Corporations and Free Markets Don't Mix: How Ayn Rand Confused America

As we're seeing more and more talk of Ayn Rand today because of the collapse of the economy (new books, news broadcasts, interviews with Rand historians and pundits, even talk of a new movie or two), it occurred to me that there is a fundamental misunderstanding concerning basic economic concepts that Rand herself perpetuated. I pick on Rand here, because more than anyone else it was her philosophy that most influenced our modern thinking about the wonders of capitalism, thanks both to Rand's own evangelism and that of her followers. And yet, what should have been seen as a very glaring contradiction with her own philosophy has instead been glossed over to become a rallying cry for ever more freedom for our beloved capitalism to "work properly". We have, partly due to Rand, a dual crisis: we don't understand our own terminology, and we have a fallacy standing in for fact about what now constitutes the role of the corporation vs. individual rights in this country.

It seems that Ayn Rand as well as most other people equate "laissez-faire capitalism" with "free market capitalism". Having read through her books, papers, essays, and interviews, I constantly hear her refer to "capitalism" and "free markets" interchangeably. But despite the dictionary definitions, they have morphed into two very different things, and hence what I believe to be a key confusion between what we see on Main Street and what we see on the Dow or S&P.

Rand is famous for saying that we should "hug the dirtiest, grimiest smokestack you can find" because it signified "progress", but her definition of progress is one-sided; the bigger the better. She lauds the entrepreneur, the small businessperson, the rugged individual who takes an idea and runs with it despite all odds, and then goes on to assume that the REAL pinnacle of success is some giant corporation or factory.

Capitalism, in whatever form, only works well when everyone is treated as individuals with widely-acknowledged and legally-protected individual rights. Nobody has any "special" rights, so everyone is on a level playing field, and what you put in is what you get out. But that's not what we have in America, or in most other capitalistic countries in the world. For over 100 years, we have enshrined the corporation with special rights; it is an entity before the law, with special priviledges, and for some reason Rand doesn't seem to see the huge contradiction here with her stance that groups have no rights in themselves; it flies in the face of her own Objectivist philosophy, and yet she holds the corporation out as the shining example of progress. No wonder things have gotten so confused.

In fact, she goes so far as to applaud corporations as if they were the embodiment of the individuals who started them; a super-entrepreneur, you might say. Perhaps this was true until the late 19th century, but today they legally and literally have a life of their own, and stand in stark opposition to the rights of the individual. They are special groups that have been given the rights of individuals, and yet stand in far less jeopardy of the consequences of their decisions than an individual must.

If a corporation kills someone with their product or unsafe working conditions, they may be fined and some executives may go to jail, and they may be legally required to make changes to their product or workplace; however, no matter how heinous the offense, the corporation itself is virtually immortal. On the other hand, if an individual entrepreneur kills someone with their product or unsafe working conditions, they themselves may face stiff fines, may go to prison, and may see their company go under. It is these corporations with "C-corp" and "LLC" as their structure that have been given legal entity status but do not have the same restrictions and consequences. These are at the heart of modern capitalism, and thus they make modern capitalism the antithesis of free markets.

Corporate capitalism is to free markets what water is to a fire: it does everything it can to dowse the flames. Capitalism seeks to destroy free markets; it is in the very DNA of a corporation to seek market dominance for their product or service, and the less competition they have the better. All corporate capitalists seek a monopoly, or at worst an oligopoly or trust. This may not be their stated goal, or even a conscious one, but it is how true laissez-faire capitalism functions when corporations are given special legal rights; if a company has driven all their competitors out of the market, has restricted entry into the market by newcomers seeking some of those high profits by owning or controlling all of the resources used to produce a product, and has reduced labor mobility by restricting wages such that workers cannot afford to move from one physical location to another, then we have exactly the conditions extant in the early Industrial Revolution, or more recently in the Banana Republics. Unlike the railroads of the 1800's that Rand speaks of, they wouldn't even need government intervention to protect their markets; just the legal recognition of their special entity status. If the government kept completely out of the economy, capitalists would just run their competitors out of business, buy up all the resources and sit on them like a mother hen, and charge whatever the market would bear. There can be no "free market" here, because corporate capitalists with special legal rights would kill it off.

Free markets, or free competition, on the other hand, is not corporate capitalism. It is free trade, where small individual entities are free to participate, or not, based on their values and based on free choice. Oligopolies and monopolies cannot exist in free-trade markets, because there is too much real competition and they would have no special legal rights and thus no jeopardy exclusion. The only way to ensure that real competition continues throughout the entire system is to eliminate the special exclusions for corporations and to provide a minimal and sensible amount of government regulation to ensure individual rights are protected.

Despite Rand's bald and unsupported assertion that regulation causes financial crises (she seems to pull that one out of the hat as a given, and nothing I've read from her or her golden protege Alan Greenspan seems to support this assertion with any factual or empirical evidence), in fact the opposite has been true throughout the last 70 years. It was the REMOVAL of regulation in the marketplace that led first to the S&L Crisis and then the current blow-up. Things had gone on pretty smoothly for over 60 years with Glass-Steagall and other regulations in place, with only minor bumps and glitches. In the three decades since massive deregulation has taken place, we have seen a suddenly unleashed corporate-led capitalistic system moving closer and closer to laissez-faire, with the result being catastrophe on a world-wide scale... and no accountability towards the corporations (or their executives) who created the mess. Millions of people have lost their homes, are out of work, may have to put off college or healthcare, and some may have (probably have) died; and yet the corporations who have legal protections and special rights that no individual can claim are able to walk away, shake it off, and go back to doing exactly the same as they were doing to create the crisis in the first place.

I have read stuff on Cafe Hayek and other libertarian websites that make me want to laugh, or cry, and often both: that the tiny shreds of remaining regulation and those pesky regulators who were still paying any attention were the true enemies here; it was they who caused the whole system to collapse. If they had just gotten completely out of the way, they claim, and all the remaining tatters of regulation were finally done away with, the markets would have self-corrected (and if any recession occurred, it would be a tiny bump folks would have hardly noticed). It amazes me to read their analyses and ideologically-driven fantasies of what "might have been" in the face of such massive evidence to the contrary. They are forgetting that we now live in a corporate-run version of capitalism, and not some "Unknown Ideal" of a sturdy band of rugged individualistic entrepreurs all competing on the same level. And yet, these are the same people who are still running the show at the Fed, the Treasury, and are advising the President; they are still trying to "shrink government to the size where it can be drowned in the bathtub". If they succeed with current corporate laws in place, all that will be left to run things will be the corporations. We will have a true corporatocracy.

Laissez-faire capitalism is a nightmare waiting to happen as long as corporations have special entity rights; Rand and others should have recognized the difference between modern corporate capitalism and free competitive markets, and taken pains to point out how one is destructive to freedom and the other enhances it. The libertarian goal of totally government-free markets has just been tried in the financial sector of this country, with predictable results. How anyone can call themselves a libertarian with a straight face, and at the same time support corporate entity laws, is beyond me. That makes them corporatists, not libertarians who stand for individual rights.

Now, as we pick up the pieces, it's time to get smart about regulation; some of it was bulky and counterproductive, but much of it protected the free-market system from developing into runaway corporate-led laissez-faire capitalism; a little wise regulation is a good thing. Otherwise, what we are increasingly seeing today, especially in the increasing consolidation of power by financial giants like Goldman Sachs, may in the not too distant future end up with this:

"We the executives of Goldman Sachs, in order to form a more perfect stockholder ROI, eliminate justice, insure domestic consumption, provide for the perks and golden parachutes, promote the general indifference, and secure the blessings of taxpayer bailouts to ourselves and our political co-conspirators, do ordain and establish this Constitution for the United State of Corporate America."

I for one would be exceedingly unhappy with this result.