'Cause I Said So…

Love of Markets Not Always Love of Big Business

Posted in Business, Capitalism, Free Markets, Free Trade, Government, Leftism, Morality, Politicians, Politics by kevinsoberg on March 27, 2010

It is widely purported, by those on the Left and fellow-travelers in the major media, that when the “free market” and “capitalism” are defended, “big business” is actually being discussed. This is not necessarily the case. Most would expect me to say emphatically that it is not the case, but I believe in telling the truth. Like other words and phrases, the “free market”, “capitalism” and “big business” have had their meaning distorted. There are those more interested in furthering their own aims than they are the truth. In this case, these deceivers fall into two groups: those opposed to free markets, and those opposed to capitalism.

Many on the Right tend use “free markets” and “capitalism” interchangeably because one is thought to be essential for the other. They are wrong to do so. Capitalism is a system that primarily uses the “profit motive” to distribute goods and services throughout an economy. The idea of the “free market” is the belief that an individual has the right to conduct trade with any other individual without government interference. Now there are other economic systems which allow profits, but only capitalism can truly be married to “free markets.” However, capitalism can exist without “free markets.”

All economic systems produce goods and services. People must be fed, sheltered and clothed. These can be done either by individuals or by collective enterprises. The bigger the economy and the more complex the products produced, the larger these enterprises must become. Economies of scale and concentration of expertise are required for large-scale enterprises to supply those things necessary for a growing, progressing human population, regardless of system. In most economic systems these enterprises are called “big businesses“.

Now, who are those opposed to free markets? You may be surprised to find some of the biggest opponents are businesses. Seems counterintuitive doesn’t it? How can any business be against an open market? Well, the purpose of any business is to maximize shareholder value. If a business can do this by restricting competition, then that is what it will do, if possible. The managers of a business are not ideological, their priority is profit maximization. People in business believe in the profit motive; therefore, capitalism; just not necessarily the free market.

Another group opposed to free markets is politicians. Politicians in all parties seek ways to get, hold and expand their power. One method for this is to restrict markets. These restrictions are alterable in any number of ways and their expansion or adjustments are opportunities for influence peddling to interested persons. All those affected by the restrictions, positively or negatively, have a reason to seek the favor of politicians. These politicians can get campaign donations, under-the-table deals, promises of future jobs, etc. and most important to them, their ass kissed.

Politicians live to have people need them so that they can exert power over them. “Big Business” is the perfect foil for the politician. These businesses can be extorted for favors while simultaneously used as scapegoats for all that is wrong with the economy (national or local), with employment, with financial markets, with health care, with transportation, with energy policy, with the environment, etc. This behavior leads to further attempts by these businesses to influence the politician, sometimes preemptively, against stop targeting them.

Microsoft is the perfect example of this phenomenon. In 1990s, Microsoft had the vast majority of the PC operating system software market, but had almost no presence in Washington, DC. However, its competitors began spending money on lobbying efforts in DC in an attempt to get the government to turn its attention to this financial giant. As a result, Microsoft was targeted by the US government for anti-trust violations. In addition to having their product market restricted, Microsoft began spending vast sums on lobbyist and now has a large, permanent presence in DC to prevent future attacks on its business. The only winners were the politicians and their campaign contributors.

Another example is Altria (formerly Phillip Morris Companies Inc), the owner of the tobacco company Phillip Morris USA (PM), which manufactures the Marlboro brand of cigarettes. Marlboro is the largest selling brand of cigarettes in the US, resulting in PM being the biggest tobacco company. In the ‘90s PM began lobbying the US government for the Food & Drug Administration (FDA) to take control of the regulation of the tobacco industry. Tobacco and alcohol manufacturers were purposely excluded from the Pure Food and Drug Act (1908) which established the FDA. PM wanted the FDA to regulate tobacco, because it knew the resulting limitations on product marketing would help prevent competitors from eating into their market share and boost their profits. PM spent $101 million on lobbying from 1998 to 2004. President Obama signed the law changing regulatory authority in 2009. Once again, the winners were politicians and their contributors.

Those who believe in Free Market Capitalism have neither a love nor hate for “big business”. We have a love for freedom and for the consumer. Businesses exist to produce things consumers want at a profit. The consumers are protected by the competition of an open market, which prevents any one company from permanently monopolizing that market. Government should act as a disinterested third-party. It should police the market only for anti-competitive business practices resulting in actual damages to consumers. It should not prop up inferior competitors, or target companies whose only crime is being successful. Unnecessary government interference has a detrimental effect on the market and the consumers.

Finally, there are people on the Left who do not believe Capitalism is a “moral” economic system. They protest against the meetings of the World Trade Organization and G-10. They hope to turn public opinion against the system by “exposing” the worst abuses of “big business”. They have every right to do so, and, inadvertently, their exposes can actually strengthen the market. Most are too ignorant to realize free market capitalism is premised upon “perfect knowledge” and the more we learn of how some companies operate the better for the market. So, keep it up guys. Just tell the complete truth more often. OK?

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