A Tale of Two Capitalisms

Capitalism is a loaded word.  For good or bad, it exists at the core of modern economic theory and any discussion about economic policy cannot avoid it.  Opinions on capitalism range from it being the greatest economic system ever developed to it being the greatest evil faced in our times.  The problem is, the more I have looked at the issue the less sure I am that everyone means the same thing when they say “Capitalism”.

Like many people, I am concerned about the economy.  Not just for my own financial security, but for the broader health of the human financial ecosystem.  That concern translated into seeking more knowledge about how the economy works and more importantly ideas about how to improve it.  Many of the things I have looked into have involved minute changes to certain policies that would have only relatively subtle effects.  But, I have also spent some time looking into broader economic philosophies.

What I have found is that while many discussions base themselves around the concept of Capitalism (either for or against it), there seem to be two barely related philosophies that both claim that name.  This isn’t the case of a strawman from one side or the other because I will see people from both the “for” and “against” camps conflate the two.  I’m sure some people on both sides have sown such confusion intentionally, but owing to Hanlon’s Razor, I am equally sure that many simply don’t realize there is a difference at all.

There is a reason why both philosophies claim the term “Capitalism”.  Both philosophies base themselves around the concept of the free market.  Both rely on the “invisible hand of the market” to shape industry.  Both believe in rewarding hard work and innovation.  They just disagree about the specifics of these three things and about everything else.

I have taken to calling these two models “Corporatism” and “Entrepreneurism”.  That isn’t to say that entrepreneurship doesn’t exist under the Corporatism model or that Corporations don’t exist under the Entrepreneurism model.  Rather, I’ve chosen these names based on what style of companies form the backbone of each model.  I will also freely admit my bias that I consider myself as subscribing to the Entrepreneurism model, but I have made an effort to as accurately understand Corporatism as I can.

Corporatism 

I am not the first person to use the term Corporatism in a philosophical context.  However, previous uses that I can find refer to an organizational philosophy rather than an economical philosophy.  That is, rather than address how the economy should be organized it addresses how groups of people should be organized.  Where the two uses of the term overlap is that under my understanding the implementation of the economic philosophy naturally leads to a situation where the organizational philosophy is the best choice.  A shorter way of saying it is that under this economic model, the powerhouse of the economy is the corporation.

This philosophy often demonstrates a mistrust of the government.  Instead, more trust is placed in both private industry and the ability of the free market to sort good industry from bad.  The thought is that any seemingly bad results that come out of the market are the best possible results because worse ones were discouraged by “the invisible hand of the market”.  Tighter regulation is seen as a hindrance to this process and objectively poor results are often blamed on government regulation.  This is an approach that has been referred to as “laissez-faire” at times.

In terms of measuring economic success, the stock market is the go-to metric.  It’s a fairly straightforward way of measuring success.  When stocks go up, the economy is doing good.  When stocks go down the economy is doing bad.  Other metrics may be accepted for a broader picture, but the stock market remains the centerpiece of analysis.

I have also commonly seen a comparison of imports vs exports used.  The assumption seems to be a zero-sum analysis with an assumption that money that is being spent on imports is a net loss to the country without regard of if that material then results in a net higher value in the local economy.  It seems to be a descendant of the older economic philosophy of Mercantilism.  This philosophy dictated that country should take international action to maximize profits from exports while minimizing expenses from imports.  The basics of the philosophy can be seen in people arguing that because a nation is spending more on imports than they are making from exports they are losing money on global trade.

I have also noted that many subscribers of this philosophy don’t recognize the difference between an entrepreneur organization and a corporate one.  They argue that private business is fundamentally the same and there are no substantial changes as the scale grows.  As such, they regard any measures that are bad for one as bad for both and reject measures designed to protect small businesses from larger ones as anti-business.  They instead prefer to see the different businesses face each other without interference with the assumption that the free market will choose the better business as the winner.

Entrepreneurism 

Where Corporatism distrusts the government and trusts private enterprise instead, Entrepreneurism is the opposite.  Instead of government interference being the primary enemy of a healthy economy, monopolies are.  Regulation is seen as a way of preventing monopolies from forming.

Under Entrepreneurism, the assumption is that fair competition between organizations and ideas cannot be had if one side becomes too powerful.  With this assumption, the thought is that when a monopoly forms it will prevent all potential competitors from ever achieving a fair footing.  So, government regulation is used to limit the power of large corporations in order to give smaller companies a fighting chance.

In other cases, regulation is used as a way to protect consumers.  The assumption is that for a truly free market to function, consumers must be able to make properly informed decisions about their purchases and always have a selection of choices when making a purchase.  So, regulations are enacted to ensure transparency and disallow deceptive advertising practices or intentionally hazardous products.

Under this system, economic health is usually measured by GPD, but also sometimes by median household income.  Unemployment percentages are sometimes used, but only in conjunction with other statistics to determine the difference between people comfortable and waiting for a good job and people being desperate and taking any job they can get.  Notably, I’ve seen unemployment rejected by Corporatists as a sign of a good economy because they say it means people have given up on looking for a job.

I should note that under this system, a solid social safety net is seen as a necessity.  The assumption is that the further it is possible to fall economically, the more adverse people are to taking the chance they will fall.  So, people with a potentially successful business idea are less likely to try it because the risks are greater.  From the other end of the equation, when people on the bottom rung of the economy have a more stable footing, they have a greater opportunity to climb the ladder if they have the drive and ability.  This higher degree of economic mobility is seen as a good thing because it increases the ability of the competition of the free market to sort success and failure by merit.

It is notable that this means that often Entrepreneurists and non-Capitalists will agree on policy with specific proposals.  The Entrepreneurists and Social Democrats will propose and vote in favor of the same measures while having very different reasons why.  It means that voting records may align where rhetoric does not.  It also means that voting records may align for a while and then suddenly diverge.  Some Corporatists may use this to accuse the Entrepreneurists of being anti-business or not being Capitalists.  Meanwhile, Social Democrats may accuse them of being corporate shills or ideal traitors when they start to agree on some things and then disagree on others.  

It’s important to not confuse two allied but separate philosophies from a split in a previously unified single philosophy.  Two separate philosophies can easily work together even when they disagree on some things.  A difference of opinion on some matters doesn’t necessarily represent a complete separation of their common goals.  It is just a sign to remind people of the fact that there is not a single group, but rather multiple unified ones with aligned goals.

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