Dazed and Confused: Protestors Blame the Market for Government Abuses

The protests in Washington, DC, ignited by the annual meeting of the World Bank and the International Monetary Fund attracted a wide array of people, mostly of leftist persuasion, calling for everything from the liberation of convicted killer Mumia Abu-Jamal to the end of child labor in developing countries.

One gets the distinct impression, judging by the anti-capitalist signs and slogans, that even those who were specifically protesting the activities of the World Bank and IMF have little understanding of what those institutions do or why they should be abolished.

Part of the protestors’ confusion stems from a misunderstanding of how a free market economy works–which they call capitalism–and how it differs from the type of capitalism that they rightly despise, and why the two are mutually exclusive in nearly all cases.

Leftists universally believe that free markets lead to the domination of all facets of society, from politics to the control of resources and capital, by large corporations. Once corporations grasp the levers of control, they use them to exploit society for their own profit.

It is not free markets that promote this kind of "monopoly capitalism," however, but governments. One has to look no further than our own government’s treatment of environmental policy to see this. Common law, allowing property owners to sue for damages or prohibit outright the trespass of pollutants on their property, has been replaced by statutory environmental law. Now businesses that comply with environmental regulations are protected against liability for damages they impose on their neighbors.

James Florio, who advocated federal environmental protection while a congressman from New Jersey, has noted, "Most government regulations are aimed at overseeing the permitted release of toxic chemicals into surrounding neighborhoods during a company’s normal operations."

In a free market economy, where the government’s role is limited to protecting the rights and property of each individual, a "capitalist" must rely on the voluntary cooperation of others to realize a profit. He can’t force people to buy his product nor can he shift his costs on to others.

Not so with the World Bank and the IMF, government institutions supported by taxpayers. The vast majority of the benefits associated with their activities accrue to big business at the expense of taxpayers in developed countries and the poor in developing countries.

The World Bank, for example, loans money to third-world governments to finance the construction of large scale projects, such as dams, agricultural cooperatives, power plants, and so on. These contracts invariably are awarded to companies based in rich countries. Recently the World Bank boasted that US companies get back more in procurement contracts than US taxpayers contribute to the World Bank.

Developing countries are often stuck with projects that are environmentally destructive and socially disruptive, not to mention that many operate at a loss and become financial drains for years to come.

The IMF, which has engaged recently in several high-profile government bailouts, is little more than a taxpayer-funded insurance scheme for banks that lend money to irresponsible governments. Nobel laureate Milton Friedman argues that these bailouts don’t help the poor who are suffering from recession, but "the bankers in New York and in London and Berlin" who make loans to these countries.

Indeed, governments of financially strapped countries come to depend on IMF loans to remain in power rather than making the reforms necessary for economic growth. The result is perpetual recession and grinding poverty.

The leftists who protested the IMF and World Bank meetings last month should be angry at the abuses perpetuated by these institutions. But rather than blame the market economy they should blame the proliferation of government control in the economy. When government steers the economy, it is the rich and politically well-connected who benefit the most. Of course, for those who look to government for the solution to all of society’s ills, this may be an impossible transformation to make.

Paul Georgia ([email protected]) is a policy analyst at CEI.