I find many aspects of capitalism to be frustrating, particularly the claim that markets must remain largely free of government regulation, even when such regulations are clearly targeted at helping individual people. That frustration is, in fact, what spurred my current series of essays on the interactions between government and the economy.
Problems with laissez-faire capitalism
I think the most significant issue I have with capitalism is that most employees are largely treated on the same level as animals and other resources. Although they can, in theory, choose where they work, in practice, those choices are often limited by fear of being without income during an extended job search, geography, a lack of formal education.
Customers, especially once a corporation gains monopoly power, may be treated as just another form of financial “resource.” As long as they provide positive net income to the corporation, and as long as they have no alternative other than paying for the corporation’s goods & services, they must accept objectively poor service, as well as the company’s abusive and exploitative actions. High on the list of any monopoly’s priorities is maintaining its monopoly.
Similarly, if a corporation can make a better profit by contributing to ongoing criminality, it may do so. Bankruptcy and limited-liability laws allow corporations to pass the costs of environmental damage on to others while the executives running them get fully paid. Companies may also risk the safety of their products in favor of increasing profits.
The “tragedy of the commons” applies in many ways: Corporations benefit from a highly educated workforce, but may prefer to hire new workers than spend time and money training existing ones. Managing the environment often requires collective action: Individual companies often have little to gain by acting responsibly, but society as a whole suffers if few people prioritize the environment.
Money is worth the same amount and has the same purchasing power no matter whether the person holding it inherited their wealth, made the money through criminal activity but evaded charges until the statute of limitations expired, made money through activity that was later declared illegal, and other loopholes. All such persons have every bit as much economic authority as someone who worked long hours with great dedication, skill, and selflessness to earn their money: Laissez-faire capitalism does not care.
If a company fails, its executives may still make plenty of money which can be used to sustain themselves until they find a new job / investment opportunity, but subsistence-level workers may lose health care, food, housing, etc. Similarly, capitalism’s tendency toward oligarchy and hereditary wealth means that incompetent and unqualified individuals who happen to be born into wealth maintain power throughout their lives.
To the extent that proponents of capitalism acknowledge the above issues, they claim they are outweighed by capitalism’s benefits. However, those benefits themselves accrue only under certain conditions, which the free market is ill-prepared to guarantee:
Free-market capitalism assumes everyone has perfect knowledge of the future and all available options. This is the central method by which consumers are assumed to operate the “Invisible Hand”: Whatever their income level, all persons seek to maximize their own profit and, in so doing, supposedly work together to find the most effective goods & services for the least cost. However, this glosses over the real difficulties of alerting the market to the full range of options, the benefits of having an established brand, and the ability of a few large companies to undercut competitors and drive them out of the market. In addition, it ignores widespread ignorance (or willful deception) about common products and contracts.
Corporations that become sufficiently large gain more power and greater insulation from market forces, regulation, and bad press. Scholars focusing on the correlations of firm & industry sizes with lobbying expenditures dispute the claim that corporations use their wealth and political connections to improve their market position.
The laissez-faire arguments, however, give no reason why corporations would forego political influence. They also neglect - or consider to be counterexamples - corporations moving public opinion via local activity, broad advertisement and issue advocacy. Studies of corporate influence may also ignore issues related to the revolving door between corporate & political influence, the power of large federal contractors to set prices and terms, etc. Capitalism’s defenders provide no clean resolution of Tullock paradox “Why are corporations spending so little on government influence?” There are several potential resolutions, including:
Non-monetary costs of exposing the deal may decrease the reporting of lobbying expenditures, and make rules describing what does and does not count as lobbying strict, so that most lobbying money isn’t counted.
Collusion between multiple influences which focuses lobbying activity on goals shared broadly by corporate & wealthy individuals but at odds with the majority of the government’s voters / constituents / subjects.
Broad-based activity to shape opinions across people outside those immediately responsible for decision-making is marketing and advertisement. While costs associated with explicitly lobbying are measured in the tens of millions of dollars per year, costs associated with marketing are measured in the hundreds of billions of dollars - ten thousand times higher.
Scions of economically-powerful companies have more opportunities for political power, and may make decisions in favor of corporations without needing to be lobbied.
None of these possible explanations is favorable to capitalism as a tool for raising societal standards of living.
Capitalism’s apologists conclude that anti-trust initiatives are doomed to backfire, claiming instead that the most effective way to prevent rent-seeking is to give the federal government minimal power and authority. However, removing power from the government does not mean it will be exercised by the collective activity of numerous typical individuals. The power surrendered by a democratically-elected government may instead be exercised by small numbers of wealthy individuals and the corporations they control. If power is heedlessly removed from a democratically-elected government, it becomes another form of government in all but name - a government that is neither transparent, nor accountable, nor interested in the health & well-being of its constituents.
Sometimes there is broad agreement among large corporate actors that may be in conflict with most individuals’ interests:
Bias motivates many decisions, but there’s no inherent, universal way to track or correct for it.
Emphasis on lowering taxes misses the case that may be the best way to lower costs for society as a whole: In health care, for example, Americans pay higher costs for shoddier service because the government has stepped aside and largely left regulation and standards to unaccountable profit-seeking entities.
Structural forces in Western-style laissez-faire capitalism may promote inequality, to the benefit of a few well-connected individuals and the detriment of the poorer majority.
To be sure, there are examples of corporations who do well by their employees and contribute positively to society as a whole, despite the moral and ethical lapses I’ve described above. All these complaints share a common thread: In laissez-faire capitalism, profit tends to win out over more high-minded concerns. Costs affect people who did not choose them or reap the corresponding benefits.
Possible solutions to capitalism’s excesses include increased transparency for corporate and governmental decision-makers, increased inheritance taxes, progressive tax rates, and decreased protections for intellectual property. It is very challenging for individuals acting alone to enforce such standards, and corporations will be slow to enforce them fairly as long as their profits are threatened by them. To fix these issues, we need government, broad education, healthy journalism, and an engaged public.