State capitalism is a popular term to denote the state's encroachment on free market capitalism. In A Future of Peace and Capitalism , Murray Rothbard made this distinction between free market capitalism and state capitalism: 'The difference between free-market capitalism and state capitalism is precisely the difference between, on the one hand, peaceful, voluntary exchange, and on the other, violent expropriation.' The problem is that most people do not realize the differences when using the term capitalism, and incorrectly lump all capitalism as one or the other.
Rothbard is right to denote the difference, and most people would be wise to always specify which capitalism they are referring to. Capitalism by itself is neutral and a tool employed by all forms of governments, nations and people. Whether capitalism is a force for freedom or coercion depends on whether it is free market based or state centrally mandated. Most freedom lovers when they endorse capitalism really mean the free market; others who complain of the faults of capitalism really are identifying the problems of state corporate capitalism (though they probably do not realize this). Unfortunately, much corporate capitalism is truly of a criminal nature now. Most CEOs and officers now seem to view corporations that they work for as their own private toys to loot and plunder (Enron, Worldcom, and thousands of others). They now "compete" by lobbying for favorable legislation that prevents competition and limits choice. It's no wonder "capitalism" has such a bad connotation to so many.
Is State Capitalism the Best Description?
There are other terms that people use when discussing state capitalism. Some of these are: corporatism , mercantilism , fascism , corporate welfare . While all these terms are very descriptive and useful in their own ways in describing the problem, they ignore the fact that most people wrongly associate these terms with (free market) capitalism. So we end up with people using one word, capitalism, but attaching diametrically opposite meanings to its usage.
While this might seem to be a problem only for those who misunderstand the meanings of capitalism, it really is a problem for those of us who are trying to persuade people to adopt a free market approach. Most people are aware of the large bribes corporations pay to politicians to get favorable legislation passed. Not too many people are going to look very positively on our position if they think we are advocating immoral state transfer schemes to large corporations.
For too many people in the free market freedom movement, the word capitalism is a hot button that must be defended at all costs. It is similar to how socialists decry all issues with the failures of socialism as being the result of capitalism (don't you know that Lenin, Stalin, Mao, Pol Pot, and all the other socialist failures were the product of them being really capitalists ' just ask any true socialist). This is complete intellectual dishonesty, and free market advocates would be wise to avoid emulating these tactics. It is better to honestly address the problems of state capitalism and contrast them to the solutions provided by a true free market.
The Ken Lay Example
Many libertarians have openly denounced the indictment of Ken Lay. They see his indictment as an attack on capitalism and have rushed to defend Lay. They see Lay as a victim of the state being used for political means. But does Lay really deserve the support of libertarians? Is he really completely innocent as many claim?
In truth, Lay is guilty of many things. He is guilty of massive criminal negligence (at least), of ignoring his fiduciary responsibility in running Enron. He can be charged with destroying massive amounts of other people's wealth and livelihoods while enriching himself. He is culpable of lobbying for favorable legislation instead of competing for business in the free market. He is at fault for running a company that created a false energy crisis in California and actively blocked free market competition. He is blameworthy by running with the Bush/Cheney crowd. He is in the wrong for being a leading member of Cheney's secret Energy Task Force. He is responsible for being a supporter and sycophant of the state, an enemy of freedom and the free market. He is the perfect example of state capitalism and its evils.
Lay's case is similar to Clinton 's impeachment. It is an internecine dispute between two criminal classes. While Clinton did not deserve to be impeached for a consensual sexual relationship, he sure deserved to be impeached and tried for crimes against humanity and genocide. That libertarians would stoop so low to defend an incompetent scoundrel like Lay only confirms that some people have a knee-jerk reaction to defend all things connected with the word capitalism. Unfortunately, their unwitting support of state capitalism is contrary to the teachings of von Mises, Rothbard, and Rockwell, and actually lessens the chances of someone actually accepting freedom and the free market.
Also, many libertarians bemoan that Lay could end up in prison, maybe for life. While it would be a more fitting punishment than most administered by the criminal injustice system, it is a very remote possibility that Lay would spend any time in jail. More likely there will be a bought and paid for judge to dismiss the case on some grounds, or if there is an actual trial, the jury will be bamboozled into returning a not guilty verdict. In the very unlikely case that Lay is convicted, a presidential pardon can always undo his wrongs. More probable is that Lay will continue to spend his looted corporate wealth as a free man while his victims go completely uncompensated.
Some Possible Solutions
The best solution is to get rid of the state. Then corporations could not limit competition by bribing dishonest politicians to pass legislation. They would then be forced to compete in the free market for customers. Here are some other possible solutions that can be used before and after the state is eliminated:
- Eliminate corporations being treated as individuals with the rights of individuals. Corporations are collectivist entities. Only individual human beings should possess personal rights. Specifically, corporations should be forbidden from forming Political Action Committees (PACs), lobbying for legislation, and making political campaign contributions.
- Eliminate corporations being able to hold intellectual property rights. Only individuals responsible for creating intellectual property should hold these rights. In the late 18th, the 19th, and the beginning of the 20th Century, invention flourished and people prospered. Since the development of the transistor  in 1947, almost all the technological advances (appliances, computers, communications, entertainment, medicine, and transportation) have been the practical application of enhanced semiconductor technology, not new inventions. While the world has been treated to pet rocks, disco dancing, rap and hiphop music, there has been a decided lack of new inventions to address pressing needs.
- Eliminate all executive and board perks and base all pay on performance. Make all pay increases (or decreases) based on stock performance (this would be a good idea for all employees of a corporation). Start all new executives at a base minimum and let them prove their worth. This would make sure that the interests of the employees align with the owners of the corporation.
- Make executives responsible and liable for the decisions they implement. Right now corporations have unlimited product liability for how consumers misuse their products, while executives have no liability for running corporations into bankruptcy. This is exactly opposite of how it should be.
I don't know what is worse or more disheartening ' that a criminal swindler like Ken Lay is running free while being held as an icon of capitalism, or that libertarians would actively defend Lay in the name of capitalism. Such defense of personal irresponsibility flies in the face of what freedom and the free market is all about. Freedom lovers must be careful when defending capitalism, that they only promote free market capitalism, and that they do not unintentionally endorse activities that are contrary to freedom and the free market.
All freedom lovers should actively oppose and expose all forms of state capitalism. This is especially true of state capitalism as practiced by the military-industrial complex, which has been responsible for countless atrocities. There is nothing remotely free market about the military-industrial complex. It uses the theft of taxation to fund items to allow the state to murder and destroy private property.
State capitalism is a real problem that people who advocate the free market would be wise to confront head on. Many corporations now openly operate as a microcosm of the state. Those in power use their power to advance their own agendas at the expense of others and use the assets of the corporation to transfer wealth to a select few. Like their state counterparts, executives of corporations are not held accountable for their actions. Like the state, failure to perform is rewarded.
Many, who would be somewhat receptive to our message of freedom and free markets, will be turned off if they misunderstand our meaning, and think that we support criminal state capitalism. State capitalism is as much or more to blame for the problems we face along with its complement, state socialism. State capitalism is the enemy of freedom and the free market. The best way to defeat state capitalism is to demolish the state.