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Capitalism vs. Corporatism

During a recent conversation with him, this client of mine used the wordcorporatistto describe his country (US of A). He said twenty years ago, they were a capitalist country, not a corporatist one. Now, this is a kind of fine distinction that I’d love to talk about. To me, it was a surprising and illuminating distinction, one that cleanly dissects and clears up the economic confusion of our times. And I had to write about it.

Everybody knows what capitalism is. It is the market-driven, private-ownership-centric economic system where selfish motives bring about collective happiness, according to Adam Smith. This way of life has been accepted as the “good” system, and stands in stark contrast with the collective, community-owned economic system with notions of robust social redistribution of wealthcommunism or socialism. Although the latter does sound like a better and more moral ideal, at least in principle, it never did pan out that way.

Corporatism is not as well-known as capitalism. At least, I didn’t know that such a word existed. But the moment I heard it, I could guess what it meant. It points to the end product of unbridled capitalism, one with no government control, or even moral hangups. In my view, it happens this wayonce you have private ownership, some people get richer than the rest. There is nothing wrong with that; in fact, it is a mathematical certainty. But then, money gives those lucky guys more power, and access to ways in which they can make more money. For instance, they can influence the political system, and through it the fiscal and taxation policies. Also, private ownerships can be pooled together to form economic organisms that can sustain themselves. These organisms are, of course, corporate bodies. They exert power through their collective wealth to an even greater extent than the good old capitalists.

A curious thing happens when capitalists (simple rich folks, that is) get sidelined by corporations. The money and power get separated in a strange way. The board members and CEOs who control the corporate bodies end up wielding power, instead of the owners. They are entrusted with the task of guarding and growing the capital. They find novel strategies to do this, like taking advantage of tax loopholes and tax havens, and engaging in unsavory business practices (like mixing any damn white powder with baby food, for instance). As long as they succeed in their remit of growing the capital, they seem to absolve themselves of the moral implications of their actions. For their services, they pay themselves handsome rewards. Note that the corporatists (the operators) pay themselves; it is not as though the capitalists (the owners) pay them, wherein lies the separation of power and money.

When you bring in the financial system whose primary function is capital management, the separation of power, money and morality takes on a new dimension. So banks, with no intrinsic economic value of their own, turn out to be too big to fail, and the system rearranges itself in such way that even when they do fail, it is the people farthest removed from power and money are the ones who pay for it. The high-flying bankers and senior managers get golden parachutes because they have both power and money. The trickle-down economy envisioned in pure capitalism (an optimistic vision to begin with) only trickles through channels drawn by the corporate overlords.

These unfair trickles did not bother us (the middle class) for a long time because they were not all trickling away from us. Now that they have started to, we are beginning to sit up and protest. I sympathize with my American client. Now that the corporatists are after our little trickles, we hate corporatism.