Democratic Institutions: Capitalism vs State
How do we envision the perfect democracy? Everybody’s view is represented? Changes in views are quickly reflected in our environment? No group gains power over another? There is no coercion to adopt a contradictory point of view? Most people look to the state for moral policing than they would corporations. Even now, when corporations act against racism, sexism, and other modern social transgressions more quickly and decisively than any state has managed.
I happen to believe the highest possible manifestation of morality is amorality. A system of morals that can be applied with true blindness, across not just space, one person to the next, but time, one era to the next. This is of course a Platonic ideal that isn’t practically achievable. But even the recognition that it is the ideal seems as far from our current attitudes as its achievement.
In an efficient free market, I vote with my wallet. Corporations are amoral institutions. In that sense, any immorality on their part is either illegal (embezzlement), or a reflection of the immorality of society (overseas sweatshops deliver low prices rewarded by consumers) or a reflection of the immorality of the democratic state (environmental apathy + expensive environmental responsibility not rewarded by consumers). This works both ways. Their morality is likewise a reflection of the morality of society (fair trade supply chains for slightly higher prices) or imposition by the democratic state (CSR) that is indirectly a reflection of the morality of society (accept higher prices for goods than we would have paid without the additional taxation cost for corporations).
Corporations do not make moral decisions. They make business decisions reflecting those moral preferences of customers that translate to financial decisions. These appear to us as moral decisions. FedEx is the reason the Washington RedSkins are dropping their name, after decades of public morality having achieved nothing. Aunt Jemima and Uncle Ben have retired. You’re more likely to get fired from your job for unacceptable views/behavior in public if you work at a large corporation. There are many cases to be made that this is to be widely condemned as a reactionary moral foundation of society. Cancel culture is terrible. Disproportionate outrage is terrible. Pandering to the loudest voices is terrible. This is a decentralized execution of the public-credit system we find so tyrannical in China. But whether or not I agree with reactive stances is irrelevant, I don’t. The question isn’t whether it is correct, but whether it is democratic. More democratic than the political institution the democracy has delivered. Is it?
- Assume the corporate action, say the solidarity with popular movements is not a true reflection of the demos as a whole, then its position is hedged by a competitor who will now gain share as a better reflection of the vox populi. We are automatically funneling resources towards the best reflection of the majority will. Corporations are, after all, people who might be projecting their own moral preferences onto the corporation. But corporations are also, after all, corporations, that are rewarded for performance and in turn reward performance. In a competitive context, decisions can be idealized as successful/unsuccessful without having to contextualize the person involved in the decision. Mistakes are punished. A personally-guided moral preference that happens to reflect the moral preference of the majority, is rewarded in the market and makes the personal-aspect irrelevant anyway.
- If Company A is pandering instead of reflecting, say by firing a good employee for a bad tweet, in an elastic labor market we are creating a pool of high-quality talent that non-pandering Company B absorbs. If people really value strict adherence to norms on social media more than they value quality products or service, then Company A out-competes B. If when it comes to voting with the wallet people value quality products or service more than social gaffes and cultural appropriation from halloween parties a decade ago, then Company B out-competes A. Either way it is a reflection of the true revealed preferences of the most number of people, and not what they say. True democracy isn’t vox populi but praxis populi.
- In a first-past-the-post voting system, not only can I end up with a leader I did not vote for, I can end up with a leader that most people did not vote for. That leader is reflective of his voters, and his actions are aimed at them, not at me. Corporations don’t care about the color of our wallets, they only count how many they can get. An action is aimed at the conversion of most number of wallets. No one actor can convert all wallets. So we get multiple actors, each choosing which wallets to convert based on a tradeoff between the maximum number of convertibles and their best ability to convert.
- Not all votes are equal: The obvious Nay is that every person has a vote, but when you vote with your wallet, a billionaire has a billion votes, I have 20, and some people need to borrow votes from others just to have 1, with the promise of returning more than 1 vote later. If 20% of people are responsible for 80% of my turnover, my decisions are representative of the will of those 20%, and not democratic. This isn’t overwhelmingly a Nay. A population of 100 consumes 100 Cokes. 20 of them consume 80. Who is most impacted by Coke decisions? Should Coke change its recipe based on the views of all 100, even though 20 of them will be affected 16 times more than the other 80? Yes and No. Yes: If the gains from the remaining 80 outweigh the losses from the 20, a representative democracy will ensure gains. No: If, like in most cases, the heavy-consumers drive gains, then the views of the 20 will dominate proceedings not because of their power but because of their investment in the situation. On the balance, this isn’t an outright Nay, except the subset of situations below.
- There is a huge asymmetry between the stakeholders driving corporate decisions and those impacted. If Company A has 100 employees and 100 customers, with 0 overlap, like a Bangladeshi sweatshop. Its decisions are made based on wallet-votes, but those votes are entirely divorced from the demos. Disenfranchisement is where the state comes in, where corporations’ direct jurisdiction ends.
- Incumbent Bias: Plurality is well and good when there are no barriers to entry. It is nigh impossible for a Cola entrant today at any non-local scale. If Coke and Pepsi are representative of liberal college-educated 20 year olds, and faithfully reflect this wallet-base in their decisions, it isn’t easy for Freedom-Jesus-Cola to swoop in and mop up the underserved segment of society. Monopolies are benevolent dictatorships, seeking to be good for those they are good for, and ignoring entirely everybody else.
A Ricardian view of comparative advantage isn’t restricted to international trade and value. It’s a philosophy of efficiency. Any list of tasks must be assigned based on comparative advantage. Corporations in a free market do democracy better than democratic politicians. As markets approach an approximation of perfect competition, and information is as direct and accessible as it is today, the fragmentation of brands to occupy diverse positions satisfying diverse needs is far more adept at representing the voice of each person, not just of people, than the state. It isn’t free of perversions. I can be coerced to pay a monopoly. I can be tricked into paying for lemons. I can have nothing to pay with and therefore be entirely ignored. But these are the issues to address and augment, the inefficiencies hindering an efficient free market, today they are eminently more addressable than before, so we no longer have the excuse that a correct EMH that is impractical is just wrong.
A wrong assumption made about anarcho-capitalism is that it will tolerate no state at all. This is patently false. There is a natural evolution of a monopolistic state under any circumstance, which results in non-zero outcomes for all. If anything, anarcho-capitalism is the closest working model to communism in that it gives us a refined view of the state’s comparative advantage. Representative democracy is not the state’s advantage. People with money have wallets, and corporations represent their wallets and therefore their preferences far better than a state can. But there are people without money, who cannot vote with their wallets. They can only vote with the golden biscuit forged from the classical liberal idea that endowed every human being with an inalienable right to life, liberty and the pursuit of happiness. The state represents them the way corporations never will. It is a sorry democracy indeed where instead of the people telling how the state should behave, we let the state tell us how the people should behave, winning elections through wallets not votes. We indeed have a capitalistic state, and it is a disaster. The problem with a capitalistic state isn’t too much capitalism and too little state but the exact opposite.