Do Libertarians Support Crony Capitalism?
I don’t know what to make of this.
Ken Connor, of something called The Center for a Just Society, writes as follows:
Thanks to a renewed interest in the works of Ayn Rand and high-profile figures like John Stossel, Glenn Beck, and Rand Paul, libertarianism is enjoying a moment in the political sun. And just like America’s two major parties, libertarians can often be blind to faulty logic and flaws within their own ideology.
Not the first names that would have occurred to me as representatives of the libertarian position, but that’s not the point. Connor is telling us that libertarians, like anyone else, can be blind to faulty logic and flaws within their ideology. For examples, he points to a recent column by Tim Carney on the use of government power by private firms in order to benefit themselves.
Is there a libertarian who supports this? Of course not.
Is it a strike against libertarianism or the free market to note that business firms are willing to use the coercive arm of the state in order to benefit themselves? Again, of course not. This is one of the very arguments libertarians themselves use against the state. In a libertarian society this option would not be available to businesses, so it seems a little strange to blame us for it, or pretend that this is some kind of “blind spot” in our philosophy. Blind spot? We denounce it constantly.
A century and a half ago, Frederic Bastiat noted in The Law that the state made possible all manner of mutual plunder, which could not occur without the state. Bastiat’s book is one of the classic libertarian texts.
Again Connor:
Regardless of where your political sympathies lie, it’s undeniable that there is an unhealthy and unholy alliance between well-heeled special interests and politicians and policymakers. It’s all well and good to embrace Ms. Rand’s philosophy of self-seeking individualism in theory, but when this mentality insinuates itself into the markets unchecked by moral and ethical principles, the results are antithetical to freedom and fairness.
This is incoherent. Connor begins by pointing out the alliance that exists between government and special interests, an alliance that runs completely counter to libertarianism and which could not exist were libertarianism triumphant. He then conflates this non-libertarian situation with “Ms. Rand’s philosophy of self-seeking individualism.” Ayn Rand was very clear in setting out a philosophy of man’s rights, which are of course violated by the very practices Connor is trying to blame her for, and which he pretends she promoted. She promoted the very opposite.
He goes on:
Basically, the special interests invest in political campaigns as a cost of doing business, and they expect a handsome return on their investments. As Mr. Carney explains, that usually comes in the form of pet legislation, subsidies, tax breaks, limitations on liability, preferential treatment . . . the list goes on and on. Of course, politicians are only too happy to accommodate these special interests in exchange for political contributions that help cement and perpetuate their power. As a result, the free market is stymied; it can’t do what it’s designed by nature to do, which is to sift good companies from bad ones, reward efficiency and innovation, and empower consumers with authentic choice in the marketplace. In effect, crony capitalism is a form of central planning, something that libertarians and conservatives historically eschew.
Is there someone out there Connor thinks he is rebuking? What libertarian would disagree with him here? That last sentence takes the cake: he’s speaking as if libertarians need to be told crony capitalism is bad, when it is they themselves who have been its greatest and most consistent opponents.
More:
The lack of accountability of the cronies is particularly damaging. Defenders of free-market capitalism generally maintain that accountability and responsibility must run hand in hand in order for markets to operate effectively. If wrongdoers are not held accountable, their wrongdoing will multiply and the whole system will be corrupted. Unfortunately, many free-market apologists in the political arena are only too ready to offer a double standard to their corporate benefactors. Consequently, we wind up with the excesses that characterized firms like AIG, Fannie Mae, and Enron.
AIG’s problems, while serious, could have been handled in bankruptcy; the number of firms that would have suffered from its CDS issues was about one or two dozen. These firms held $20 trillion in assets, against the $60 billion they would have lost because of their exposure to AIG. They could easily have absorbed these losses. So while the market was punishing AIG, the government, which Connor thinks should protect us from institutions like this, was busy arranging for bailouts.
Fannie Mae, with its laundry list of government privileges, is not exactly a case of a free-market institution, so who knows what Connor is trying to prove with this example.
As for Enron, which Carney himself covers very effectively in his book The Big Ripoff, I recommend this article and this paper.
The rest of the piece is about the importance of a strong government role in consumer protection, so we don’t wind up with “drugs that cause injury and death and products that explode or fail and cause harm.” Interesting that he leaves out the subject of protection from financial predators like Bernie Madoff; this is of course embarrassing to his case, since the private sector tried for ten years to get the SEC to do something about Madoff. When the SEC fails, its budget is not cut. This is a perverse incentive. It is also common sense: if you are not punished for doing the wrong thing, and if doing the wrong thing is far easier than doing the right thing, you will continue to do the wrong thing. This is the incentive structure to which Connor wishes to entrust our safety.
Connor simply accepts the left-wing version of things, according to which far-seeing crusaders for justice protect us from private-sector predators, and no other arrangement is conceivable. The possibility that private-label agencies could perform this function is not even considered. (Here’s a piece on Underwriters Laboratories, which is a good example of what I mean.) He also seems to think supporters of the free market are not interested in punishing people who produce lethal drugs or exploding products. But if those people are not being punished, is that the free market’s fault? Which institution has a monopoly on police services and a near-monopoly on dispute resolution? (It isn’t the free market.)
On consumer protection on the free market, I recommend this interview with Bob Murphy.
Finally:
Mr. Carney is correct when he says that the case for capitalism must rest on the willingness of free-marketeers to demand ethical conduct from corporations and politicians alike. Our current economic and political problems aren’t just the fault of President Obama, or Nancy Pelosi or any other big government bogey. The sooner libertarians and conservatives alike recognize this, the sooner we can get our economy and our government back on the right track, and given the enormity of the challenges facing us over the next several decades, this can’t happen soon enough.
The case for capitalism has nothing to do with politicians; much less does it have anything to do with “demand[ing] ethical conduct” from them, a fruitless enterprise. Capitalism involves nothing more than free contract and exchange, bounded by private-property rights. Politicians are predators on this process.
As for business firms, instead of claiming that we must “demand ethical behavior” from them, we ought instead insist on the less fuzzy and more specific demand that they make restitution to anyone who suffers damages at their hands. Contrary to what Connor implies, that is what any supporter of the free market supports.
He expects justice to come from government and its regulatory agencies. On that he is naive and unread. But he thinks libertarians have a blind spot when it comes to crony capitalism. The only blind spot is Connor’s, who thinks he is rebuking libertarians — of all people! — in an article on crony capitalism.
