Crony Capitalism and Its Remedy
If you read my last article, “What Is a Humane Economy?,” you will notice that in there I brought up the subject of whether large corporations seek money or power. I said that if they seek power, it is only because they seek money, which is their raison d’être. Well, this article was a paper I gave at a conference of an academic society. The format of the panel I was on was that each of four participants gave their papers, then responded to questions from the panel, and then responded to questions from the attendees. Mine was the last of the four papers. The first was by a very radical distributist who, I found out later, has no graduate credentials in anything, and said he teaches theology at a good Catholic university down south. I looked at the website of this university and his name does not appear there. Be that as it may, the only “question” anyone asked from the panel was this guy asking something about my paper. I put the word question in quotation marks because he did something I have never seen at any academic conference since I have been either attending or actually giving papers in over forty years: He shouted his question at the top of his lungs, saying: “How can you say that corporations don’t seek power?” I felt like replying in an Inspector Clouseau fashion: “Well, I just opened my mouth and the words came out.” But I didn’t. I tried to answer the question, but he kept shouting his question, phrasing it in various ways. I had to shout over his shouting. Finally, in desperation, I said that we would have to agree to disagree and get on with it. No one else on the panel had any question for anyone else. Incidentally, his paper was a hodgepodge of non-scholarship and ranting, such that if I wanted to question or critique his paper, I would not even know where to start.
There are two lessons from this episode. The first one is that distributism is merely an ideology. And distributists are unhappy folks, because this is not the first incident of this type I have witnessed, just not at academic conferences. If distributists had good arguments, why do they not discuss them in a mature way? But they either use trickery, like asking the speaker trivial questions they know the speaker can’t answer, or merely shout their way through. The reason is that an ideology has, by definition, no convincing reasons. It is merely taking an idea, usually unproven, and building a logical system around it. This is why they do not like probing questions. For example, in a meeting of distributists a student of mine asked how this distributist society is going to come about since there is absolutely no real movement in society toward it. Would it have to be imposed by the government? Everyone in the room got furious with this student for even asking the question—a proof that we are dealing with an ideology. (For a good discussion of probing questions and ideology see, Eric Voegelin, Science, Politics and Gnosticism [n.p.: Regnery-Gateway, 1968].)
Now for the heart of the question. I do not agree with Milton Friedman that the whole purpose of a company is to make a profit. The purpose of a company is to produce something that the founder of the company believes is beneficial to the public. Studies of entrepreneurs have borne this out. But the desire to do this cannot be fulfilled unless the company brings in more money than it spends. The difference between the money it spends and that which it brings in is called profit. As Pope John Paul II said in Centesimus Annus, profit is the sign of the health of the company. In addition, profits are returned to stockholders, who ponied up the money for the company to begin with. They would not have done this without some expectation of a return on their money, which they would have put into a different enterprise. Profits are also plowed back into the company for research and product development so that the company can produce better products.
Why, then, do large companies seek favors from government? They do so because the government will give them privileges which make it easier to make more profit. One way to do this, believe it or not, is to insist that government regulate the industry, because regulation costs companies money, and smaller competitors cannot afford dealing with the regulations, and go out of business, thus limiting competition for the original firm. The same is true of tariffs. Why do corporations not want power? Because power is not money, and they are judged on the basis of money, not power. When the CEO goes to a stockholders meeting, bragging about how often he has been in the White House, it does him no good if the company is failing. But if the CEO has been to the White House and has persuaded the President of the United States to suppress the competition in some way, and that has resulted in an increase in revenue, the stockholders are happy.
The reason that distributists and others do not understand this is because, repeating myself, their views are pure ideology. The value of any writer’s or speaker’s thought comes not from whether you like it or not, but from whether it jives with human experience. Distributism does not. Capitalism does.
But how do we solve this tendency to get government favors for some businesses so that they prosper over those who did not get favors? The remedy is to prevent government from getting involved in the economy. If government were strictly prevented from any interaction with companies for any reason, and this could be monitored, crony capitalism would end. A company would have to survive on its own effort and newcomers to the industry would have a better chance to compete, as well as foreign suppliers. Prices would go down, and the people of the US would not be paying for massive bailouts in exchange for votes for politicians.
There are two lessons from this episode. The first one is that distributism is merely an ideology. And distributists are unhappy folks, because this is not the first incident of this type I have witnessed, just not at academic conferences. If distributists had good arguments, why do they not discuss them in a mature way? But they either use trickery, like asking the speaker trivial questions they know the speaker can’t answer, or merely shout their way through. The reason is that an ideology has, by definition, no convincing reasons. It is merely taking an idea, usually unproven, and building a logical system around it. This is why they do not like probing questions. For example, in a meeting of distributists a student of mine asked how this distributist society is going to come about since there is absolutely no real movement in society toward it. Would it have to be imposed by the government? Everyone in the room got furious with this student for even asking the question—a proof that we are dealing with an ideology. (For a good discussion of probing questions and ideology see, Eric Voegelin, Science, Politics and Gnosticism [n.p.: Regnery-Gateway, 1968].)
Now for the heart of the question. I do not agree with Milton Friedman that the whole purpose of a company is to make a profit. The purpose of a company is to produce something that the founder of the company believes is beneficial to the public. Studies of entrepreneurs have borne this out. But the desire to do this cannot be fulfilled unless the company brings in more money than it spends. The difference between the money it spends and that which it brings in is called profit. As Pope John Paul II said in Centesimus Annus, profit is the sign of the health of the company. In addition, profits are returned to stockholders, who ponied up the money for the company to begin with. They would not have done this without some expectation of a return on their money, which they would have put into a different enterprise. Profits are also plowed back into the company for research and product development so that the company can produce better products.
Why, then, do large companies seek favors from government? They do so because the government will give them privileges which make it easier to make more profit. One way to do this, believe it or not, is to insist that government regulate the industry, because regulation costs companies money, and smaller competitors cannot afford dealing with the regulations, and go out of business, thus limiting competition for the original firm. The same is true of tariffs. Why do corporations not want power? Because power is not money, and they are judged on the basis of money, not power. When the CEO goes to a stockholders meeting, bragging about how often he has been in the White House, it does him no good if the company is failing. But if the CEO has been to the White House and has persuaded the President of the United States to suppress the competition in some way, and that has resulted in an increase in revenue, the stockholders are happy.
The reason that distributists and others do not understand this is because, repeating myself, their views are pure ideology. The value of any writer’s or speaker’s thought comes not from whether you like it or not, but from whether it jives with human experience. Distributism does not. Capitalism does.
But how do we solve this tendency to get government favors for some businesses so that they prosper over those who did not get favors? The remedy is to prevent government from getting involved in the economy. If government were strictly prevented from any interaction with companies for any reason, and this could be monitored, crony capitalism would end. A company would have to survive on its own effort and newcomers to the industry would have a better chance to compete, as well as foreign suppliers. Prices would go down, and the people of the US would not be paying for massive bailouts in exchange for votes for politicians.
In regards to corporations these days wanting power - look at GE. The CEO is best friends with the President, ships most of their jobs overseas, lobbies the President and Congress for government contracts and for changes in laws to prevent competition from receiving government contracts, and thus makes $80 billion in profits without paying any taxes. GE hasn't necessarily increased their revenues as much as lowered their costs (namely payment of taxes and payment of higher salaries in the US). GE actually could make more money but no corporation has more power than GE. And they exist to provide a greater good for the American society (if so, you have been hanging around their marketing department too long)? P.S. Have you seen what the stock price of GE has done in the last 3 years?
The following seems like a good argument against the status quo. http://www.fultonsheen.com/Fulton-Sheen-articles/T...
Distributism as a model has been shown to be successful (i.e. Mondragon in Europe). And until someone can address adequately the problem of the injustice whereby workers (working in unfavorable conditions) are exploited for profit that capitalism tends toward I'll favor distributism. I understand that in the free market shareholders ostensibly share the wealth, but too many are left out of the equation.
"When economic power became concentrated in a few hands, then political power flowed to those possessors and away from the citizens, ultimately resulting in an oligarchy or tyranny." -John Adams
"As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.'
-Abraham Lincoln, November 21, 1864