For too long the right has successfully painted progressives as opponents of sound economic policy, socialists opposed to free enterprise and the American Way. For too long progressives have accepted that label. I suddenly realized that it's all backwards. In fact, progressives are the ones supporting free enterprise, and conservatives have been working against free enterprise. Here's the realization:
Part of the problem is nomenclature. There are three terms bandied about: capitalism, market economies, and free enterprise. I reject the first term because it focuses our attention on the role of capital in an economy. There's nothing wrong with capital, it's just not the only thing to consider. We've just been caught up in the old dispute between Capital and Labor, as if that were the real issue. It isn't. So I'll ask all the readers to check their "Labor versus Capital" attitudes at the door. There's a way out of this head-butting contest.
The trick is to concentrate on the notion of free enterprise, which is, after all, the term that most people like to think of along with motherhood and apple pie. Nobody's against free enterprise in principle, right? The problem comes in its application. We tend to think of free enterprise in terms of its use by corporations, but I want to demonstrate that corporations (as they operate in the American economy) are profoundly inimical to free enterprise.
Let's step back and think in terms of an old economics term: "perfect market". A perfect market is one in which nobody has an unfair competitive advantage due solely to size. It's a level playing field for everybody. There are a variety of definitions of a perfect market, taking the form of "no more than X% of the market is controlled by Y% of the sellers/buyers". But these are not definitions of a PERFECT market; they are criteria for an IMPERFECT market. If a market fails to meet the criterion, then we know that it ISN'T perfect. That doesn't mean that markets that meet the criterion are perfect. It just means that they're not too bad.
But let's think about true perfection in markets. A truly perfect market would be one in which each seller has an infinitesimally small fraction of the market, and so also does each buyer. Since there are six billion human beings, we should say that a perfect market is one in which each seller and each buyer owns exactly one six-billionth of the market.
Of course, this is an ideal, not an achievable reality, but it gives us a target to aim for, and it provides us with a criterion for judging just how "free enterprise friendly" any given policy is.
Ah, but wait! What about economies of scale? These are the source of economic and technological progress. Yes, we could probably create a free enterprise utopia in which everybody sold to everybody else -- but it would be a poverty-stricken utopia without economies of scale. We use capital to build a tool (a power plant, say, or a tractor, or a shovel) and then amortize the cost of the tool over a larger portion of the market. For example, it would be stupid to build thousands of little tiny generators, one for each person. We can get a lot more electricity for everybody if we build one great big power plant that supplies electricity for a million people.
But these economies of scale work against free enterprise. The power plant is too big to be built by one person, and its market is a lot bigger than one person. So the power plant is built by a big corporation and we give it an outright monopoly on sales of electricity in its area. Not very free enterprisey, is it?
Yes, it's sad, but it does seem to make sense in the long run. The catch, the big realization I had came when I thought about corporations, not in terms of their owners, but as a means of organizing all the labor. A corporation practices free enterprise EXTERNALLY, but not INTERNALLY. Internally, a corporation is a strict command economy. The boss gives orders and the minions do what they're told.
So let's now return to our free enterprise utopia where every person sells to every other person. In pursuit of economic efficiency, we start assembling some of these people into groups called corporations in a kind of accretive process. Inside the corporations, there is zero free enterprise. Outside the corporations, there is total free enterprise. But as corporations grow in size and take over larger and larger portions of the economy, they absorb more and more people out of the "free enterprise zone" and into the "command economy zone". This is NOT good for free enterprise!
The ideal example here is Wal-Mart. There is no question that (so far) Wal-Mart has operated to the net benefit of society. More people get more goodies at cheaper prices because Wal-Mart uses its economies of scale to deliver the goodies at lower prices. Wal-Mart also uses its economies of scale in a monopolist way to get away with paying lower wages. That's not good. The net effect, in the short term, has undoubtedly been beneficial. Over the long term, however, the benefits aren't so certain. As Wal-Mart gains market dominance, it can use its dominance to the detriment of consumers, as it has already done with workers. The situation is not stable.
The problem here is that people have been taking a symptomatic approach to Wal-Mart. They want to force Wal-Mart to pay higher wages. That approach doesn't address the real problem. The real problem is that Wal-Mart has access to suppliers that its competitors lack. The solution is not to drag Wal-Mart down, but to pull the competitors up. What we really want is a more information-rich marketplace in which mom-and-pop hardware stores can get online and buy directly from the Chinese manufacturer, getting the same price breaks that Wal-Mart gets.
Now, at this point, you're probably objecting that mom-and-pop just don't have the buying power that Wal-Mart has. That organizing shipping is too difficult for one-stop operations. To which I reply: No, Wal-Mart does it. Think of the entire process as a big black box. All sorts of different goodies from all over China are assembled and shipped to all sorts of different Wal-Mart stores all over America. How? By means of complicated logistical arrangements made possible by computers and software. OK, so howcum that software and those computers have to be owned only by Wal-Mart? Why can't a competitor build a system and compete with Wal-Mart?
Yes, yes, there are lots of complicating details here, but the basic principle is that corporations don't really add anything unique to the economy. All the benefits that corporations (in their current form) bring to the economy could just as readily be accomplished by much looser economic agglomerations. Take granges, for example. These are corporations, too, but they aren't like normal corporations. A grange (or a cooperative, for that matter), is a PARTIAL agglomeration of agents, each of whom still operates as a free enterprise agent. The employees of a corporation are wage slaves, but the members of a co-op or a grange are still entrepreneurs.
So has the point of this long excursion been only to bring us full circle to economic experiments with granges and co-ops of more than a century ago? Not quite. There are two additional factors to consider:
- Corporations use governments to capture power. The labor movement has taken the attitude of "fight fire with fire": if the corporations can lobby the government, then so can we. This is a blunder of colossal proportions. The corporations will always have more money to buy politicians than labor will have. The government will ALWAYS be on the side of the corporations, against the little guy and against true free enterprise. Ergo, the solution is not to fight for bigger government to control the corporations; the solution is to fight for smaller government so that corporations can't purchase as much power. Did anybody notice that the latest energy bill had billions and billions of subsidies stuffed into it to benefit corporations? These people have turned the US government into a corporate profit center.
- Improving communications technology in the form of the Internet is making it easier to compete with large corporations on matters that were once their biggest advantages. For example, it wasn't long ago that anybody who wanted to do a patent search had to go to the patent library and delve through stacks. Now it's all online; anybody anywhere with the patience can dig up the information they need to get a patent. It's still a lot of work, but one of the biggest advantages of the big corporation just evaporated. In the same way, you can already buy directly from some small Chinese operators; it won't be long before Wal-Mart's advantage shrinks.
Now let me summarize and emphasize the points that I think are important:
- Progressives should not oppose free enterprise; they should embrace it, wave its flag proudly, and declare themselves its defenders.
- Progressives should oppose corporate abuses of free enterprise, not free enterprise itself. The slogan should be "Let's make free enterprise FREE!" Get the corporations out of the government feeding trough. Get them out of the rule-making business. Get them out of government altogether.
- Corporations are intrinsically inimical to free enterprise. A corporation is a command economy, a totalitarian entity that fails to make best use of the energies of its workers. Just as classical civilization (Greece and Rome) failed because it was a slave-based economy, so too must corporate civilization be pushed aside because it is an employee-based economy. Entrepreneurs are more productive than employees, who in turn are more productive than slaves. We have the wherewithal to build an economy where everybody is an entrepreneur; that's where we should be taking our country. Not down the path of corporatism.
Long live free enterprise! Long live freedom!