When Corporations Hate Markets: Best of the Blogs

Editor’s note: Every month, we search the blogosphere for the most noteworthy responses to Cato Unbound. The following are just a few from among the extraordinary number of replies that this issue has prompted.

Wirkman Virkkala writes:

I have grave doubts about any left/libertarian alliance. The left is so addicted to moralistic symbolism, group identification, and a whole panoply of tacky ritual activities like “protest marches,” that it’s hard to put much hope in that movement — now almost wholly committed to big government — and its members’ ability to grow up. But we’ll see.

Darian Worden writes:

The only thing I would have to add (cuz I’m a picky bastard) is to Long’s discussion of deregulation. There is regulation by government, and there is regulation by the market. The former operates through coercion and political favoritism. The latter operates through competition, true consequences, free unions, and independent product testing. The former can only be increased at the expense of the latter. Thus when government regulations are increased, free market regulation necessarily suffers, and it is in this way only that “deregulation” can be blamed for economic troubles. When libertarians say that we are in favor of deregulation, we run the risk of appearing to want businesses to get away with anything, when we are actually presenting the best possible restraint on business: the power of the market.

William Collins writes:

[W]hile I enjoyed reading Roderick Long and John Schwenkler on corporatism and libertarianism, I’m left wondering how exactly one would go about liberalizing a broad range of economic activities in our current political environment. I’ve always thought that the idea of regulatory capture was one of the more persuasive rebuttals to various progressive policies, but I’m not sure why corporations would suddenly cease to influence the political process in the midst of a thorough-going effort to liberalize the economy.

At the Foundation for Economic Education, Sheldon Richman writes:

This error [of conflating free markets and corporatism] is tragic not only because it is an error — no two things could differ more starkly than laissez faire and the corporate state — but also because it drives away potential libertarians who are repelled by government intervention on behalf of capital, such as the various bailouts of favored financial companies. We cannot too frequently repeat that free markets would not only be free of government regulation but also of privilege, such as guarantees and the “too big to fail” doctrine. In the free market, profit and loss would be private, unlike today where losses are increasingly socialized (imposed on taxpayers) if the failing company is big and well-connected.

Arnold Kling writes:

Crony capitalism comes to us in the form of bootleggers and baptists. (The original Bootleggers and Baptists model comes from Bruce Yandle, as Wikipedia explains.)

Anyone who claims to oppose crony capitalism is a baptist. A crony capitalist is a bootlegger. The problem for Republicans is that if they make friends with bootleggers, then they get accused by Democrats of being crony capitalists. On the other hand, when Democrats make friends with bootleggers, including Freddie Mac, Fannie Mae, Goldman Sachs, George Soros, and Warren Buffett, they are immune from charges of crony capitalism.

So, the Democrats get most of the baptists—the people who say they want to rein in corporate power—as well as plenty of bootleggers. On top of that, they have the minorities.

On the Republican side, the baptists are the libertarians, who are sympathetic with Long. The problem is that the baptists want to drive the bootleggers out of the Republican Party, which would leave the Democrats as the only party that can collect campaign contributions from the bootleggers. Moreover, the libertarian baptists are culturally misaligned with actual Baptists.

Kevin Feasel writes:

If libertarians could use intellectual judo to get the left to remove oligopoly-forming market restrictions, bully for them, but as far as I can see it, it’d be like teaching a scorpion not to sting, for it is in the nature of the leftist to desire control and centralization (having “the best people” running things, as they can do anything).

Tyler Cowen writes:

“Libertarianism in practice” will be excessively pro-corporate but so are most ideologies. Rahm Emanuel, for instance, served on the board of Freddie Mac and earned $16 million in a two-year stint at an investment bank. Wall Street has been the single biggest backer of his political career. He won’t be pushing to destroy this sector but I don’t take those facts to be some great refutation of Obama as a President.

Sometimes the left-wing tactics, especially supporting labor unions, are exactly what lead to greater corporatism. Look at the forthcoming GM bailout. Or consider France, which has strong labor unions but arguably it is also more corporatist than is the United States.

Colson of Somewhat-Hypothesis.com writes:

I fail to see where Yglesias derives his concept that libertarian utopianism is “no more realistic” than a socialist one. My question to Mathew would be: why? Given, progressives have, for the most part of a century, ruled the American political roost while wearing the stripes of both political parties. For all the evidence we have, given America’s hell-bent adherence to a mixed economy, we can say that progressivism has failed to achieve its own unrealistic utopianism of a well-managed government with a highly regulated and efficient business environment. Why? Because progressivism ignores many basic facts. You have to be willing to suspend belief in unintended consequences, ignore the reality of scarcity, and be willing to negate individual liberty if it suits the needs of the majority. If anything, progressive policies attempting to deliver on progressive utopianism have failed on a greater order of magnitude. Yet few progressives are willing to admit this, if even to themselves.

Charles Johnson writes:

The problem here is that Yglesias seems to be treating this as a ceteris paribus comparison: as if the right question to ask is whether people would be better off with the government program in place or in a situation which is exactly identical, but without the government program.

There are two problems with this. First, unless there is some strong reason to believe that ceteris will stay paribus in the absence of a government program, the real alternative is between a government program and market alternatives to that program. So, for example, Yglesias mentions ex ante environmental regulations. But he rigs the match by apparently comparing outcomes with ex ante environmental regulations to outcomes from a market situation which is basically the same as the present, but in which corporate polluters are free to go on polluting with impunity. An un-rigged comparison would be one between ex ante environmental regulations and free market means of addressing pollution that the ex ante regulations have either directly suppressed or crowded out — like the use of pollution nuisance suits or a more robust use of free market grassroots activism, through boycotts, “sustainability” certification, social investing, and so on. Maybe these kind of tactics would not be as effective as ex ante regulation, or maybe they would be more effective; but in either case, this is the comparison that actually needs to be made, and as far as I can tell Yglesias hasn’t given any argument to support a claim that market methods would do worse. Indeed, there’s some good reasons to think that they might do better. Since freed-market methods are by their nature decentralized, and not dependent on political lobbying or electioneering, they are also not subject to the same problems of regulatory capture by those who can put “a lot of money and political influence behind” their interests.

Update: Bryan Caplan writes:

I’m afraid Rod overlooks much more important beneficiaries of government privilege than corporations: Lower-skilled workers in the First World. Lower-skilled workers in places like the U.S. earn several times as much as equally-qualified people in the Third World. The reason is clearly immigration restrictions – with modern transportation and credit markets, there’s no way that price differentials of that size could long persist. In fact, as a recent paper by Clemens, Montenegro, and Pritchett points out, the “price wedge” between the First World and the poorest Third World countries is the largest that has ever been measured. When you recall that labor earns about 70% of GDP, it should be clear that we’re talking about a massive distortion in a massive market.

Also from this issue

Lead Essay

  • In this month’s lead essay, philosopher and libertarian theorist Roderick T. Long draws a sharp contrast between corporatism and libertarianism properly understood. He argues that liberals, conservatives, and even libertarians have all been guilty to some degree of obscuring this difference, and that the quality of our political discourse has suffered accordingly. He suggests that libertarians should guard themselves against falling into the trap of “vulgar libertarianism,” in which all things good spring from business, and particularly from business as usual. Corporations, he argues, should be no more free from scrutiny than any other institution in society, and often businesses have done more than their share to hamper free economic relations in the industrialized world.

    One implication of all of this is that the truly free market is farther away than we imagine. Long suggests several ways in which a freed market would be different from what we see around us today. Notably, nearly all of these differences are to the benefit of the consumer and the small or start-up business. These likely outcomes of laissez faire suggest new grounds for left-liberals and libertarians to revise their thinking on economic issues and on politics more generally.

Response Essays

  • In his response to Long, Matthew Yglesias argues that although corporations naturally seek to win special privileges from the state, libertarianism is far from the obvious solution to the problem. Instead, he reiterates the charge that libertarians often act as corporate apologists and suggests that the net effect of any “free market” advocacy will tend strongly toward corporate power. Liberals may have much to learn from libertarians on certain issues and in some policy areas, but the laissez-faire solution to corporate political influence is unworkable.

  • Steven Horwitz offers several examples of so-called “de-regulation” that only served to benefit corporations, while leaving the government, and therefore the taxpayers, to shoulder the risks of the market. He argues that market competition is a form of regulation, albeit a kind worth wanting, as it forces corporations to respond to consumer demand and punishes them when they fail to meet it. He takes issue with Long’s lead essay by arguing that “playing defense,” that is, defending today’s corporations when they act consonantly with a fully freed market, is a valuable part of libertarian advocacy. One must nonetheless take issue with these same corporations when they violate the principles of laissez faire and distinguish carefully between these cases.

  • In his response essay, Dean Baker declines to tally up a “score” of how well libertarians, or other groups, have defended a truly impartial, laissez faire economy. Instead, he suggests intellectual property as an obvious area where libertarians must challenge corporate power to distort the market. Patents that make health care more expensive and copyrights that artificially restrict whole areas of our culture are obviously concessions to corporatism, and the “extraordinary abuses” undertaken to enforce these privileges should be vigorously challenged. Although libertarianism has been skeptical of both patents and copyrights, Baker suggests that this is an area deserving still further attention, and one in which liberals could perhaps become solid allies.

  • The discussion this month has focused to a greater than usual degree on the activities of certain Cato Institute policy scholars. The editors thought it appropriate to solicit responses, and we present them here in their entirety.