Harry Geels: The confusion between capitalism and corporatocracy

August 1, 2023

By Harry Geels

There is a great Babylonian confusion of tongues surrounding the term 'capitalism', which, among other things, leads to capitalism being blamed for everything. Hence an attempt to create order out of chaos along the lines of morality and those of the power of the market, corporations and the state.

Popular books like 'Less is More' by Jason Hickel and 'Doughnut Economics' by Kate Raworth contain a litany of attacks on capitalism. It is said to incite the destruction of the planet and to increase inequality. Nuances are missing here. It is not made clear that there are different forms of capitalism. There is also no evidence that the other systems, respectively degrowth and the 'doughnut' system, will deliver better results, not to mention potentially problematic side effects, for example from debt.

I have often jumped into the breach for capitalism, most recently as a system that can accelerate the climate transition. Under the motto 'the power of a message is in the repetition' I now choose to sketch the many shades of gray of capitalism. If you search the internet for 'types of capitalism', you will soon find websites that describe several forms of capitalism. However, a visual overview, with gradations and mutual relationships, is never given. Without pretending to deliver the perfect picture, I would like to fill that gap this time.

Capitalism versus socialism and communism

Capitalism is always contrasted with socialism and communism, systems in which collective ownership is paramount. Communism goes the furthest. Everything is controlled by the state. These systems have failed in all countries where they have been applied. The best-known examples of this are China and Russia. China has now resorted to state capitalism, where every company is part private and part owned by the state. This is not really 'capitalism', because in the end the government decides everything.

Russia has fallen into a form of oligarchic capitalism. After the collapse of the Soviet Union, companies came into the hands of oligarchs. The companies are now largely state-owned. The state sector grew from 35% of GDP in 2015 to more than 70% today. The oligarchs are merely highly paid stooges, closely related to the regime, in this case Putin's. This criminal form of capitalism arose from the anarchy that followed communism.

Oligarchic capitalism can also develop from the more pure forms of capitalism. The US is sometimes labeled an oligarchy, as former Secretary of Labor and Democrat Robert Reich explains in this video.

The many forms of capitalism

Figure 1 lists the most frequently mentioned forms of capitalism, from the purest form, laissez-faire capitalism (leaving everything to the free market), on the left, to state capitalism on the right. Although some media group oligarchies and state capitalism under capitalism, that is actually confusing. They are too far removed from capitalism. It is better to speak of diffuse systems. The same applies to 'crony capitalism', a hybrid of 'corporate, oligarchic & state capitalism', in which favoritism between companies and the state plays a dominant role.

Figure 1: Various socio-economic systems

Then there is 'Corporate capitalism', or 'Corporatocracy', 'Corporate welfare state' or 'Corporate socialism'. This is a system with dominant companies (often in the form of oligopolies), interdependence between large companies and the government, lack of independence and (counter)weights, advancing juridification and bureaucratization (from which small and medium-sized enterprises suffer) and encroachment of citizens' freedoms and property rights. As explained in the column True capitalism no longer exists, in my opinion this is now the most dominant system.

In addition, there are two systems in which the government's role is limited to creating a level playing field between large and small companies and in which entrepreneurship and innovation are central ('Entrepreneutrial capitalism') and in which the government fulfills part of the social tasks such as the army, takes on policing and care for the sick and the elderly (and collects taxes for this purpose) and provides laws and regulations for fair relations between consumers and companies and between owners and employees of companies ('Welfare capitalism').

Even more shades of gray

Finally, there are two relatively new forms of capitalism: 'Stakeholder capitalism' and 'Woke capitalism'. In Stakeholder capitalism, all stakeholders are taken care of. Not only the shareholders, but also the employees, the customers and the planet. Logical you would say, because a company cannot survive without having good relations with its stakeholders, but apparently it was still considered necessary to name this form - as the counterpart of 'Shareholder capitalism'. ESG is one of the ways to 'transform' companies to Stakeholder capitalism.

Woke capitalism is a form of capitalism related to Stakeholder capitalism. The emphasis here is on the socio-political views and work ideas of Generation Z and Millennials. Particular attention should be paid to the climate, gender identities, flexible working hours, safe spaces and personal development. Large corporates have started working on this, although there is a threat of 'woke washing' here, or companies that don't put their money where their mouth is here, which, according to Alan Jope, Unilever's CEO, can crumble confidence in companies. But that aside.

To conclude

Then there is the discussion of morality. In the really clear forms of capitalism (on the left side of the figure), the market determines everything. The market is amoral, which is slightly different from immoral. The market simply 'wants' to meet the needs of consumers in the most efficient way possible with scarce resources. In the other forms, companies and governments jointly determine what is good and bad. In the systems on the right side of the figure, elitist groups respectively the state dominate. As said, there is no longer capitalism here.

The forms to the left of the block 'Corporate (welfare) capitalism' are still forms that somewhat justify the term capitalism in the name, although we can discuss whether Stakeholder and Woke capitalism are not forms of 'greenwashing' of capitalism. In any case, someone who just blames capitalism for all the problems in the world should first clarify which form he means exactly and realize that most forms do not really deserve the term capitalism at all.

This article contains a personal opinion of Harry Geels. He is politically unaffiliated.

More columns by Harry Geels