Does The System Work?

There’s a great quote from Slavoj Zizek where he compares what was said by the Yugoslav communists in the 1970s when their programs failed to what is said by free-marketeers in the wake of the economic crisis:

“I remember how the communists, when, obviously things didn’t function in communist regimes they reasoned exactly in the same way. They said, no, no, no this is not the crisis of the communist system, it’s because we were not pure enough as communists […] we allowed too [many] capitalist elements and so on and so on. Here it is the same. This is the fundamentalist answer: you never admit that the system is wrong, you try to put the blame on how we were not faithful enough to the fundamentals of the system. So again, at least one thing we should admit the crisis that we have now – Greenspan admitted it, my God – is the crisis of liberal capitalism, not the crisis of state intervention or whatever.”

There is a certain quality of those defenders of Austrian style free markets that reminds me of those apologists for communism who always insisted that when communism failed it was because Stalin or whoever wasn’t really being true to communism. Zizek is correct I believe when he points out that the failures of communism are already there in the writings of Marx.

So the question is, are the failures of the free market embedded in free market ideology? Here’s the problem as I see it: For a host of reasons it makes sense for many industries to tend towards consolidation. Perhaps not to the point of monopoly, but certainly to the point where a small cartel of companies control an industry (Canadian telecommunications is a good example). These companies use their size to either buy up or force out upstart competitors. Likewise, these companies are likely to use this same clout to get favourable treatment from the government. (I don’t care about the political stripe of the party in power or what rules are in place to limit campaign donations or so on – big business will always be able to influence government.) A company grown larger by the free market should do what it can to get favourable treatment, government contracts, and so on and so forth – all this gets good returns for its shareholders. Now when this happens, the Austrian economists will complain that this is a corruption of free markets, this is not what really ┬áis supposed to happen – and yet it does happen! Moreover, it is a predictable, rational behaviour on the part of those running the big businesses that look to governments for various forms of assistance.

Only strict state controls on the size of companies can limit this process. So what do we have here? State intervention to protect entrepreneurs and venture capitalists so they can play with the big boys? So why not state intervention to protect blue collar workers?