How This One Socialist Idea Could Unleash the Power of Capitalism

NEW YORK (TheStreet) -- Last month, Johnny Gutierrez, a former loan officer at the U.S. Export Import Bank, pleaded guilty to accepting more than $78,000 in bribes in exchange for his recommendation of unqualified loan applications.

The U.S. Export-Import Bank provides financing and loan guarantees to companies including Boeing (BA), General Electric (GE) with the goal of supporting international trade.

Perhaps it does important work facilitating cross-border commerce -- this question is hotly debated. In any event, some observers say Johnny Gutierrez's case is just the tip of the iceberg, and last year the bank suspended or removed four officials, including Gutierrez, amid investigations into alleged corruption.

But what does the larger situation of the US Ex-Im Bank and its large corporate beneficiaries such as Boeing and General Electric really telling us?

It indicates we do not live in a very capitalist system at all. You do not need to be a libertarian to see that there are vast vested business and government interests that distort the free working of the market. (Think about the military-industrial complex in the U.S.) Of course, we see situations like this throughout developing economies, but we also see it in deep ways in the U.S.

An overly cozy relationship between big business and government is often seen as critical element of what is called "crony capitalism." But let's explore the "crony" element here a little further.

In fact, government itself is only a small part of the "crony capitalist" problem. The core distortion, certainly in modern economies in the U.S. and Western Europe (where our governments might be incompetent but are at least vaguely accountable) may not be government alone, or even government principally. The true culprit may really be the endless oligopolies and quasi-monopolies that exist in the private sector.

You see, it is well recognized that capitalism, left to its own devices, destroys itself somewhat by creating monopolies and oligopolies that then distort price competition. The monopolist is often a product of capitalist success, but once established he no longer wants to encourage free competition that might undermine his privileged position. This is clearly the case with companies such as Boeing (or Airbus), which are the only two major manufacturers of commercial aircraft in the world.

If you believe in free markets, then reform does not need to come principally, as many libertarians believe, from government. One cannot deny that government is often a critical cause of inefficiency in our economies. But the problem really comes from within capitalism itself.

In other words, if you honestly value the free markets, you must also be a believer that monopolists, oligopolists and vast concentrations of private wealth are unhealthy and should be broken up periodically. You must believe this, not necessarily for social or egalitarian reasons, but to preserve capitalism itself. This, of course, is what our antitrust laws or EU competition Laws are ultimately (albeit highly ineffectively) trying to achieve.

There is an ancient biblical concept that every seven years all wealth should be redistributed, debts should be forgiven and the whole economic playing field should be equalized (the so called "Sabbatical" year). On the face of it, this sounds like a very (very) socialistic idea indeed. It is not an idea that these days would be at all practical (although interestingly a national debt forbearance scheme was recently run in Iceland).

But perhaps there was something in this biblical concept -- and this is not not meant in a socialist sense. Perhaps the concept, was not so much egalitarian, as actually highly libertarian. Perhaps the biblical concept was saying the real thorn in capitalism is not so much government (it is partly), but the monopolists and family wealth agglomerations that form within capitalism itself. These need to be broken down periodically (in those ancient days they suggested a rather too regular seven years) to allow real competition to thrive.

Perhaps we really should, every now and again, just have a one-off total wealth redistribution. Just one-off -- not ongoing social welfare benefits, not endless handouts for the poor or unemployed, but a single, one-time redistribution. After that, it would be back to fair, full-on capitalist competition.

Perhaps these seem like the thoughts of a dreamer, but wouldn't this really release the competitive power of capitalist dynamics? We would be freeing our economies, not just from government, but also from all those massively dominant corporations and massively wealthy private families who are, perhaps, not (in spite of their words) such advocates of capitalist competition after all.

Jeremy Josse is the author of Dinosaur Derivatives and Other Trades, an alternative take on financial philosophy and theory (published by Wiley & Co).

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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