Corporations Versus the Free Market

By Chris Gagnon

We’re all familiar with the tired argument against progressive and liberal policies; they’re labeled “socialist” and “anti-capitalist” by the conservative right. Even the Occupy movement, while not aligned exclusively to the left or right, has been accused of being a radical, anti- capitalist movement. So, if the biggest problem conservatives have with liberals is that they are anti-capitalist, then conservative thought must be a haven for Capitalism in its truest sense, right?

It appears that way on the surface, but once you get past all the phony laissez faire rhetoric, a different reality becomes evident. The conserva- tive economist would tell you that corporations like Wal-Mart, Bank of America, and Exxon Mobil are the epitome of Capitalism. And whether they believe what they say or not, they’re wrong.

When Adam Smith wrote The Wealth of Nations, he made sure to make an example of the 18th-century equivalent of Wal-Mart: the East India Company. Smith was skeptical of a company like the East India Company that could, and did, bend state policy to benefit the few at the expense of the many. In his writing, Smith called for corporate reform that would prevent what he called “irresponsible, reprehensible, and im- moral behavior” on the part of the corporation; behavior such as to- day’s Wal-Mart forcing their suppliers to outsource jobs in order to keep up with its demand for perpetually lowering prices, or General Electric paying absolutely nothing in federal taxes on the billions of dollars they made in profits.

Adam Smith wrote of corporations, “Directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners of a private co- partnery watch over their own . . . negligence and profusion, therefore, must always prevail.” (Smith, Wealth of Nations). The economic free-fall in 2008 is a perfect example of what Smith meant by that sentence. Massive deregulation of financial institutions led to the creation of corporations being “too big to fail,” and, thus, the economic bailouts so widely hated by Americans. The argument is that the bailouts were necessary to pre- vent the so-called “Great Recession” from becoming any worse. That may be valid; however, the real point is that under true Capitalism a few companies wouldn’t have been allowed to come to dominate the market and make the bailouts necessary when and if they failed.

The term “too big to fail” is one of the most horrific affronts to Capi- talism in recent years. This concept admits that certain corporations have achieved a sustainable competitive advantage and that it’s okay! Not only are we acknowledging that these businesses have transcended perfect competition, but we are also making it clear that this type of thing should be allowed in order to preserve our capitalist system. That’s the economic equivalent of trying to clean a dirty window with a used tissue.

Another development Adam Smith would have been horrified to see is the concept of corporate personhood. This idea has been around since the 19th century, when the first few court cases in America concluded

that the words “people” and “person” in various amendments to the Constitution ought to apply to corporations as well as people. This argument has been used in court to make it more difficult for state, local, or federal governments to protect the public from corpora- tions. Allowing corporations to be considered people has brought us to a modern era where an executive of Monsanto can step down from their position at Monsanto and walk right into a position in the Food & Drug Administration or the US Department of Agriculture, the very government agencies that are meant to regulate them. And as if that isn’t bad enough, he or she will probably still be on Mon- santo’s payroll, albeit a less official one.

Significant parts of Smith’s legacy are overlooked or forgotten if it is believed that they no longer apply to our modern world, when, in reality, they apply now more than ever. Oftentimes, his biggest ac- complishment is said to be the defining of things like the “invisible hand” of the free market or the creation of the belief that greed is good. But it is important to remember that while many consider Smith to be one of history’s first economists, he was, in fact, not an economist, but a philosopher. And as a philosopher, he always put the good of society over the good of the individual.

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