By Nicholas Sinard

Corporate and State Power

I recently read a comment about the power of the state and the power of a corporation, and the author claimed that if we let the state have less control over our wallets, then the corporations would have more control over out wallets. I have seen this claim many times, that with deregulation comes corporate overlords. The people defending this claim have a poor understanding of the state, corporations in a free market, and the relationship between corporations and the state in an interventionist economy.

Discussions regarding the state rarely discuss or make clear what is the nature of the state. A common definition of possibly the most important word in many conversations would be beneficial, and here I will give one. Hans-Hermann Hoppe gives us some valuable insight:

The standard definition of the state is this: The state is an agency characterized by two unique, logically connected features. First, the state is an agency that exercises a territorial monopoly of ultimate decision making. That is, the state is the ultimate arbiter and judge in every case of conflict, including conflicts involving itself and its agents. There is no appeal above and beyond the state. Second, the state is an agency that exercises a territorial monopoly of taxation. That is, it is an agency that can unilaterally fix the price that its subjects must pay for the state’s service as ultimate judge.

It does not own any property justly; rather, it did not obtain its property through the just means of original appropriation and voluntary exchange. With this in mind, we can see how the state is an institution based upon aggression. It must violate rights to operate because it claims the right to confiscate property from those it rules over, i.e. collect taxes.

Everything the state provides necessarily takes from one and gives to another; it creates a zero sum game where one or more parties benefit and those expropriated necessarily are harmed. This is vastly different from what occurs in a free market under the private property ethic. Only voluntary exchanges are legal in such a society, and voluntary exchange is viewed as beneficial ex ante by all parties involved in a transaction.

There might be some people who do not agree with this assessment, so clarification might be needed. No person is going to engage in a voluntary exchange that they view as harmful to them because if they did then they would be worse off, and it would be better if they abstained from it completely. Only those who view the exchange as potentially beneficial will engage in exchange, thus making it a logical necessity that both parties in an exchange expect to be better off as a result of it.

A corporation in a free market society would only be able to earn revenue through voluntary exchange. Therefore, its continued operation will be due to satisfying consumer needs and wants. The consumers will ultimately be the corporations’ bosses.

Leftists charge that corporations would simply get enough market power to dictate price levels, thus decreasing consumers’ standard of living and putting them at their mercy. The primary problems with this charge are potential and actual competition. The corporations could not charge too high of prices without increasing the tendency for more competition and increasing the attractiveness of their actual competition.

Explaining further, the higher prices will attract potential competitors, and they may be able to charge lower prices. If they initially charge the same price as the older corporation, then the increase in competition would tend to lower prices and increase quality. Additionally, their competitors would also be incentivized to charge lower prices to gain customers that abstained from purchasing from the other company and customers that would have bought from the other company. Competitors could be direct competitors, companies who offer substitutes, or companies that do not offer any product or service similar.

Another charge is often made that corporations would simply cartelize and charge higher prices; however, any cartels made in the free market would be at huge risk of collapsing for internal and external reasons. Internally, the members of the cartel would have an incentive to cheat and lower prices to outcompete the other members. Externally, there would be risk of companies coming into existence that would offer better prices, better product, and/or better service than the cartel. The lack of state barriers to entry would increase the potential for competition in a free market compared to an interventionist market. These non-cartel competitors would have the advantage of efficiency since cartels harm the most efficient companies in it for the benefit of the less efficient companies.

An interventionist economy may allow for cartels. The corporations can lobby for legislation that puts up state barriers to entry, e.g. minimum wage. The forced lack of potential and actual competition not only tends to artificially decrease the supply of a service or good, but it also allows for the corporations to offer poorer service to the consumer.

This shows the acidic relationship between the state and corporations. Corporations lobby for legislation and regulation so that smaller companies have a more difficult time staying in business and to decrease potential competition. This also shows the zero sum game that the state introduces, the corporation and state wins while the smaller corporations and consumers lose.

Unfortunately, many see the problem at hand lying in the corporations’ lap. This is not the case. It is the state that produces a zero sum game and expropriates property from its tax base, not a corporation. A corporation must please its customers everyday to survive and thrive in the market. The problem is the state and its harmful effects on wealth.

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Nicholas Sinard is a contributor to the Liberty, Economics, and Philosophy publication and Be sure to follow him if you enjoy economics and philosophy.