There is a great deal of misunderstanding about what constitutes capitalist economics. The Left sees a world dominated by Big Business getting away with
- not paying their fair share of taxes
- lobbying to get the market rigged in their favour
- getting huge subsidies from Big Government paid for by the taxpayers
But this is not free market capitalism !
Free market economics is about the freedom of individuals to pool their capital and make a profit; or to lose everything.
Free market economics is about supplying what the consumer wants or needs. The capitalist makes money because people are prepared to pay for the goods or services supplied, at a price they are prepared to pay.
If the capitalist does not supply goods and services people want, or can afford, then that is the end of his or her business.
Free market Capitalism is fundamentally democratic. People vote with their wallets and bank cards! And it is fundamentally responsive. Where a market emerges, a supplier will emerge too. There is no more efficient system of supply; because, as Adam Smith observed, it is based on self interest.
Legitimate self interest, that is.
When Big business lobbies big government in Washington or in Brussels in order to fix the rules in their favour, they are not operating a free market; they are rigging the market.
Big Business advertising is invariably a device to dictate our reactions and inciteGot It! consumption. It reflects the immoral mentality of Edward Bernays who wrote “The engineering of consent” – how to manipulate people’s perceptions to make them conform to the manipulators intentions.
In a true capitalist free market, the consumer is the boss, not the supplier. The consumer decides, not the supplier. A free market capitalist will meet people’s needs and wants; not try to dictate those needs and wants.
A true capitalist sets up business to allow for all the inevitable expenses, including taxation. The true capitalist sees where the market is going and follows it.
Today, however, Big Business is often in bed with Big State, doing deals
- to get tax breaks,
- to get taxpayer funded subsidies,
- to get regulations passed which suit them
Right wing thinkers have a term for this: Crony capitalism.
Big State likes to control. That is the essence of Socialism. State direction and State control. And Big Corporates like to control their markets, too. They want guaranteed profits so they can guarantee a return to their shareholders; big investment funds collude in this because they are desperate to guarantee a return to their investors.
But investment in a free market is not guaranteed to deliver. It is a risk. And because it is a risk, enterprise has to make sure its business is viable.
Legitimate viability is when a product or service meets demand. Such viability does not rig the market, or make preferential tax deals with governments or insist on government subsidies as the price of getting their investment in that country, or locality.
Such activity is not just immoral, it is anti free market. Such co-operation between Big State and Big Business is a feature of fascist economics, not free market capitalism.
In 2008 we witnessed such collusion on a massive scale. Big banks started to fail. In a free and responsive market, that’s a good sign. The corrective is working. The inefficient, the stupid, the corrupt go down.
Good.
But what did Governments do ?
They moved in to save banks because western governments are accustomed to the Socialist doctrines of intervention in the market. In the UK, the government actually bought into the worst of such banks. Instead of letting it fail, they bought into it ! Needless to say, years later we saw the inevitable result. They sold off government shares for a fraction of their real value. The British taxpayer paid the bill for saving a bad banking operation.
Particularly disturbing, Governments responded to the crisis by having their central banks print money. They did this in order to buy up the toxic debt bad banks had invested in.
In a free market such banks would be allowed to fail. In a free market the example of one bank failing would serve to remind all the others to operate prudently and morally.
But we have lived with a climate of State intervention for so long that banks expect to be bailed out. Therefore, bad practice continues. The guilty are not brought to justice, and the connivance at bad practice persists.
We are witnessing the dominance of corporatist culture where everything needs to be pinned down and guaranteed. That is the opposite of a free market where bad practice reaps its due reward: failure. In a free market the situation is by nature fluid and responsive – not rigid and predictable.
The Right also wants the State scaled down with less regulatory intervention and less taxpayer money wasted.
People should be free to spend their money as they wish. They should be free to take responsibility for their own lives. That means taking the risk that they will fail – but they will then learn vital life lessons from their failure.
In Socialist-type economies, the State takes charge. So the State takes more in taxes because it has more officials to employ to enforce the increasing number of regulations, and to run the government departments spending more of taxpayers money.
Enterprise then gets penalised because taxation increases.
An example. High Street traders in the UK are paying excessive local taxes, therefore stores on High Streets in major town centres are closing. In part, this is the effect of emerging competition from Internet companies.
But there is also an element of false competition involved here because the Internet companies have negotiated special tax deals with governments. And Internet companies can negotiate special local deals to house their physical operations.
This is normal practice in France. In France all businesses have imbibed a Socialist ethic and culture. They expect State subsidies in order to be able to operate.
So the State entices businesses which should need no such ‘incentives’. The money the State spends either comes from the taxpayer [you and me !] or it comes from taking loans from international financiers. And loans from financiers place future generations under the obligation to pay back that debt. Lose – lose. The win-win scenario arises when decent profitable businesses need no such incentives; are viable; and can therefore pay into public funds from their profits – not tout for subsidies.
Successful free market businesses don’t need help !
Public subsidies, however, mean that the average consumer and taxpayer end up paying for businesses to operate. In a proper capitalist free market, a viable business will thrive, paying necessary and reasonable levels of tax. In a rigged market, however, businesses which should be standing on their own feet get paid, viable or not !
Does that mean the State has no role at all, then?
No.
The State has a duty to ensure a fair and even playing field. It has a duty to ensure the same standards and laws apply to everyone. The State should ensure what it primarily exists to ensure: the security of its people in their lives, liberties and property.
A State ensuring a level playing field fair to all, would not intervene as an actor in the market to distort the free flow functioning of the market with tax breaks, subsidies and preferential regulations.
Where the State itself is involved in procuring projects it should be particularly vigilant. It should ensure constant and independent scrutiny of the officials and businesses involved. And there should be criminal sanctions in place where public money is at stake – indeed where any investment money is at stake.
In 2018, Carillion, a multi £ billion corporate supplier to the UK government went broke. Investigation revealed that officials, directors and even auditors failed repeatedly to take appropriate action to tackle emerging problems.
The fundamental problem was a corporatist mentality: no-one took responsibility; it was seen as too big too fail; it was seen as “guaranteed” because it had large scale government contracts. It exhibited the complacency we associate with bureaucracy, not the flexibility and adaptability of an enterprise operating in a free market which must deliver a good service or product, on time and at a good price, to succeed.
So yes, the State does have a role. It should ensure fair play and so guarantee that the free market operates efficiently and responsively.
Policing the market is necessary; but controlling and directing the market is quite another. Indeed the State’s officials invariably lack the appropriate skills and culture to do that.
For an excellent introduction to the real meaning of Capitalism and its benefits, see a new Primer of Capitalism by Dr Eamonn Butler [Director of the Adam Smith Institute] and available from the Institute for Economic Affairs at
For what’s wrong in the perception and practice of Right Wing economics today, see an article by Dr Victoria Bateman at
https://unherd.com/2017/07/capitalists-not-socialists-killing-capitalism/?=refinnar
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