Business and Government

by Joseph Rowlands

It's common among the political left to despise and fear large businesses. For a variety of reasons, they believe that to be successful in business, you have to take advantage of others. They think that businesses get special favors and treatment by the government, and that's why they are successful.

Of course, this is all true sometimes. Many businesses do make money through political connections and special favors. The government is in bed with many businesses, and it is the customers and taxpayers that suffer the consequences while the politically connected and their political allies make a fortune illegitimately.

That being said, it's important to recognize the limits of this kind of belief. Not all businesses are in bed with government. Many are successful because they happen to create a product or service that people want and are willing to pay for it. These businesses are entirely legitimate.


Characterizing all businesses as corrupt and immoral loses sight of the real issue. Instead of focusing on the real problems, like regulations that stifle competitors, bailouts, and subsidies, the focus switches to business itself. It treats business as if it were the problem, instead of the various kickbacks and favors granted by the government. Instead of looking at the actual illegitimate means, it confuses the issue by lumping in everyone who tries to make a profit.

The proposed remedy for these problems is even worse. Instead of identifying the special relationships between the corrupt company and the government political allies, it views the problem as businesses getting their own way. And the proposed cure is to create an even deeper connection between business and government.

The thought is to create government oversight of the business. The government would stop the businesses from doing things that people don't like, such as raising prices on customers, or lowering prices to her competitors, or selling products that some people don't like, or even not selling products that people want. The government can come in a "regulate" any aspect of the business. They can make demands of the business, make demands of the competitors, force them to buy other companies or force them not to buy other companies.

The first thing to note is that if the original problem is that businesses are getting special favors from the government, it makes no sense to give the government even more power over an industry. If you already believe the government has been corrupted and bought by a company, giving them more power to control the market can only lead to even greater failures.

A second problem is that when a government agency is given this kind of control over a part of the market, they are given a mandate to make the market more efficient. This means that bureaucrats are paid to second-guess private businesses. If a company produces a new product, the government might come in and demand that they add additional features and sell it at a different price. If customers tend to buy from one company over another, that company may be restricted in how much it can sell in order to keep the industry afloat. If a business lowers its prices in order to compete and expand business, the bureaucrats might decide that it would disrupt the market too much.

This is just another example of central planning, which has been shown in theory and practice to fail. Bureaucrats can't make better decisions than a free market, and when they try, it can only cause distortions and non-optimal results. This isn't just because the bureaucrats are untrained with no relevant business experience. It's because the market is constantly changing and impossible to predict with accuracy. That's why businesses fail and new ones are created. If the market was predictable, businesses would never make decisions that lead to bankruptcy.

But there's another issue with this kind of central planning. The bureaucrats can't help but eventually see themselves as in charge of that part of the market. They will view themselves as a kind of indirect controller of the businesses. And when that happens, it leads to many different additional problems.

First, the bureaucrats will only feel a sense of power and accomplishment when they are making decisions. It will encourage them to be more and more intrusive, second-guessing decisions regularly, and asserting control. It can also lead to them demanding tributes from their subjects. If they are in control, they should be treated with respect. They should be treated as important.

Also, once they are running a market, the bureaucrats will want to hold onto that control. That means if a new competitor comes in and threatens the prestige or influence of that industry, the bureaucrats will be personally threatened by it. They will see market innovations and new technologies as a threat to their position and power. If you are in charge of regulating the old landline phone system, the use of cellular phones or internet phones will be seen as a threat. You'd work to squash those technologies and subsidize the industry you are controlling.

This means that eventually, the regulator goes from limiting the means of businesses to viewing himself in relation to those businesses, where his success is tied to theirs. And this would happen even if the businesses don't try to bribe or flatter him into doing what they want.

But why wouldn't they? Business is hard. It takes constant work and innovation, and a little luck, to succeed. And suddenly a regulator is given power over all of the major variables in a market. They can fix prices. They can fine competitors. They can add barriers to entry. They can demand that products have the right set of features so that the company who happened to make that product will have an advantage. It's like creating a corrupt businessman's fantasy of how to guarantee success in the market. All of that power, a dream list, is put into the hands of a low-paid bureaucrat who's dying to feel important.

If you wanted to create corruption, it would be hard to beat this strategy. And yet this is offered as a remedy to corruption. It seems unbelievable.

But this is all a result of the more basic confusion. Instead of seeing the problem as political favors handed out to corrupt businesses, the problem is viewed as an inherent quality of business and what happens when they are left alone. These two views are complete opposites, and the remedy for one would make the other worse.

So which is the real problem? Are businesses inherently bad? Or do they become bad when they use illegitimate means, such as government intervention? If you believe the former, you'll want more government intervention. If you believe the latter, you'll demand less of it.