State Corporatism &#8800 Free Markets

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“A free market is a market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they obtain each other’s property without the use of physical force, threat of physical force, or fraud, nor is the transfer coerced by a third party.”[1]Wikipedia

I thought it useful to start this post with a definition, just as a reminder that the term “Free Market” actually means something. Moreover, what it means has little or nothing to do with the way the term has been used recently on this blog. Specifically by Justin. Most recently here:

“… doesn’t that mean that Friedmanomics is the cause, not the solution? It’s not like we’ve had some socialist economic system since 1980. “Free markets” has been the mantra and Democrats have been on board for the most part. So then…why shouldn’t we be talking about changing models?”

Other examples here, here, here and here.

Justin is not alone in this regard. Pundits and bloggers declaring that the current economic clusterfork is an example of the failure of free markets abound. The problem goes beyond sloppy semantics or ignorance of what a free market means.

Roderick Long takes this nonsense head-on in the lead essay for this month’s excellent series at Cato Unbound: In “Corporations vs the Markets – or – Whip Conflation Now.” Long takes Conservatives, Liberals and Libertarians to task for the sloppy linguistic conflation of state corporatism, big business favoritism, corporate welfare, and private-public partnerships with a free market.

Of the three, I find his indictment of Republicans and the right most damning:

“If libertarians’ left-wing opponents have conflated free markets with pro-business intervention, libertarians’ right-wing opponents have done all they can to foster precisely this confusion; for there is a widespread tendency for conservatives to cloak corporatist policies in free-market rhetoric. This is how conservative politicians in their presumptuous Adam Smith neckties have managed to get themselves perceived—perhaps have even managed to perceive themselves—as proponents of tax cuts, spending cuts, and unhampered competition despite endlessly raising taxes, raising spending, and promoting “government-business partnerships.”

Consider the conservative virtue-term “privatization,” which has two distinct, indeed opposed, meanings. On the one hand, it can mean returning some service or industry from the monopolistic government sector to the competitive private sector—getting government out of it; this would be the libertarian meaning. On the other hand, it can mean “contracting out,” i.e., granting to some private firm a monopoly privilege in the provision some service previously provided by government directly. There is nothing free-market about privatization in this latter sense, since the monopoly power is merely transferred from one set of hands to another; this is corporatism, or pro-business intervention, not laissez-faire. (To be sure, there may be competition in the bidding for such monopoly contracts, but competition to establish a legal monopoly is no more genuine market competition than voting—one last time—to establish a dictator is genuine democracy.)

Of these two meanings, the corporatist meaning may actually be older, dating back to fascist economic policies in Nazi Germany; but it was the libertarian meaning that was primarily intended when the term (coined independently, as the reverse of “nationalization”) first achieved widespread usage in recent decades. Yet conservatives have largely co-opted the term, turning it once again toward the corporatist sense.”

It is only when the term “free market” is severed from any historical definition or conventional meaning that the current economic crisis can be explained as a government rescue of a “free market” failure.

As a result of this mushy thinking, we are now given to understand the “free market” problem that was created by too much government spending, too much government debt, too much government sponsored credit via easy monetary policy, and a market wildly distorted by government intervention to meet social goals (along with a large helping of corporate criminal fraud that slipped through the existing government regulatory framework) can only be solved by increasing government spending, increasing government debt, have an easy monetary policy and create more market distortions with more government intervention to meet similar social goals.

I am not a free market anarchist. I acknowledge and accept the government’s regulatory role and more importantly, police and judicial functions to enforce and adjudicate contracts, settle disputes, and prosecute fraud. There will always be greed and fraud in free markets, in government controlled markets and everything in between. Criminals and hucksters will always take advantage of any opportunity they can find. But the biggest opportunities for fraud and corruption will always be found in government controlled or government distorted markets. Reference the oligarchs in Russia. Reference the army and party controlled monopolies in China. Reference the housing bubble, the credit default swap scam and the resulting financial fallout in the U.S

Look, I have no problem with railing against the failed Republican corporatism/mercantilism, or the complicity and responsibility of Republican big spending, big deficit, big government, big business favoritism and crony capitalism of the last eight years in the current economic crisis. If you want, you can even make the case that the “new” Democratic corporatism and planned Democratic big spending, big deficit big government is superior because you prefer the beneficiaries of the Democratic version of state corporatism and big government largess better than the Republican version. Fine. They are variations on a theme.

Just don’t blame the “free market.” Free markets had nothing to do with this. Quite the opposite.

Excerpted from “Divided We Stand United We Fall