Government vs Business – A False Dichotomy

Conventional wisdom, common vernacular, or whatever you want to call it tells us that Republicans are the party of Business, Democrats the party of Government, and Business and Government are the two ends of a spectrum or two poles of a magnet. If you think business is what drives the nation’s economy, you’re supposed to back the Republicans. If you think businesses must be watched and regulated, you’re supposed to back the Democrats.

But, there are two big problems with this dichotomy.

First – and we can thank the economic downturn for helping expose this, Business and the Government are very often the best of pals. Bailouts, protectionism, “too big to fail,” occupational licensing and other regulations that serve as barriers to entry, tariffs, tax credits, zoning variances, public financing of arenas and stadia, government incentives, public sector contracting… the list of ways Business and Government crawl into bed together is long.

Second – and this is what I really want to talk about – being pro-Business is quite different from being pro-Market. And, really, the latter is the label someone who believes in less government in the economic arena should wear. Capitalism is about free markets, not about Business A turning to the government to give it a competitive advantage over Business B, to keep Business C from luring customers away, or to force Business D to do business with it under forced terms.

Markets don’t rely on a handful of politicians or bureaucrats to make wise choices, to drive efficiency, or to decide who has the better mousetrap.

Markets don’t have to guess in advance what consumers want, what the best idea is, which way things should evolve.

Markets are impersonal, they don’t judge. Individuals in a market often do judge, and their judgment in the aggregate is a far, far more accurate reflection of societal mores and preferences than even the wisest and most tuned-in politician or bureaucrat can project or impose.

Markets don’t rely on time-consuming data gathering, they don’t go adrift without active involvement or a guiding hand.

Markets don’t forgive failure.

Markets don’t exonerate or bail out bad choices, they don’t force consumers to live with substandard products or limit their choices in order to protect a favored few.

Politicians don’t seem to like free markets much. Trusting the market means ceding control and admitting that there are limits to one’s knowledge and wisdom. Trusting the market means not knowing the outcome. It also means accepting the outcome even if it doesn’t align with one’s desires or vision.

Businesses too often demonstrate the same dislike for free markets. Markets create and facilitate competition. They demand higher levels of performance, they offer no protection against someone else offering that better mousetrap, they don’t shield one from mistakes or from the consequences of poor performance.

Businesses that collude with the government, on the other hand, can work around the pressures that the market puts on them. Competition can be stifled, rules that favor one product over another can be written, monopolistic contracts can be secured, better mousetraps can be regulated out of existence, regulatory burdens that discourage or bankrupt smaller players can be imposed… the list is long.

Herein lies the futility of demanding that government regulate business. The people who run the businesses to be regulated have a very strong and proximate interest in managing how that regulation is effected. The people that call for that regulation usually have a whole lot of other things on their minds, a whole lot of other priorities, and a much smaller and more dilute interest in a particular industry or sector. When it comes time to do the regulating, who do you think will have more sway over the regulators? Whose voice and “guidance” will be more influential when the rules are being written?

Consider, though, if the demand for rules isn’t there. If no rules are being written, then no rules favoring individual businesses will come to pass. If we don’t provide rent-seekers with the tools to evade market forces, they can’t use those tools to create advantage for themselves. A power boat can fight the current more than a man in a canoe with a paddle, and the canoer can fight the current more than a man on a log raft using only his hands to paddle. By making government bigger, by constantly demanding that regulators involve themselves with businesses and industries big and small, by creating distortions that weaken the power of market forces, we perversely enable businesses to do more of the things we don’t want them to do. Government-crafted tools give one person the power boat and leave the other paddling with his hands. We enable the collusion and bed-sharing that we detest and that harms us and saps our wealth and liberty.

The real divide in our society is between the State and the Market. Big Business isn’t the enemy of government nor its antipode. Businesses, big and small, are actors in the economy and the society, just as individuals are. They can compete in the market, or they can use the state to advance their goals. Guess which one is more likely to keep them in line?