Friday, November 7, 2008

Capitalism's Destructive Defenders-1

A recent correspondent was drawn to my blog by a response to a blog essay by Mark Shuttleworth, entitled This is not the End of Capitalism. To read my commentary and the related essay, please go to Commentary 47 on my other blog, or go directly to Mr. Shuttleworth’s blog post. Following is a somewhat expanded version of my response.

Mr. Shuttleworth conflates two separate and distinct issues…the government’s proper role as protector of individual rights vs. the arbitrary power of government regulators, which results in the violation of those rights.

The answer to the issues of environmental pollution and fraud, for example, can be addressed with relation to individual rights. Here, it is proper for government to step in when the economic activities of one pollutes the property of another…a violation of that person’s property rights…by ordering fines and restitution be paid to the injured party (based upon the objective findings of a court). Objective, clearly defined environmental laws such as anti-littering laws, statutes banning the dumping of specific industrial wastes proven to be harmful into rivers, or legal bans on the selling of paints containing lead intended for sale to the general public are also examples of appropriate governmental actions. Each of the above examples represents objectively provable physical harms, strictly delimited to specific, clearly defined issues that result in the violation of individual rights.

Similarly, fraud (such as “cooking the books” or deliberate misrepresentation of products) is a violation of the rights of the injured party. Civil and criminal penalties against fraudsters can, and should, be a tool of government in its role as protector of individual rights.

The civil courts, another proper function of government, is a powerful “regulator” where people can settle disputes involving harmful products or breech of contract, in an objective forum. Here, the “regulation” that may take place in the form of damages paid to the winner by the loser is strictly limited to the parties directly involved, while avoiding the “guilty-until-proven-innocent” nature of the imposition of costly rights-violating regulations on all companies in a given industry because of the wrong-doing of the one. Civil case law itself thus becomes a restraint on bad behavior, rather than the arbitrary politically-influenced and unpredictable whims of government regulators. Rather than be subject to the intrusive meddling and warrantless searches (“inspections”) of government officials, company behavior is thus guided by their own self-interest based upon their own legal analysis of the objective findings of the courts. In a free society, this is the only proper role of government in the “regulation” commerce.

None of these governmental functions involve groups of bureaucrats with the power to impose rules that carry the force of law.

But the arbitrary powers Mr. Shuttleworth would delegate to government regulators who would, for example, have the authority to “make very tough decisions about innovation” is scary indeed. This is odd, after Mr. Shuttleworth starts out with a strong denunciation of central planning. This is a call for dictatorial powers to be placed into the hands of one individual, or a group of individuals, which usurp the free and voluntary decisions of free individuals…i.e., the free market. Never mind the idea that some innovations may not flourish in a free market. To make a determination of that kind, a regulator would “have to be able to tell the future”-a logical impossibility given the kind of dynamics inherent in the billions of choices made by millions of participants of a free market. Short of the coercive roadblocks enabled by the kind of political connections endemic to a mixed economy…i.e. of “regulated capitalism”…there is virtually no way any company, no matter how large, can stop innovative new technologies in the long term. In any event, if the result of the voluntary, uncoerced trading decisions of private individuals pursuing their own best interests occasionally means that some “superior” product doesn’t “make it” in the market, then so be it. There is no inherent “societal” entitlement to “superior” or “innovative” products. No one should have the power, in a free society, to violate the rights of others through governmental coercion in order to impose his idea of which, or whose, products should “succeed” in the market.

Government regulation is inherently corrupt, leading to “many stories of regulators being wined and dined by the industries they regulate only to make sure they don’t look too hard in the back room”. Industry influence on the bureaucrats, or that of any special interest, that regulate it is a necessary result of “regulated capitalism” (a contradiction in terms, actually). Mr. Shuttleworth’s solution, however, is far worse than the disease. He proposes to eliminate the corruption by trampling all over the first amendment right of “the people peaceably to assemble, and to petition the Government for a redress of grievances”. Regulated companies are made up of people who have the right to “assemble” (form lobbies) in order to “petition the Government (i.e., the politicians who create the regulatory agencies)”. To make a regulator “independent” means to shield government from the peoples’ influence…an inversion of a key American principle. The problems caused by rights violations in one area, end up leading to rights violations in another. Anyway, how do regulators get “to know a lot about an industry, but be independent of that industry”, in “capitalist economies [that] evolve quickly”…without maintaining a close relationship with the very companies being regulated?

Mr. Shuttleworth actually builds a stronger case against regulated capitalism than he does in its favor, in my view. His four steps to an “effective regulator” sounds contradictory and utopian after his description of central planning in the first few paragraphs. His description of the difficulty faced by government regulators (planners?) is specific and concrete. For example, he says “The leaders and decision makers in a centrally-planned economy are just as fallible as those in a capitalist one - they would probably be the same people!” Exactly! Government regulation only ensures that mistakes and misjudgments of individual regulators are spread throughout an industry or the entire economy (witness the current credit crisis), rather than being confined to the private individuals and companies involved.

Under point one of his plan for effective regulation, he calls for the hiring of “superb talent”, by employing “key salaries and performance measures that are just behind the industries they are supposed to regulate”. Who is to determine the “performance measures”? On what standard of performance? What will make these “superbly talented” regulators worth as much as the producers of the products in “the industries they are supposed to regulate”? On the free market, the salaries of the employees of productive companies are ultimately determined objectively…by the value the company’s customers place on the products they produce. But unlike the voluntary, uncoerced exchanges that take place in the marketplace, a government regulator’s “performance” is based purely on coercion…which means there is no objective standard. How does one determine the value of a regulation? You can’t. No one can. Yet the money will keep flowing in from the taxpayers…that is, coercively. And this must lead inevitably to the phenomenon that Mr. Shuttleworth dreads…the “hiring [of] more and more people”…each cranking out more and more regulations. What else would one expect? Regulators regulate. The only “encouragement” that one can expect from an ever-growing congressional endowment of taxpayer money is an ever-growing regulatory bureaucracy. To paraphrase Ronald Reagan, “The closest thing we will ever see to eternal life on earth is a government agency”. He wasn’t exaggerating.

Point three exposes Mr. Shuttleworth’s statist credentials. He demands that the regulators be given “teeth and muscle” while legally disarming the private companies by stripping them of access to the courts to settle any dispute they may have with the government. At least, that’s what he seems to be saying. “Regulators need to be able to drive things forward, they need to be able to change the way companies behave, and they cannot rely on moral suasion to do so.”(Emphasis added.) The very same “fallible” people who are the cause of “the destruction wrought by central planning” are to be given dictatorial powers!

Mr. Shuttleworth wants to have his central planning, and eat his capitalism too.

And, if the government can’t even manage its copyright and patent functions without eliminating the undue influence of established players seeking to block innovative newcomers, how in the world can it ever hope to regulate entire industries in a capitalist system where “the imperative to innovate and the consequences of failure drives capitalist economies to evolve quickly”?

The biggest contradiction is perhaps the key to this confusing essay. After exposing the futility of centrally planned economies, Mr. Shuttleworth ends by declaring that “regulation is…very much worth investing in if you are trying to run a healthy, vibrant, capitalist society”. Nobody “runs” a capitalist society. You "run" a planned society. Under capitalism, people run their own lives and government protects their right to do so.

Throughout the entire essay, Mr. Shuttleworth offers not one argument in favor of “regulated capitalism”. In the final analysis, he falls back on that favorite, undefined rationalization of all statists…the “common good”. Who are the “common”? What is their “good”? The implied answer is…the producers are to be shackled by the “teeth and muscle” of regulators who will “change the way companies behave”, in the name of all of the people who have one thing in common…they don’t produce the valuable products created by the regulated companies. What justifies the shackling of the regulated companies is not their vice, but their virtue…the ability to produce valuable products.

No, this is not the end of capitalism. The closest the world had ever came to capitalism…the separation of economics and state…ended long ago. If it hadn’t, this massive financial breakdown would not have occurred. In defending “regulated capitalism”, Mr. Shuttleworth is merely defending the mixed economy status quo, not capitalism. Capitalism means one thing and one thing only…individual rights and a government that protects those rights. Not once is the issue of individual rights raised by Mr. Shuttleworth.

With “defenders” like this, capitalism doesn’t need enemies.

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