The corporation and the state in a regulated economy

January 24, 2009

I have been asked:

“Barbed- I understand what you said in your post of 1/22/09, but under free market anarchy, won’t all the power just go to huge corporations that will be free to do whatever they want and control everything?” 

Thanks for the question.  Let me start by saying I don’t use the term ‘free market anarchy’.  I’ll touch on that later.  But what you ask is a common misperception. To expand on some of the concepts I introduced here, let us take the example of a furniture maker. In some rural areas of the United States there still exist local carpenters and carvers who produce furniture of old-world quality by hand. Even in rural England and many other European countries there exist, despite far greater institutional disincentives towards euntrepeneurs, by virtue of culture, proximity and taste, these sole properietors who compete with large national and international corporations on the bases of craftsmenship and quality. While culture preference or location may give them the oppotunity to open a business, it is quality that keeps them in business, despite an inability to compete on price. Let us explore these two concepts:

1. Price: The local craftsman will never be price-competitive with the corporation. Some of the reasons why, again, are discussed here. The costs of regulatory compliance, litigation and other barriers to entry are simply too high and guarantee the corporation economies of scale. Further, as previously discussed, the concept of regulation implies such rules are written by human beings. As
such, corporations have more influence on how the rules of the game are written. It should be no surprise then that the rules favor the corporation. Given these economies of scale, the corporation is in a position to collude with regimes that are even more strongly statist, with markets even more restricted, and purchase slave labor to manufacture their furniture. The corporation may scour the globe for the cheapest raw materials and squeeze the suppliers of its fasteners, themselves often located in heavily regulated, third world states, to lower its prices, thereby shaving its overhead. Cheap, diluted steel or lead may be used where metal is called for. Finished textiles may be procured from other third world hell holes. The local craftsman does not have these options.

2. Quality: Lacking the options of production outsourcing or bribing the overlords of third world regimes to employ their slaves, the craftsman must opt for a different strategy; he must produce a product of the highest quality. Unable to afford the advertising budget of the corporation, which will pipe images of stupidly smiling dolts into the TV sets millions of stupidly smiling dolts across the country, each happily buying and using the corporation’s plastic, throw-away products, the craftsman must produce goods of such superior quality and durability that his customer will not only be satisfied, but enthusiastic enough about the product to recommend the craftsman’s products to his friends, family and associates.

Remove the state-created advantages of the corporation, and the craftsman wins. In fact, remove state sponsorship of the corporation, and the corporation in its current form ceases to exist altogether.

As you can see from this example, a free market economy is, by nature and logic, a more localized economy.

One element of this that is frequently misunderstood by both proponents and detractors of something confusingly called ‘free market anarchy’ (FMA) is this localization tendency. Many are concerned (or pleased) that production and distribution will concentrate in the hands of a small number of villaneous (or efficient) corporations. In fact, none of these assumptions are true.

1. As discussed above, in the absence of the state’s involvement in the market, economics and commerce are localized. Only the state, and the collusion of states to protect the nation-state paradigm, favors the concentration of production through regulation. Further, the corporation is incented to collude with the most statist and restrictive regimes to utilize captive labor to produce its goods and/or raw materials.  This dynamic further strengthens both paradigms: the state and the corporation. As you can see, this is quite beneficial to the interests of both parties.

2. I do not use the term ‘free market anarchy’ for several reasons. Firstly, it’s redundant, as already discussed in a previous post.  Secondly, because the term ‘anarchy’ in the popular consciousness turns off too many semi-educated but intelligent people who need to understand the truth about the state.  Finally because the philosophers of true FMA
espouse, above all else, the non-aggression principal.  This philosophy sounds wonderful until we consider that, even if we achieved FMA nirvana in what is now the United States, it is highly unlikely that the remaining hundred plus nations now in existence would as well.  This would leave us, as a people, highly vulnerable to the machinations of
other existing states.  Due to this reality alone, I consider myself anti-statist, rather than free market anarchist.  I support the Constitution, a minarchist (and some might say Objectivist document) while agitating against the state (ie: ‘anti-statist’).  It is my belief, or rather my educated opinion, that the founding philosophy of the United States was similar – viewing a minimalist state, with great concern and disgust – as necessary not to control the people, but to protect ourselves against uncontrolled states.  The Constitution, unlike any other document in the history of human civilization, is not a guideline for the control and regulation of the people, but rather for the control and regulation of the government.  Therefore, I respect this document for the principals contained therein, while agitating against the state to resist the inevitable ‘mission-creep’ of government and its insatiable appetite for expansion.  Contradictory?  I don’t see it that way.  But this specific topic will be addressed in a future post.

3. Ascribing values to economic actors: The Corporation, in this example, is neither villaneous nor benevelant. It is merely an economic actor responding to the incentives of its market and acting accordingly. In this case, the incentives are created by the state. Remove the state and you remove the incentives that centralize production and therefore economic power. Such power is then returned to the people, who are then free to do with it what they wish; to win or lose, succeed or fail, as individual free men who control their destiny, rather than part of some larger collective whose existence is made possible only by the out of control state.

But your overlords will not allow this. We will discuss why, and pick apart specific pieces of economic and human regulation, in upcoming posts.

Questions/Comments can be sent to



3 Responses to “The corporation and the state in a regulated economy”

  1. […] as I pointed out here, the system we labor under is not capitalism and certainly not a free market. Rather, our economic […]

  2. […] fact, as I argue in The Corporation and the State in a Regulated Economy , the opposite is true.  A strong, assertive state playing an active role in a regulated economy […]

  3. […] the corporate takeover of small business well underway in our country today, previously discussed here and here.  Yet another example of the very corporations that caused the problems the state is now […]

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