by gg3 » Mon 15 Nov 2004, 07:56:58
Perhaps some clarification of terms would be useful.
A "free enterprise system" is one in which privately-owned enterprises are free to sell their goods and services in an open market, i.e. to freely contract with buyers.
I use the term "freedom of enterprise" to refer to the inalienable right (as I see it anyway) of individuals to form productive enterprises and sell their goods & services in an open market.
Free enterprise and markets, are not identical with "capitalism."
A "capitalist enterprise" is one way of organizing an enterprise: ownership by financial capital. The classic case of this type is the publicly-traded corporation, which is owned by shareholders.
"Capitalism" is an economic philosophy that is based predominantly on consideration of enterprises of the "capitalist" type as per above. For example, capitalism calls for a market, not only in goods and services, but also in equity (shares) of corporations. Financial capital operates within this market to buy & sell equity (shares) of "publicly-traded" companies.
The term "natural capitalism" was created as a way of ennumerating the value of natural resources in financial terms that were understandable to the capitalist world, i.e. as assets and equity that could be invested, traded, saved, squandered, etc.
There are other ways to practice freedom of enterprise without becoming engaged in financial capitalism. Remember that they key characteristic of a capitalist enterprise is that it is owned by finance capital.
So as alternatives, you could have the "sole proprietorship," where the key characteristic is ownership by a single individual. This was a dominant form of enterprise until very recently. Family ownership can also operate as sole proprietorship. Or, you could have "partnerships," which in their basic form entail mutual unlimited liability. "Limited partnerships" allow participation by one or more persons on the basis of "limited liability," for example, you have a limited partnership to operate a piece of income property; if someone walks up the steps, trips and breaks their leg, they can sue the partnership but they can't sue the limited partners.
Personally, I consider partnerships to be "unsafe business sex," due to the risk of liabilities passing through to individuals. For example, if my company were a partnership and one of the techs had an accident driving to a job site, the lawsuit could reach through the company to that individual, and then also to anyone else in the company, the company's assets, and each person's individual personal assets (can you say "lose your house"?).
Here are some other alternatives to finacial capitalism; and remember, all of these operate in a free enterprise, market-based system:
You can have a consumer cooperative, or an employee-owned cooperative, each owned by its respective members (that is, the "shares" are owned by the members). You can have an LLC ("Limited liability corporation"), which uses the best elements of a partnership and a corporation (limited liability, and simplified managerial structure), and can function with a member-elected management similar to a co-op. You can have various types of investment trusts, and these are typically used for real estate management (and I don't know a whole lot about income property structures, so I won't try to speculate further on this item).
You can have a "professional corporation," which is where a licensed or regulated professional (such as a doctor or lawyer) incorporates him/herself: in essence a sole proprietorship but with liability protection. You can have an "S-corporation," which is similar to a publicly-traded company in its structure, but is owned by (typically) 35 or fewer individuals altogether (i.e. 35 fairly wealthy people get together and start an S-corp, and each person's ownership share can be quite large, with $20,000 typically being the *minimum*).
And then, last but not least, the C-corporation, which is the publicly traded corporation of the type most of us are familar with, and which can have an unlimited number of owners, buying & selling shares through the stock exchange (which itself is the market mechanism of finance capital).
Socialism, on the other hand, is ownership of productive enterprises by "society as a whole," i.e. via a society's government.
Now strictly speaking there are certain functions that are necessarily best kept in the hands of government: public safety (police, fire, paramedics), sanitation, and so on. Public education is arguably necessary to assure that every child can become literate & numerate, on the basis that literacy & numeracy are necessary for each individual to have a fair chance of individual success, and are also necessary for individuals to participate meaningfully in a democratic society.
But the key to socialism as such, is that it entails social (state) ownership of productive enterprises that could otherwise operate successfully as profit-making companies.
In the more moderate forms of socialism, the state owns only the largest core industries: the things that are the foundations of a national economy and are so large that they would otherwise require a capitalist ownership structure. For example oil, steel, cement, automobile manufacturing, and suchlike heavy industries with huge manufacturing plants.
As the degree of socialism becomes more extensive, the state picks up ownership of more types of enterprise, down to a smaller and smaller scale. At a mid-way point in the spectrum, the state might own anything that requires a factory, but individuals could still operate wholesale and retail distribution, main-street enterprises such as shops and restaurants, small contracting companies such as builders, and so on.
The extreme form of socialism puts the entire economy into state ownership, including the main-street shops, farms, and individual trades workers. It leaves no room whatsoever for private ownership of any productive enterprise. This is what we've come to know and loathe when we refer to Soviet-style socialism, or Maoist Chinese style socialism (until recently).
At its most extreme, it chokes off initiative under layers of state bureaucracy, it stifles all manner of innovation, and it smothers individuals in ways too numerous to name. And even if it were conducted by a democratic government with respect for civil and human rights, it would still suffer from these evils.
Needless to say, the Western World is very very far from the kinds of socialism that are characterized by these evils. And even if we were to move another notch or two down the road, most of us would not find our liberties curtailed or our initiative stifled (though we would obviously feel a heightened sense of vigilance to see to it that things didn't go too much further!).
But now here's an interesting paradox. The evil of socialism, as Westerners see it, is in its tendency to crush individuals and stifle the freedom that makes for initiative and innovation. But if you have pure and complete capitalism, everything is owned by finance capital, so the result is not much different! That is, the result is that the individual is effectively prevented from organizing any type of productive enterprise unless it is owned by outside capital interests. This precludes most of the types of free enterprise structures I mentioned above!
Here's an example of how that works. Property developers set up shopping malls, and insist on only leasing space to stores that are part of national chains or franchises (Target, Safeway, McDonald's, etc.). Those chains & franchises, in turn, are capitalist enterprises traded on the public stock market. They are *not* part of the vast range of other types of ownership structures I mentioned above. You will not find Bob & Betty's Burgers, or Greg's Garden Supply, or the Locally-Grown Food Co-op, or anything else of that kind. People who wish to freely operate enterprises that are not part of national chains or franchises, are prevented from doing so!
Libertarians have traditionally called for the elimination of the privilege of perpetual limitation of liability, on the grounds that it creates corporations that have rights over and above those of individuals, i.e. unequal rights. But there is another level of wisdom to the Libertarian position that I don't even think most Libertarians are aware of: it would preclude capitalism turning into the same kind of stifling, soul-killing system that socialism turned into in the 20th century.
For a free market to be truly free, it has to be free in terms of the types of structures by which people can organize their productive enterprises. It must necessarily not give unfair favor to one type of business structure over another. And it must have legal protections that do not allow any one type of business structure to become so dominant as to effectively monopolize the production and distribution of goods and services in any given sector.
In a truly free economic system, you would see a far larger proportion of goods and services provided by companies that are owned by individuals, families, and small groups of whatever kind that are local in nature. You would see far more local brands, and far fewer "national brands" dominating the market-space. And there would be far fewer entry barriers to new companies joining in the competition. This is sometimes referred to as a "Jeffersonian" free enterprise system. To my mind it's the ideal case, precisely because it does offer the widest range of freedom for individuals to develop enterprises using any structure they see fit. We're a long way from there.