The Free Market and Politics: How Business and Government Collaborate Save for later Reblog
In part one of this new series, I explain the difference between a market entrepreneur and a political entrepreneur. This video is in part a response to Knowledge Hub’s video, “The Age When Capitalism Went Too Far,” but more broadly addresses the issue of regulatory capture and how the government interferes in free market operations.
Hello everyone this is My 2 Cents and welcome to the beginning of a new video series that will be called The Free Market and Politics. Lately, I’ve been listening to a lot of podcasts and political commentary, and when it comes to the issue of economics there’s a certain phrase I keep hearing over and over. “I love Capitalism, but….” fill in the blank. Whoever is speaking always starts off by talking about how great free markets are in principle but then goes on to talk about how evil people corrupt the free market, rendering government intervention necessary even if not ideal. Further, there are members of both liberal and conservative political parties who express the same reverence for Capitalism with their words but then call for radically different but equally intrusive government interventions in the market.
Recently, one of my patrons asked me to review a video by Knowledge Hub called “The Age Capitalism Went to Far.” I thought it was worth responding to, but as I’ve worked on my response, I’ve realized that there are so many misunderstandings about the nature of free markets and how government intervenes within them that it would be better to make a series tackling each of these points individually. Hopefully this will help foster better discussion about economic policy, especially between people who both claim to be Capitalists but have different views of what the proper role of government is in economic activity. For this first video, I want to explain the difference between a market entrepreneur and a political entrepreneur, and how failure to distinguish between the two has led to a great deal of misguided criticism of free markets. The introduction to knowledge hub’s video is in fact a perfect example of such a misunderstanding.
Think about some of the phrases used in this clip. “Uncontrollable enterprise.” “Robber Barrons.” “The power of the United States.” “They controlled everything.” Sounds like private businesses are pretty ominous right? His opening contention that it’s scary to think that the leaders of the largest corporations on the globe hold more power than elected officials accurately captures the view of many self-professed Capitalists today. Money buys power and therefore the free market would be great if everyone was morally good, but so long as there are evil people who will use their money to buy power, government regulation will be necessary to keep these people in check.
However, have you ever stopped to ask the question, how did these large corporations become so large in the first place? Assuming they are operating in a market economy where people choose how, when and where to spend their privately-owned money, there are two ways. They either could have become large through market entrepreneurship or through political entrepreneurship. And in fact, it would be my contention that most successful businesses start as the former but later shift to become the latter.
For example, let’s consider an appliance that is in all likelihood right above your head at this moment, a smoke detector. Suppose there’s a businessman, we’ll call him Greg. Greg starts a business designing smoke detectors. He takes some of his money and runs advertisements all throughout town about how his smoke detectors are cheap, effective, and will render your home or business safer from fires by detecting them before they grow out of control. People everywhere are impressed and begin buying Greg’s smoke detectors instead of other businesses’ smoke detectors, which are sold at a higher price or have not been shown to be as effective as Greg’s. Greg then rakes in significant profits.
In that scenario, Greg would be a market entrepreneur. He recognized a need and then provided a product that met that need at a cheaper price than his competitors. No one forced people to buy from Greg. They chose to because they were convinced they were better off with his product than they were with someone else’s product or with simply keeping their money. It’s a win-win situation for Greg and for his customers.
However, let’s alter the scenario. This time, instead of running ads about the superiority of his smoke detectors, Greg uses the money he would’ve spent on those ads to make a generous donation to the mayor’s office. All he asks for in exchange is a few hours to give a presentation to the mayor’s office about the danger that fire poses to homes and businesses and how his product is the best product to detect and prevent such fires. After giving his presentation, the mayor decides that Greg is right and moves that the city enact a law, requiring that smoke detectors be installed in every building in the city. However, since he’s now convinced that Greg’s product is the superior product, the law needs to specify that buildings must be specifically equipped with Greg’s smoke detectors and not someone else’s. The citizens of the town now have a legal mandate to purchase smoke detectors from Greg or conversely, the city may provide them directly to the community by raising taxes and buying in bulk from Greg. In this case, Greg would be a political entrepreneur. Instead of people voluntarily buying from Greg after he convinced them they were better off with his product, Greg convinced the government that everyone was better off with his product thereby leading them to use force to make everyone buy from Greg. And in that scenario, I’m sure it didn’t have anything to do with Greg’s generous donation to the mayor’s office, right?
The point of my illustration is that Greg can’t, by himself, force anyone to buy his smoke detectors. So long as people are voluntarily buying his product, they must be convinced that they are better off with his product than without it. However, it’s only because government exists in the first place that Greg is able to lobby for laws that require people to buy from him. Even if the people aren’t convinced they are better off with Greg’s product, they’d better pay or face legal troubles with the city. So has Capitalism failed here?
Well, if by Capitalism you mean people voluntary exchanging their private property, then clearly no. If you mean people paying other people to use force against others for their own benefit, wouldn’t it be better to just call that extortion? If Greg paid a random citizen to a hold a gun to people’s heads unless they bought his smoke detectors, he would be arrested for extortion, but if he pays the government to do it, this is somehow a failure of Capitalism.
Now as I said, many industries initially become wealthy due to market entrepreneurship. However, over time, competitors pop up and they begin lobbying the government to pass regulations that force their competition out of the market or outright require the citizens to purchase from their company alone. Think about how many options you have when it comes to cable companies, or to water and electiric. Commonly referred to as regulatory capture, this is something that results from the intuition of force, not from people voluntarily exchanging their private property. Now I know you could argue that these company’s voluntarily exchange their money for the government’s use of force, but they only get away with this because of the perceived legitimacy of government in the eyes of the people.
Thus whenever you hear someone say that they believe Capitalism is great, but we need government to prevent businesses from extorting their customers, you ought to point out that collaboration with the government is the only reason that a business could get away with extorting their customers in the first place. As we continue in this series, I intend to demonstrate that every time someone attempts to point out the failure of the free market, they will inevitably be pointing out an example of government interference in the free market.
Before I go, it’s time for a quick patron shout out.
Please help out the Dark Conservatarian by subscribing to his channel. Also, what are your thoughts? Do you agree with the distinction between market entrepreneurship and political entrepreneurship? And do you think the very entity that makes political entrepreneurship possible could be trusted to regulate itself and prevent it?
Leave your comments below. And that is my 2 cents. Take it for what it’s worth.
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