Thursday, October 15, 2009

There's corporatism, crony capitalism and then there's free markets. has an excellent piece which sums up the idea that there is a huge difference between free market capitalism and between so called "deregulation" which ends up handing out government contracts and establishing cozy monopolies for private businesses.

I've heard far too many leftists decry huge calamities ( such as the financial crisis, Enron, the bailouts, failing education and health standards) as being due to deregulation and privatization. In the case of Michael Moore, he just blames capitalism, property rights and free enterprise as being behind the problems of the US health system or the financial crisis.

This piece rebuts that nonsense far more eloquently than I ever could.

On Education:

Consider Philadelphia's failed attempt to "privatize" education. The city hired the services of a supposedly private corporation called Edison to oversee it. All the schools were taken over by Edison and the city paid it to manage them.

With no competition in sight and a guarantee of payment by the government regardless of performance, Edison's operation was completely inefficient, and it promptly failed.

The proponents of public education were ecstatic. They could say to the world, "See — we're open-minded. We tried using the market to educate children and it failed; capitalism failed." Wrong! Capitalism didn't fail; corporatism failed.

On Enron:

And who can forget California's "energy deregulation" scheme? That fiasco began when voters passed a ballot measure mandating energy deregulation. Well, the legislature together with a handful of private corporations (including Enron) devised a system guaranteed to fail: they partially deregulated energy supply while keeping consumer prices tightly capped.

As was to be expected, energy sold on the spot market increased overall costs for suppliers, due in large part to manufactured shortages by energy brokers like Enron. Consumers gobbled up more and more wattage in the comfort of prices that government regulators kept artificially low, and the entire system began to collapse. Moreover, the government made it impossible for anyone to construct new power plants, thus ensuring that no one would be able to meet the rising demand for energy.

On the bailouts and financial crisis:

And don't get me started on Fannie Mae and Freddie Mac. These quasi-private corporations may benefit from privatized profits but their losses are socialized, creating a huge moral hazard. Where does it all end?

Whether we are discussing farm subsidies, bailouts, corporate favoritism, or licenses and privileges given to certain companies, we are in fact seeing the myriad ways that government has reared its head into the markets. Government and corporations invent scheme after scheme to ensure the superficial appearance of free enterprise, line the pockets of each, and shield the government from any blame.