumers and, since the producers didn’t get to consume in accordance with effort invested, they stopped producing.
Capital (meaning, roughly, “money” in lay terms) is often mistaken for power, but it’s not. It is the attempt to treat it as a measure of power that serves as much of the reason that nonfree-market capital-based systems (such as transitional socialism) are ineffective in reaching their supposed goals. Capital is nothing but a highly scalable system of wealth quantification, and a rudimentary credit system as currently practiced under fiat currency economies (such as the US and UK). In other words, capitalism is just barter with a more scalable system of measure. That’s it. That’s why the market economy isn’t a zero-sum game as rendered in terms of capital: the only way to get a static, managed-economy controllable total value is to freeze all transfer of wealth — which translates to the cessation of the production of wealth. The term “velocity of capital” refers to how quickly capital moves in the economy between participants as a measure of the generation and exchange of wealth. Thus, “equitable distribution of wealth”, to use the leftist term for what socialism attempts to achieve, is functionally equivalent to system-wide economic strangulation.
I’m certain you have heard that the top 10% of people own 80% of the wealth, weather that is embellished or not it is certain that it is not untrue the number of wealthy people is disproportionate to their wealth.
(An estimated) 10% of people generate 90% of wealth. It’s unsurprising that, on average, they also tend to hold 80% of it at any given time. Measuring someone’s wealth as a comparison to someone else’s doesn’t prove anything is wrong (or right, for that matter). What is more meaningful is a measure of the comparison of each person’s wealth this year with that person’s wealth last year, and five years ago, and ten years ago, and so on. Taken as a whole, average wealth of people in more-free market economies increases steadily over longer periods of time. Divide that population into 10% economic classes, in terms of current net wealth, and you’ll see that on average each economic class has seen steady increase in wealth in more-free market economies. Divide each in half, and it still remains true. It’s not until you reach a state of such fine-grained subdivision that you’re only looking at people with effective personal wealth of zero that you finally find an economic class that hasn’t steadily increased, on average, in personal wealth, and even then what you find is that A) the percentage of the total population in that economic class has steadily shrunk in a more-free market economy, and B) their average health, quality of life, and life expectancy have increased despite a zero net personal wealth.
The wealthy (mega-corporations) control markets.
To the extent that a corporate mixed economy is nonfree (in other words: to the extent that legislative market interference supportive even indirectly of corporate consolidation of power), that’s true. Unfortunately for that argument, this essentially proves the opposite of what people generally seem to think it proves. Don’t mistake “corporation” for “business”, as many do. These are quite distinct and separable terms.
Think for a little while on what would happen if Microsoft or any large corporation had absolutely no rules to play by.
If there was no governmental “managed economy” interference in market forces, corporations would by definition not exist, and as such the answer to the question of what would happen if Microsoft had no “rules to play by” is that it would cease to exist as a legal and economic entity.
It is a lot harder for small companies to compete with MS, Walmart, Caltex or Mobil today than it was 50 years ago.
Correct. That’s because of increasing economic regulation, most of which was achieved by way of corporate lobbies sponsored both directly and indirectly by the very corporations they are ostensibly (and falsely) claimed to limit. When legislation creates and sustains consolidations of economic power such as corporations, those power centers then have the muscle to control further legislation. Voila, feedback loop, and we end up with Microsoft, AT&T, and Time/Warner/AOL.
Remember Henry Fords words (words to live by in business IMO) “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.” Now to paraphrase on that, “There is one rule for the corporationalist and that is: Sell the most goods possible, for the highest price possible with as little competition as possible.”
This contrasting quote and misquote pair regarding industrialists and corporatists illustrates some of my point well: a (non-corporate) industrialist seeks to trade value for value, and must generate wealth to do so, while a corporation seeks market dominance. The nature of committee management of legal entities built around massive bank accounts, as opposed to the very different state of affairs of a sole-proprietorship, contributes to the abuses of the managed economy, and the managed economy creates such legal entities in the first place.
In short, don’t think a “market economy” in any way implies corporatism. In fact, free markets and corporate entities (as distinct concepts) are incompatible. The US doesn’t operate under a capitalist free market, much as Bill Gates would have you believe, but under a mixed economy of nearly Lovecraftian aspect.
Government regulation is our last protection from the “one world corporation” (to paraphrase from a colloquialism) but I agree some what with Americans where regulation must be brought to the heel of the people not sold to the whim of the corporation.
As long as government attempts to strictly regulate the economy, and as long as an economy of more than about a hundred people persists, we’ll have corporations of comparatively immense power (or their moral equivalent). Period.