March 26, 2008

Businessman, Heal Thyself!

by Samuel Gregg D.Phil.

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Most people are surprised when they discover the author of this quote is not Marx or another socialist luminary. It comes from the Wealth of Nations (1776), authored by the eighteenth-century apostle of free markets, Adam Smith.

Smith’s point was that – contrary to what we often read in newspapers, learn at school, or hear from the pulpit – many business leaders are not wildly enthusiastic about free markets. One manifestation of this is “corporate welfare.” This expression describes those government programs which, thanks to business figures lobbying legislators, give preferential treatment to particular industries, usually via subsidies and tax-exemptions.

A prominent example is agricultural subsidies. Usually justified on grounds ranging from national-security to cultural preservation, many agricultural subsidies in America and the European Union actually go straight to the large agricultural companies that now dominate farming. Those most damaged are struggling farmers in developing nations. Their ability to compete in international markets is directly undermined by these policies. Many business executives’ anti-market tendencies, however, don’t stop here.

Plenty of business leaders – especially in North America and Western Europe – actually oppose free trade. Ross Perot was only the most prominent American businessman to contest the North American Free Trade Agreement. Free trade and competition – which imply deregulation and tariff-abolition – means that established businesses must compete with entrepreneurs and emerging companies (often from developing nations) able to produce similar and new products more efficiently, of higher quality, and at lower cost.

Unsurprisingly, many American and European businesses prefer to lobby for tariffs to protect them from such competitors. Not that business in developing nations necessarily embraces markets. Many Latin American businesses, for example, enjoy unhealthily close relationships with governments. Plenty pay bribes to retain privileged places in the economy.

In 2007, for instance, the Economist reported on the rise of the Boli-bourgeoisie in Venezuela. A play off the name of the Latin American liberator Simon Bolívar, Boli-bourgeoisie denotes a class of Venezuelan businessmen whose primary assets are close connections to the Chavez regime, lubricated by a culture of bribery that caused the World Bank to rank Venezuela as the Americas’ second-most corrupt country in 2007.

Transparency International reports demonstrate that outright business-government corruption is less common in developed nations. But some businesses in economically-advanced countries employ other, non-market methods to attain their ends. Many American businesses, for example, collude with local government to invoke eminent domain powers to usurp the rights of people whose property stands on proposed development sites.

As thinkers from Aristotle to Aquinas to Smith remind us, property rights are not absolute. But some business leaders’ willingness to use state power to get their way reflects a failure to understand that strong protection of property rights is critical for a prosperous economy.

Why then are so many business leaders ambiguous about markets?

Apart from resenting market disciplines, many businessmen have not proved immune to the neo-Keynesianism still dominating much economic policy throughout the world. An example is some private bankers’ refusal in the present credit-crunch to contemplate letting any significant financial institution fail – no matter how insolvent it may be. Hence, they agitate to have governments and central banks provide special-financing for ailing institutions, thereby, in classic Keynesian fashion, putting off the ultimate reckoning instead of actually addressing the problem by letting bankrupt financial houses go, well, bankrupt.

Another source of business market-ambivalence is, surprisingly enough, many business schools. We often assume business schools produce hard-charging, wealth-creating capitalists. Undoubtedly some do. But close inspection of many business schools’ curricula reveals their primary focus is on management – accounting, financial, personnel, and process management – rather than free competition and entrepreneurship. While an important aspect of business, management per se is not about risk-taking. Management is mostly about planning and control. It often struggles with, and is sometimes wary of, economic creativity.

Clearly it’s not enough for business to be “pro-business.” Business leaders need to be pro-free enterprise, pro-free competition, and pro-free trade. Otherwise they risk simply becoming lobbyists, helping to create a world in which political influence counts for more than entrepreneurial ability, consumers pay more for lower-quality/higher-cost goods, and the poor in developing nations are locked out of the global markets that give them more hope of a better life than any amount of foreign aid.

To paraphrase St. Luke’s Gospel: “Businessman, heal thyself!”

Dr. Samuel Gregg is research director at the Acton Institute and author, most recently, of The Commercial Society (2007).

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