My friend Elephant sometimes says that he’s a pro-market liberal. But he often makes the excellent point that markets are always created by the state. It’s not just regulation which shapes and produces markets; there are the limits of enforcement as well as the means for chartering corporations.

Now, I had been harboring some vestigial anarcho-capitalist ideas about how “capitalism is a global default,” as some people say. Then, I read Wallerstein’s The Decline of American Power, which contains the following passages:

The free (or competetive) market is the great shibboleth of the capitalist world-economy, yet is its supposedly defining characteristic. Yet every working capitalist knows that if a market is truly free as Adam Smith defined such freedom–a multitude of sellers, a multitude of buyers, and total transparence of operations, including full knowledge by all buyers and sellers of the true state of the market–it would be absolutely impossible for anyone to make a profit whatsoever. For the buyers would always force the sellers down to a price barely above the cost of production, if not below it (at least for a certain time). What is necessary in order to make profit is some kind of at least partial restriction of the market, some degree of monopolization. The greater the restriction or monopolization, the greater the potential profit available to sellers. To be sure, monopolies have their downsides, which are regularly pointed out to us.

…Having the state on one’s side is the royal road to lare-scale profit. And if the state is not on your side but someone else’s side, then one’s primary need as an entrepeneur is to change the politics of the state. Capitalists require states in order to make serious profits, but states that are on their side and not someone else’s side.”

And it got me thinking about how governments absolutely shape markets. Elephant, you were totally right and I was totally wrong (Happy Birthday). The Rule of Law to back up contracts; the civil court system to monetarize damages; the printing and control of currency; the police forces to quell workers’ riots–these examples cried out to me as proof that markets don’t exist without regimes (and vice versa?)

The role of the state, as I’ve said before re: property, the function of the state is to defend the indefensible (and here I’m speaking in purely functional, not necessarily moral terms). In order for capitalism to grow, it needs the state; ask any real anarchist. That’s what had been bothering me about the “global default” thesis–if capitalism is so natural, why did it take so long do develop?

I mention all this because people seem to lay their anti-guv’mint rap on the punitive regulatory powers of government with respect to business, but seldom do you hear the truth that without government, there wouldn’t be “business” anywhere near as we know it. (Maybe some day I’ll write a pirate novel about a ‘post-government’ society to better illustrate this point.) As I said to someone yesterday, it’s not that we necessarily need more government market regulation, we need better government market regulation (to say nothing of enforcement). Congress would rather bury businesses in paper in an attempt to ‘level the playing field’ than create fundamentally fairer structures of business.

Indeed, the legislative focus is often on punitive measures instead of structuring ones. The point of institutions (e.g., democratic elections, the army, or the World Cup) is to channel conflicts into socially acceptable venues. Regulation engenders attempts to subvert this regulation. Structural laws (like corporate charters) are harder to break because they form the plane of interaction. Of course, people try to break fundamental structural laws, too.

And so, I began to wonder about which has more impact, formative, structural laws about the market; or punitive measures designed to punish violations. For example–the problem of corporations “externalizing environmental costs” as economists say (the rest of us might say “shitting in the stream” or “fucking up the neighborhood”) seems to be prevented neither by the actions of the market nor the weak attempts at environmental regulation and enforcement. What if we were to use regulation in a way that directly ties better metrics of these externalized costs into their bottom line? Adjust property taxes based on the volume of toxic waste produced, or additional percentage points on corporate income tax by the curie? I don’t know.

I had been thinking about stuff like this back when Bush was complaining about “double taxation” on corporate earnings. Check out this bald-faced horseshit:

The double-taxation of dividends is not fair. And I ask Congress to get rid of the double-taxation of dividends. And let me explain some reasons why it makes sense to do that. First of all, there are 62,000 seniors in the state of Arkansas who pay taxes on dividend income. A lot of seniors rely upon their dividend income in order to live the out-years, the remaining years. It’s good public policy, it makes sense to let the seniors keep more of their own money by getting rid of the double-taxation of dividends. (Applause.)

Let’s ignore the fact that Bush is almost certainly talking about the wealthiest 16.2% of Arkansas senior citizens–there are 381,600 Arkansans over 65 as of last count. (I have a little breakdown of Bush’s math in this speech here; the way he sells this plan is amazingly dishonest–and a quick read).

What I want to talk about is Bush’s phrase, “double taxation.” How on earth is taxing dividend income double taxation? As those intrepid pederasts at the Foundation for Teaching Economics say, “[L]ike you and me, a corporate entity can earn an income. When it does, it pays taxes. That’s once… When corporations distribute profits to shareholders, they’re called dividends. For shareholders, those dividends are income. Personal income is taxed. That’s twice.”

By this logic, no one who makes any wages should be taxed at all. If I pay you to paint my house from my after tax income and then you get taxed on the income you made from painting houses, the only thing that prevents us from truly calling this “double taxation” is that money is infinitely taxed if you want to look at it that way. I’m surprised they didn’t cry “triple taxation” or “octuple taxation.” I mean, I know why they didn’t cry “dodecatuple taxation;” there’s no such word and it’s hard to say. (Here’s an excellent analysis of “double taxation”.)

The key words here are “like you and me.” The reason corporations pay separate taxes is that the state has accorded them the privileges of an “artificial person,” albeit one with a different set of rights and duties than actual people. If corporations really want to be like people, they could start acting like them. Not to mention all the cost incurred by the corporate system on the government–court time, reams of paperwork, regulatory agency budgets, etc. If you were found to have caused the deaths of hundreds of people purely for financial gain, you’d be in prison; but if you were the Ford Motor company, you would just have to seriously consider the cost of fixing your cars vs. the potential legal costs incurred by the inevitable lawsuits. Limited liability is only good for bad people.

So, I agree with Bush. I don’t think corporate taxes are fair, either–let’s get rid of this artificial person called the corporation and just have individuals interact with other individuals, right? Let’s not harsh our market high by letting the corporations in with their “double taxation,” man.

Speaking of getting high, this provides me with a perfect segue about what I think governments can’t do, now that I’ve talked about what it can. For example: stopping people from taking drugs by criminalizing drugs. I was going to post this whole thing about that, but Abu Gingy beat me to the punch with his post where he mentios how we need to legalize drugs to help fight the War on Terror. Prohibitions (and Prohibition is a wonderful example) create black markets and crime. The reason there’s so much violence surrounding illegal drugs is that the criminalization of a good (as in “goods and serivces”) makes it dangerously profitable. Governments are much better at regulating positively than regulating negatively.

This is not to say that the government making some things illegal isn’t a good idea. People will do drugs with or without the laws, but the obvious counterexample would be murder–people kill other people all the time, whether it’s illegal or not. The markets exist for providers of both services, in the black market. Actually, the government does regulate those monopolies, because the defining characteristic of a state is the monopoly over the use of violence. But as a civil libertarian, I say that your right to swing your fist ends at the tip of my nose, and that businesses necessarily involve intrapersonal relationships which are contractual as opposed to consensual. So in terms of how I would approach legalization, I’d regulate commerce but not criminalize ingestion or non-commercial production. I’ll grant possession qualifying for intent to distribute and drunk-and-disorderlies to drug-counseling courts (an idea endorsed by President Bush, by the way). I would certainly stop all of the Bill of Rights violating policies connected with the “War on Drugs,” but at this point they’ve all been superseded by the “War on Terror,” so no one would even notice.

Speaking of market regulations, I wrote all this as a preface to what I’m about to say regarding embargoes. I was thinking of the worst embargo in recent memory, the UN blockade of Iraq after Gulf War II, which killed 1.5 million people while enriching only the most corrupt bureaucrats on both sides of the Iraq-UN table. Our rhetoric said that we were punishing Saddam and not his people, but Saddam’s standard of living improved while everyone else’s worsened until the point of death in many cases. Plus, the embargo never stopped major U.S. defense contractors like Halliburton (then under CEO Dick Cheney) from trading with Iraq under a French subsidiary, anyway. The whole affair would have been a farce if only it hadn’t caused a small holocaust (on top of the 300,000 Saddam had already killed himself, not to mention the huge casualties from Gulf War I).

Some offer the example of South Africa as an effective embargo. I was thinking of the efficacy of the half-hearted embargoes on White-ruled South Africa (very effective at limiting De Beers’ 90% monopoly on the diamond market, you noticed). I think what had a better impact on the debate were the boycott/divestiture efforts on U.S. campuses–they kept the issue in the news and awareness of apartheid up until de Klerk finally relented. Of course, the incredible poverty in South Africa has helped make it one of the most dangerous places to live in the world. Two steps forward, one step back, I guess.

Recently, as I was going through some papers from university, I found an outline for a term paper I wrote about the standards for humanitarian intervention. According to my ouline, the strategic value of the intervention (and the influence of the Realist school of international relations in thinking about “security”–which was our code word for “war”) had much more to do with the standards for “humanitarian action” than the distant second motivating factor, which is paternalistic interest in the region because of guilt for causing conflicts in the first place.

Inevitably, when people talk about humanitarian intervention, someone will say, “we can’t be everywhere.” And this makes sense given our limited (and lately, thinly stretched) military resources.

But that’s just what political science calls “hard power,” the military strength of our nation. The Bush Administration doesn’t really seem to believe in what we call “soft power,” i.e., diplomatic, economic, cultural methods to influence every country. The problem with the “we can’t be everywhere” statement is that, in fact, we are everywhere. We trade with (or embargo) every country in the world. We support regimes all over the place with money and guns and strategic support. Our corporations are busy extracting resources from every last bit of the Earth’s surface possible. We are everywhere, let’s stop pretending.

Governments set the mode of interaction, not necessarily the actions themselves. Anarcho-libertarians like Eric and Brad seem to think that the government is socialist because it “controls the means of production through Sarbanes-Oxley,” et al–but there wouldn’t be corporations or limited liability or civil court or currency or any of the other laws which make our economy possible without the state. Now, the states are totally capable of stemming the tide of corporate malfeasance, but they won’t, so they can’t.

So, while I believe in soft power, it occurs to me that the embargo method doesn’t work. So what are our other options? There is the boycott, a tactic I embrace as a way of life, now that I think about it. A while ago, I commented on Abu Gingy’s blog, where he had a post about the threats of divestiture from Israel on the part of some Protestant Churches wasn’t going to be effective. The amount of shares they were talking about amounted to less than 4% of a day’s trading, etc. I replied,

…For example, I do not eat anything from, nor have I ever been inside a McDonald’s restaurant. Do I think that my boycott has the slightest impact on McDonald’s bottom line? That would be crazy. So why do I do it? Two reasons: a) It’s not about McDonald’s, it’s about me. If I don’t agree with McDonald’s corporate agenda or its union busting or the McLibel affair, then I cannot, in good conscience, give them any of my money. That way, when I criticize McDonald’s publicly, I don’t have their fries hanging out of my mouth or McNugget in my beard. If you want the world to change, you have to start changing it. You’ll never convince good people to follow your advice unless you follow it yourself. I’ll get back to this one in a second.

b) So now that I’ve sworn off McDonald’s, where do I put my money? I always, always try to patronize smaller restaurants. Don’t get me wrong, I love greasy burgers and fries and chicken nuggets and all those things they have at McDonald’s (that’s not my beef with them at all). But I know that my dollar goes further toward helping people when I visit the mom-and-pop diner instead. I choose to patronize businesses where the income differential between the top employee and the bottom employee is relatively low for this reason (it’s one of the rights I retain within the capitalist system).

Getting back to the churches, now the question becomes, what are they going to do with the money they make and how many churchmembers will follow their spiritual leaders’ example?

People look to join a boycott, but seek to subvert an embargo. (Of course, if we embargo China, let’s say, we just create a grey market smuggler economy into Thailand or somewhere like that, which enriches those countries at a slight cost to their national sovereignty.) You know, once I had a profile in the newspaper where I was described as an “anarcho-syndicalist,” which wasn’t true at the time (I had been making a metaphor about open-source software, not my own political beliefs). But since then, I became gradually more sympathetic towards some of the organizing ideas of anarcho-syndicalism, because it is democratic from the ground up. Of course, things get institutionalized over time as the become more efficient. You can’t really escape government by pretending not to have it, because then all you get is half-hearted, bad government. At any rate, a boycott is a good anarcho-syndicalist kind of thing; it’s a spontaneous, popular movement that doesn’t need leaders, just media attention.

It’s kind of like the ‘leaderless cell” technology. Invented by the Racial Holy War White Power organizations and now used to great effect by our enemies in the War on Terror, the leaderless cell movements are hydras instead of the traditional private armies. Removing leadership seems to be much more effectively carried out by police (plus we know we have them, instead of the lingering possibility of a non-fatal bombing); but it’s not ‘net effective’ in stopping further attacks. These guys are just out to start some shit, and any shit they start is ultimately served by anything they do besides getting caught, where they might possibly be turned and we can start putting moles into the (admittedly loose) organization.

Didn’t Rove say, “Conservatives saw the savagery of 9/11 in the attacks and prepared for war; liberals saw the savagery of the 9/11 attacks and wanted to prepare indictments and offer therapy and understanding for our attackers” right here in New York a while ago? Here’s what I have to say about it: thoughtless people prepared for war, thoughtful people wanted to prepare endictments and gain understanding of our attackers. Remember when the Quran was a bestseller right after the attacks? I was heartened, really I was.

But pointless military engagements, embargoes and boycotts aren’t the only options. If we were to impose heavy tariffs on countries with unfair labor practices (while favoring those who treat workers fairly), we would help eliminate their competetive advantage against American and other fair wage countries. I have a vision of listing our trading partners in order of working conditions and wages, and bestowing “Most Favored Nation” status at the precise cutoff we democratically establish.

Does this mean withdrawing from NAFTA/CAFTA/WTO/World Bank/MAI? Yes. It’s another excellent reason to do so. For years, India had a 100% duty on foreign computer equipment. You know what they got out of it? A tech sector which literally rivals our own. Why should we subsidize the oppression of civil and labor rights? It’s a loser for us and ultimately a loser for them. If corporations paid taxes, I might feel differently about it, because then the profits they’re making would go back into the economy here, but they money often sits in offshore accounts or imported cocaine sniffed off immigrant strippers who send home remittances. Tariffs are all-American, people, it’s in the damn constitution!