Corporatism vs Corporatism
This article will share some light on a much-disputed term currently in use in mainstream media. The aim of this article is to provide a clear distinction between what is meant my Corporatism in a traditional sense compared to how it is used today.
There are clear similarities, however, the implementation and underlying rules by which it is governed is different. I hope that this will provide people with a clear distinction between the pejorative terms Corporatism as well as the traditional meaning of the word.
Corporatism is an economic system that can be implemented under any political ideology. Corporatism in a traditional sense is a system of co-operation within the relevant interest groups of society.
Corporatism A: The main goal of Corporatism A is to enrich the current shareholders. This might be through higher prices, cutting costs or Stock repurchases programs. The common theme is Profit before people as well as more wealth at the cost of society (Environment, Social).
Corporatism B: The main goal of Corporatism B is the upliftment of human development and corporations geared towards the interest of society. A basic platform for this can be seen in a document titled Rerum Novarum written by Pope Leo XIII.
Corporatism A: Corporatism A will end with a small number of people in control of all the resources and wealth. The people will make use of their wealth and influence to perpetuate the system in order to benefit indefinitely. Thus, we end up with a Totalitarian System based on money.
Corporatism B: Corporatism B is an organic system where all the groups in society are given a voice. These groups (Education, Health, Business…) debate and enact legislation only if it is beneficial to the whole system. An organic system can only work when the interest groups serve a function with a clear goal they set out to achieve.
Corporatism A: Corporations under this system will use their “Right of Intellectual development” to sell detrimental products to society. This ideology encourages the manufacturing and development of any products deemed sellable.
Corporatism B: Corporations under this system are allowed to sell products and services which have no negative effect on society as determined under the Organic Interest groups system. I.e Companies producing soft drinks will have some restrictions because the use of these sugary drinks leads to diabetes and tooth decay. (Rules and Regulation will be set and implemented by the relevant Interest groups)
Corporatism A: The elite in this group seek to open markets for their products and thus, support a military- industrial complex. They support military expenditure at the cost of much-needed social development. Their sole aim is to increase profits.
Corporatism B: Corporatism B can be explained as a Social-Industrial complex. Industrial development is used to the betterment of society. However, the funds obtained is not used to fund an endless pit of social security e.g. Social Welfare. The funds obtained are used to teach people skills and provide human development for those that need to get out of the poverty cycle.
Corporatism A: Remuneration in this system is based on “Skill” and market forces. This leads to outrages inequality among the Janitor and CEO in the company. Somehow the outrages pay is justified using markets forces and knowledge.
Corporatism B: Rerum Novarum gives information regarding a fair wage. The most extreme form of CEO remuneration is introduced as a Cap on the pay of the CEO. However, any justification that can be given which leads to the increase in productivity will enable the CEO to take his funds. Excessive inequality is the main aim with regards to wages. Wages are backed by the productivity of laborers and programs are enacted towards the skills required.
Corporatism A: Shareholders in Corporatism A is dependent on an endless increase in Interest payments from bonds and dividends from shares. They neglect the re-investment needed to grow the firm. Their dividends will only go towards the state (Tax) and limitless purchases of luxury goods.
Corporatism B: The wealth of shareholders is tied to capital appreciation. Profits obtained from the selling of goods are used for: R&D, Re-investment, Staff wages, and Productivity enhancement. Shareholders will have no direct claim on profits. Profits are re-invested to grow the firm in order to alleviate poverty and provide a solution to growing inequality effect through wages.
Corporatism A: Shareholder, Clients, Managers, Employees. This is the order of importance under Corporatism A system. Profit is the most important factor when it comes to this system. Shareholders are thus, the most important class.
Corporatism B: Managers, Employees, Clients, Shareholders. Managers are encouraged (Bonus, Vacation Days…) in order for them to work towards an increase in production of goods and services. Managers will have de-facto control over companies and will gear the company towards the production of goods and services. I.e Shareholders will only nominally be in control whereas real control will lie with the managers.
Corporatism A: Corporations make use of Stock Issue in order to raise capital. Corporatism will also issue bonds in order to raise capital. Bonds/Stock issue leads to the crowding out effect within the economy. I.e money needs to be withdrawn from other parts of the economy in order to fund the capital requirement.
Corporatism B: Corporations are only allowed to borrow money from a bank. The reason: banks create money when they extend loans (Endogenous Theory of Money). The loans extended provide both the demand and supply of new products. Thus, new loans will not lead to crowding out effect. Corporations are thus, only limited to their productive capabilities and not funding through Bonds/Stock issue.
Corporatism A: Banks allocate funds towards profitable projects. These profitable projects might only exist because of asset price inflation. Thus, loans extended for assets fall in a loop where they re-affirm the preconceived ideas set out by the bankers. Asset price inflations lead to bubbles and crises.
Corporatism B: Banks are only allowed to extend credit to productive projects. Productive projects will lead to an increase in goods and services. Thus, banks will extend credit only to projects that are both productive and profitable. Any individual that can convince the bank that their idea will increase the output of goods and services will receive the necessary funds.
Corporatism A: Financial experts in Corporatism A will lead to an increase in financial derivatives. We are currently at the point where a number of financial derivatives is 10x bigger that the global economy. This will only lead to collapse and financial catastrophe since the paper assets (Derivatives) is greater than the current world economic output. Banks also extend credit for financial speculation. These loans can’t be paid back because the loans are not used for productive purposes.
Corporatism B: Financial Speculation is banned. Hedging is permissible; however, banks will not extend credit to capitalists that would like to participate in hedging. Therefore, leverage will not be allowed. Capitalists can make use of their own funds in order to hedge their positions. (Funds they obtained from previous productive activities)
Corporatism A: Capitalism in its current form supports laissez-faire. Anything goes as long as it increases the profit of shareholders.
Corporatism B: Corporatism B will function under an economic policy called Developmental State. This is a form of state-guided capitalism. The state will use intervention, regulation, and incentive-based policies to ensure that companies undertake in operations that will increase the output of goods and services. (e.g. Flying Geese Model)
Corporatism A: Institutions only favor a small part of the economy at the expense of the rest of the country. E.g. Delaware Bank Law 1981. This law was practically written by the bankers and the state passed it. Laws like this will lead to companies and industries racing each other to the bottom.
Corporatism B: Institutions are incentive-based. Thus, the government will set up institutions for the benefit of the different interest groups. E.g. a tax-break on Research and Development within an industry will enable the industry to compete on international markets instead. Internal completion will still exist. Companies will compete within the system for temporary patents on newly acquired productive research and development as well as government subsidies.
Corporatism A: Taxes and tax breaks are passed in order to serve small elite which bought the current politicians. This will only lead the relevant companies making more profit and overall society suffering because if the much-needed revenue lost.
Corporatism B: Taxes and tax breaks are introduced in order to stimulate the production of goods and services. Tax breaks on new technological developments and export taxes on raw materials in order to promote industrial development as well as the internal development of raw materials into finished goods.
Investors will under Corporatism A seek to dominate the market through one company or a collection of affiliates. Companies will make use of Hostile take-overs and various other means in order to consolidate their positions as the only institution capable of providing the underlying good or service.
Companies will make use of Patents and other intellectual property rights in order to force competitors out of the market. These companies will make use of their other business to stay profitable while they dump products below cost in order to force out competitors. They will then proceed to purchase their competitors at bottom low prices and through this consolidate their position.
Corporatism in this area will then make use of their position in order to charge customers monopoly prices and vastly increase their wealth and power. Corporatism A focus on low volume and a high-profit Margin. A price fixing at these high costs enables the companies to enrich themselves at the expense of the general population.
Corporatism A will enrich their current shareholders at the expense of the general economy.
Companies the Corporatism B will initially create a cartel with all the companies within the relevant sector. Internal competition will be maintained within the Cartel through various incentive-based structures. A table of ranks will be set up within each cartel with the purpose of establishing internal development.
Companies will compete domestically for Government subsidies and temporary intellectual property rights through incentive-based production. A company that produces more goods and services – in percentage terms per year- will receive the underlying subsidies and newly developed R&D technology (Temporary Patents).
Companies in this system will aim for market share instead of Profit. Thus, companies will focus on high volume and a low-profit Margin. Thus, products produced under this system will be affordable to the general population. Cartels will in this system prevent Cartel companies from dumping goods below their cost price – to prevent companies from racing each other to the bottom for market share. A price fixing system can ensure that goods are not dumped below their cost value.
This system is thus, a system for market share and not a system for monopoly profits.
International Trade is not restricted and agreements can be drawn up to benefit the cartel as a whole instead of individual companies.
Economic Rent/Unearned Income/Rentiers
- Land Rent from absentee owners
- Monopoly Rent: Natural Resources etc.
- Interest and Financial Charges
Corporatism A: Companies/individuals in Corporatism A would force debt onto the population and extract various economic benefits from the debt slaves. Corporatism A seeks to extract the maximum amount of “profits” from the productive sector.
Corporatism B: Corporatism B will in its extreme form abolish unearned Income (All such income (Economic Rent) would go to the state-subject to administrative costs i.e. doing resale of property costs etc.). Corporatism B would in practical terms implement a substantial tax on all economic rent activities. This will prevent inequality from setting in.
These few points should point to the vastly different systems as meant by Corporatism in a traditional sense compared to how it is used today. Corporatism should retake their definition and put the current regime to shame with their focus on shareholders and profit.
Corporatism A: I will rebrand as Crony Capitalism.
Corporatism B: I will rebrand as Economic Custodianship.
Economists to Look into: