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  • Best of 2021: Why corporatism, not capitalism, is the root of social harm

Best of 2021: Why corporatism, not capitalism, is the root of social harm



In politics and political academia it is almost mandatory to have a position on ‘capitalism.’ Those on the left are against it; those on the right for it. The left thinks it leads to inequality, excessive materialism, and class oppression; the right thinks it leads to efficiency, greater wealth for all and greater economic and social freedom.

 Main image: Monopoly board (John Morgan/Unsplash)

It is a familiar pantomime and it is almost meaningless. There really is no such thing as ‘capitalism’ — or rather there are so many capitalisms that the word is altogether too imprecise to be useful. A much better term to identify the problems, even evils, of modern developed economies is ‘corporatism’. This can be precisely identified and its transgressions and general harm are getting worse.

‘Capitalism’, in the study of history or politics, is usually defined in relation to the development of private property rights. What is rarely looked at is the ‘capital’ part of the equation because that requires looking at financial systems and how money formation works. When so-called capitalist countries are examined from that perspective, an extremely variegated picture emerges. The way that capital functions, and is created, reflects very different historical traditions and different cultures. There is not enough commonality to call capitalism an ‘ism’ in the way that one can with communism or socialism.

Capital, money, can only exist because of a substructure of trust, which allows people to transact with each other. If people do not trust that a $10 note is really a $10 note then they will not accept it. This in turn means it has to follow the laws applying to $10 notes; there is a requirement for regulations to exist for any type of monetary exchange to be sustainable (just look at a mortgage document to see how many laws apply to bank debt).

Those laws can be, and have been, made universal; that is how international transfers are possible. But, as the American political analyst Francis Fukuyama showed in his book Trust: The Social Virtues and The Creation of Prosperity, the way that the underlying trust operates varies greatly in different cultures. 

It results in very different capital structures in different countries. For example, big stock markets have mainly appeared in English speaking countries, despite the bourse being initially a French initiative. Why? In extremely rough outline it was because in the north of England in the nineteenth century new forms of mutual funds and provident societies were formed, mostly created by non-conformist religious groups such as the Odd Fellows. This capital formation, which was significant in funding the Industrial Revolution, focused heavily on equity capital (shares). That financial practice was exported to places like the United States and Australia and became a key element in the creation of large stock markets across the English-speaking world.


'Corporatism is an enemy of the free market. The aim of a monopolist is to eliminate competition, not embrace it.'


Europe, however, did not have that history. So it had, and has, comparatively small stock markets and relies more heavily on debt capital and the banks. That emergence of equity capital in Britain, it might be added, is where Marx’s predictions about capitalism’s inevitable collapse most went awry. Marx concentrated on debt capital and envisaged that the pressure of compound interest on the debt would inevitably result in a collapse, a not unreasonable conclusion. Equity capital, which was not part of Marx’s thinking, has a quite different effect; it is much more patient capital and is far less likely to lead to collapse.

In Australia, that nineteenth century tradition came to an end when the mutual funds were demutualised in the 1990s. Then it was reconstituted anew through the creation of compulsory superannuation. The super funds heavily invest in stock markets; indeed the pool is now so large about a quarter of the equity investment is sent offshore.

What most matters for this type of capital formation to exist is the underlying culture, the artifice of trust — something that Australia already had. Chile and Uruguay both tried to emulate, at least in outline, the same kind of initiative of superannuation savings, but they largely failed. Those countries have no history of large, transparent stock markets and the necessary trust did not exist. Accordingly, there was widespread misbehaviour and filching of the capital, very much to the detriment of the savers. The experiment was largely abandoned; those countries had the wrong culture for that type of capitalism to work.

Capitalism is thus not anything like a single thing. What is more homogenous is corporatism: big businesses and monopolies that manipulate customers, buy off governments, debauch legal systems, pay low taxes, destroy competitors and in some sectors look for the economies of scale that lead to the monocultures damaging the environment.

This is quite distinct from capitalism. Corporatism is an enemy of the free market. The aim of a monopolist is to eliminate competition, not embrace it — as has been demonstrated yet again by the recent behaviour of the tech monopolies.

It was the very thing that Adam Smith, the high priest of ‘capitalism’, was attacking. Those who want to reject capitalism would do far better if they shifted their attention to corporatism and what the corporations are doing. That is the source of many of the most harmful and intractable problems in post-industrial society.



David JamesDavid James is the managing editor of personalsuperinvestor.com.au. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Monopoly board (John Morgan/Unsplash)


Topic tags: David James, capitalism, corporatism, Francis Fukuyama, stock market, monopolies



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Existing comments

Once again brilliantly insightful and informative. Thank you, David. Would that both sides of politics were advised by such as you.

Edward Fido | 31 December 2021  

Good read and corporatism we witness is not unlike that of 1930s Europe, including similar elements, least of all eugenics for 'othering', why?

The radical right libertarian socio-economic ideology emanating from the US via Koch related think tanks is based upon the Chicago School's James Buchanan's 'Public Choice Theory', as applied to Chile and earlier he was known as a 'segregationist' and proponent of 'state rights', also social Darwinism of 'survival of the fittest'.

Again through, linked global think tanks esp. the 'Anglosphere', lobbying government; advantage is being gained for the top end of town or large corporates, but not SMEs nor small business.

NY'er's Jane Mayer has researched, reported and written in detail i.e. 'Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right', how they manage the GOP to pass often unpalatable socio-economic policies i.e. with media helping to form 'conservative' voter coalitions of older, white/monocultural, Christian, regional etc. being motivated by dog whistling of socio-cultural issues e.g race or the 'great replacement'; aka Brexit being spooked and manipulated into voting against the interests of society.

Of concern is that this modus operandi seems to require nobbling of democracy as we know it, while the US formerly the 'light on the hill' is becoming like how Rupert Murdoch has described Australia as 'ungovernable', but that's the point isn't it? Excuse to bring on authoritarianism, via alt right/white nationalists activists (in media too) aka Covid 'Freedom Protests', to ensure radical right libertarian policies and society 'follows orders'?

Andrew J. Smith | 04 January 2022  

In a proudly Jesuit and Catholic journal, David James should know, if he already doesn't (as I have address this matter before) that his terminological precision is inexact and begs refinement.

Corporatism is indeed the enemy of capitalism, but is a form of economics and politics that, while borrowing from both capitalism and socialism, hallmarks, among many other of its manifestations, the social teaching of the Catholic Church, especially in the Inter-War years and as expressed and endorsed in Pius XI's encyclical, Quadragesimo Anno (1931).

The economies that came closest to warranting the description of 'corporatism' were the inter-war Italian, German, Spanish and Portuguese. None of them could be described in any way, shape or form as democratic, let alone liberal.

While David James is undoubtedly right to condemn the ways in which global multinational corporations manipulate capital markets without accountability and due reference to the international regulatory mechanisms that he correctly recommends, he is better advised to use the word 'corporationism' rather than 'corporatism', which is a concept that is both historically and, in moral philosophy terms, sacrosanct.

I would value David's concentration in this regard on advancing the case for regulation of capital markets instead of attacking socialism.

Dr Michael Furtado | 04 January 2022  

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