In-depth analysis on Credit Writedowns Pro.

Corporatism masquerading as Liberty

I have been meaning to write something on faux Libertarians of the corporatist ilk for a while. However, since I switched to forecasting mode instead of advocacy, I have tried to leave the political element out of my posts as much as possible. I’ll leave the politics to those who enjoy it; I don’t. But, I think this is an important topic so I am going to give it a go here.

If you do a search for the word ‘liberty’ on the Internet, invariably you find the Wikipedia entry for that word. I think the definition used there is a good one. Here’s what Wikipedia says about Liberty:

Liberty is the concept of ideological and political philosophy that identifies the condition to which an individual has the right to behave according to one’s own personal responsibility and free will. The conception of liberty is influenced by ideals concerning the social contract as well as arguments that are concerned with the state of nature.

Individualist and classical liberal conceptions of liberty relate to the freedom of the individual from outside compulsion or coercion and this is defined as negative liberty.

What you will notice is there is nothing in this definition regarding corporations. It is all about individual liberty and the freedoms of individuals. Individuals are born with innate, natural and inalienable rights to liberty that are self-evident. This philosophical view of humankind gained currency during the enlightenment and is now universally accepted. It also underpins the very concept of democracy and is the origin of the founding of the United States of America.

For example, the U.S. Declaration of Independence begins [highlighting added]:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

As always, I have to note that the writer of the Declaration was a slaveholder in a country in which government killed the indigenous population. So, there is certainly a gap between the high-mindedness of this wonderful document and actual events on the ground. Don’t let that detract from the aspirational quality of the words.This is exactly what individual liberty is all about.

On the other hand, a corporation is a societal construct codified into legal existence to further the mutual interests of individuals. A corporation is “an artificial being, invisible, intangible, and existing only in contemplation of the law,” according to Chief Justice Marshall in the Dartmouth College Case of 1819. Trustees of Dartmouth College v. Woodward, won by Daniel Webster when the state of New Hampshire attempted to turn the college into The University of New Hampshire, was an early American test of eminent domain-type property seizure.

A corporation has no inalienable or natural rights. Nevertheless, it is the fact that corporations represent a group of individuals that allows the ‘corporatist’ to claim that these fictional legal entities should enjoy the same natural and legal liberties and rights with which individuals are born.

Let me be bold here: The ‘Corporatist’ is a kleptocrat masquerading as a believer in liberty. He uses terminology based in liberty to construct an ideology solely as a means of furthering the gains of a specific strata of society allied with the corporatist and at the expense of other strata, by coercion if necessary.

Remember my post on kleptocracy from 2008? If not, here are the four methods Jared Diamond says ruling elites use to maintain power:

  1. Disarm the populace, and arm the elite.
  2. Make the masses happy by redistributing much of the tribute received, in popular ways.
  3. Use the monopoly of force to promote happiness, by maintaining public order and curbing violence. This is potentially a big and underappreciated advantage of centralized societies over noncentralized ones.
  4. The remaining way for kleptocrats to gain public support is to construct an ideology or religion justifying kleptocracy.

I broadened the argument on this in my year in review in 2009. Please read The year in review at Credit Writedowns – Kleptocracy to get a fuller perspective. Here’s the statement from that post I want to concentrate on:

The last (and perhaps most important) issue [of the four ways elites maintain power], in my view, has to do with the unabiding faith in free markets that many now have. It is with religious zeal that these so-called Libertarians defend the primacy of markets over all else when in reality common sense would tell you that those with the greatest influence and money will always be at an advantage without some check on that influence and power.

This is the corporatism, the faux Libertarianism, to which I refer. The logic goes like this:

  1. Individuals have inalienable rights to freedom. This is a fundamental right that all individuals have and efforts by government to undermine these rights must be resisted at all costs.
  2. Corporations are groups of individuals which have banded together for mutual benefit. In so doing, they can express their individual natural rights more effectively than they could as individuals.
  3. As such, corporations must retain the same rights as individuals legally in order to allow those individuals the corporation represents to express there natural rights. Therefore, the same resistance to denying the rights of individuals must also be transferred to the corporations which represent them.

This logic will take you much further in furthering the aims of corporations, the point being that corporations, businesses, should enjoy the same rights that individuals have.

That is not to say that businesses should not have rights. They should; and we should grant them as much liberty as is reasonable and warranted. But let’s be clear, corporations are not individuals; they are collections of individuals. Often, individuals hide behind this collective using the corporate veil to shield themselves from sanction for behaviour that abuses individual liberties. In a very real sense, the rights and liberties of businesses and individuals often come into conflict. A real libertarian would always favour the individual in that conflict. A corporatist would favour the corporation. That’s the difference.

Let me give you an example. Say I was walking down the street in Louisville, Kentucky and saw a cute little shop that sold Kettle Korn. For those of you who don’t know kettle korn, it is salted and sweetened popcorn that was brought to the U.S. by German immigrant farmers in Pennsylvania, Maryland and into the Midwest over two hundred years ago. In Germany, popcorn is sweet not salty like it is in the U.S. So, I see this store and I am thinking, “They have Kettle Korn in Kentucky? Wow, who knew. I love this stuff. Let me go get some.” Here’s the problem: the owner of the store has a business policy that no black people are allowed inside. Mind you, this isn’t a government policy because government discrimination based on race or ethnicity is illegal in the United States. But, this business owner doesn’t want Blacks in his store. So when I enter, he tells me to leave because I am violating his store’s liberty to choose its own policies.

I would say the individual liberty trumps the business liberty in this case, especially since the owner is violating his own government’s business policy as well as societal norms. A corporatist would say that the business owner wins since it is his business. Again, that’s the difference.

There are lots of other examples of corporatism at work in the U.S. legal system regarding property rights in particular. My November 2009 post “New York to use eminent domain to build a basketball stadium” showed the New York State Court of Appeals ruling that the Atlantic Yards basketball project can go forward as planned, dislocating the residents in the Brooklyn, NY area where the stadium is to be built. The decision means that government can evict you from your own home, seize your property, and give you what it believes is a fair price without your consent to build a sports arena, ostensibly for the public good but certainly for state and private profit.

This and other cases like it are occurring because of the decision in Kelo v. City of New London, Conn. If a state or local government deems a private project – funded by private monies and profiting private enterprises – to be in the public interest, it can seize your property to allow this project to occur. In the New London case, residents were evicted to make way for a luxury hotel and up-scale condos, from which private developers would profit handsomely. Kelo was an outrageous example of cronyism completely at odds with the ethos of the Dartmouth College Case of 1819. Because of Kelo, government can now abuse its power to enrich specific private interests. That’s corporatism at work.

Corporatism has nothing to do with liberty. It is all about power and coercion. It’s about favouring the big guy over the little guy, the more well-connected over the less well-connected, the insider over the outsider. And in society that means favouring large, incumbent businesses over smaller businesses, new entrants or individuals. How does deregulation and free market ideology fit into this?

“Obviously, if some always have more power and wealth than others, there is never a situation in which the economic playing field is level. Moreover, it is axiomatic that those with the means and access will always have greater influence over government than those without. So, in a very real sense, the socioeconomic elite of any advanced, stratified society will always have disproportionate control of the economic and political system.

“Now, I happen to be a Libertarian-minded individual, so I have nothing against the free markets or the concept of limited government and deregulation. Freer markets and more limited government are my preferred ideal. However, I am a realist. I understand that markets are never truly free and government fulfils a necessary function.

“So, when you hear someone talking about getting government out of the way and allowing the free markets to work, you should be thinking about the influence and control this would naturally engender.

“Think crony capitalism

“In fact, I would argue that the deregulation and free market capitalism that these individuals refer to is really crony capitalism in disguise. I will explain.

“When I think of deregulation, I think of two related but distinct concepts. The one is the actual de-regulation, which is the permission of economic actors to compete in markets previously unavailable to them by order of legislation or de facto government intervention and coercion. The other is regulatory oversight, which is the maintenance of specific rules of engagement under threat of penalty on economic actors by government. De-regulation and regulatory oversight are related concepts but they are not the same.”

This favouring of large corporate interests is what Bill Black has been calling Deregulation, Desupervision and De Facto Decriminalization. Dylan Ratigan calls it corporate communism. Ron Paul calls it corporatism. I am calling it kleptocracy. Whatever label you put on this ‘thing’, it is not about liberty at all. It is about entrenching the interests of a select few at the expense of the rest– and that has nothing to do with liberty.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

28 Comments

  1. Anonymous says:

    Excellent post. I would simply add that economic neoliberalism is the ideology underpinning corporatism, and its progression to corporate statism, where private institutions capture the apparatus of the state through influence and shape public policy for private gain. This ideology holds that economics determines politics and ethics instead of the other way around. This is a moral outrage and philosophical sham. James K. Galbraith exposes it in The Predator State (2008). Here is L. Randall Wray’s review of it (h/t Mark Thoma).

  2. Anonymous says:

    Excellent post. I would simply add that economic neoliberalism is the ideology underpinning corporatism, and its progression to corporate statism, where private institutions capture the apparatus of the state through influence and shape public policy for private gain. This ideology holds that economics determines politics and ethics instead of the other way around. This is a moral outrage and philosophical sham. James K. Galbraith exposes it in The Predator State (2008). Here is L. Randall Wray’s review of it (h/t Mark Thoma).

  3. Bill says:

    great post!

  4. Bill says:

    great post!

  5. @jporter says:

    Well said Edward. Your ventures into the political discussion are always welcome. It’s nice to hear voice of reason now and then.

  6. @jporter says:

    Well said Edward. Your ventures into the political discussion are always welcome. It’s nice to hear voice of reason now and then.

  7. Linda R. says:

    Great post! Ron Paul might call it corporatism, but Rand Paul, in his famous interview with Rachel Maddow, took the position that the store owner did indeed have the right to refuse you service. He later back-pedalled on that – somewhat grudgingly I thought.

    Although Wikipedia says corporations can “die” it rightly points out that such a death only occurs when the corporation becomes insolvent or their charter is revoked (something that rarely happens any more). Natural persons die even when they’re doing well, financially. This key difference is a compelling reason to limit the rights of corporations versus people. Virtual immortality amounts to a huge advantage which, combined with superior wealth and influence, creates an extreme imbalance of power.

    When corporations are found guilty of crimes, who goes to jail? Sometimes a fine, regardless of size, is an insufficient penalty. So far, corporations cannot vote. However, increasing freedom to use their money and power to influence elections may increasingly trump the votes of natural persons.

    Granting corporations the same rights as natural persons may well prove to be a turning point in the future viability of our democracy, not to mention the vibrant local capitalism that was a feature of the birth of our nation.

  8. Linda R. says:

    Great post! Ron Paul might call it corporatism, but Rand Paul, in his famous interview with Rachel Maddow, took the position that the store owner did indeed have the right to refuse you service. He later back-pedalled on that – somewhat grudgingly I thought.

    Although Wikipedia says corporations can “die” it rightly points out that such a death only occurs when the corporation becomes insolvent or their charter is revoked (something that rarely happens any more). Natural persons die even when they’re doing well, financially. This key difference is a compelling reason to limit the rights of corporations versus people. Virtual immortality amounts to a huge advantage which, combined with superior wealth and influence, creates an extreme imbalance of power.

    When corporations are found guilty of crimes, who goes to jail? Sometimes a fine, regardless of size, is an insufficient penalty. So far, corporations cannot vote. However, increasing freedom to use their money and power to influence elections may increasingly trump the votes of natural persons.

    Granting corporations the same rights as natural persons may well prove to be a turning point in the future viability of our democracy, not to mention the vibrant local capitalism that was a feature of the birth of our nation.

  9. Anonymous says:

    I fear that any further corporatism will result in more divisive society and serious social unrest. Hayek clearly feared the road to serfdom under a totalitarian government but clearly never considered the implications of being a serf in a corporate dominated society.

    Current policy is not for free markets it is for unregulated markets with huge advantages for incumbent businesses. Externalities like pollution are someone else’s problem. Ultimately it will collapse but it could take many years.

  10. DavidLazarusUK says:

    I fear that any further corporatism will result in more divisive society and serious social unrest. Hayek clearly feared the road to serfdom under a totalitarian government but clearly never considered the implications of being a serf in a corporate dominated society.

    Current policy is not for free markets it is for unregulated markets with huge advantages for incumbent businesses. Externalities like pollution are someone else’s problem. Ultimately it will collapse but it could take many years.

  11. beowulf says:

    Very good point Edward, its funny how Ron Paul is so beyond caring who disagrees with him. On so many issues, he’s the only GOP Congressman willing to publicly mention that the emperor has no clothes.

    I agree with jporter, your political comments are always worth reading. If you want to stick to your knitting as a forecaster, you should create a Tony Clifton-like alter ego who “guest posts” with political commentary. You could disagree with him, denounce him and or even temporarily ban him if he really gets out of line. But its not Edward who’s getting too political, its that other guy. :o)
    http://en.wikipedia.org/wiki/Tony_Clifton

  12. beowulf says:

    Very good point Edward, its funny how Ron Paul is so beyond caring who disagrees with him. On so many issues, he’s the only GOP Congressman willing to publicly mention that the emperor has no clothes.

    I agree with jporter, your political comments are always worth reading. If you want to stick to your knitting as a forecaster, you should create a Tony Clifton-like alter ego who “guest posts” with political commentary. You could disagree with him, denounce him and or even temporarily ban him if he really gets out of line. But its not Edward who’s getting too political, its that other guy. :o)
    http://en.wikipedia.org/wiki/Tony_Clifton

  13. Stilesbc says:

    I agree completely. In fact, this has become my biggest issue over the last few years as a dyed-in-the-wool Austrian.

    Indeed, economic calculation is impossible in a socialized state of factors of production. Capital goods are heterogeneous with multispecific uses. Values are subjective. Therefore, “modeling” is meaningless, there is no measurable equilibrium – although the market attempts to find it on its own – never succeeding completely or entering a “final state of rest.” Planning

    But none of that matters if individuals are consistently subjected to the use of force by others without any recourse. I do not believe, however, that this is a natural outcome of free markets – but rather a side effect of allowing corporations to legally have political influence. In a republic – where the chief duty of elected representatives is to uphold the individual liberties of their constituents – any influence seeking among corporations should be seen as 100% illegal – let alone lobbying, corporate campaign donations, the “revolving door,” etc. When this is tolerated, then yes – the natural progression will be toward kleptocracy.

    It is a perversion of capitalism that cannot be permitted. Politicians are the enablers. The US constitution was written to prevent these arrangements. Yet the institution of democracy was improperly used to subvert it and redefine its intent. It should be used now to undo the damage.

    • Libertarians would not get the negative visceral reaction from self-identifying liberals if they would be more adamant about making the case I make here. These corporatists are all about economic and political power and that is antithetical to the concept of liberty. This is one reason that a union of limited government Libertarians and projection of American power neo-conservatives in the U.S. won’t work for long. The ultimate source of morality in their convictions is fundamentally juxtaposed. Neo-cons are about state power and Libertarians are about individual liberty. I would argue, it is the corporatist who has inserted himself in the middle and tried to unite these two very different groups and that it is the corporatist who must be resisted vigorously.

  14. Stilesbc says:

    I agree completely. In fact, this has become my biggest issue over the last few years as a dyed-in-the-wool Austrian.

    Indeed, economic calculation is impossible in a socialized state of factors of production. Capital goods are heterogeneous with multispecific uses. Values are subjective. Therefore, “modeling” is meaningless, there is no measurable equilibrium – although the market attempts to find it on its own – never succeeding completely or entering a “final state of rest.” Planning

    But none of that matters if individuals are consistently subjected to the use of force by others without any recourse. I do not believe, however, that this is a natural outcome of free markets – but rather a side effect of allowing corporations to legally have political influence. In a republic – where the chief duty of elected representatives is to uphold the individual liberties of their constituents – any influence seeking among corporations should be seen as 100% illegal – let alone lobbying, corporate campaign donations, the “revolving door,” etc. When this is tolerated, then yes – the natural progression will be toward kleptocracy.

    It is a perversion of capitalism that cannot be permitted. Politicians are the enablers. The US constitution was written to prevent these arrangements. Yet the institution of democracy was improperly used to subvert it and redefine its intent. It should be used now to undo the damage.

    • Libertarians would not get the negative visceral reaction from self-identifying liberals if they would be more adamant about making th case I make here. These corporatists are all about economic and political power and that is antithetical to the concept of liberty. This is one reason that a union of limited government Libertarians and projection of American power neo-conservatives in the U.S. won’t work for long. The ultimate source of morality in their convictions is fundamentally juxtaposed. Neo-cons are about state power and Libertarians are about individual liberty. I would argue, it is the corporatist who has inserted himself in the middle and tried to unite these two very different groups and that it is the corporatist who must be resisted vigorously.

  15. Bill Bishop says:

    So how do we change things? Obama fooled at lot of us into believing he was a change agent. How can anyone who does not lay in the system you define above possibly be elected to high office in America now?

    • Jazzbumpa says:

      I’m afraid we’re well past a tipping point. The Citizen’s United decision handed our electoral system to the multinational corporate kleptocracy. It’s a downhill road from here to serfdom.

      Corporations own the government. What makes it worse is that they are transnational corporations with no loyalty to anybody nor any thing. There is no entity with the power to strike a balance. This should be a function of government, but they’ve been taken over.

      I seriously think we are doomed.

      JzB

    • Bill, jzb makes a good case that we have come to the point of no return with Citizens United.

      If we do have a chance of stopping the corporatism, it will be especially important for real Libertarians to speak out against these corporatists. The corporatist merely uses free market rhetoric as cover for his real end which is unchecked power. It is the same style which drives neo-cons to talk up democracy in pursuit of US hegemony and oil security. These people don’t believe in the prmacy of liberty of democracy any more than the fake corporatist libertarian.

      I think libertarians have a unique role to play in calling these people out and ending their usurpation of free market thinking.

  16. Bill Bishop says:

    So how do we change things? Obama fooled at lot of us into believing he was a change agent. How can anyone who does not lay in the system you define above possibly be elected to high office in America now?

    • Jazzbumpa says:

      I’m afraid we’re well past a tipping point. The Citizen’s United decision handed our electoral system to the multinational corporate kleptocracy. It’s a downhill road from here to serfdom.

      Corporations own the government. What makes it worse is that they are transnational corporations with no loyalty to anybody nor any thing. There is no entity with the power to strike a balance. This should be a function of government, but they’ve been taken over.

      I seriously think we are doomed.

      JzB

    • Bill, jzb makes a good case that we have come to the point of no return with Citizens United.

      If we do have a chance of stopping the corporatism, it will be especially important for real Libertarians to speak out against these corporatists. The corporatist merely uses free market rhetoric as cover for his real end which is unchecked power. It is the same style which drives neo-cons to talk up democracy in pursuit of US hegemony and oil security. These people don’t believe in the prmacy of liberty of democracy any more than the fake corporatist libertarian.

      I think libertarians have a unique role to play in calling these people out and ending their usurpation of free market thinking.

  17. Redomondo says:

    From “What is American Corporatism”

    The fundamental essence of corporatism is not technocratic but moral: what does government have the responsibility to do? What do people have the right to demand be done for them?

    The economic Left likes corporatism for three reasons:

    1.It satisfies its lust for power.
    2.It makes possible attempts to redistribute income.
    3.It enables them to practice #2 while remaining personally affluent.

    The economic Right likes corporatism for three different reasons:

    1.It enables them to realize capitalist profits while unloading some of the costs and risks onto the state.
    2.The ability to intertwine government and business enables them to shape government policy to their liking.
    3.They believe the corporatist state can deliver social peace and minimize costly disruptions.

    This process has been described as “socializing the losses, privatizing the profits” by its leftist critics, who also call parts of it corporate welfare. What they don’t get is that in a society which grants the fundamental premise that government should take care of everybody, government will, and big business is part of “everybody.” Most economic arguments today are not between a socialistic ideal and a capitalistic one, as many seem to believe, but are arguments within the corporatist consensus. This consensus is incapable of gelling into a unitary consensus because it is supported by the two sides for different reasons. There is also no public, coherent ideology of corporatism because almost no-one is willing to admit they believe in it.

  18. Redomondo says:

    From “What is American Corporatism”

    The fundamental essence of corporatism is not technocratic but moral: what does government have the responsibility to do? What do people have the right to demand be done for them?

    The economic Left likes corporatism for three reasons:

    1.It satisfies its lust for power.
    2.It makes possible attempts to redistribute income.
    3.It enables them to practice #2 while remaining personally affluent.

    The economic Right likes corporatism for three different reasons:

    1.It enables them to realize capitalist profits while unloading some of the costs and risks onto the state.
    2.The ability to intertwine government and business enables them to shape government policy to their liking.
    3.They believe the corporatist state can deliver social peace and minimize costly disruptions.

    This process has been described as “socializing the losses, privatizing the profits” by its leftist critics, who also call parts of it corporate welfare. What they don’t get is that in a society which grants the fundamental premise that government should take care of everybody, government will, and big business is part of “everybody.” Most economic arguments today are not between a socialistic ideal and a capitalistic one, as many seem to believe, but are arguments within the corporatist consensus. This consensus is incapable of gelling into a unitary consensus because it is supported by the two sides for different reasons. There is also no public, coherent ideology of corporatism because almost no-one is willing to admit they believe in it.

  19. Flopmeister says:

    Awesome post Ed. I am linking to my Facebook.

  20. Flopmeister says:

    Awesome post Ed. I am linking to my Facebook.

  21. Guest says:

    I’m really glad people with more knowledge than me in specialty areas are thinking these things through, and presenting them in some way that allows discussion. I’m a Wisconsin state employee, and of course our negotiations with the governor have been in the news. A dismaying fact of the debate is how much virtual hate speech is being made against unions. Your article made me realize the hypocrisy of being FOR corporations as “groups of individuals” but demonizing unions. And if you really want to bust unions on some kind of democratic grounds, wouldn’t the very same logic apply to corporate involvement in the general welfare? But maybe this could be a useful point of discussion–we could ask the honest question: in what ways should unions and corporations be equally susceptible to societal regulation and advocacy limit? While I’m not a union member (though my constituency has been granted the legal right to form a union, we have not, and the governor is seeking to remove the right), I can’t believe that people would object to state workers collectively creating health insurance plans and retirement plans. It is the oddest thing to witness the hatred.

  22. Anonymous says:

    I’m really glad people with more knowledge than me in specialty areas are thinking these things through, and presenting them in some way that allows discussion. I’m a Wisconsin state employee, and of course our negotiations with the governor have been in the news. A dismaying fact of the debate is how much virtual hate speech is being made against unions. Your article made me realize the hypocrisy of being FOR corporations as “groups of individuals” but demonizing unions. And if you really want to bust unions on some kind of democratic grounds, wouldn’t the very same logic apply to corporate involvement in the general welfare? But maybe this could be a useful point of discussion–we could ask the honest question: in what ways are unions and corporations equally susceptible to societal regulation and advocacy limit? While I’m not a union member (though my constituency has been granted the legal right to form a union, we have not, and the governor is seeking to remove the right), I can’t believe that people would object to state workers collectively creating health insurance plans and retirement plans. It is the oddest thing to witness the hatred.