Why corporatism, not capitalism, is the root of social harm

06 July 2021

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.

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

ECONOMICS

Why corporatism, not capitalism, is the root of social harm

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