The Corporation’s Evil Twin

A while back a commenter here seemed obsessed about “the corporations,” even labeling me a shill for them. (I’ve never even worked for one.) But many do talk as though corporations and their “greed” are the root of all evil in today’s world.

These corporate-obsessives seem oblivious to the emergence of a new beast in the industrial ecosystem: what The Economist calls state capitalism. The magazine recently took a close look at this, and didn’t like what it saw.

 State capitalism refers to governments not just intervening in the economy but owning chunks of it. Yes, it does hark back to old-time socialism, much though that tainted word is shunned. It’s true that in the 1980s much socialism was unwound with many state-run businesses privatized. But in the ensuing decades, especially in the last one, and especially in the “emerging world,” governments have crept back into business, most notably in Russia and China, where state-owned enterprises dominate their economies. In many other places, governments have found they needn’t own businesses outright, they can simply own shares, even minority stakes. Indeed, tweak the laws a bit and a government can control a company with a small minority of shares.

In today’s world, capitalism may have swept the board, but now we see there is still a battle, between two models of capitalism – between free market capitalism of the American sort, and state capitalism.

The Left is inclined to look favorably on the latter. After all, they’d say, far better that a business be controlled by a government “for the people” rather than just for private profit. A seductive trope perhaps. But let’s think it through.

The Left does indict private corporations as caring only for profits. And it’s true in the sense that they must earn profits to stay in business. But the Left fails to carry the thought further to realize how this is a strait-jacket constraining corporate power. It means a corporation can’t do whatever it wants; the only sustainable way to earn profits is to satisfy customers. A profit-seeking private corporation that doesn’t in some way serve public needs must ultimately fail, and its serving public needs is measured unforgivingly in dollars and cents.

But think how much more powerful that corporation can be if you remove the need for profit. Now it really is unrestrained in doing as it pleases. And that’s exactly what state capitalism entails – a government-run business needn’t worry about profit (many have racked up losses for decades) and, hence, about satisfying any public needs. That’s why state-run enterprises are so often cesspools of corruption, patronage, and political manipulation. Look how Hugo Chavez in Venezuela has exploited control of the state oil company and other enterprises as parts of his political machine. It’s crony capitalism at its worst.

All this, as The Economist concludes, is a bad thing. Because even without being in business, and even in democracies, governments are already over-powerful, already controlling a sizeable slice of the economic pie. While governments are supposed to be accountable to the broader public, we know that with so many billions at stake, corruption is inevitable, and that huge armies of people working for government, even when not corrupted by private interests, often serve their own interests which needn’t match the public’s. But at least a separate and vigorous private sector, of business institutions not controlled by government, provides a counterbalance, an independent locus of economic and societal power. However, when government starts taking over that sector too, the harm is obvious, and all the baneful effects of over-mighty government metastasize. Look again at Venezuela where that counter-balance has been largely destroyed.

 Those who fear corporate power ought to fear it even more when it’s married to the power of government.

I am a great believer in democracy, and that democracy is ascendant in the world. But even if democracy triumphs completely, I believe humanity’s great challenge in the 21st Century is still wrestling with the colossal power of the state.

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One Response to “The Corporation’s Evil Twin”

  1. Joe McLeod (@tjmcleod) Says:

    Joe McLeod (@tjmcleod)Partial privitisation in NZ a move in the right direction 4 the wrong reasons!

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