Just how free is our free enterprise?

Walter Rathenau got his wish

The other day a reader of my piece on China commented, correctly, that enterprise in China isn’t really free. Yes, but is ours?

For one thing, unlike conservative economists, men at the cutting edge of free enterprise don’t believe in competition. Quite the opposite, they’d like to nip it in the bud by bankrupting every business but their own.

A free entrepreneur par excellence can exist today only in a start-up mode, or else at the level of a corner sandwich shop. Once his business has become successful, his thoughts gravitate towards putting an end to competitive activity. He wants to put competition out of business.

At that end of economic thought he is greeted with a fraternal embrace by his brother the democratic bureaucrat who, for his part, used to believe in pluralism while he was clawing his way up the party ladder. Now he has reached the top, pluralism means only one thing to him: a threat to his position. The modern brothers recognise their kinship and have no difficulty in striking a corporatist partnership.

For all the Sherman Acts and Monopolies Commissions in the world, big business has to gravitate towards monopoly – one of the few things Marx got right. That is, he was right in his observation but not in his explanation.

Class has no role to play here – one of the many things Marx got wrong. Modernity prays at the altar of uniformity, and it melts down any class differences until they are reduced to quaint idiosyncrasies. Every modern class tends to gravitate towards an amorphous middle.

What drives the modern businessman towards monopoly is the same utilitarian impulse that paradoxically drives many aristocrats towards socialism: they know that putting the clamps on the socially dynamic strata of the population will prevent any serious competition appearing.

Here the businessman’s longings converge with those of his employees who tend to act as a collectivist bloc and have a vested interest in keeping companies as big as possible.

Their motivation is old-fashioned envy coupled with the deep-seated belief that it’s possible for some to rise only at the expense of others falling. By the same token, the ruling political bureaucracy also has a vested interest in keeping businesses as large, and consequently as few, as possible for this will make control easier and more total.

In short, the only people who do believe in unvarnished free enterprise are big businessmen waiting to happen, those who are still climbing towards the summit and don’t want their rope cut. Once they have got to the top, they will realise the error of their ways and start acting accordingly.

Another dynamic at work here is a tendency towards the globalisation of business, closely mirroring a similar trend in modern politics. Like modern life in general, business tends to lose its national roots. In the absence of protectionist tariffs, known to be counter-productive at least since the time of David Ricardo, an aspiration to monopoly drives a big business towards foreign expansion ad infinitum, which is another form of protectionism but one that doesn’t provoke retaliation in kind.

This megalomania, along with a tendency to dissipate ownership by financing expansion through stock market flotation, leads to a situation where ‘free enterprise’ becomes neither. The ‘capitalist’, Marx’s bogeyman, is eliminated in modern Western societies as efficiently as he used to be shot in communist ones.

Most international corporations are neither run nor controlled by capitalists, if we define the breed as the owners of capital (or of ‘the means of production’). That type, rather than having been created by the Industrial Revolution, was killed by it, albeit by delayed action.

Today’s captains of industry don’t necessarily own the capital of which they dispose, and they don’t live or die by their success or failure. The risks they venture are usually taken with other people’s money, and they stand to gain untold fortunes by achieving success, while personally risking next to nothing in case of failure. If they fail, they take the king’s ransom of redundancy and either move on to the next bonanza or, should they so choose, retire to a paradise of philistine comfort.

Qualities required for a rise through modern corporations are different from those needed in the early stages of the Industrial Revolution. They are, however, close to those required for careers in government bureaucracies.

This is partly due to the growing disparity between the ever-expanding outlook of the management and the ever-narrowing outlook of the specialists who make the products. In the old days, someone who designed bridges could advance to the next rung in his company by demonstrating ability. Once he got there, he continued to design bridges, but with added responsibilities.

People at the top rung thus came from the same stock as those several steps below, although their duties were different. Not so modern corporations.

Growing specialisation creates a different situation: the people in production represent a different breed from those in the boardroom. The latter are hardly ever drawn from the former. Most leaders of giant modern corporations come from legal, sales or marketing, rather than manufacturing, backgrounds.

Curiously, when Marx wrote Das Kapital, the gulf between workers and management could still be bridged by hard work and ingenuity. The industrial conditions imagined by Marx were in fact a self-fulfilling prophecy: it’s only when some of his ideas were acted upon that an unbridgeable chasm appeared between the corporatist management and the narrowly specialised labour force.

Even as modern governments grow more corporatist, so, tautologically, do actual corporations. A new élite is thus formed, and it’s a homogeneous group whose members are indistinguishable from one another regardless of whether their original background was business or politics. Witness the ease with which they switch from the corporate to the government arena and back, especially if they come from the international end of either.

The spiritual father of the breed was Walter Rathenau, Managing Director of German General Electric and also Foreign Minister in the early 1920s. One of the leading theoreticians and practitioners of corporate socialism, he prophesied that, “The new economy will… be… a private economy [which] will require state co-operation for organic consolidation to overcome inner friction and increase production and endurance.”

Here was the original politician cum businessman, and it was poetic justice when he was murdered in 1922, 11 years before his dream became a reality in Germany, and by the same people who made it so.

As their budgets begin to rival Belgium’s GNP, international corporations forge even closer links with financial institutions. The latter form part of the corporatist-government world not just by inclination but by statute, having to forge a unity with the quasi-independent set-ups that control the money supply.

Organisations like the Federal Reserve, the Bank of England, Deutsche Bank and Banque de France are more independent of their national governments than they are of one another. Like modern businessmen and politicians, they don’t feel they owe loyalty to their people, much less to any moral principles. Their loyalty is pledged to the international élite that increasingly supersedes national interests.

All this goes to show yet again how woefully inadequate our customary terminology is to the task of describing modernity. ‘Capitalist’, ‘socialist’, ‘Right’, ‘Left’ – and yes, ‘free enterprise’ have become imprecise anachronisms.

A new glossary is needed, and my starter for 10 was in my book How the West Was Lost, from which much of today’s article is taken.

2 thoughts on “Just how free is our free enterprise?”

  1. ‘Once the free entrepreneur’s business becomes successful, his thoughts gravitate towards putting an end to competitive activity.’
    It seems, sadly, that free enterprise would thrive best among highly ambitious, risk taking commercial incompetents who will never reach the top of the ladder.

  2. USA has had controlled capitalism since at least since 1913 at a minimum level with a lot of control added from 1932 onward. Still capitalism but restrained. A lot of social welfare but not socialism in the economic sense since 1932.

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