My fellow writer at the Kent Ridge Common, Tan Xiang Yeow, wrote a response to my article entitled “Rioting, Inequality and the State”. He agreed with me that we ought to be wary of the State. I am heartened to note that he is on the same page with me on this note. However, he goes on to make a very dangerous and misguided point which is precisely the foundational element in the anti-capitalistic mentality that I am so opposed.
He argues this:
“I agree with Bryan that there is a need to be wary of the State, especially after this highly controversial and potentially fractious unrest. The State may politicise this shocking incident to further its influence and curtail civil liberties. However, I find it difficult to believe that the corporate system is free from blame.”
The problem with his position is that he conflates the system of laissez faire capitalism (of which I am defending) with “the corporate system”, which I am also opposed to, simply because it is a species of statism (big government). He uses his terminologies very loosely without proper distinctions of these terminologies. In his above thesis statement, he reveals that he is making a straw man argument because my article did not claim that “the corporate system is free from blame”. Thus, his article actually does not really engage and clash with the points made in my article, but rather, rebuts a straw man which I did not at all erect.
It is very essential that Xiang Yeow and others note the key difference between “the corporate system” which is what he seems to be attacking, and which should deservedly be the recipient of our ire, and capitalism, which we should embrace and not condemn. The ills of corporatism are often laid at the doorstep of capitalism, which is a category-one mistake that we should avoid.
Capitalism and corporatism
In the comments section of my article that Xiang Yeow responded to, I provided a clarification of the distinction between state capitalism (corporatism) and free market capitalism, and cited Rothbard’s excellent quote, which ought to be repeated here:
“If we are to keep the term “capitalism” at all, then, we must distinguish between “free-market capitalism” on the one hand, and “state capitalism” on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence.” – Rothbard (Read more here).
I have written a lot about this distinction, and they are mainly found in my following articles:
Corporate Tyranny? http://kentridgecommon.com/?p=19788
Economic Development and economic freedom http://kentridgecommon.com/?p=18516
Morality of Capitalism http://kentridgecommon.com/?p=18754
Lesson of 2008 http://kentridgecommon.com/?p=18508
Another case of the anti-capitalistic mentality in Singaporehttp://therealsingapore.com/content/another-case-anti-capitalistic-mentality-dr-chee-soon-juan-mistaken
What a reader would find in the above is that the problems that Xiang Yeow raises are due to the statist element in economies. The interventionism which creates state capitalism is the very reason for the ‘concentration of power’ that Xiang Yeow points us to. As a matter of fact, as my above articles show, the higher the economic freedom in a country, the better the wealth distribution amongst the population.
Far from concentrating power in the hands of an elite few, it actually diffuses power because competition checks a company that is growing too big. A monopoly cannot arise in a free market; it has never done so in the history of capitalism. A monopoly, or ‘market power’ has always been a result of an act of government; special privileges, subsidies, tariffs, regulation etc. Once such state actions are removed, entrepreneurs will have to abide by the rules of competition.
Thus, a political entrepreneur and a market entrepreneur are two different categories. The former gains his wealth by expropriation, by rent-seeking, by gaining government privileges, by engaging in lobbying and special interest activities. This is exactly what Xiang Yeow was condemning in his article: “The existence of numerous corporate-sponsored lobby groups and significant political donations in America are obvious attempts by companies to sway legislation in their favour and expand their spheres of power.” The reason why such activities happen in the first place is because the State is used as a tool for gaining advantage at the expense of all others. These are political entrepreneurs working in cahoots with politicians. This is the essence of corporatism or ‘state capitalism’ that I am myself highly opposed to.
It is seriously interesting to me, that when people condemn the high inequalities in the United States, they do not mention the influence of the Federal Reserve Bank. Austrian free market economists have shown that monetary inflationism (or money printing), that the Fed has been doing, has eroded the financial status of the middle class and the poor. Coupled with constant deficit spending, their actions facilitate a net transfer of wealth from the middle class and poor to the wealthy, who have special connections to Washington. The Fed is a government institution engaging in price-fixing. This is the biggest source of inequality and economic dislocation in America today, and it is due to the State and its intervention, creating pockets of special interests and impairing the mechanism of the free market from working. Once again the problem here isn’t capitalism, it is Keynesianism, interventionism, statism and big government.
Ultimately, the distinction between corporations and the State is as follows: economic power is the power to create value for consumers, while political power is the power to initiate violence. Only the State has the legal monopoly on the use of violence. This is the fundamental facet of the State that makes it different from any corporation on earth. Just because a corporation benefits and become rich does not tell us much. We need to distinguish between the market and political entrepreneurs.
Once again, I am not defending state capitalism/crony capitalism/corporatism, which happens because of interventionism, thereby creating a network of special interests between politicians, regulators and big business. I am defending pure capitalism, the actions of market entrepreneurs, corporations who make their wealth voluntarily.
On a concluding note, I strongly beseech Xiang Yeow and other concerned readers to read my articles cited above. This is because these criticisms being levelled have been adequately addressed time and again, but have been sadly misinterpreted or fallen on deaf ears. It is not as if Xiang Yeow is presenting something that is totally new or that I have not dealt with before.
For those who prefer watching videos, do watch the following clip which sees Larry King interview Former Congressman Ron Paul, who responds to the criticisms of Michael Moore (which are almost similar to that of Xiang Yeow). The distinction between capitalism and corporatism in America is nicely presented here, and it shows how all the special interests, exploitation, inequality are a result of the latter system.