Corporatism vs Capitalism: what the difference means for Chicago

I recently used this space to go on about how to change the city's civic culture and restructure government from the bottom up (see here). But the beliefs of the citizenry governed are just as important to this city's future as the method that that citizenry is governed because ultimately politicians must conform. It therefore becomes crucial to point out the difference between capitalism and corporatism, so as to encourage people to examine the difference between regulations in the two different economic systems.

Contrary to popular belief, it's a misnomer for the system in this country to be called capitalism. It is no such thing.

GE cozying up to DC and writing environmental regulation with guaranteed contracts is not capitalism. BP having their liability capped after the oil spill is not capitalism. The PPACP (“Obamacare”) including guaranteed pharmaceutical contracts, and being written by certain healthcare providers to ensure the future of their company, is not capitalism. Capitalism is not found in the GM and Crysler bailouts, nor in bailouts for wall street bankers. It is not found in TIF slush funds or in handouts to Sears. The market is not responsible for problems housing the poor, who were housed in far better conditions before FHA, HUD, and their ilk. The market did not use monopolies to redline in minority neighborhoods – that was the FHA, which was empowered by FDR's money markets nationalization.

Author's note: Prior to FHA redlining, minority communities were able to establish their own financial institutions to serve the needs of the community.  FDR crippled and then nationalized capital markets so that lending shifted to agencies like the FHA and away from community-based capital.

Indeed, these events are not indicative of socialism either, but rather corporatism. Corporatism is continuously increasing public control, lobbied for by and subsequently used for the benefit of monied special interests.

The key here is that corporations LIKE regulation – they pay the politicians for the privilege to write it. Regulations are rarely actually used for the purposes espoused in the marketing materials used in the campaign to enact them.

Take a local example that I recently wrote about – taxi regulations. Chicago's taxi regulations require vehicle replacement in four years unless the vehicle is fuel efficient or handicap accessible (5 years), or both (6 years). They require leather or vinyl seats. They must be on an approved list of vehicle models. Drivers must attend college classes. Vehicle leases and rider fares are at specified prices. Licensees must live within city limits. There are maximum mileage limits for operating vehicles.

Why? What is the purpose of restricting the choice of riders to choose a cheaper alternative that does not offer these things? The taxi companies have banded together to help write this ordinance (even though they're now publicly claiming that these regulations are so onerous that they need to be able to raise prices). It takes a company office to assure the requirements for licensees and vehicles are met, to file all the crazy quantity of paperwork, and to organize financial statements for three years running. It takes a capital pool to absorb the cost of continual new vehicle depreciation and premature replacement. Alternatives are not allowed to compete where they would be able to – with prices.

This is corporatism. These regulations are not written for the safety of the public. They fly the banner of public safety and service modernization even as they are written for the safety of the taxi companies. There are huge numbers of local ordinances written for these purposes. Food truck regulations protect brick and mortar restaurants (because the food truck industry is too small to defend itself yet). Regulations for restaurants protect bigger restaurants at the expense of the same smaller restaurants that lobby against food trucks.

This is one main reason that Chicago is losing population and business. The regulatory climate and business climate here are horrid. The city is simply not trying to compete at all. For more details on this issue, read this article, near the end.  An excerpt:


 [One] reason for Chicago’s troubles is that its business climate is terrible, especially for small firms. ... the deck seems to be stacked against the little guys, who get stuck with the bill while the big boys are plied with favors and subsidies. ... [Chicago's aldermanic privilege system] dumps political risk onto the shoulders of every would-be entrepreneur, who knows that he must stay on the alderman’s good side to be in business. ... Red tape is another problem for small businesses. ... Scooter’s Frozen Custard was cited by the city for illegally providing outdoor chairs for customers—after being told by the local alderman that it didn’t need a permit. ... An entrepreneur who wanted to open a children’s playroom to serve families visiting Northwestern Memorial Hospital was told that he needed to get a Public Place of Amusement license—which he couldn’t get, it turned out, because the proposed playroom was too close to a hospital!

-- "The Second-Rate City?," Aaron M. Renn, City Journal Spring 2012


So what is capitalism, then, if it is not these things? Capitalism is a system in which market participants, whether businesses or consumers, have choice. Government has nothing to say about this. Instead, the government functions to:

1.) Enforce contracts, including the rights of impaired parties to the contract

2.) Protect property rights, including the rights of both consumers and producers not to have their property stolen from them and to have full control of their property

Capitalism is the small businessman at the corner store. It's the local restauranteur. It's also the local manufacturer of rubber skateboard wheels. It's a grocery store chain. It's a printing operation. It's the weekly farmer's market. These little guys do not benefit through corporatism because there is nobody to represent them. They are not enriched by regulations, but rather driven out of the market by their larger competition who write these regulations.

But not all large businesses are corporatist just because they're corporations. Walmart is a capitalist enterprise, in sharp contrast to GE and GM, who live on public profligacy and guaranteed public contracts. Capitalism is also found in for hire manufacturing houses, in Ford, and in Ebay and Amazon. Capitalist institutions do not live and die by the vote of the electorate, but by the votes of consumers.

Consumers are the public, whereas the corporatist crony-capitalists use regulations to insulate themselves from the consumers and from the public. It makes them less responsive to public needs and desires. An individual's conviction that regulations are the public's way of holding business to task not only flies in the face of the fact that big business writes the regulations, but also primarily indicates a personal dissatisfaction with the preferences of the society around him – preferences that are necessarily being served by the business before it is a target of regulation.

By bringing greater emphasis to the distinction between these elements of our system, perhaps Chicagoans can demand a stop to the taxpayer handouts to boeing while supporting loosening regulations on business across the city. Chicago's future is jeopardized by regulations that cripple its businesses and stifle job growth. Businesses are not the adversaries of the people, and neighbors should support removing the chains from their neighbors' local investments. Nay, the class war that does in fact exist is being perpetrated via public power, and waged upon BOTH businesses AND the middle/lower class populace – not supported by business at large but by a few large corporations unable to compete without restrictions on their competition.

I do not think that it's the desire of the people to destroy and repel small and middling size, or even large, local enterprises. People ought to be aware that the vast majority of these regulations are not there for the public's safety. Realizing their real nature, and their real affect on everybody except the loathed authors, ought to eliminate the conflict of interest that citizens feel in the idea of being pro-business and anti-regulations.

Chicago ought to welcome businesses but never bribe them. Less corruption and more vibrant neighborhoods are results that all Chicagoans can support.

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