The massive tax breaks, privileges, and subsidies being offered to Amazon by state and local governments across North America for their second headquarters (HQ2) has taken crony capitalism to dizzying heights.
Mark Muro, senior fellow at the Brookings Institution said such offers “speak(s) to the urgency in a lot of places to position themselves in the advanced economy. This looks like a fast way to accelerate one’s entry into the industries of the future.”
Such blatant cronyism, however, is not characteristic of futuristic industries in an ‘advanced economy.’ Rather, as described by Mises, it is more emblematic of a “precapitalistic” economy, in which a few powerful elite controlled the means of production.
In the era of history before capitalism, Mises explains in his book Money, Method and Market Process, the few men of means in society took advantage of their status by obtaining land and acquiring serfs and servants to do their bidding. The means of production of that age (mainly land and manual labor) were thus controlled by a small powerful group of privileged elites. Meanwhile, the masses toiled in virtual servitude according to the demands of an empowered few.
Fast forward in time to the age of the market economy, and the tables were turned. Consumers (the masses) became masters of the means of production. As noted by Mises, “In the market, economic power is vested in the consumers. They ultimately determine, by their buying or abstention from buying, what should be produced, by whom and how, of what quality and in what quantity.”
Even the wealthiest and most gifted in society — those that own the majority of the means of production — are made to serve the needs of the average citizen if they wish to prosper. According to Mises, “The entrepreneurs, capitalists, and landowners who fail to satisfy in the best possible and cheapest way the most urgent of the not yet satisfied wishes of the consumers are forced to go out of business and forfeit their preferred position.”
Mises summarizes the stark contrast brought forth by this transformation: “While under precapitalistic conditions superior men were the masters on whom the masses of the inferior had to attend, under capitalism the more gifted and more able have no means to profit from their superiority other than to serve to the best of their abilities the wishes and the majority of the less gifted.”
In short, the capitalist system ushered in a dramatic rearrangement wherein the few must serve the demands of the many. Power shifted from the elites to the masses, or consumers.
The entrepreneurs and corporations competing today to satisfy the needs of consumers must combine inputs, such as labor, raw materials, machinery, etc., to produce a good or service at a price the consumer is willing to pay. If they can turn a profit doing this, they succeed; otherwise they fail. As Mises would point out, consumers are the “real bosses” who can “make rich men poor and poor men rich.”
When the state steps in to dispense favors such as tax breaks or subsidies to only a relative few businesses, however, the playing field becomes uneven and the elites gain influence over the distribution and use of the means of production at the expense of consumers.
Under this scenario of targeted “economic incentives,” a company can gain an advantage over its competitors courtesy of political privilege. Such advantages will help determine which businesses succeed or fail in the marketplace; and therefore influence who owns a greater share of the state’s means of production and how they are used.
Benefiting from this system, of course, are those businesses with the appropriate political clout receiving the political favoritism, along with the politicians eager to record public relations victories by claiming they are “creating jobs” as they dispense their political favors.
Consumers, on the other hand, are left with fewer choices and less sway over determining who controls the economy’s scarce resources and to what purposes they are applied.
In other words, power is shifted away from the masses and back to the elite class of government officials and the politically connected.
Mises’s words warn us that crony capitalism turns back the clock to a time when an elite few ruled supreme over the powerless many.
