KENNEDY: In defense of capitalism

I am a capitalist. I believe in free markets, in what the economists describe as “transactions entered into freely between buyers and sellers both of whom have the necessary relevant information.”

I also recognize that markets cannot function without “umpires” empowered to enforce rules of fair play and protect that level playing field to which we all pay lip service. The most significant challenge to genuine capitalism, I submit, lies in the ability of some competitors to bribe or otherwise influence the umpires. When that happens, when the system itself gets corrupted, we no longer have capitalism. Instead, we have corporatism—its absolute antithesis.

Corporatism draws fire from both progressives and libertarians. Cenk Uygur writes from the left:

“I believe in the capitalist system. I think it makes sense and it is attuned to human nature. People do not work to the best of their ability and take only as much as they need. They work as little as humanly possible and take as much as humanly possible. Capitalism helps to funnel these natural impulses in a positive, hopefully productive manner.

“Capitalists believe in choice, free markets and competition. Corporatists believe in the opposite. They don’t want any competition at all. They want to eliminate the competition using their power, their entrenched position and usually the politicians they’ve purchased. They want to capture the system and use it only for their benefit.”

Uygur doesn’t blame corporations for this; as he notes, they are legally bound to make their best effort to generate returns for their shareholders. He blames the political system.

A Chicago-area blogger, C.M. Snyder, makes the argument from a more libertarian perspective:

“GE cozying up to Washington, D.C., and writing environmental regulation with guaranteed contracts is not capitalism. BP having its liability capped after the oil spill is not capitalism. The Patient Portability and Affordable Care Act, (“Obamacare”) including guaranteed pharmaceutical contracts, and being written by certain health care providers to ensure the future of their company, is not capitalism. Capitalism is not found in the GM and Chrysler bailouts, nor in bailouts for Wall Street bankers. It is not found in tax-increment financing slush funds or in handouts to Sears.”

Snyder points to Chicago regulations requiring taxi companies to replace their vehicles every four years, buy those vehicles from an “approved makes” list, and have leather or vinyl seats—regulations that he says actually originated with the larger taxi companies, to keep the little guys from being able to compete.

Progressives argue for more regulation, libertarians for less. They both miss the point. The issue here isn’t the volume of regulation (although that certainly can be an issue); the issue is what kind of regulation.

In a complex society, where people don’t grow their own vegetables and kill their own chickens, we recognize government’s responsibility to ensure food safety. In a global economic system, where failure of the banking system would have horrifying repercussions, it is simply impractical—if not immoral—for government to stand idly by and “let the market work.”

In a capitalist system, however, necessary regulations are calibrated to address genuine public safety concerns, and to ensure fair competitive practices and a level playing field.

In a corporatist system, regulations are written by lobbyists and enacted by legislators beholden to the powerful. They will foreclose, rather than facilitate, competition.

The question isn’t whether we should have umpires. The question is: What game are we playing?•

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Kennedy is a professor of law and public policy at the School of Public and Environmental Affairs at IUPUI. She blogs regularly at www.sheilakennedy.net. She can be reached at skennedy@ibj.com. Send comments on this column to ibjedit@ibj.com.