Rick asks: " Where do you see capitalism fitting into government? "

  • Posted on: 17 November 2012
  • By: Gene Balfour

In a recent email exchange, by friend Rick asked: " Where do you see capitalism fitting into government? I understand where socialism fits in."  My reply....


To make an adequate attempt to answers this question, it may be best to start by defining our terms. 

Capitalism is a form of economic organization whereby individuals or the owners of “for-profit” business enterprises  voluntarily choose to invest some or all of their existing assets [time, money, personal skills and any other owned] in order to increase the value of their asset holdings. They do this by creating and selling, at free market prices, the products or services that they create directly from these investments. Capitalism is also characterized by 'free trade' between 2 or more parties that stand to mutually gain from a voluntary, negotiated exchange of assets.

 Government is also a form of economic organization whereby revenues [taxes] are taken from individual citizens and private corporations by force, or by threat of force, and used to build and/or maintain political power. Tn turn, this political power is used to ‘buy’ the votes of citizens [usually organized in large and politically powerful special interest groups] by making promises which cater to the most politically powerful of these special interests groups. These promises [political IOUs] refer to potential personal gains for group members in exchange for votes.

 Most modern governments are modeled on the socialism model of economic organization which employs power centers [centralized government institutions] to take the assets of one group of wealthier economic participants and distribute these assets to the more numerous groups of relatively poorer economic participants in exchange for political support. Modern variants for Socialism include Fascism which is the collusion of powerful government/political players with leaders of powerful corporations who exchange political and financial assets in order to gain market/political advantage – this, of course, all transacted at the expense of consumers and other 'free market' economic players [think Wall Street banks and the Federal Reserve System and the Bush/ Obama economic stimulus packages].

 Now, to answer your question directly;  governments cannot  tolerate capitalism within their domains of operation because governments hate competition. However, Governments depend on Capitalism to exist. Their parasitic relationship with capitalistic enterprises is essential because governments could not exist if it had no hosts from which to suck its life blood - taxes.

 There is nothing "capitalistic"  about government operations.

 First of all, taxation does not qualify as a voluntary, 'free market' transaction.

 Second, the products of government [licenses, deeds, regulations and other forms of legislation, certifications, etc.] are not products for which most citizens would willingly pay. [think drivers license]

 Third, by the self-assigned ability to take property under the privilege of "eminent domain", personal property can be taken from citizens who are unable to make a sell/no sell decision and therefore, are unlikely to be able to negotiate a satisfactory price in return for the assets they must forfeit. [think the Green Belt decision]

 Fourth, even the products sold by government directly to consumers [LCBO, The Beer Store, Hydro One] are sold under monopoly pricing [compare the price of spirits in the USA to Ontario].

 Fifth, the services provided by government are also provided under dual monopoly structures that eliminate competition [example: the Canada Health Act] and employee 'monopoly labor' [public service unions employ ~75% of Ontario's 1,060,000 public servants].

Six, government leaders have no interest in preserving the long-term capital value of government-owned assets unless they are politically motivated to do so during their four-year elected term of office.

 Seven, government leaders have no interest in establishing limits to government spending and long-term debt accumulation unless they are politically motivated to do so during their four-year elected term of office.

 Eight, whereas capitalistic leaders of business enterprises make rational decisions that are motivated by profits and long-term capital accumulation to increase shareholder value, political leaders are not motivated to by financial gain for the enterprise at all, but by political gains [votes] for the political parties they represent; to achieve their ends, political leaders frequently favor emotional justifications over rational arguments to sway their constituents to their point of view.

 Nine, political leaders cater to the popular societal myth that everyone is "equal" and therefore equally deserving of the spoils of society. By contrast, business leaders recognize the reality that equality is a fiction among workers which is why they create compensation schemes [ raises, bonuses, business equity, performers clubs, promotions based on merit, etc]  that reward top performers over poorer performers.

 Ten, capitalism is based on the entrepreneurial spirit whereby enterprising individuals seek to profit financially by identifying a gap or scarcity of products/services that can be produced in order to profitably serve real human needs and/or desires. By contrast, government leaders often fabricate or exaggerate societal needs and/or issues in order to develop a campaign strategy that will help them to achieve political power.

Rick. I hope these points have convinced you that government is incompatible with capitalism as operational economic models with the only exception that the parasitic relationship is necessary for most government structures to stand.

 Thank you for the question. It was an interesting one to address.