Free Markets Need Not Mean 'Parasitic Capitalism'

Author: ohannes Earnharth ’91

Ben Gore is only half right with the World Bank assessment in his column "Good Intentions, Bad Ideas: The World Bank Story" in the April 24, 2002, issue of The Campus. Mr. Gore's criticism of the World Bank and its many failed policies has merit, but through an additional leap of reasoning, I fear Mr. Gore may inadvertently throw the baby out with the bathwater.

While he is correct that centrally planned agencies like the World Bank do more harm than good, I have a problem with his jump of logic that the free market consequently, and generally so, fails the world's poor as he suggests. Instead, many argue that it is the collectivization of private resources and the ensuing denial of individual rights that exacerbate poverty and waste billions of dollars, as through the ineffective centrally planned World Bank policies.

In other words, Mr. Gore clearly identifies a symptom of the poverty problem, but misses the crux of the problem.

For starters, what Mr. Gore is critiquing as "free markets" are not really free market policies at all. Instead he is describing an entirely different system best termed as "parasitic capitalism." With parasitic capitalism, those institutions and individuals in a position to buy political influence are able to direct government policy, which is made possible by an initial collectivization of a nation's freedoms and resources.

In this specific case, under the guise of helping the poor nations, the "connected" direct the World Bank to their own benefit. This quasi-fascist arrangement pairs government central planners with privately held institutions that manipulate the tremendous power folks like you and me abdicate to our government. More specifically, we allow our government to tax and regulate us, and in turn, it then gives billions of dollars and massive trade authority the World Bank. When that money and influence is then dispersed by its agencies, it is no surprise that priority is given to those entities that have the strongest political connections.

Again, this is not the free market. Nor is such corruptibility part of a true free market capitalist environment. Rather, what Mr. Gore describes is a collectivized system of distribution and wealth transfer more in tune with the countless failed models of collectivist Marxist and socialist nations. Despite endless promises to help the poor, such systems have done more to promote misery of the masses (and destroy the environment indefinitely) while protecting the politically connected elite.

That said, it is important to delineate that the poor of the world suffer not because of the free market (or "trickle-down" policies), but rather because they are denied the benefits of freedom and free markets. First and most importantly, few in the poorest nations in the world have governments that honor individual rights to property and liberty. These rights are typically collectivized "for benefit of the poor," but as Mr. Gore ironically points out, the resulting collectivized resources are then sold to the highest bidder to the benefit of the politically connected classes both home and abroad. This phenomenon is captured in the term "kleptocracy," which is often used to describe the governments of the world poorest nations.

Hence, Mr. Gore errs when he implies that better management of such collectivization would solve the problem. The problem is not with the management, but rather because collectivization proves time and again that it is hopelessly corruptible and always benefit the politically connected classes.

Which leads me to my final point: Mr. Gore dismisses free market concepts by lumping them with the much-maligned term "trickle-down economics," which he claims has been totally discredited. It is common for those who prefer centralized planning to suggest via this term that only the rich benefit from the free market, and usually at everyone else's expense. Yet they cannot explain that while the United States has the freest markets and consequently many of the richest individuals in the world, it also has the largest middle class and highest standard of living among its poorest residents. Certainly there is great disparity from rich to poor, but should our only measurement be one based in envy?

Our poorest live like kings compared to most in the Third World because of the free market, not despite it. Furthermore, this success is despite both the massive efforts to collectivize more and more power in our own government, as well as the massive artificial government coordinated wealth-transfer programs (such as welfare and our tax structure), which are more akin to failed World Bank policies in terms of measurable success.

It is suffice to say that freedom — and the free market that goes with it hand in hand — benefits the poorest when it is allowed to be a truly free market. When remolded as it often is into parasitic capitalism, an invariably corruptible private-public partnership run by political elites, it is done so at the expense of the common citizen.

For those interested in learning more about the benefits of free market economics, I suggest visiting the site www.mises.org. The material contained therein should enliven the debate in classes of all academic disciplines!

Johannes C. Ernharth '91 is the former chairman and a current board member of the Libertarian Party of Pittsburgh. He served as a Peace Corps Volunteer in Uganda.