It’s trendy to hate on late-stage capitalism. High medical costs, expensive colleges, exploited prices, monopolies, and Nestlé. All results of capitalism’s handy-work, right?
But, all this is not a result of late-stage capitalism. It’s a result of a cousin to it, called “state mercantilism”.
What is State Mercantilism?
I recently learned of this term during a conference I attended that Gloria Alvarez spoke at.
State mercantilism is the regulation of a free market. In other words, it is the perversion of the true nature of capitalism.
America is a state mercantilist economy. Meaning, we have some markets that are free, but a majority are government regulated. Regulation drives prices up, induces transaction friction, and decreases small business success.
The people who disapprove of capitalism are in a battle with state mercantilism.
Now that you know the proper definition of the US economy. Let us take a dive into the things that seem like a result of late-stage capitalism, but are actually a result of controlled markets.
I used to be a believer that late-stage capitalism was the sole creator of monopolies.
“Competition is merely the absence of oppression.” — Frédéric Bastiat
Government regulation creates monopolies because of favoritism cultivated through congressional lobbying. Lobbying reminds legislators that “Hey! XYZ company needs help!”. Then the legislators approve laws & policies that benefit those businesses that lobby.
As the companies whom lobby grow, they can afford to lobby more. Big tech names like Apple, Google, Facebook, and Amazon all lobby heavily. Since they can afford more losses, they can stamp out the competition with increased regulation.
Regulation increases pressure on smaller businesses, and it becomes costly to compete. So costly, that they may have to shut down, or cut corners. People’s livelihoods are at stake since “small companies create 1.5 million jobs annually and account for 64% of new jobs created in the United States”.
Sometimes, these monopolies are government owned.
Take for the example the US Postal Service, a legalized monopoly. 100% government owned, & 100% funded by you. Although we have FedEx and UPS, it’s still illegal for them to deliver letters. This is great evidence supporting that the government choose who loses and wins. You pay taxes, and the government runs the USPS at a continual loss year over year.
Tech giants like Amazon provide a lot of convenience for us. And, sometimes it feels necessary to institutionalize things like the postal service. But, is that convenience worth destroying true free market competition?
One spicy topic in economic debate circles is minimum wage. Should we increase it? From most people this is a resounding “Yes!”. I was echoing along with this crowd for a time.
Minimum wage acts as a price floor for businesses when “buying” a person’s labor. This seems like a good way to equalize the playing field in the relationship of employer vs. employee. I thought so too.
But, as you look into this further, minimum wage restricts competition. Minimum wage restricts competition because smaller businesses are “priced out” of the labor market. This means competitive wages are less likely to develop. For example, Amazon can afford the minimum wage increase, while smaller competitors can’t.
Further, when competition is restricted businesses have a tougher time growing. Because of this, innovation stalls, less businesses start, & more people leave empty handed.
This reminds me of a video published by ReasonTV, a documentary style YouTube channel.
In their video titled, “The $15 Minimum Wage Is Turning Hard Workers Into Black Market Lawbreakers”, they cover how New York car wash workers end up with a $0 wage after being laid off by their employers who couldn’t afford to pay the $15 hourly rate.
The wage increase that intended to help the underpaid workers, backfired completely, and resulted in mass layoffs. Some businesses had to shut down permanently. The remaining businesses scraped what money they had left and invested in car wash machines. Manual labor became too expensive. The cherry on top, is that that the customers preferred the hand washing method for its attention to detail.
This is only one example of how both groups leave empty handed after intrusive government regulation.
Industry specific subsidies
The US government loves to hand out subsidies. You can think of subsidies as chunks of money the government gives out to specific industries to foster faster growth in that sector. Another phrase that could be used in place of subsidy is, “state funded favoritism”.
I enjoy this article’s definition of a subsidy the most:
“A subsidy is any financial benefit provided by a government which gives an unfair advantage to a specific industry, business, or even individual.”
“Unfair advantage” is exactly what subsidies give certain businesses.
But can’t subsidies be beneficial when industries are lagging behind, and the public needs certain goods? Yes!
What happens when an industry stops receiving subsidies? They stop producing as much because the money incentive is gone. This is like cutting off my morning supply of coffee.
By having a subsidy, industries can start to feel a reliance on them, and may lag behind in efficiency. Subsidies during war times? May be. But, over the long term, industries need to learn to balance themselves out without needing tax dollars.
How can this get any better?
I hope I may have changed your mind with what I’ve written. Things can get better, but it starts with promoting a free market society that doesn’t favor one group over another. This involves reducing the power the middle managing government has. This is the road to true equality and freedom.
If you think I’m incorrect in any area, please leave a comment, and I’ll respond. If you enjoyed what you read, please take a look at two of my most recent writings: