Last year saw a sharp increase in “state capitalism” in Canada and the United States, as economist Jack Mintz observes in the Financial Post and on LinkedIn. (To be clear, only statism increased while capitalism – freedom and respect for property rights – was in retreat). Governments in both countries increased their interventions in the economy, attempting to direct corporate behavior by imposing tariffs, taking equity stakes in companies, and selecting “winners” for preferential treatment (such as regulatory exemptions, joint ventures, and interest-free loans).
Mintz also explains that increased state intervention in the economy, or “state capitalism,” doesn’t work (in that it doesn’t increase human welfare). Typically, the government’s “investments” in business are not profitable, and the taxpayers’ money (or the government debt) is wasted. This waste of tax money or the accumulation of government debt erodes people’s economic freedom: they could not spend or invest the money the government collected from them to further their lives based on their own judgment, or they are saddled with paying the government’s ballooning debt, and the interest, though tax increases.
“State capitalism” has led to a lack of private investment and innovation, stagnant productivity, limited economic growth, ever-increasing government debt, price inflation, and unemployment (worse in Canada than in the United States, thanks to the greater relative freedom protected by the constitution and prosperity in the latter).
Regardless of the evidence of “state capitalism” not working, many still consider the combination of statism and capitalism – the mixed economy – the ideal system, “the best of both worlds.” In their reckoning, the mixed economy gives us some freedom (partial recognition of property rights to incentivize innovation, production, and wealth creation) balanced with government controls to ensure approximate equity in income and wealth.
But statism and capitalism don’t balance very well. As Ayn Rand has explained, the problem with the mixed economy, or “state capitalism,” is its attempt to compromise between these opposite principles, which makes the system inherently unstable. When no principle is held as an absolute, there is a constant battle among them. But opposite principles cannot be compromised without one of them losing and the other gaining. Individual rights cannot protect freedom when the government can override them at will.
Statism (a system of unrestricted government control) and capitalism (a system of individual freedom based on the recognition of individual rights) cannot be balanced. Since government control is unrestricted, it can curtail – and has curtailed – individual rights to liberty and property and has bred more controls and government interventions in the economy, as the recent North American experience shows.
As long as we embrace “state capitalism,” the mixed economy, as the ideal system, statism keeps increasing as capitalism retreats. As I have written before, statism undermines human flourishing by eroding our freedom to produce, trade and live freely, whereas capitalism protects such freedom and demands respecting the same freedom of others.
If we want to reverse the trend towards “state capitalism” and maximize opportunities for human flourishing through freedom, production, and trade, we must demand the repeal of statism and advocate for capitalism. That is easier said than done in a mixed economy trending towards increasing statism where the majority is still content with the existing system.
But repealing statism doesn’t have to start with a wholesale revolution. We can often have more influence than we think, by opposing freedom-curtailing government policies as they are being proposed and demanding better protection of individual rights, particularly property rights. This can be done by reaching out to our political representatives and using social media to raise awareness of the mixed economy’s propensity toward statism – and its negative impact on our freedom and flourishing.
