Immense corporate power – an outcome of libertarianism?

Myth #1 – If society were organized along libertarian, voluntary principles, it would be ruled by rich oligarchs wielding titanic corporate power.

This meme looks at the current predicament of the world, which is indeed dominated by corporate power and deep-seated banking interests, and then projects that onto what a libertarian society would look like. It would be like criticizing the privatization of internet service providers by looking at the failings of a State monopoly.

This myth makes no sense whatsoever, because corporations are a product of the State, and cannot exist without them.

Many people seem to forget that corporations are a fairly recent invention. It wasn’t until the 17th century that corporations, like the East India Trading Company, really developed. But these entities only grew the way they did within an artificial legal framework created by the State.

Limited liability laws

Legal frameworks such as laws allowing incorporation, and more importantly, laws restricting the liability of people operating within a corporate entity – i.e. limited liability laws, create entities that cannot exist without the coercive power of the State.

In a libertarian society built along voluntary lines, corporations, if they even existed, would exist in a very different form. At best, they would be loose organizations for the production of goods and services of economic value, but operating with no legal privileges. Certainly, we would not see the kind of corporate power the Military-industrial complex, Monsanto, Apple, or any of the other giants possess today.

As it stands, if someone creates an environmental disaster, an unsafe product that kills many people, or commits great fraud, the likelihood is that their greatest punishment will be a fine. Not a personal fine mind you, a fine for the corporation.

It might even come to pass that someone will be forced to take the fall for what the higher-ups no doubt had a hand in, thus creating a scapegoat for media attention. Consider that since the 2007/8 economic depression began, no bankers have yet been arrested (to my knowledge), despite massive cases of fraudulent behavior. Something tells me that if these people had unlimited personal liability, that is to say that their person and their property were up for grabs as settlements for wrongdoing, things would be looking a little differently right now.

The fact is that as soon as a corporation’s power gets large enough, they realize that in order to remain competitive, they have to resort to lobbying and political games – because all of their competition are doing it too! Corporations draft bills (some insurance companies may have written Obamacare, for example), and ensure the passing of laws that deliberately and effectively raise barriers to entry into their field.

Licensing laws

Licensing laws impose a fixed price upon every company operating in a particular field, regardless of their size or revenue. That means that large companies can spread the licensing costs over a large volume of manufactured goods, reducing their licensing costs per unit until they become irrelevantly low.

Smaller entrants however are forced to pony up a lot of cash up front, and per unit costs are very high due to their small volume of production. This is a classic example of an artificial barrier to entry that helps large incumbent corporations prevent new upstarts from disturbing the Status Quo.

Intellectual monopoly rights

Let’s also not forget the role that intellectual monopoly rights (commonly called IP) play in the reduction of competition. Companies like Apple perennially sue their competition in an effort to undermine them. This isn’t done to ensure that new innovations earn sufficient profit to justify their R&D costs, as mainstream economic thought alleges. Both empirical data and theory shows that this is patently untrue, and that coming first to market provides a sufficient incentive as is, while all patents do is stifle competition and innovation. Have a look at Against Intellectual Monopoly by Boldrin and Levine for an illuminating expose of the true nature of IP.

Antitrust laws

Then there are the antitrust laws, supposedly written to fight large monopolistic corporations. In reality, they’re actually used by those very corporations to destroy their smaller, more nimble and innovative competitors. Antitrust: The Case for Repeal by Dominick Armentano is very enlightening.

The State as Enabler

In combination, this legal framework creates a highly oligopolistic environment, allowing for the existence of large corporate behemoths that under free market conditions simply couldn’t survive.

While excessive accumulation of corporate power in the hands of just a few entities has become a valid concern, it is not in the least a criticism of free markets, but rather of crony capitalism, or State capitalism, or interventionism, or mixed economies, or whatever you want to call that unholy relationship between government and business.

Without the State as a focal point of power in which money is able to transform into legitimized violence on behalf of corporations, companies would have to compete the good old-fashioned way – based on product quality, price, and innovation.

The idea that a libertarian society would be characterized by a small number of titanic corporations misunderstands the role of the State as enabler of corporate monopoly. It is a limited worldview that uses a few dystopian corporate films to magnify our current problems, and then projects them on a society in which these problems would be impossible.

I don’t blame people who think this way – they were indoctrinated and taught to do so. Those who benefit from the status quo will do everything they can to preserve the situation, even if it requires them to conjure up absurd and patently silly notions.

Libertarian anarchists, voluntaryists, and anarcho-capitalists do not merely argue against the State, they also argue against corporatism, crony capitalism, and all of the other perversions of the market.

Unlike the various collectivists whose solution to corporate power is State regulation – a naive concept that tries to administer the cause of a problem as its cure; I would like to deal with the root of the problem – State coercion that is systematically used to give an unequal legal footing to those with undue money and influence.

One cannot redress an imbalance of power by infusing one entity with even more of it. One does it by putting everyone on an equal footing in front of the law. Polycentric law, of course.

2 thoughts on “Immense corporate power – an outcome of libertarianism?”

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