Karl Marx, writing The Communist Manifesto, saw the destructive forces of capitalism eventually giving way to socialism.
It is enough to mention the commercial crises that by their periodical return put the existence of the whole of bourgeois society on trial, each time more threateningly. In these crises, a great part not only of existing production, but also of previously created productive forces, are periodically destroyed.
Marx thought the disruptive forces of capitalism would eventually throw that system into crisis “by diminishing the means whereby crises are prevented” and ultimately socialism could prevail. In 1942, Joseph Schumpeter wrote Capitalism, Socialism, and Democracy in which he coined the phrase “creative destruction” to explain what Marx meant. Schumpeter argued capitalism will eventually lead to corporatism and corporatism will eventually lead to socialism.
Here in the 21st century, Schumpeter seems to be winning the day. The capitalists are giving us socialism, but not in the way Marx thought.
What is happening is that the capitalists are spending a great deal of capital to stop creative destruction. They want to preserve their gains, their businesses, and their inventions. We are seeing corporatism happening in the United States in the same ways it has happened in left leaning countries like France.
Hiding behind niceties, corporations are advocating social policies that make it harder and harder for the tide of creation destruction to sweep over them. Patent laws now drive up the litigation costs of start ups. Tax breaks and legal arrangements give existing corporations protections that make it harder to rival them. Through regulation and laws, convincing politicians that creative destruction would be destabilizing, businesses are working hard to bring about a corporatist system that excludes the entrepreneur. By making the system far more complex than it needs to be and giving preferential treatment to massive companies, states and the federal government have made it hard for David to ever get to Goliath’s size, let alone take out Goliath with an innovation.
You can see this in Amazon’s willingness to support a national sales tax. Doing so drives up the cost for competition. You can see in Walmart supporting government healthcare, which allows it to offload costs onto taxpayers. As tech companies begin helpfully drafting regulations to curtail their powers, we will see it there too. Corporations, with lobbyists, are locking in their gains at the expense of upstarts and the result is that creative destruction stalls.
Fewer people actually benefit from the robustness of free markets because the corporations have been ensuring they do not have to compete in free markets. This is not really capitalism anymore so much as cronyism and corporatism. The cronyism system we have in place now has allowed socialists to sow distrust and discord about free markets. They can convince people that free markets do not work because we all still use the language of free markets even though they are less free.
What our system needs is not more socialism or corporatism. We need to deregulate. We need to get tax breaks for preferred businesses out of tax laws. We need to reform patent law to lower the barrier of entry for new businesses. We need a saner tax code and a repeal of onerous accounting rules that drive up the costs of small businesses and create a barrier of growth.
Democrats can make a persuasive case to young voters that capitalism has failed and socialism will work because young voters have been harmed by the current cronyism system. We should not confuse the argument and sound like the communists who say communism has never really been honestly implemented. We actually had a robust free market economy. We need to get back to that. But it’ll take a willingness in Congress to let creative destruction destroy much of what fuels the cronyism agenda.