Contra-Capitalism as a Business Syndrome

By Robert Bradley Jr. -- March 27, 2018

“Beyond rent-seeking, a corporation can engage in other behaviors long decried by classical liberals, behaviors that might be characterized as contra-capitalism.”

Cronyism … Rent-seeking … Regulatory capture … Special-interest politics … Strategic uses of government intervention … Many terms have described business lobbying within the up-for-grabs socioeconomic system of political capitalism where the political means replaces the economic means. [1] It results in what classical-liberal entrepreneur Charles Koch calls bad profit. [2]

But beyond rent-seeking, a corporation can engage in other behaviors long decried by classical liberals, behaviors that might be characterized as contra-capitalism. Importantly, the corporation might not recognize these behaviors as an explicit strategy (Enron did not; Tesla does not). These separable behaviors are complementary.  And now, with a term, what was implicit can become explicit for the public policy and corporate-governance debate.

Background

As described in my Capitalism at Work: Business, Government, and Energy (Scrivener Publishing: 2009), leading classical-liberal scholars have warned against political capitalism, described yesterday (by Randall Holcombe) as a socioeconomic system in which business drives government more than so-called public-interest reformers do.

“I expect all the bad consequences from the chambers of Commerce and manufacturers establishing in different parts of this country, which your Grace seems to foresee,” Adam Smith wrote in 1785. “The regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the Public.”

In the mid-20th century, philosopher Ayn Rand wrote: “I glorify the real kind of productive, free-enterprise businessman in a way he has never been glorified before,” but “make mincemeat out of the kind of businessman who calls himself a ‘middle-of-the-roader’ and talks about a ‘mixed economy’—the kind that runs to government for assistance, subsidies, legislation and regulation.”

Recently, classical-liberal entrepreneur Charles Koch has denounced “corporate welfare” as bad business.

The role of business is to respect and satisfy what customers value (even if it’s other forms of merchandizing) rather than lobbying the government to mandate what can or cannot be offered. Such activities are the ultimate form of disrespect for customers. [3]

Contra-Capitalism

Rent-seeking, though, is merely part of a wider malaise under which capitalists work against capitalism proper. Drawing upon the case study of Enron (and with GE under Jeff Immelt and Tesla under Elon Musk in mind), I have coined the term contra-capitalism to conceptualize a single syndrome that comprises at least three distinct but interrelated practices:

1. Rent-seeking, or special government favor, such as a special regulation (hurting consumers or taxpayers or competitors). Lay and Enron were very political in this regard, or government dependent.
2. Philosophic fraud, or strategic deceit, whereby companies resort to  half-truth or nondisclosure in ways that are short of prosecutable fraud.
3. Imprudence (anti-bourgeoise vices), acting contrary to best-business practices. Betting the farm … violating net present value (NPV) economics …. creating conflicts of interest…. practicing nepotism ….

The third behavior, if not accompanied by either of the first two, can come down to judgments of entrepreneurship. Some actions considered imprudent in the short run (Bill Gates dropping out of Harvard) can be judged bold and brilliant longer term. But when tied to deceit and/or rent-seeking, and when habitual, imprudence rises to the level of prima facie contra-capitalistic.

Capitalists vs. Capitalism

In a previous post on T. Boone Pickens, I described the general modus operandi of the contra-capitalist as follows:

They are not against capitalism. They can be very charismatic, in the know, and mainstream. They may be industry leaders. They are always politically correct and receive good press. And they can, often do, pledge allegiance in the abstract to the American way of free enterprise.

But by their actions, these businessman undermine the fair-field-and-no-favor, consumer-first, taxpayer-neutral precepts of real free-market capitalism. And their actions encourage cronyism by competitors and influence the public toward a skewed view of the classical-liberal business ideal.

They are the contra-capitalists, routinely engaging in not only rent-seeking but also hyperbole, half-truths, and imprudence.

I then describe T. Boone as “impatient, publicity hungry, market-arrogant energy executive” who “put tens of millions of dollars of his own money into propagating his interventionist schemes.”

Energy has been fertile ground for contra-capitalism:

The oil and gas industry has been populated by notable contra-capitalists: Enron’s Ken Lay, BP’s John Browne, Duke Energy’s James E. Rogers, Chesapeake’s Aubrey McClendon, and GE’s Jeff Immelt. Ditto for Elon Musk and just about every wind-power and solar executive in America (and abroad).

Each of these individuals may have innovated notably and nobly at times, but each practiced and legitimized political capitalism  in the field of energy. They were the “bootleggers” of the Bootleggers and Baptists phenomenon.

Conclusion

Big government can be drilled down to rent-seeking and “Bootleggers and Baptists” working to give particular businesses or industry a special tax carve out, public monies, or a favorable regulation. True reform toward classical-liberal capitalistic capitalism begins by understanding the nature and practice of contra-capitalism in its parts and in whole.

Left and Right–Republicans, Democrats, Libertarians, and even Socialists–can join together in create a government-neutral business environment for the private and social good.

---

NOTE: The original title of this post, “Contra-Capitalism as Business Strategy,” was changed because few if any corporations would say that rent-seeking, deceit, and imprudence are a strategy. Contra-Capitalism is really a business syndrome.

---

[1] Political capitalism overlaps with, but is not synonymous with, the mixed economy. The latter usually brings companies unearned benefits, or rents, but simultaneously imposes on them undeserved costs. The term political capitalism refers to those acts of government economic interventionism that have been specifically enacted at the behest of businesses for enhanced profitability (Bradley, Capitalism at Work, p. 3).

[2] See, generally, Charles Koch, Good Profit. New York: Crown Business, 2015.

[3] These quotations are taken from Bradley, Enron Ascending: The Forgotten Years (Scrivener Press and John Wiley & Sons, Summer 2018), pp. 63–64.