Capitalism Requires Government

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  • International Trade Law. Global capitalism would be impossible without trade. Governments create the legal frameworks – the treaties and international trade laws – that facilitate and make this trade possible. “Free trade” is a misnomer because it implies that it is international trade that exists free of any political framework. But this is hardly the case. The North American Free Trade Agreement, for instance, takes up two volumes and is over 900 pages long – covering such things as tariffs, customs, dumping, corporate and investor rights, intellectual property rights, financial services, government procurement, and dispute resolution procedures. It also establishes a secretariat, a commission, dispute panels, scientific review boards, eight industrial sector committees, and six working groups to oversee implementation of this agreement. It turns out that free trade requires a great deal of regulation.
  • Enforcement of Laws. All of these rules and laws that facilitate business and markets have to be enforced, otherwise they are worthless. Just as international trade treaties require elaborate enforcement mechanisms, so do all our national laws that facilitate the business process. And this is no small effort. We and our governments spend billions of dollars every year to provide police to protect private property, courts to interpret and enforce contracts, and agencies to protect patents, oversee banks, and act as watch dogs in the stock and bond markets. It is revealing that most civil suits are not brought by individuals harassing corporations – as conservatives would have it – but by businesses suing other business. The courts are indispensable for resolving business disputes and thus ensuring the smooth operation of the economic system.

To see how just how essential these government contributions are to the workings of a free market system, you merely have to imagine what it would be like if these measures didn’t exist. Or if we didn’t enforce these laws. Imagine that investors were liable for all debts of a company, that there were no patents, copyrights, or property rights, that contracts couldn’t be enforced legally, that there was no official and stable money supply, and so on. In such a world, markets would be very limited, and economic growth severely stunted. It would hardly resemble the economic world we now live in.

Conservatives would like us to think that there can be a strict boundary between public and private in modern economies. But this is impossible. As the points above make clear, markets and capitalism are quasi-public entities – made possible by a myriad of government rules and laws that establish many of their basic inner workings. We may think of the “private market” as existing separately from the public sphere, but it does not.

Football and Capitalism: The Rules Make the Game

Consider this analogy: free-market capitalism is constituted by government laws in the same way that sports are constituted by their rules. When we watch football, for instance, we usually see it as a freewheeling game with exciting runs and daring passes. But in reality, football is a highly circumscribed and regulated activity. It is only made possible by a large numbers of rules and regulations that cover everything ranging from the size of the field and the ball, to the number of downs, how scoring occurs, how tackling and blocking must take place, what constitutes a legal play, and so on. And without referees to interpret and enforce these rules, football as we know it would descend into chaos. The defining nature of these rules is shown by the fact that there are different kinds of football, depending on the rules. In Canada, for instance, the field is much larger, teams have one more player, and there are only three downs. In Arena League football, the clock rarely stops, the fields and goal posts are much smaller, and substitutions are very limited. The rules make the game.

Just as rules can create different kinds of football, government laws can create different kinds of capitalism and market relations. This clearly shows how market economies are actually political constructions – with their basic institutional arrangements being developed and managed by government rules. In some European countries, for instance, the government has not granted to firms the broad property rights that corporations have in the United States. This means, among other things, that large businesses are not free to simply move facilities from one region of the country to another. Because these relocations can dramatically alter the economic fortunes of entire communities, businesses must apply to the government for permission to move. In addition, in many other Western countries, government laws give much more power to unions in their relationships with businesses – thus altering the basic nature of the labor market. In some places, for instance, unions are actually mandated by law. These kinds of market relations are no more or less “natural” than those we have in the United States. There is no one natural form of market relations – just as there is no one “natural” form of football. This is simply an illusion that business interests and conservatives like to foster. Capitalism itself can take on different forms depending on the government rules that form it.


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