There’s a growing sense of discontent today, and not unreasonably so for those who feel the system has let them down. And, let’s be real, it has let a great many people down. Unless you have outsized earning power, or have built up a decent portfolio of assets, life is getting increasingly difficult. And even if you do, life isn’t as easy as it should be.
The finger of blame seems squarely pointed at “capitalism,” a term that has become synonymous with corporate greed, worker exploitation, and rising inequality. And why not? That is, after all, the system under which much of the free world operates. Right?
Well, not exactly. At least, not in the way we should properly understand true free-market capitalism. Which, I would argue, is a long way from the system most of us suffer under now, which is, frankly, a bastardisation of the ideals of free and open markets.
What people truly resent, even if they are not always conscious of the distinction, is crony capitalism. A hollow imitation of true capitalism in which certain producers and industries are shielded from competition through political favour and special privilege. It is a system that rewards political access and entrenched interests over innovation and value creation, and one that, ironically, bears greater resemblance to statism and collectivism, even if many of the key actors are motivated by noble intentions.
Explaining this thoroughly would require a discussion of private property rights, freedom of contract, the rule of law, and consumer sovereignty. But for the sake of brevity, it is the final point on which I want to focus. Because genuine capitalism is oriented towards serving consumers, not producers, and that distinction makes all the difference.
Consumer sovereignty is the belief that each of us should be free to spend as much or as little of our money as we choose, on whatever we value, and to change our minds at any time (the one exception being those things that could infringe on the personal liberty and property of others). I don’t think that’s a controversial claim. In fact, whatever your political leanings, I dare say it’s something we all regard as a self-evident right.
In a free and open market, that freedom of choice forces producers to adapt and innovate in order to earn and keep the voluntary patronage of consumers. The consumer has the final say. A producer, no matter how large or established, survives only if people continue to choose what is offered. Profit and success are not granted by political favour, which insulates a privileged few from competition. They are earned by best serving the needs and desires of others.
This is what gives profit its ethical foundation. In a properly functioning capitalist system, profit is not a sign of exploitation but a signal of service. A business earns profits because it has satisfied the wants of consumers better than its rivals. It has directed resources to where they are most valued. Success is not imposed from above but granted from below, through countless small decisions by individuals freely choosing to spend their money. Profit and success are justified only when they reflect the creation of value for others.
Contrast this with crony capitalism, which is increasingly apparent in Australia and much of the world. Here the order is inverted: the wants of producers, especially the large and politically connected, are placed above those of consumers. Leaders, often with good intentions, confuse the means with the ends. They elevate the preservation of jobs above the purpose those jobs are meant to serve, which is to provide the goods and services that people actually want. And what we truly value is signaled not in political sentiment but in how we choose to spend our money — what economists call our revealed preferences.
Jobs are important, of course, and no one likes to see anyone become redundant. But a deliberate distortion of markets under the guise of charity only makes the situation worse. Yes, you can erect tariffs and other trade barriers, issue generous loans or outright bailouts, or take any number of seemingly prudent measures to protect jobs, but what you are really doing is making it harder and more costly for businesses to deliver what consumers, in aggregate, actually desire. Further, you impose a burden on wider society, either through higher costs or higher taxes, and through a less dynamic and well-functioning economy.
This isn’t to suggest for a second that we should embrace a laissez-faire approach and treat people simply as expendable components of production. A well-functioning welfare system that offers protection and dignity for the displaced is, in my view, a cornerstone of a fair and compassionate society. Importantly, it is also far more ethical, effective, and efficient than propping up zombie companies that will never deliver genuine wage growth or opportunity. It would also save taxpayers a great deal of money.
The truth is, those producers manoeuvring for political assistance cynically evoke “jobs” as a means to shield themselves from the consequences of their own poorly conceived capital allocation decisions. These are the people who preach the virtues of capitalism on the way up, but expect socialist protections for themselves on the way down. Not out of some high-minded civic ideal, but pure self-interest.
There are many examples, but the Whyalla steel plant is a recent case in point. Officially, the subsidies and guarantees are about saving jobs and protecting the local community. In practice, they serve mainly to prop up the interests of insiders. As caring citizens, we could far better support displaced workers through generous redundancy and retraining programs, rather than handing a free pass to large, wealthy private investors. Especially when such corporate charity carries all manner of opportunity costs.
When governments override competitive dynamics, they distort the price mechanism that directs resources to their most valued use. The result is a hidden cost on society, paid through higher taxes, higher prices, and ultimately fewer of the goods and services people actually want.
It is easy to see why such interventions persist. The pain of a factory closure or a struggling airline is felt sharply by those affected, while the diffuse costs to the wider public go largely unnoticed. Politicians naturally respond to concentrated pressure and overlook the broader but less visible benefits of letting markets adjust freely. Yet every time a producer is shielded from change, the mechanism that drives long-term prosperity is weakened.
But these direct interventions are just the tip of the iceberg. What is far more impactful, yet much harder to see, are the indirect manipulations through regulation, central banking, and structural deficit spending by governments. The bitter irony is that all of these are touted as mechanisms designed to protect the consumer.
Of course, one should never be too dogmatic or ideological. There are many reasons why the prudent application of such measures can be a genuine force for good. At the same time, we should be alert to their unintended consequences.
You could write a book on each of these topics, and people have, but for now let’s just take regulation as an example. It is a policy tool ostensibly enacted to curb the worst of corporate excesses and prevent bad actors from causing harm. While it is unavoidable in many industries, it is the specifics of its application that create the potential for societal disadvantage. Poorly implemented, it tends only to entrench the power of incumbents and shield them from competitive pressures that would otherwise force them to offer better or cheaper products and services.
Here in Australia, there is no better example than the financial services and banking sectors. To operate in these areas, you need licenses that are both expensive and difficult to obtain and maintain. Is it any wonder, then, that these sectors are dominated by a small handful of mega-firms? Perhaps this would be justified if such concentration led to better outcomes for consumers, but it is worth noting that the biggest and most egregious cases of financial malfeasance have been perpetrated by licensed operators.
Such is the perverse outcome of regulatory capture.
And when these institutions grow to a point where they are so structurally significant that they are deemed too big to fail, all manner of moral hazard is introduced. That was a key lesson from the GFC that seems to have already been largely forgotten.
The role of government in a capitalist system is not to pick winners or guarantee outcomes for producers. It is to enforce contracts, protect property rights, uphold the rule of law, and ensure open competition. Within this framework, producers must constantly adapt to serve consumers better. When they succeed, they earn profits. When they fail, they lose. This process allocates resources efficiently, fosters innovation, and raises living standards over time.
Capitalism, properly understood, does not privilege entrenched corporations or the wealthy. It defends the rights of consumers and rewards only those who best satisfy their demands. It does not ask whether a producer has power or prestige. It asks only whether they can persuade consumers to buy what they offer. Each dollar spent is a vote of confidence. Each refusal to buy is a rebuke. This feedback loop keeps producers accountable and ties success directly to service.
When a business or entrepreneur thrives in this environment, their success is proof that they have created value for others. Again, that is why profit in a free market is not immoral but recognition of value delivered. It is the clearest evidence that needs have been met and that consumers — citizens — are better off.
True capitalism, when allowed to function as intended, is not a system that elevates the few at the expense of the many. It is a system where the many hold power through their choices, and where success is achieved only by meeting those choices better than anyone else. Profit and success in such a system are not marks of corruption or privilege but of service well delivered.
To defend capitalism is not to deny its flaws or abuses. It is to insist on a clear understanding of what it is and what it is not. And, at its best, it is the system that, more than any other, places the consumer at the center, disciplines producers to serve them, and aligns private success with the public good.
That, to me, is something worth aspiring to.
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