The invisible hand of the market envisioned by Adam Smith, where no producer or consumer is large enough to unduly influence price and therefore are price takers and not price makers, has gone the way of the passenger pigeon. Yet, many Americans and in particular the Republican Party continue to champion the power of free markets even though the democratic impulses of Adam Smith markets no longer pertain.
Clearly, the shakiness of the economy indicates our efforts to forestall the problems associated with monopolistic tendencies have failed and our justification for bailing out imprudent firms is they are too big to fail. If they are too big to fail, it is no longer the capitalism of the invisible hand. Although small producers and consumers may rise and fall by Adam Smith rules, larger producers and consumers are practicing a type of heavy handed feudalistic capitalism.
Like the feudal system during the Middle Ages, feudalistic capitalism is designed to advance the interests of the already rich and powerful and retard the prospects of upward mobility for lower classes.
To expect democratically favorable outcomes when Adam Smith's assumption of limited economic power and market influence by all producers and consumers is violated is misguided at best. What faith would we have in a branch of Christianity that found it convenient or acceptable to ignore three or four of the commandments?
Feudal capitalism is not guided by an invisible hand but instead by the predatory power of the anointed few. Another feature of feudal capitalism is the revolving door through which politically connected elites move from government to large financial institutions and major corporations. Most lobbying groups work tirelessly and effectively to insure that the desires of powerful people and institutions are addressed.
Elected political leaders and members of their staffs upon leaving government frequently find much higher paying jobs in the corporate world and as lobbyists where they use their political knowledge and connections to advance the private interest of their employer and not the public interest.
What other trends can one cite to demonstrate the steady march forward under feudalistic capitalism? Income inequality in the United States, which is more inequitable than in European countries, has been increasing in recent decades.
The rich are getting richer, the middle class is stagnating and those without a college education have seen their real incomes drop considerably. Whereas CEOs made fifty to sixty times the income of the average employee in their company several decades ago in the United States, this has increased to three hundred to four hundred times higher in recent years. The typical compensation committee of mega corporations charged with determining CEO earnings and often composed of CEOs and former CEOs from other companies seems to have little difficulty finding the golden goose and golden parachute when it comes to CEO compensation. But, when it comes to raises for company employees, Mother Hubbard's cupboard is always bare.
When dukes and earls made decisions not surprisingly they were more likely to benefit other dukes and earls rather than tenant farmers and landless serfs. Top-down feudalistic capitalism operates in a similar manner and produces similar results.
The demise in the power of unions is another contributing factor in the rise of feudal capitalism. One can certainly find fault at times with some of the practices and methods of unions, but they have been effective in protecting workers and ensuring they receive a larger share of the benefits than management would be inclined to provide on its own.
Trade unions perhaps more than any other factor explain how millions upon millions of American households - often with the husband the one full-time worker - were able to enter and prosper in a growing middle class. Many of these upwardly mobile union members possessed limited formal training or skills but were still able to secure high paying jobs. Without unions, a prevailing social contract involving company treatment of employees or some other force advocating on behalf of workers, serfdom in the labor market flourishes.
Government is the only remaining force powerful enough to do something about this corporate and labor power imbalance. Yet, most lobbying efforts in state capitals and at the national level are aimed at protecting and advancing corporate interests.
The ongoing debate over national health care policy underscores this fact. Other democratically elected and highly-developed, market-driven countries - many with health care outcomes superior to those in the U.S. and most spending only half as much of their budgets as we do - has government more actively involved in its health care system. Yet, we rely on the useless holy water of free markets to maintain the pretense that there is some better way and if we wander in the wilderness long enough we just may stumble across it.
Feudalistic capitalism is part of the problem. To see it as part of the solution is to believe in a kiss that can change a frog into a prince.
John Patterson is a retired professor of geography who lives in Whitewater.
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