At Center For Individualism, we are 100% pro-capitalism. But it is important to recognize that there are trends in democracy that encourage an unholy alliance between big business and government, which undermines the first principle of free markets. Professor Randall Holcombe calls this phenomenon Political Capitalism.
In the 1940s, economist Friedrich Hayek said in his book, “The Road to Serfdom,” that the road to serfdom was socialism. Economist Joseph Schumpeter, in “Capitalism, Socialism, and Democracy,” feared that socialism would displace capitalism even though capitalism was a better system.
In the 21st century, self-proclaimed socialists like Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) are keeping the fears of Hayek and Schumpeter alive. Those fears are misplaced. The biggest threats to capitalism aren’t socialists, they are capitalists.
While socialists float aspirational ideas for a better society, capitalists conspire with the political class to enact policies that benefit the political and economic elite at the expense of the masses.
The result is that business profitability increasingly comes from political connections rather than by satisfying the demands of consumers, undermining free markets and the capitalist system.
This is widely recognized, if not widely understood. People talk about cronyism, corporatism, the division between the 1 percent and the 99 percent and the threats of the military-industrial complex. In my recent book, I call this phenomenon “political capitalism” and explain how it undermines the market system and threatens capitalism.
When capitalists tout pro-business policies, they inevitably are talking about policies that use trade barriers and regulatory impediments to give themselves advantages over competitors.
They work the political process to get subsidies and tax breaks that benefit themselves but impose costs on everyone else. Policies advertised as “pro-business” are almost always anti-free market and anti-capitalism.
Political capitalism encroaches upon free-market capitalism because public policy is made by an elite few who have an incentive to use the policy-making process for their benefit. Think about the Occupy Wall Street language in which public policy benefits the 1 percent at the expense of the 99 percent.
But critics of our current system, including socialists, too often want more government programs and more government oversight to remedy that problem. These critics should recognize that an elite few create public policy; giving the government more oversight power means giving more power to the 1 percent.
Political capitalism is enabled by the ideology of progressive democracy. Progressivism has, from its beginning, advocated the use of government power to impose costs on some for the benefit of others.
Originally, it was designed to redistribute the wealth of those with concentrated economic power — the so-called “robber barons” like Rockefeller, Carnegie and Vanderbilt — for the benefit of those who claimed to be victims of that power.
21st-century progressivism retains its “share the wealth” ideology, which justifies imposing costs on some for the benefit of others.
Democracy is a great mechanism for peacefully determining who exercises political power, but the ideology of democracy goes beyond this, to depict democracy as a mechanism for identifying the public interest, as determined through a democratic decision-making process.
The ideology of progressive democracy enables political capitalism because it justifies policies that impose costs on some for the benefit of others. Public policy is designed by an elite few. When those elite few design policies that benefit themselves, the ideology of progressive democracy justifies those policies as furthering the will of the people.
Protective tariffs? Regulatory barriers to thwart competitors? Tax breaks? Pro-business subsidies? These are the hallmarks of political capitalism, enabled by the ideology of progressive democracy, that undermine free markets and a capitalist economy.
To echo Ronald Reagan, government isn’t the solution, it’s the problem. The way to preserve the prosperity that has come with free markets is to limit government and sever the connections between the economic and political elite — to return to a system in which cronyism and political connections do not enhance business profitability.
Capitalists — the beneficiaries of free markets — lobby government for tax breaks, subsidies and protectionist policies rather than supporting competitive markets and a level economic playing field. They don’t defend the free-market system that has made everyone more prosperous.
Contrary to popular belief, the biggest threat to capitalism doesn’t come from socialists; it comes from capitalists.
Randall G. Holcombe is the DeVoe Moore Professor of Economics at Florida State University. He is the author of “Political Capitalism: How Economic and Political Power is Made and Maintained.”