Capitalism versus Corporatism, or “People Don’t Invalidate Systems”

By now everyone is aware of the recent salmonella outbreak tied to peanut butter. The origin of the contaminated peanut butter is now known, and it allegedly includes some sketchy corporate behavior, as outlined in the first, non-snark-filled half of this FARK headline:

Contaminated peanut butter factory found salmonella 12 times in two years of internal tests… and still kept shipping. But don’t worry, industry will police itself

The second half takes an ideological swipe without bothering with logic used by advocates of free markets. The comments at FARK swing to both sides of the pendulum, as one expects in a fight on the Internets. But the volley conveys a critical flaw in how those who desire strong regulation (often to the point of central planning) and a marketing failure among free market advocates. The basic, paraphrased gist of the debate:

  1. FDA?
  2. People died! “Free markets” mean killing is okay!
  3. “Free market” means the company – Peanut Corporation of America – will go bankrupt.
  4. No.
  5. Yes.
  6. No!
  7. Yes!
  8. NO!
  9. YES!

Multiple arguments are in play here. The idea that free market advocates support negligent or intentional behavior that harms is uninformed silliness. The free market is about consequences. Build a good product that meets a need and customers will buy. Build a bad product that fails to meet a need or that harms and customers will refuse to buy. The idea is that incentives matter.

The ideological “free markets kill” approach ignores the spectrum of incentives, either out of disinterest or dishonesty. Selling a product that kills (in a non-predictable manner) has consequences1. This scandal will most likely bankrupt the Peanut Corporation of America through lost business and civil lawsuits, as it probably should. Executives will most likely face criminal prosecution. I can’t think of a single free market advocate who would argue that such an outcome would be unjust, if the facts are as they seem.

The essential fact is that a belief in free markets and capitalism is not a belief in corporatism. Free market advocates argue against government interference because government unfairly picks winners and losers. Regulations are often bad because they skew incentives. Want to bet Peanut Corporation of America will claim as a defense that the FDA, via authority it delegated to the Georgia Department of Agriculture, reviewed its plants and found no violations sufficient to deem this anything other than an unfortunate accident? Here, regulation builds a defense that “the government said it’s okay”. The facts appear unlikely to support that, but the excuse is viable in many cases (i.e. pharmaceutical regulation).

But subsidies skew incentives, as well. Look at ethanol subsidies and the subsequent, predictable increase in the price of corn. Subsidize behavior and you get more of it.

In the current salmonella outbreak, the FDA is incapable of policing every product produced in every factory. I do not seek to minimize any deaths, but how many deadly outbreaks2 actually occur? The costs of full regulation3, both in taxes and higher food prices, would overwhelm any marginal increase in safety. Some problems will slip through the regulatory framework. The question is ultimately why they happen, to which I think the reasonable answer is a basic justification for crime: Those involved thought they could get away with it.

This belief, a willingness to gamble that horrible outcomes will not result, is not surprising, but it arises from human psychology, not free market ideas. Again, no free market advocate is going to dismiss these deaths. There should be consequences. However, while further regulation probably could have prevented these deaths, the idea that more regulation will avoid such outcomes completely rests upon the mistaken assumption that we’ll always have the right regulations and the right regulators to implement them. We never will because humans are fallible in how we write laws, choose regulators, and enforce code.

Free market advocacy is about freeing individuals to pursue businesses and products they value, whether as seller or buyer. That also means freeing individuals from the influence of government picking A over B as the winner through regulation for reasons other than merit, as politicians and bureaucrats always will. Liberty is about freedom from harm, not freedom to harm. You don’t have to buy my product, and you’ll have recourse against me that I do not desire should I harm you. It takes a cynical outlook on individuals and liberty to miss that, I fear, but free market advocates also need to do a better job of pointing out the difference in capitalism and corporatism. We favor the former exclusively.

Update (2/13/09): Peanut Corporation of America to Liquidate.

1 Selling cigarettes may have fit this mold years ago. Today, cigarettes fail this test since we know the harms. Selling cigarettes is not the free market killing consumers.

2 Obligatory vegan statement: The majority of food-borne illness outbreaks result directly from meat, dairy, and egg production.

3 From the Washington Post article:

But Jean Halloran, director of food safety for Consumers Union, said if the government was adequately protecting the food supply, the outbreak could have been minimized or even prevented, and lives could have been saved. Major reforms in inspections and regulations are past due, she said.

“The average plant is inspected once every 10 years,” Halloran said. “This one was getting inspected a couple of times a year by Georgia, but neither they nor the FDA were taking enough enforcement action.”

Halloran’s statement exists in a vacuum of preferred outcomes, with no consideration for real costs. More Consumers Union nonsense here.