Free-market capitalism?

Given my many ruminations on capitalism, here's David Coates' interesting editorial about US capitalism and the invisible hand. Some excerpts (but check out the whole article):

"Whatever else the United States economy is, or has been, in the twentieth century, it has not been free-market capitalism. We carry in our heads this image of economic markets made up of small producers and rational and fully informed consumers, and we tell ourselves that this is perfect competition and an ideal world. But actually it is a fantasy world. It is certainly not the world -- nor the economy -- that we currently face in the United States.


"There was a time in which the U.S. economy approximated the ideal of perfect competition: the pre-Civil War era of small capital and independent farmers.... Instead of an economy full simply of small companies, we now have one dominated by vast corporations. Instead of equally-empowered consumers, we now have unprecedented levels of income inequality, entrenched poverty and the arrogance of riches. Instead of an ever-more informed citizenry, we now have a mass culture designed to entertain and obfuscate, and a democratic process flooded by the political assertions of the Super PACs. So if the world of free-market capitalism ever existed, it has long gone.

"So we are not in, nor are we going towards, something we might legitimately call 'free-market capitalism.' At this moment, the U.S. economy is probably more properly described as a classic example of 'crony capitalism' -- full as it is of interlocking corporate boards, mutually reinforcing top-salary compensation committees, and revolving-door relationships between Washington and Wall Street. And if we are going anywhere new as an economy, we are in danger of heading from "crony capitalism" to something even worse -- 'vulture capitalism:' to a world in which the man who is quite possibly our next president can personally add over $15 million to his private wealth from restructuring deals within the GM bailout -- a bailout he condemned and a restructuring that, in this particular case, cost over 25,000 unionized auto workers their jobs and their pensions.

"The greatest weakness in the argument about letting private firms just do their own thing (Adam Smith's much cited 'invisible hand' at the heart of the free-market argument) is that it rests on a fallacy of composition. It is perfectly rational -- indeed, in unregulated markets it is absolutely essential -- for each private firm to seek out the cheapest sources of labor. But what is rational for the firm is not rational for the system as a whole. Racing to the bottom behind Asian wages erodes the hopes and dreams of the entire American middle class, and robs the national economy of the consumer demand vital to the achievement of long-term full employment within it. Wages are not just a cost. They are also the source of consumer demand. We have outsourced good-paying American jobs to countries which tolerate working conditions and levels of political repression that we would find abhorrent at home. The result inside the United States is companies flush with profits and cash, but fearful to invest and hire here for lack of consumer demand. We outsource, and we damage ourselves.

"The greatest threat now before us is that a vote for Romney will be taken by sections of the private sector as a green light for doing the Bain Capital thing: asset stripping, outsourcing and the total denuding from the American economy of any vestigial worker rights. The result will be a genuine free-for-all -- a genuine free-market -- but one with the cards inside it stacked against labor and against the poor. It will be a free-for-all wrapped up in the language of freedom, of course, but with freedom concentrated at the very top.

"There is nothing in market competition that automatically leads to equilibrium at socially-desirable levels.... We cannot design further economic strategy on nostalgia for an imagined (and imaginary) golden past."