Tuesday, April 19, 2005

A Libertarian Critique of Corporatism

Our English Libertarian friend Dr. Sean Gabb has been speaking out on numerous issues as the British parliamentary elections approach, always from his decidedly principled and uncommon point of view (particularly rare in Britain). Dr. Gabb recently spoke at a joint conference between Christian Aid and Oxfam in London (after midnight, for some odd reason).

The conference was about Free Trade Versus Fair Trade—yawn—but Dr. Gabb characteristically turned things on their head by moving straight to a central principle that is very seldom discussed: in this case, the favoritism governments show toward corporations as opposed to individuals and partnerships, and the consequences of that treatment. Here is an excerpt:

"If you think that I came here tonight to defend multinational corporations and the international government institutions, you have chosen the wrong person. These are dishonest. They are corrupt. They are incompetent. They have blood on their hands.

"But do not suppose for a moment that the world trading order as it actually exists is liberal or more than incidentally connected with free markets. A free market is a place where individuals and groups of individuals come together to transact voluntary exchanges without any backing of government force. To call the actually existing order liberal—or "neo-liberal"—is as taxonomically accurate as calling the old Soviet Communist Party syndicalist. That order is based on tariffs, subsidies and a web of other often invisible regulations. The international institutions are a projection of Western states. The multinational corporations are creatures of these states. They shelter behind the privilege of limited liability. They get their political friends to cartelise markets, and do favours in return.

"This is not market liberalism. It is a fraud played on us all by our ruling classes—these being those politicians, bureaucrats, educators, lawyers and media and business people who derive wealth, power and status from an enlarged and activist state.

As a result, Gabb does not support the current free trade system, although it is far better than the presently offered alternative, so-called fair trade. "But give me a straight choice between this and the economics of the jungle that is fair trade," he said, "and I will choose the present system. Global corporatism may be unfair. But it does at least allow some wealth to be created. It does allow at least some rational economic calculation. Fair trade simply gives even more power to politicians and bureaucrats and favoured business interests in poor countries—that is, to the very people and interests that made and have kept these countries poor. "

In his accompanying comments available on his website, Gabb elaborates on the matter of corporatism:

". . . I grow increasingly convinced that allowing the creation of joint stock limited liability corporations was one of the greatest legislative mistakes of the 19th century. Their existence is based on a separation of ownership from control. The owners are released from all responsibility. The controllers form a separate class of corporate bureaucrats little different in outlook from civil servants. The usual psychology operates. They will commit immoral acts for their organisations they might not consider committing for themselves. The owners will assent. The legal privileges and unlimited lifespan of these corporations let them grow to enormous size and wealth. The opportunities exist for highly effective immorality. Collectively, they become part of the state apparatus, and work to destroy true, unregulated enterprise.

"These corporations could not exist in any natural economic order. I have heard other libertarians argue that they might emerge without legal privilege on some loose contractual basis. But I do not agree. The shareholders would still be liable in tort, and that alone would deter them from any involvement with a business that they did not personally control. As for the utilitarian argument, that large undertakings need large companies, I also disagree. So long as it showed an acceptable return on investment, there is no project too big to be taken on by clusters of sole traders and partnerships. No doubt, things like the Channel Tunnel would not have been built–but I fail to see how not having that would have made the world a poorer place. Even if some highly valuable projects might not be undertaken, their lack would be compensated by the greater general innovation to be expected in an order of small, unregulated firms.

"Indeed, the matter of what to do about the corporations is more interesting to me than world poverty. As I said in my speech, people in places like black Africa are poor because they have maniacally corrupt and oppressive governments. They would do better even with the most cartelised global corporatism than left in the clutches of their own rulers. And that is it. But how can this corporatism be replaced by a system of voluntary exchange between legally responsible small firms? I think I have a few answers here, but will give these at another time."

Gabb's search for the true liberal position on economic matters is a fascinating one, and his critique here is strangely reminiscient of G. K. Chesterton's views on economic affairs. I look forward to Dr. Gabb's continuing analysis of corporatism and the potential liberal alternatives.

1 comment:

Jay D. Homnick said...

As a very young man, I heard a great Jewish scholar offer essentially this critique of corporations, the idea that it is intrinsically immoral to create entities that are insulated from the consequences that society imposes on immorality. I am not certain that I concur, but it is certainly a principled position born in a heart that strives for virtue.