In a piece recently published at The American Conservative entitled “Americans, We Aren’t So Tough, and It Shows” I discussed the way in which a confluence of factors such as the decay of the intermediary institutions of civil society and economic insecurity leads to individuals being vulnerable and anxious. This vulnerability, I argued, leads to political tribes seeking to control the power of the state in order to prevent its massive power from being used against them, with the end result being increasing civil strife over the institutions of political power. In order to try and reduce such conflict, I argued that power should be dispersed throughout society, rather than concentrated with the state, in part by the revitalization of the institutions of civil society.
By: Zachary Yost
This article first appeared at MIses.org
While many online commentators agreed with the detrimental effects of the decline of civil society, a somewhat unexpected vein of criticism emerged, arguing that reducing the power of the government will only leave individuals even more vulnerable and at the mercy of powerful mega-corporations than ever before. Given the large role that economic insecurity plays in the anxiety that leads many people to look to political institutions for protection, it makes sense that the power of large corporations would be concerning. However, this fear is based on an incorrect conflation of political and economic power that misunderstands the way in which the state distorts the dispersion of market power.
At its foundation, state power is based on coercive power; the ability to compel people to carry out commands by physical compulsion or the threat of physical compulsion. As Mises put it “the essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.” In stark contrast, in a market economy businesses, whether large or small, do not derive their power from an ability to beat, kill, or imprison customers or employees. Rather, businesses acquire the resources that make up their market power by satisfying the demands of customers who engage in mutually beneficial exchange. In other words, businesses only have the power that is voluntarily allotted to them by their customers.
Seeing how at the root all market power stemmed from the choices of consumers, Mises called this consumer sovereignty and argued that:
The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.
In contrast to the concrete and physical political power wielded by the state, the market power wielded by businesses seems almost ephemeral by comparison.
The perfect example of the power of consumers and why businesses, even giant multi-national ones, must fear their capricious whims is the fate of phone manufacturer Nokia. In 2007 Nokia controlled nearly 50 percent of the global mobile phone market, bestriding the world like a colossus. Some even speculated that Nokia might achieve monopoly status. However, in the ensuing years, like a mercurial lover, consumers around the globe spurned Nokia and instead turned to any number of other phone providers, such as Apple, Samsung, and Motorola. By 2013 Nokia’s global market share had fallen to a measly 3.1 percent. Indeed, how mighty are the fallen in the midst of the battle to win the approval of customers!
It must be acknowledged that since we live in a mixed economy, businesses, especially very large ones, are able to sometimes circumvent consumer sovereignty and get away with subpar service by way of limiting competition and consumer choice. Such a situation does serve to undermine the power of consumers, but rather than defending the consumer from such a power grab, the state is the entity that makes it possible to begin with.
Limitations and hindrances to competition come in many forms. One such hindrance is the vast regulatory barriers the state has erected around numerous industries that significantly increase the costs of starting and managing a business. Similarly there are instances of regulatory capture in which existing businesses collude with government in order to write rules and regulations that benefit the status quo while limiting and hurting competition. Those entrepreneurs who are unable to afford vast armies of lawyers, compliance specialists, and tax accountants are at a distinct disadvantage that is unrelated to their ability to meet the demands of consumers. At the most extreme end there are the instances in which the government grants monopoly privileges to certain companies and does away with the threat of competition entirely.
There can be no doubt that companies,especially large multinational ones of the kind people so often fret about, can accumulate large amounts of market power. However, all companies, no matter how large, are ultimately held responsible by consumers, unless they are undermined by the power of the state. Far from, shielding individuals from the power of large businesses, the state ultimately makes them answerable to no one but those who hold political power.
Dispersing power away from the centralized state will not leave individuals at the cruel mercy of soulless corporate automatons. Less government interference in the market makes businesses more responsive to customer demands, meaning that individuals are more empowered, not the other way around.
This article first appeared at MIses.org