The anti-capitalist clown
Over on the M&G’s ThoughtLeader, Bert Olivier, an academic of the philosophical persuasion, rails against those who defend “the unforgiveable practices of capitalism”. He leans heavily on a polemic known as “The Corporation”, a documentary (and book) by Joel Bakan on which I’ve written before.
There’s so much to dispute in his post and the comments, I hardly know where to start. As one of the people who frequently offers a defence for the practices of capitalism (most recently here), I’ll make a few general points in rebuttal, though. I’ll refrain from cheap shots about the left-wing utopia from which most of us graduate (or drop out), thus to grow up and discover the real world. There is neat irony, however, in how our academic friend’s comrade in anti-capitalism, above, portrays himself. But enough ad humorem attacks.
Let’s begin by drawing some clear distinctions. Communism and capitalism aren’t just two systems among many. They are logical opposites, and are the only ways we know of organising production and consumption. One can either presume production and consumption are determined individually, or collectively. Collectivism presumes society (as expressed by the state) owns and organises both the production and consumption of its members. Capitalism supposes instead that individuals have the right to use and dispose of the fruits of their own labour as they see fit, without being constrained by any law other than those against infringing the same rights of others.
There are bastardisations of the concept, which is why “free-market capitalism” often needs to be spelt out. State-capitalism, for example, is merely a form of collective organisation. Socialism and communism are both collectivist in nature. The difference between them is a matter of degree, not nature. Any degree of socialism detracts from the general prosperity and must be enforced against the will of citizens. Any control of some parts of the economy, in order to be effective, eventually requires the control of more parts. In extremis, this means the logical conclusion of socialism is communist totalitarianism. Stalin wasn’t a perversion of communism. He was its logical culmination.
Limited socialist principles can appear to work, for a while, in rich countries, just like a rich individual can use his savings for a while without appearing to work for his lifestyle. It is no surprise that the well-intentioned New Deal culminated in the confiscatory taxes and economic malaise of the 1970s, and that a return to free market principles cured this malaise. Western Europe, too, became wealthy thanks to free enterprise and free trade. Poverty declined dramatically, and a large middle class was established. Once wealthy, it appeared to be able to afford a measure of socialism, but a few decades later, it is discovering that its savings are depleted, that not enough new wealth is being created. There is a price to pay for this well-intentioned idealism, and even rich countries find they cannot afford it forever. Unlike European economies, truly free markets need not fear immigration. Socialist markets, however, cannot afford to support even their own people, let alone people whose past production has not been decocted into the common pot. In poor countries, socialism has not offered a remedy for poverty either. It merely keeps the people mired in poverty — and that’s before accounting for the deleterious effects of tyranny or corruption.
The corporation doesn’t rule anyone. They can only profit if they offer things people are prepared to buy, and go to extreme lengths to do so. Do you really believe they determine what we eat, what we watch, what we wear, where we work, and what we do? Would you have more or less choice if you were limited to your own production and barter trade with your neighbours? Thanks to the corporation, we now have a vast array of food, mundane and exotic, on offer, at real prices (relative to our income) that our parents and grandparents would think fantastical. The picture alongside is one of hundreds of stores from which I can choose within five minutes of my home. Thanks to the corporation, we have a huge array of clothing available to us to suit every taste, from ordinary and practical to uber-cool and fashionable. If your needs or interests are more specialised, you probably know a store like the one below. There’s a lot you can say about golfers and golf equipment stores, but you can’t accuse them of not offering choice. And yet, not being controlled by corporations, I have never felt obliged to buy as much as a golf ball.
Corporations determine what we watch and where we work? Whether you sit in front of the TV all day is your problem, but don’t blame the people who create the thousands of different shows for different tastes broadcast on hundreds of different channels. If none of that extraordinary choice satisfies you, you can still read a book, you know. Unlike our parents and grandparents, who were employed for life on the same boring corporate ladder, or our great-grandparents who were stuck on the same farm or village all their lives and did the work their fathers did, the modern professional workforce job-hops every few years. Many work for themselves, from home, doing things that companies don’t think worth doing. You’re saying people do this because they have less choice where to work and what to do than they used to have?
Even if companies are monopolies, people have choices, to buy or not to buy, to spend or save, to buy here or buy there. Only by serving the needs of customers can corporations profit. Therefore, corporations profit only to the degree in which they serve the public good. When talking about monopolies, however, it is important to distinguish between those that are established or protected by law, and those that arise naturally. The latter simply reap the fruits of being better than competitors at providing a particular product or service, and are always vulnerable, should they abuse their position, to the emergence of new competitors with new ideas and better ways of doing things. Their power is restricted by the choice consumers have of buying their products or doing without them, as well as by the possibility for competition to arise — i.e. their power is restricted by the market, just as it would be if they were less powerful competitors. A monopoly’s power becomes unrestricted when it is protected by law. For example, in South Africa, new cellular operators cannot emerge, rendering the three current “competitors” a cartel. To use an example that isn’t likely to be clouded by “essential service” emotion, the same goes for casinos. They are governed not only by licence conditions, but by a limit on the actual number of licences in issue. Hence the lack of choice, the lack of variety, and the uncompetitive house rules.
It is true that rich countries maintain some subsidies or trade barriers. This is not free-market capitalism. This is just as evil as the subsidies or trade barriers maintained by developing countries. The latter are, in fact, much higher, so focusing on farm protectionism in Japan or Europe, for example, is largely a red herring. In any case, no matter whether the rich countries do the right thing — from which their own consumers would benefit — the developing world could gain a great deal of the potential benefits by dropping trade barriers unilaterally. In fact, if they do so, but the rich world doesn’t, the developing world will become more prosperous more rapidly, and there is every chance that they will eventually overtake rich countries — especially those like Europe, where the socialist streak runs deep and trade barriers are relatively high.
On corporate abuses: how many people bought GM’s pickups after the media reported on the fact that they exploded? Its failure to care about the welfare of its customers had a massive impact on the company and its profitability, and on the industry in general. The same goes for other corporate abuses. First, they are covered by laws against theft and fraud — laws which apply to all of us. Second, they open a company to potentially crippling civil liabilities. Third, they can harm the reputation of a company gravely; many have gone bankrupt after the public’s trust was destroyed by a major disaster or consumer safety scandal. Yes, corporate social responsibility is cynical, in some way. It is designed to convince customers that the company is serving them well and deserves their patronage more than a competitor does. I can’t see how this dynamic is a bad thing. Or did you want to start legislating the moral motives for people’s actions?
On subjecting corporations to the state, doesn’t the state serve its citizens, and exist at the pleasure of the people? And isn’t a corporation merely a voluntary association of citizens designed to pool resources and better divide labour, so the whole becomes more productive than the parts? Why, then, if the state is to be subject to the will of the people, advocate that certain groups of people should be subject to the control and regulation of the state (beyond ordinary laws against murder, theft and fraud)? This is philosophically inconsistent with a belief in the freedom of individuals, and a democratically elected state with constitutionally limited power, established by citizens to uphold laws that protect common rights and liberties.
Undoubtedly, some people do not act legally, or charitably, or morally. But this doesn’t change when you place them in a state bureaucracy with power over citizens. As long as such actions fall outside the boundaries of limited and justly applied law under which everyone’s rights are protected from infringement by another, individual self-interest pursued through free association and voluntary choice remains the best way to organise production in society. If you demand to see why, to quote Christpher Wren’s epitaph, look around you.
Beyond the ties that bind us all — to respect the person and property rights of others — what justification is there for wishing to tie down the capitalist Gulliver? What will be the consequences, unintended or otherwise? Fewer choices? Lost wealth creation? Fewer jobs? Less innovation? Forfeit poverty alleviation? I contend that there is no justification, except that Gulliver is big and free and independent. This makes the Lilliputians afraid of him. That such an instinctive, emotional response is natural makes it no less irrational.
So you don’t think there is any merit in what Bert Olivier writes?
Is there any truth to his allegation that publicly traded companies in the USA are legally barred from doing anything but pursuing profit?
I’d go and reread his article again, but Thought Leader appears to be down at the moment.
Alas, Ivo, as Mr Nelson Mandela said at his birthday celebration this year: our work is never done.
Global warming alarmism continues ( http://www.thoughtleader.co.za/khadijasharife/2008/06/30/brazil-the-progress-myth ) along with a strange environmental anecdote about the earth having “rights”? ( http://www.thoughtleader.co.za/khadijasharife/2008/07/02/ecocide-when-does-the-earth-have-rights/ )
Richard: I doubt that it’s the law, but if a publicly traded company makes a loss it will go under. Publicly traded companies have a responsibility to make a profit, a sustainable profit, and that’s about the only responsibility they have. The rest are just factors that affect this, for example if a business operates unethically then people will stop buying their products and they won’t be able to make a profit.
For example: You work hard every day to earn the fruits of your labour. You take a portion of the money you receive for it to save for later so that one day when your children needs further education or when you get too old to work and need to retire you can apply the fruits of your labour to support that. To save the money you put your money into a savings account, pension fund or any such policy and this earns interest that will allow you not to lose all your money due to inflation like you would by keeping it under the bed. While it is being saved it is actually being invested in to things like publicly traded companies so that these companies can use this money to expand production or marketing in order to allow them to grow and increase their profits. They do this in competition with other companies so they always have to find ways to do things better and cheaper or else they won’t be able to stay in business and turn a profit. The profits get shared between the shareholders and this is how you earn interest.
If these companies don’t turn a profit they shouldn’t be publicly traded, because by being publicly traded they offer the opportunity for others to lend their savings to them in order to pay them back dividends or profits (interest) to help build some kind of security for the future. With some companies that is riskier than with others, but it’s totally unethical and illegal for a company that is publicly traded to mislead the investors about the risks involved.
If you want to put your money into a company without the expectation of getting it back plus profit, then you are free to give it to a charity or similar non-profit organisation. That is why these organisations exist and that is their job and it functions perfectly well in a capitalistic society. Some people just don’t want to apply the fruits of their own labours to charitable causes, instead they want a socialist system to take the money off everyone else so that it can be applied in a way they like.
@ Richard Catto: There’s some merit in what Bert Olivier says, but not much. As he demonstrates by his rather inconsistent treatment of small profit-seeking capitalist companies and large ones. Where do you draw the line? How much profit is enough, and how much is too much? How much market power, earned in the open market, is too much? And what philosophical basis is there for making such arbitrary distinctions?
The fact is that companies have no more, or less, responsibility to the society around them than you or I do. This responsibility, legally speaking, is limited to not infringing on the person or property of others. Anything beyond that is of our own volition, as it is for a company’s owners.
As to the legality of not making a profit, it’s not quite that simple. Directors have a fiduciary duty to apply the capital of company investors to the best of their ability. Should they prove negligent or reckless, there’s no doubt that shareholders would have grounds to sue. I happen to disagree with the tendency in the US to consider such actions criminal, rather than merely subject to civil claims of damages and breach of contract, but that there is, and should be, legal music to face if you neglect your duties to shareholders, is hard to dispute on any grounds, philosophical or otherwise.
Of course, shareholders might consent to sacrificing some profit for whatever purposes they like. Usually, they’ll do so to avoid regulatory interference, or pursue marketing objectives, but there’s nothing to stop investors from acting entirely altruistically with the profits their companies make. Of course, whether you’d get approval from all shareholders is another matter, which is why most shareholders would use dividends, or the proceeds from share sales, to pursue their private aims, charitable or otherwise, rather than expect the companies they own to fulfill that purpose.
In the end, as Kriek rightly points out, in general terms it is the sole legal obligation — and the sole social responsibility — of a company, however big or small, to make as much profit as possible (or as small a loss as possible) for its shareholders. Lower profits, or losses — which may be incurred for reasons such as investment in capacity, buying market share, or developing new markets — can only be tolerated in the short term, if they are aimed at making a higher profit in the long term. The company is, after all, applying capital over which shareholders have full property rights. If shareholders invest money in a company, they place their capital at risk for the sole purpose of making a profit. If they had other objectives, they would pursue them by different means, such as funding a charity, or purchasing property.
If you enjoyed Bert Oliver’s comments, you must see this little gem.
http://www.thoughtleader.co.za/stevenlamini/2008/07/05/the-flight-of-rigour/
I did not think such views actually existed outside the deranged and surreal confines of some wacky politburo.
I imagined I was engaging in a little facetious satire with my comments on socialism and Scrooge Mc Duck.
Mr. Lamini proves me wrong…these people are for real!
“[Steven Lamini] believes that heads should be enlightened, but somehow regrets having such a stubborn principle, for some heads are rather best chopped off.”
Sounds like a Bolshevik principle to me…
It’s scary. One could have forgiven Steven Lamini’s line of thought maybe more than a century ago for not having enough data.
Fortunately his writing is only to geared to be legible by a little crowd he wants to impress and is neither interesting to read not carries much substance to back it up.
As usual, free market capitalism and state socialism have been defined as the only two options….It’s shameful that people so clearly educated in the fineries of Marx and the Austrian School haven’t taken the time out to research other options - specifically anarchism, which is socialism without the state.
The exceptionally well designed Participatory Economics system (www.parecon.org) is an anarchist ‘3rd way’ to the false binary constructed by Ivo - it convincingly addresses the fears of statism expressed by the libertarians as well as the much more pressing concerns around unbridled corporatism expressed by anti-capitalists.
Finally, it has a much more realistic conception of ‘human nature’ (to the extent that this term has any meaning whatsoever) than capitalism, which seems to be stuck in a Cartesian + Social Darwinist model of human nature believed only by economists and not by any biologists, sociologists, anthropologists or psychologists worth their salt.
Free market fundamentalism is a kind of autism - it operates from the axioms of an internally consistent system that nonetheless bears no resemblance to the dynamisms of the real world in which it it is applied. In this sense, it is little better than unquestioned religiosity; nor does vanguardist socialism escape this fate, being the playground of sophists and narcissists. Actually, on the subject, there’s a fascinating group of students in France who call themselves the Post-Austistic Economics Network. Check them out at www.paecon.net
“Under capitalism man exploits man. Under communism it’s the other way round.”
Actually, I have read widely on anarchism, and have rejected it quite consciously and after considerable thought.
Anarcho-communism (or socialism, if you prefer), was easy to dismiss, since it contradicts itself. It claims to value liberty, but fails to establish the means by which such liberty might be expressed. To be specific, it fails to protect truths that I hold to be self-evident, namely that a person has right to their own body and the fruits of their own labour, the right to use, not use, or dispose of his property as he sees fit, and the right to associate freely with others for the better division and recombination of labour.
Anarcho-capitalism, on the other hand, is much more attractive, and internally consistent. It fails, however, in that it does not handle the issues thrown up by what libertarians would call “technical public goods” — namely, those goods that (a) cannot reasonably be provided to one person without also providing them to others, and (b) can be used or consumed by one person without unreasonably denying their use or consumption to another. This issue is complex and controversial, and there are almost no perfect examples (though common defence, sewerage, and air quality are often cited), but the issue it isn’t resolved by pretending it doesn’t exist, as anarcho-capitalism does.
Those two forms of anarchism, incidentally, fall parallel to exactly the same continuum on which I placed capitalism and communism: the line with individual liberty on one end, and totalitarianism on the other. Whether totalitarianism is imposed by a tyrannical state, or some other non-individual concept (including the absence) of property rights, doesn’t change the fact that under such an arrangement a person is no longer the master of his own body and the fruits of his own labour, and therefore is no longer free in any meaningful sense.
For a detailed treatment of “human nature” as it applies to economics, I can recommend Ludwig von Mises’s book, Human Action. In setting out a consistent theory of economics, he discovered that he was actually writing about how people act — what he termed “praxeology”. This realisation permitted him to go beyond the usual aggregate statistical analysis of economics, and test theory against empirical observation of individual human actions, including actions not usually considered to be economic in nature. Now no theory can unambiguously predict human action, since no social science is deterministic. Nor can you test a social theory by controlled experiment, as one might do in the natural sciences. Mises dealt with this lack of objective testability or provability by recognising that not only do you need a well-developed, sensible, consistent and logical theory to explain and understand human action, but you also need human action to be explainable, post-hoc, by that theory. However imperfect and incomplete, that is the only possible test of an economic theory’s realism and practical validity.
In my view, his theory passes that test, and describes human nature and human action better than any other economic theory or ideology.
Being convinced of this by both force of reason and empirical experience, having evaluated and rejected all the alternatives, is not the same as the ideological myopia or dogmatism (or in your case autistm) of which Austrian school economists are sometimes accused.
All those who believe in the individual rather than the tyranny of the collective will have to bear the rising lunacy of the Left for the next few years as they crow over the “failure of capitalism” and the evils of corporations — simply because the J-curve of rising production and consumption given to us by the capitalist system these last few decades is taking a breather — or adjusting itself to some new realities.
The blind ignorance of the Left when it comes to economics never fails to amaze me and I am more than ever struck by the extreme conservatism of left wing thinkers. If you look carefully at what they actually do when they are in power it is extraordinary how they resist change and merely entrench an older status quo. Sounds odd doesn’t it? But, look at what happens when they do get power: a new bureaucracy class is established; a new elite class of higher nobility (vanguard of the proletariat) is created; a new religion and new bible is entrenched ( Marxism and Das Capital); new priests to interpret the Word; and best of all society is made far more rigid than it ever was. Everyone is kept in his place in their brave new world — hey, just like feudalism!