Written by Derryl Hermanutz
Michael Payne published a timely 13 October 2012 OpedNews article titled, “Corporatism is Systematically Sucking the Lifeblood Out of America”. My comment on that article has expanded into this article length jeremiad against various corporatist shenanigans.
As a disclaimer I must say that I do not categorically object to the corporate form of organization. In fact it is necessary as enterprise scale grows beyond the immediate personal size where the owner(s) can operate the business by themselves. Just as it is not possible in a geographically large and populous nation state to practice direct democracy where all citizens meet to argue and decide issues, it is not possible in a large business to practice owner management. Whether these large scale public and private institutions benefit or harm human interests is a legitimate field of debate. But if large legal constructs like nation states and corporations are to serve the democratic interests of the people who are “the nation”, then the people must have power to regulate and constrain the actions of those institutions, or else they become tyrannical masters rather than obedient servants of the nation.
Perhaps our governments and corporations have already become too big and powerful and self-serving for democratic constraint, which is why I ask, is resistance futile? Well, resistance is actually “impossible” if we are deceived or otherwise unaware of what we are up against. The corruptions and shortcomings of political government are readily visible and are continuously and exhaustively recited by the political right and need no additional comment from me, so I will attempt to pull back some of the veils behind which corporatist power is concealed.
The Free Market Myth
First off, corporations do not operate in “free markets” and thus do not deserve the sympathetic treatment we might charitably extend to little guys struggling to earn their daily bread amidst sharp competition. The enterprise scale and geographic reach of giant collectivist entities like modern transnational corporations presents an absolute barrier to entry against upstart ruggedly individual “competitors” who don’t already have billions of dollars and/or a substantial share of the market in an economic sector. Enterprise scale alone prevents anybody but other collectivist plutocrats from entering the industry as a ‘competitor’. Rugged individuals who seek to prosper by their own independent efforts are simply bought out or steamrolled out of the running.
The Free Market Ideal
Free markets are populated by myriad small business owner/operators whose personal income and business income is essentially identical (at least with a few orders of magnitude) and who enter and leave an industry not much differently than employees take and quit jobs; and NONE of the individual businesses in a truly free market has ANY power to fix costs and prices or otherwise control the industry in which they operate. There are no “industry standard” businesses in a free market. There is radical diversity seeking localized niches, sometimes expanding into larger businesses, but by definition never achieving industry “dominance”.
In free market doctrine the sovereign consumer alone is king and commander of the economy. Producers are supposed to be “servants”, not “masters”, competing to serve the demands generated by human needs and desires. But this has been known to be false at least since John Kenneth Galbraith published “The Affluent Society” in 1958, exposing the fact that producers artificially create desires and “cause” previously nonexistent demand for their products via advertising.
Suppliers produce whatever they can best profit by then create demand for those products in a wholesale reversal of what is still portrayed in market theory as a “demand-driven” economic system. Insofar as corporate suppliers use advertising to psychologically manipulate consumer needs and desires, market models do not capture the dynamics of this “supply-driven” system. And corporate suppliers are not “serving” a demand-led market economy but are “commanding” a supply-led corporate economy.
A Command Economy
As manipulated consumers dutifully purchasing the advertised baubles they have been induced to desire, the people become the servants of the corporate production system, not its masters. Effective corporate control of its demand market transforms the system from a market economy to a command economy. Stalin’s command economy failed from lack of production. Our command economy is failing for lack of widely distributed income to fund consumption.
As small upstarts, Steve Jobs and Bill Gates, and other competitors who ultimately lost the battle for dominance, created the personal computer revolution. Genius that generates invention and innovation is a property of individual people driven by personal motives, not of “committees” or “boards of directors” hashing out consensus on “principles” and “policy”. But as these upstarts obtained outside financial backing and grew to dominate their markets they ceased being participants in a “free market” and began operating in an oligopoly populated by a few giants rather than myriad small fry.
And as Leopold Kohr observed in his 1957 anti-gigantism book, “The Breakdown of Nations”,
“If capitalism had such stunning success in its earlier stages…it was because of its embodiment of the competitive principle whose most fundamental prerequisite is the side-by-side existence not of a few large but of many small facilities requiring not the waste of extensive but the economy of intensive operation.”
The Failure of Success
Kohr’s idea is that relatively poor small business people intensively work their very limited capital, most of which is embodied in their own ideas and ambition rather than in material or financial resources they possess. Individualist entrepreneurs have been described as “maniacs on a mission”, like “the pirates of Silicon Valley” in their early years. By intensive effort, invention and innovation, and jealously efficient husbanding of the few resources they command, they ‘might’ survive and eventually prosper. By contrast, rich corporate enterprises thrive by controlling vast resources and exploiting “the commons” that are spectacularly wasted. Wasting resources would bankrupt small business owners, but it is business as usual for large conglomerates which can pass off those costs into their captive markets where other people pay the price of the “market externalities”.
As Kohr further observes,
“Before capitalism outgrew its competitive small-unit pattern, it suffered little of the subsequent miseries of accumulation.”
Small business people “own” and “work” the material and intellectual resources that are their “capital”, and they “earn” whatever income their business is able to generate. As Kohr’s student and friend E.F. Schumacher puts it in his 1973 book, “Small is Beautiful: Economics as if People Mattered”,
“No great private fortunes can be gained from small scale enterprises, yet its social utility is enormous.”
Builders vs. Extractors
Small scale businesses competing in free markets produce no billionaires, because no human being by his own efforts working his own capital is capable of “earning” billions, and according to free market doctrine, the invisible hand of the marketplace allocates incomes accordingly as people produce and thus earn the wealth. Great wealth can only be attained by “extracting” billions, achieving such market dominance that you can set prices for your product, and underpay the thousands of workers who contribute their efforts to the enterprise and so “earn” and should be “paid” their “market share” of the company’s earnings. This kind of rational and economically/morally defensible income distribution would prevail IF incomes were being allocated by competitive “markets”, not by controlling “men”.
But in fact the hands that allocate incomes and determine income distributions are all too human even if not always readily visible. Will anyone argue that the Asian workers who physically produce Apple hardware and Microsoft install discs are being paid their “market share” of the price Apple and Microsoft charge for their end products? Those Asian workers are not paid enough to survive in North America, though they are fairly well paid by their own national standards. But this ability to practice international labor arbitrage in order to extract the lion’s share of the benefits of other people’s work for oneself is one mark of market dominance. Free market doctrine claims this kind of extreme imbalance is “temporary”, but we will all be long dead before Asian workers gain a “market allocation” of the retail price of the goods they produce for transnational corporations.
If a situation exists where a business’s owners or managers are able to systematically enrich themselves on the backs of the thousands of employees and suppliers without whose efforts the large scale business would not be possible, and/or at the expense of the millions of consumers who pay anti-competitive high prices for the business’s products, or who are sold toxic or otherwise defective products, or at the expense of taxpayers who bail out too-big-to fail companies and whose governments award astonishingly rich contracts to the “winners” of pork-barrel politicking, then that business is NOT operating under the competitive forces of a free market.
The Invisible Hand
By definition of concept, the invisible hand of the free market “optimizes” outcomes for everybody concerned, even if not immediately and if less than perfectly. It allows for naturally wide disparity in human productive ability, and accepts a role for good or bad “fortune”. That is the moral and motivational precept that induces democratic people to believe in the free market and oppose excessive central planning and allocation-by-men. Free markets are “fair” even though they are not “equal”, and make each person better off than he could be under any humanly designed and centrally controlled system. Private charity and a modest welfare state, as even Adam Smith advocated, can provide for those who cannot provide for themselves.
Because competitive forces prevent the development of unnaturally wide wealth disparity in a free market, the presence of extreme wealth in a few hands alongside debt and poverty for millions is empirical proof that competitive market discipline has failed and systematic market control is at work. During the 1930s millions of Americans saw clearly that the American system, which was called a capitalist free market system but was in fact a “market” system by reputation only, had utterly failed them, and they agitated against capitalism toward communism in a desperate search for a change that would serve THEIR economic needs.