Active or Passive Capitalism? Not Much of a Choice

When it comes to capitalism, most proponents agree that a largely passive system (the free, in free market) is best. Keep the government out of it as much as possible. Keep the government as small and inactive as possible. The market knows best, does best, sorts best, and allocates best. 

There is truth to this. Small government, by and large, is better. 

But a desire for passivity from the government isn’t a virtue in and of itself. Capitalism as a system is resistant but not immune to injustice or inefficiency. Governments’ role is not to get out of the way but to enforce the structure that benefits society most. The work of safeguarding a free system of exchange is ongoing and ever-present. A government (or any other method by which we act collectively) must focus its efforts on sustaining those incentive structures that benefit us all the most. A free-market system will protect them well enough right up to the moment of monopoly. This is exacerbated in a state-capitalist environment we have today in North America, where the government is comfortable picking winners and losers. But it is by no means impossible in an environment where the state is completely hands-off. The free market is the best way to ensure competition, but it is not perfect, and small oligopolies that emerge spontaneously out of it can grow to become monopolies if no central power can check them. This is to the detriment of the system and society as a whole. The conversation is particularly acute in the era of state-capitalism but by no means can be limited to it. An ideological opposition to any form of central intervention in the market is understandable, but wrong for this reason. 

Let’s talk about competition. Competition is all around us, and determines a huge variety of factors in society. For instance, take our front-line heroes in the age of the pandemic. Particularly, grocery workers. Governments have been resistant to substantial change for them — their raises have been largely fairly paltry and haven’t lasted particularly long. Why not? They’re our heroes! Also, many of them are unironically risking their lives, and at the very least risking unpredictable illness for $14/hour here in Ontario. 

Why aren’t they making more? Competition. No offense whatsoever to the people that work in grocery stores, but there are a lot of people that can do that work. That’s not a criticism of how hard they work or what they have to put up with in their position or on their importance in the functioning of our society. They work hard; they put up with a lot; and we need them. But they have a lot of competition for their labor. Many people can offer the same, and would and will if they need to. So the wages they are offered are comparatively low, and benefits are few. 

Competition also explains the comparatively massive wages of, say, neurosurgeons. Their skills are highly in demand and there are few people that can do what they do. So they command a high wage. 

I’m simplifying, of course. There are a great many factors at work here (including occupational licensing and other restrictions) but these are the bones on which all else is draped. 

Extend this to companies and businesses. If many people are offering comparable services, competition forces a lower price. A McDonald’s hamburger is pretty affordable, whether you work on Wall Street or at Wal-Mart. Conversely, if few other companies offer the same services (quality of product is analogous, in this case), you can command a much higher price. 

Competition is a bedrock necessity for capitalism. It is the mechanism by which the  self-interest of the capitalists, to maximize their individual wealth and power, are bent to the betterment of society. Forced to compete, they offer benefits. Always desiring to minimize costs, we raise the floor of the minimum without flattening them against the ceiling. It’s why proponents of free markets fight such strong battles against monopolies and why companies and certain governments weasel so hard to preserve them. 

What can we learn from this? Well, essentially, that the bigger the company is, the less it likes competition. No company likes competition, to be clear. But the bigger those competitors are, the more cost-effective it is for them to annihilate any potential competitors, as opposed to improving their services. 

Why is that? Imagine that you are not a company, but a person. This is probably quite easy for you. As a person, you are applying for a job at the grocery store. You know it won’t pay that much, but that’s fine by you, because you have few qualifications or expenses, so the most important thing is getting hired. You can work for less than other people because you don’t need the money nearly as much, so you will. Ideally, you would be the only person that the store could hire and you could practically name your price, but that’s not at all realistic. You know if you want a better job, you need more skills and experience to make you more valuable. 

Now, you’ve grown up. You’ve had a few jobs, gotten a degree, and you’re ready to get set on your adult life. You have skills and experience, and apply for jobs with much fewer applicants than were at the grocery store. You get offered a better wage with a few benefits. Again, you’d like to be the only person that company could hire, because you know the wage would be better and you could get more benefits, but you’re not that qualified. 

Years later, you’ve been working in your field for a long time. You have specialized internal knowledge, contacts, and plenty of experience. A company in your field is looking for a new CEO, and you want the job. There’s less than a handful of people qualified to apply and you know all of them. You could offer to take a lower wage to outcompete your similarly qualified fellows. Or take some courses to improve your skills even further. Or simply drop, during a job interview, a couple of disqualifyingly embarrassing private incidents some of your competitors did that you just happened to record on your cell phone. Unethical? Sure. Nothing to do with your qualifications relative to the other candidates? That too. More efficient, easier, and better for you than taking a wage cut or doing even more work? Absolutely. 

This is the corporate calculus that convinces companies to collect and clip competitors. Small firms set their goals as getting acquired by tech giants for a reason; everyone knows the score here. Once the company gets big and successful enough to start to become a meaningful competitor to one of the giant corporations, the calculus says get rid of them by any means necessary. 

Is a perspective that says “As long as there’s no direct violence happening here, it’s all bueno,” sufficient here? As long as this one monolithic entity that controls everything acquired it through legitimate means, everything is fine? 

The problem is, once they control everything, they can’t be stopped. Governments are made of people. People need to eat, they need shoes, they need roads to drive on, and water to drink. To pretend that they would somehow be immune to the practical, material methods of control that monopolies exert would be pure naivety. 

So what am I saying? Just this: If you’re a proponent of the free market, understand that business isn’t. People, in general, like competition. People, in particular, don’t. The random, free-wheeling movements of a free market can result in spontaneous order, order that grows and seeks to preserve and extend itself. Much like a body’s immune system, a healthy free market needs powerful protectors that seek out such cancers and eliminate them. 

An entirely passive government in a state-capitalist arrangement will be overrun by the monopolies that form in the free-wheeling system we currently have that many call “market-based.” To be clear, I am a proponent of free markets. But no system is perfect. A mixture of random chance, the structures and laws (e.g., intellectual property) that benefit businesses, and government industrial policy can, and will, produce monopolies in so-called free-market systems and the system needs a way to clear those out. 

One of the critiques of what you might call an active government (or governing body or whatever) is that it’s actually one of the best ways to get a monopoly. Think of the too-big-to-fail ideology that leads to massive corporate bailouts and engenders increasingly reckless behavior by companies (and banks) because they know they have a near-unbreakable safety net. Such a thing is beyond unhealthy, and many would point to these as proof-positive that an active government creates monopolies. 

These are valid criticisms. Without a doubt, governments hold the power to set up  structures that create monopolies — like no other. But a monkey wrench can prevent havoc by fixing a damaged pipe just as it can be wielded to bash in brains. Hiding the wrench is a good idea when a serial killer is on the loose, but getting rid of it isn’t; you might still need to fix a flooding basement after that serial killer is dead. Government (or some other powerful central authority) can doubtless be a blunt instrument, but what its power is and how it can be bent to the public good while we deal with the realities of state-capitalism and inherently imperfect market arrangements is worthy of consideration. 

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Connor Lynch

About the Author: Connor Lynch

Connor is a professional journalist from Ottawa, Canada. He is the Editor in Chief of Speaking Liberally and a contributor.

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