Corporations vs. the Free Market

Phenomenal article from Cato today about why libertarianism is not pro-corporate, and why people tend to think it is anyway.

I’m tempted to just paste the whole article here.  Or better yet, print out copies and carry them around with me.  It’s that good, and that important.  This is the fundamental misunderstanding that seems to plague most of the political discussions I get involved in: that libertarians, as "capitalists", are pro-corporate and readily embrace a society in which immense conglomerates reign supreme.  Yet as Roderick Long, the author, points out:

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.
As a classical liberal/libertarian free marketeer, I certainly don’t see giant corporations as the natural and desirable outcome of open markets.  Corporatism is at least partly a product of government intervention: 
Corporations tend to fear competition, because competition exerts downward pressure on prices and upward pressure on salaries; moreover, success on the market comes with no guarantee of permanency, depending as it does on outdoing other firms at correctly figuring out how best to satisfy forever-changing consumer preferences, and that kind of vulnerability to loss is no picnic. It is no surprise, then, that throughout U.S. history corporations have been overwhelmingly hostile to the free market. Indeed, most of the existing regulatory apparatus—including those regulations widely misperceived as restraints on corporate power—were vigorously supported, lobbied for, and in some cases even drafted by the corporate elite.[1]

Corporate power depends crucially on government intervention in the marketplace.[2] This is obvious enough in the case of the more overt forms of government favoritism such as subsidies, bailouts,[3] and other forms of corporate welfare; protectionist tariffs; explicit grants of monopoly privilege; and the seizing of private property for corporate use via eminent domain (as in Kelo v. New London). But these direct forms of pro-business intervention are supplemented by a swarm of indirect forms whose impact is arguably greater still.

Long procedes to lay out a laundry list of more subtle but pervasive ways in which the government colludes with big business to secure their standing.  Things like regulations which unduly burden smaller companies, or standardize a product in a way that removes the possibility of competing on quality (higher or lower).  And public works programs that establish free infrastructure.  And then there’s tax breaks:
…when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.
He also hits on one of my chief points of contention the libertarian/corporatist conflation: the environment.
Government favoritism also underwrites environmental irresponsibility on the part of big business. Polluters often enjoy protection against lawsuits, for example, despite the pollution’s status as a violation of private property rights.
In a nation of true liberty, equality, and rule of law, every citizen would be empowered to sue every company that contaminated their water, choked their air, or poisoned their earth.  Imagine a world where a hundred million Americans all bring suit against coal power for polluting the air.  Does that sound like a corporate paradise to you?

Long puts the blame for the confusion of libertarianism with corporatism on three groups: modern liberals, for insisting the two are synonymous; conservatives, for adopting the language of the free market in order to pursue decidedly non-free market ends; and libertarians themselves, for failing to a) subject their own opinions to internal consistency checks; and b) be clear.  A lot of people, libertarian and non, get their notion of what a free market means from Ayn Rand, for example – and Rand had some blind spots when it came to corporations (among other things).

Things are looking up though:

Happily, the left/libertarian coalition is now beginning to re-emerge;[22] and with it is emerging a new emphasis on the distinction between free markets and prevailing corporatism. In addition, many libertarians are beginning to rethink the way they present their views, and in particular their use of terminology.
I count myself among those who welcome the return of the left-libertarianism that so tragically vanished with the demise of the sixties.  I am an advocate of freedom, not of corporatism.  It’s true, I will never be against the very existence of corporations, as some on the far left do.  Freedom means the ability to form any kind of consensual organization, and the for-profit corporation is as valid an organization as the commune.  But I dream of a world where corporatism is held in check by the rule of law and the natural predations of the market, not fed and groomed at the State’s expense like some emperor’s palace tiger.

If you have any interest at all in understanding my worldview, or in ever having a meaningful political debate with me, please go and read the full article.

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  1. I agree.

    The tax laws are designed to be instruments of social engineering and market manipulation.

  2. I read the whole thing…

    .. but I don’t think you’ll get much of a debate out of me..

    I pretty much agree with most of the stuff he says… But, for the sake of argument, some thoughts…

    1. If I were to put on my scholar’s hat, I’d say that his footnoting and sourcing is a bit –if only a bit–on the thin side. Perhaps this is because he’s a philosopher and I’m a historian, and never the twain shall meet in terms of how their argumentation is structured or justified, but I found his reliance upon just a few kinds of journals (The Freeman?) for many things to be a bit weak if you were going to make a historically justified argument–as he seems, at least implicitly, to want to do.

    Noting this Caveat–I don’t really disagree with his points. If anything, I had suggestions for bigger works that he could have mentioned to bulk up his points. Alfred Chandler’s The Visible Hand is a classic book on managerial capitalism and describes in detail how early 20th century corporations said “fuck you, competition, we want something easier!” and began moving towards much more hierarchical and in-depth corporate structures to reduce competition–and in their minds–thus reducing all the waste created by competition. There are other additions that I would have made in his cites too–but this is the kind of thing I’m talking about…

    2. Really, I agree with most of this points–even if I think his grand statements could always be a bit more circumspect in his statements. For example–on the point of corporations calling for their own regulation–sometimes this is true–but I wouldn’t describe it necessarily in the way he seems to imply. He notes that often Government intervention with regulations has the effect of creating regulated markets that are dominated by a firm–i.e. that monopolies or near monopolies are caused mostly by this intervention.

    Partially, I think this can be the case. However, a small stipulation in this reading of history is that much of this regulation has occurred whenever “Business-friendly” parties in power have basically let these businesses write their own legislation. This has most often been the case when Republicans have been in power–although not always. When more lefty-ish (we’ve never actually had a leftist gov’t in the US in my view) take power–the regulation has often been less of this kind–and more of the kind that is not driven by corporations and actually accomplishes the goal of defending the property rights of a greater mass of the American Public.

    The importance for me in this distinction is that looking at the whole process of regulation–and blaming its problems of corruption as a systemic error–as it sometimes seems to me that certain libertarians want to do–is not quite so accurate. There is GOOD and BAD governance on this score–and using only the examples of the bad to throw the entire system out is a weak kind of argument–because such kinds of arguments can be used to justify the elimination of almost every institution or philosophy in human culture.

    Anyway.. that’s just my little liberal caveat here–on theoretical grounds. Pragmatically, I bet that what I consider to be the proper extent of government intervention in helping to form the basic structures in which free markets can operate (a sort of medieval town analogy–where the state has to provide town walls and some legal enforcement to allow the merchants to carry out their markets safely and efficiently) is not all that far from what the author thinks..

    Basically, I think the gov’t should be large enough to provide security, to engage in infrastructure projects that benefit everyone (and manage those), and to be big enough to take on the largest corporate groups (both in terms of capital and labor) and be able to exercise hobbnesian authority to keep such groups from wrecking the overall system with their selfish interests (which are natural and not bad because they are selfish per se..).

    On this score, I’m open, as we’ve discussed earlier, to many more market oriented systems to replace many current functions of government–such as the FDA, ATF, and others..

    Now I need more coffee!

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