With capitalism, who holds power?

Some people believe that corporations in a capitalist economy wield tremendous power. Hollywood movie plots reinforce this view by depicting corporations as powerful and shadowy entities.

Is this accurate? Not really. In the real world, (a) corporations wield far less power than imagined, (b) consumers and employees hold more power than they think, and (c) government is the ultimate power wielder.

Corporate power

If you believe that corporations wield lots of power, consider the following:

• Can a corporation force you to buy from it instead of another company?
• Can a corporation force you to buy Product A if you want Product B?
• Can a corporation force you to accept a job offer?
• Can a corporation force you to stay on as an employee if you want to leave?
• Can a corporation tell you where you must live, what you must eat or drink, what clothing you must wear, or which school you must attend?

For societies with decent economic freedom, the answer to all these questions is ‘no.’ So, where is all the power that corporations supposedly wield?

Some people think that corporations have the power to cheat customers and employees. Although some do try, this does not work in the long run, as explained below. Most corporations realize that cheating customers or employees is not a viable long-term strategy.

This doesn’t mean that corporations are saintly. They’re just not capable of wielding the deep, dark power that some attribute to them.

Consumer power

With free-market capitalism, consumers wield substantial power. Not individually, but collectively, as a group.

It is hardly an exaggeration to say that consumer are kings and corporations are merely servants. Corporations must supply whatever consumers desire. The very survival of corporations depends on satisfying customers.

Why? Because (a) freedom and competition allow consumers to choose whichever products and services they desire from whichever companies serve them best, (b) consumers will not buy unless they are satisfied, and (c) corporations that don’t sell enough will go bankrupt.

Consumers ultimately decide which products corporations should make, how much quality the products should have, and to some extent, even the selling price that corporations can charge. The freedom to choose puts consumers in charge.

This is beneficial for the average consumer. It also means that consumers hold substantial power.

Finally, corporations don’t have much power to cheat customers with shoddy products or unreasonable prices. Freedom gives consumers the ability to choose, and competition gives consumers multiple products and companies to choose from. This discourages corporations from cheating their customers, because if they do, their customers can and will buy elsewhere.

Employee power

It is a similar story with employees.

Just as freedom and competition discourage corporations from cheating consumers, so too they discourage employers from mistreating employees. Freedom gives employees the ability to choose which employer to work for. Competition gives employees multiple potential employers to choose from.

Therefore, employers must treat their employees fairly, or mistreated employees will seek jobs elsewhere. This gives employees a certain amount of power.

People don’t always think of it this way, but employment is a voluntary and mutually-agreed contract between employer and employee. Employees are neither slaves nor prisoners. Employees can choose to put up with their current job, seek a better job with their current employer, or seek a better job elsewhere.

Now, this freedom to seek better job opportunities does place certain demands on employees. They need to have a positive mindset that they can control their own destiny. They also need to work hard at getting the job or career they want. They may need to take risks to get there.

These things (mindset, effort, and risk-taking) may not come easily or naturally to some. Understood. Life is not always easy.

At the same time, though, anyone who is unwilling to do these things should accept some personal responsibility for any inability to improve their work situation. Freedom and competition make opportunities available, but it’s our choice to pursue them or not, and how vigorously.

What about monopolies?

Some readers may be wondering how monopolies enter this discussion. Monopoly corporations do wield tremendous power. But they are also exceedingly rare. Especially if you take a global view and consider international competition. In addition, new companies can always pop up to challenge the monopolist, assuming barriers to entry are kept low (as they should be).

Even in the rare event of an actual monopoly, individuals usually still have choices. Consumers can choose to not buy. Employees with only one employer in the area can choose to move to another location, or commute a long distance to a better job. This may not be easy or desirable, but even the rare monopoly doesn’t hold total power.

Government power

Government is the real power broker in society. Government can and does operate via force and coercion, far beyond the capability of corporations to do so. Thus, the old saying, “you can’t fight city hall.”

Individual consumers and employees can usually say ‘no’ to a corporation. We cannot usually say ‘no’ to government. Consider the following:

• If I don’t want to pay taxes, can I choose to stop?
• If I want a different tax collector, can I choose someone other than the IRS?
• If I don’t care for the Social Security program, can I instead have those funds deposited into my personal IRA account?
• If I don’t like a certain regulation, can I choose to opt out?
• If I don’t like mandated safety features, can I buy a cheaper car without them?

This list could go on and on. Government is not conducive to freedom and choice. Government forces its own preferences on buyers and sellers, even if both would prefer something different.

The very nature of government is coercion. Government laws, regulations, mandates, and taxes tell people what they can and cannot do. Government can tell you where you must live, what you must eat or drink, what clothing you must wear, and which school you must attend.

Back to corporations

For those who still think that corporations hold all the power, here’s a question: Why do you think corporations lobby government to restrict competition or gain other advantages?

Answer: Corporations coopt government power because they don’t have enough power to do it on their own. Government has coercive power that corporations do not.

Government power to tax, regulate, and prosecute is quite literally the power to destroy. Government can destroy corporations, while corporations cannot destroy government.

So, who really holds the power?

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