The real enemy of free markets

Lawrence Solomon
National Post
March 7, 2000

 

Big corporations the biggest advocates of interventionism

Now that communism has fallen, free market advocates should train their guns on the most powerful remaining impediment to the free enterprise system. Not environmentalists. Not nationalists. Not even labour unions. The chief threat to free enterprise comes from big business.

Environmental groups, which free market types view with renewed alarm after the World Trade Organization riots in Seattle, are often apolitical and pose no concerted threat to liberalized trade. The Environmental Defense Fund, one of the largest U.S. environmental groups with 250,000 members, supports both international trade and the WTO. China’s Dai Qing, one of the Third World’s most respected environmentalists and winner of the West’s prestigious Goldman Environmental Prize, supports foreign investment and increased trade because they empower the public against state monopolies. While some environmental groups do resemble mouthpieces for organized labour (notably the Canadian Environmental Law Association, also dubbed the Canadian Environmental Labour Association), most environmental groups unambiguously have environmental goals.

Nationalists such as Mel Hurtig and Maude Barlow, though they make for great theatre, take a back seat in influencing policy — Mr. Hurtig’s National Party achieved just 1.4% of the vote in the 1993 elections, and then disappeared. Labour unions, protectionists like the nationalists, have steadily lost clout with the demise of smokestack industries. The Nasdaq index, in effect, inversely tracks the stock of labour unions: The higher the new economy rises, the lower the unionized workforce’s share of the overall economy.

But corporations are neither benign nor in decline. In almost every sector of the economy, the dominant corporations are those skilled at using their influence with government to marginalize competitors. Though some business leaders may abstain from lobbying, and others — like Bill Gates — may reluctantly lobby to defend themselves from competitors who can’t win in the consumer marketplace, the corporation that eschews politics does so at its peril. As a result, the corporate world undermines the workings of a free market as no other. Air Canada v. Onex. Brand-name pharmaceutical companies v. generic drug manufacturers. Bell Canada v. Sprint. The Big Three v. offshore automobile manufacturers. In all these cases, the ultimate battle for control of a business sector occurs in the political arena.

Free market sympathizers tend to forgive companies at the government trough, saying companies are obliged to seek every available subsidy for shareholders. The real responsibility, these advocates claim, lies with those in government who dispense the pork.

But absolving CEOs of responsibility for their role in a corrupt system of governance goes nowhere. As Adam Smith noted 200 years ago, it is in the character of business people to engage “in a conspiracy against the public or in some contrivance to raise prices.” Business people strive to establish monopolies, not to establish free markets. And their time-honoured mechanism for doing so is collusion with government.

Industry doesn’t just accept government largesse, it plies politicians with campaign contributions and other inducements to secure rules that keep their competitors at bay. The result of corporations and governments being in bed together? A system in which corporations accounted for two-thirds of the federal Liberal party’s contributions in the last election year. The major contributors were either regulated by the federal government, or recipients of its largesse.

Free market advocates also rail against governments for imposing regulations on companies, without realizing the regulations’ origins. Modern utility regulation was the brainchild of Samuel Insull, the continent’s greatest electric power tycoon, early last century. “To protect the public,” Mr. Insull argued, “exclusive franchises should be coupled with the conditions of public control, requiring all charges for services fixed by public bodies to be based on cost plus a reasonable profit.” Government regulation transformed Mr. Insull into the most powerful businessman of the 1920s, by some accounts, and so successfully entrenched corporate power that companies in other industrial sectors soon demanded regulation, too.

Other schemes for corporate control failed, but just. GE president Gerard Swope won wide acclaim in the business community for his 1931 blueprint for turning America into a fascist state. The Swope Plan called for the compulsory cartelization of all major American corporations into federally controlled trade associations, overseen by a national economic council. A poll of Chamber of Commerce members showed 90% favoured central planning.

Central planning has since had bad press, and business leaders no longer praise it by name. But several months ago, Air Canada CEO Robert Milton achieved in Canada for his sector what GE’s Mr. Swope failed to do in the U.S. The nature of business has not changed.

“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor,” wrote Adam Smith. Those who believe in free markets, and want civil government turned into an instrument of equal opportunity for all, must call a spade a spade and do battle with real, and not imagined, enemies.

Responses to: The real enemy of free markets

Free markets kudos
The National Post
Monday, March 13, 2000
Letter to the editor

By Peter R. Babiak
department of English
University of British Columbia.

Re: The Real Enemy of Free Markets, March 7.

Just wanted to commend you on your clear and lucid argument. It was good to see that, in calling “a spade a spade,” you read Adam Smith’s take on mercantilism and government lobbies the way it needs to be read. It’s a nice antidote to the obscene free-market euphoria that passes itself off as classical liberalism these days. Excellent piece.

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