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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

An enlightening distinction. Thank you.

Peter Horan | 06 July 2021  

Thank you David for this very helpful article. I'd really appreciate a follow up piece by you outlining how corporatism and and its harmful practices can be tackled.

Robert Van Zetten | 06 July 2021  

I like this article so much, concise and elegant but thought it didn't introduce corporatism properly, like it's a new kid materialized on the block. I'd want to include a note that the concept ideologies of corporatism date back to Plato, Socrates and Aristotle and the collegium (collegii?); each social commune group having a representative for political purposes...ummm, hang on, isn't that what we still have today? Socrates issued "the Apology" because he'd come to understand that his notion of "greater Good" was flawed. It wasn't the common wealth that was the problem but some collegium groups wanted a bigger slice of the Good. It'd be a brave Corporate guy to stand in the boardroom today and advocate take less today.

ray | 06 July 2021  

As if to further complicate matters in a Jesuit journal, James, 'corporatism' is also the term, derived from 'co-operation' and opposed to 'class conflict', that was applied within Catholic Social Teaching to enjoin workers and owners to collaborate towards the social and economic welfare of all. Corporatism was a central plank of the social teaching advanced in 'Quadragesimo Anno', the inter-bellum, anti-democratic, anti-Great Depression, and centrist social encyclical of Pius XI, which found favour with Mussolini, Hitler, Franco, Salazar and, surprisingly, Keynes. Perchance the word one ought to use to describe the hellish monopoly you so appropriately dissemble and excoriate is corporationism.

Michael Furtado | 06 July 2021  

Lenin wrote that imperialism is the highest form of capitalism, it could be added - corporatism is the highest form of capitalism. You note that there are many forms of capitalism. Similarly it can be argued that there are many forms of socialism (the control of the means of production to condense Marx). The mutuals you praise are best represented today by the not for profit superannuation funds which represent the most democratic form of socialism in a free market economy. This no doubt explains the opposition to them from corporatists and their political allies.

Andrew Armstrong | 06 July 2021  

I've had a vague half conscious feeling for many years now that trying to talk about capitalism is to get nowhere. Wow, this article is quite a surprise to me. Thank you for the stimulation. I'm forwarding it to colleagues who discuss climate, fossil fuel corporations and politics.

John McKeon | 06 July 2021  

“Consumerism “ by any other name remains just that: greed. We can amass goods and services with one object- “Success “. Euphemism for greed. It irks me when seniors are called a burden to society. Are not our investments and super savings contributing to the economy as much as lazily increased inheritances? A few savings on hubristic ventures could help all to live as decent human beings.

Roy | 07 July 2021  

Couldn’t agree more. For too long governments have ignored the deleterious effects of multinational corporations which owe their allegiance to no country. Big tech monopolies now control most of the world’s information. A new July 6 Rasmussen poll finds 78% of voters in the USA—equally divided, 82 % Democrat and 82% Republican—believe “tech companies like Twitter, Facebook, and Google could swing the results of the election to benefit their preferred candidate.”

Ross Howard | 07 July 2021  

While your criticisms of corporatism are accurate, your differentiation of corporatism from capitalism is just linguistic semantics. There definitely is an economic ideology/theory called 'capitalism' - it's the market system of production and distribution taught in first year economics in every Western university. It's completely unrealistic, of course, and has never worked anywhere in the real world, but is worshiped by mainstream economists and politicians, and used to support the deregulation, privatisation and cuts in government's role in the economy that are paradoxically killing the economic system. Corporatism is a natural development of late capitalism, since big eating small is the natural outcome of a no-rules free-for-all market system. Marx's predictions may yet turn out to be accurate, since the only reason the international capitalist system has survived the GFC and Covid is that it has been rescued by government and private debt. This sugar hit of debt cannot last forever. The withdrawal symptoms and hangover will not be pleasant.

Peter Schulz | 07 July 2021  

David I am confused by your statement that the bourse was a French invention. I had always understood it was Dutch. See https://bebusinessed.com/history/history-of-the-stock-market/. In that article, it states that these bodies were named after their originator, the Van der Beurze family, and thus were typically called Beurzen. However, it is purely coincidental that the French word bourse is very similar, since it has an older origin, meaning “purse”.

Frank S | 07 July 2021  

"If people do not trust that a $10 note is really a $10 note then they will not accept it". It's like when the Australian government printed off thousands of paper Marks for use in the NW Pacific at the start of WW1. The locals were wary of a piece of paper signed by a colonial official; they wanted solid metal disks with a man's head on it (Kaiser Wilhelm II that was). THAT was a real Mark! Sowing distrust of a currency was also the reason why the Australian government printed off millions of counterfeit Japanese occupation Pesos to drop on the Philippines in WW2 (which did have that effect on the "real" occupation currency). A lot of people think that they have real Japanese occupation currency (both pesos and Pounds for the Japanese occupied Pacific Islands) but which are actually Australian forgeries.

Bruce Stafford | 09 July 2021  

Timely article and showing the need for terms in social science, including economics, to be defined and parsed through for understanding versus glib and often Orwellian presentation in media and social narratives. As it is, much of this related vocabulary has become a 'word salad' of loaded expressions as cliches or labels to be attacked and dog whistled in politics, media then word of mouth for -ve reinforcement, averting the public's gaze from unethical behaviour of corporates e.g. climate science denial and fossil fuels. In Australia's case we have followed the US example of distorted capitalism, being exemplified by dominant and often global corporate entities who have leverage over 'conservative' political parties on ideology via think tanks, policy through lobbying by the same of MPs, and media doing communications and reinforcement.

Andrew J. Smith | 10 July 2021  

To begin to understanding in some detail how corporationism distorts a capitalist economy and the pursuit of social justice I strongly recommend many people read Richard Denniss' lit gem "Econobabble", released this year by Black Inc.

Peter Murray | 11 July 2021  

Great stuff! As a retired environmental scientist, I have long worried about the weaknesses of GDP in defining the progress of a country. Perhaps the problem of the movement of income from the poor to the rich which has occurred over the last 30 years or so has come about by enabling the corporations to utilize GDP as a measure of the advancement of a country. This blissfully (for them) disregards the economic externalities not taken into account, such as pollution, income distribution, employment, etc. I know that there are attempts to develop an alternative to GDP which include important issues presently neglected. Perhaps this could finally bring the Corporates to heel?

William Raper | 12 July 2021  

Two cheers, DJ. But I understand that the corporation in modern capitalism originates substantially in the monopolies created by the state (e.g. the East India Company). Thus modern corporatism is indeed radically anti-free market. All sorts of one-to-one contractual arrangements could have created roughly analogous "companies" on the free market, but they wouldn't have had the monopolistic protection afforded by the coercive state, so would have been far more accountable. Second: money - real money on the free market - isn't based on trust. Au contraire, it's based on DIStrust. Our modern state-based bogus monetary system relies totally on trust, and it's a foolhardy faith. On the free market, if you buy three cows from me, you have to give me an ounce of gold. I can weigh it to check. And if you give me an IOU for an ounce of gold, you know I can take you to an arbiter mutually agreed upon by ourselves if the IOU is a dud, and I can get my cows back, or their equivalent. (A vast amount of international disputes in commerce these days occurs this way, through the highly efficient - private - International Court of Arbitration run by the - private - International Chamber of Commerce.) That's DIStrust, not trust, and very sensibly so. On the other hand, the state, having gotten its hands on the money supply and banking system, is desperately trying to convince its citizenry to just trust it. That's why banks in the 19th century began to be designed with enormous pillars at the front, like Greek and Roman temples of old, to create some almost religious aura of respectability. "As safe as a bank" came into the lingo. Ha Ha! ... Just at the same time the state was preventing runs on shonky banks by backing them up with other peoples' hard earned wealth. Readers should consult Murray Rothbard's short but brilliant "What Has Government Done To Our Money?" (available online free) for the history. When I learned succession law, the first thing our lecturer said was, "Your intended beneficiaries may love each other now. But when writing your will, always assume that at some stage they may be at each other's throats and exploiting every ambiguity and loophole they can to swing your estate their way." The emergence of Blockchain is another manifestation of the importance of Distrust in free market transactions. Distrust is the prudential path - which, paradoxically, engenders trust. Qui desiderat pacem, praeparet bellum ... Who wants peace, let him prepare for war.

HH | 19 August 2021  

Monopoly Capitalism is something a former US President feared because it could lead to a takeover of the government. Chesterton was dead against it. I can see the advantages these days of large organisations such as Coles and Woolworths, but they must be open to competition.

Edward Fido | 25 August 2021