A Philosopher's Blog

The State & Business

Posted in Business, Ethics, Philosophy by Michael LaBossiere on December 19, 2016

The American anarchist Henry David Thoreau presents what has become a popular conservative view of the effect of government upon business: “Yet this government never of itself furthered any enterprise, but by the alacrity with which it got out of its way…Trade and commerce, if they were not made of India-rubber, would never manage to bounce over obstacles which legislators are continually putting in their way…”

While this sort of laissez faire view of the role of the state in business is often taken as gospel, there is the question of whether Thoreau is right. While I do find his anarchism appealing, there are some problems with his view.

Thoreau is quite right that the government can be employed to thwart and impede enterprises—this is often done by granting special advantages and subsidies to certain companies or industries, thus impeding their competitors. However, he is mistaken in his claim that the government has never “furthered any enterprise.” I will begin with the easy and obvious reply to this claim.

Modern business could not exist without the physical and social infrastructure provided by the state. In terms of the physical infrastructure, businesses need the transportation infrastructure provided by the state. The most obvious aspect of this infrastructure is the system of roads that is paid for by the citizens and maintained by the government (that is, the citizens acting collectively). Without such roads, most businesses could not operate—products could not be moved effectively and customers would be hard pressed to reach the businesses.

Perhaps even more critical than the physical infrastructure is the social infrastructure that is created by the government (that is, the people acting collectively and through officials). The social infrastructure includes the legal system, laws, police services, military services, diplomatic services and so on for the structures that compose the governmental aspects of society.

For example, companies in the intellectual property business (which ranges from those dealing in the arts to pharmaceutical companies) require the existence of the legal system and law enforcement. After all, if the state did not enforce the drug patents, the business model of the major pharmaceutical companies would be destroyed.

As another example, companies that do business internationally require the government’s military and diplomatic services to enable their business activities. In some cases, this involves the explicit use of the military in the service of business. In other cases, it is the gentler hand of diplomacy that advances American business around the world.

All businesses rely on the currency system made possible by the state and they are all protected by the police. While there are non-state currencies (such as bitcoin) and companies can hire mercenaries; these options are generally not viable for most businesses.  All of this seems to clearly show that the state plays a critical role in allowing business to exist. This can, however, be countered.

It could be argued that while the state is necessary for business (after all, there is little in the way of business in the state of nature), it does nothing else beyond that and should just get out of the way to avoid impeding business. To use an analogy, someone must build the stadium for the football game, but they need to get out of the way when it is time for the players to play. The obvious reply to this is to show how the state has played a very positive role in the development of business.

The United States has made a practice of subsidizing and supporting what have been regarded as key businesses. In the 1800s, the railroads were developed with the assistance of the state. The development of the oil industry depended on the state, as did the development of modern agriculture. It could, of course, be objected that this subsidizing and support are bad things—but they are certainly not bad for the businesses that benefit.

Another area where the state has helped advance business is in funding and engaging in research. This is often research that would be too expensive for private industry and research that requires a long time to yield benefits. One example of this is the development of space technology that made everything involving satellites possible. Another example is the development of the internet—which is the nervous system of the modern economy. The BBC’s “50 Things that Made the Modern Economy” does an excellent analysis of the role of governments in developing the technology that made the iPhone possible (and all smart phones).

One reason the United States has been so successful in the modern economy has been the past commitment of public money to basic research. While not all research leads to successful commercial applications (such as computers), the ability of the collective (us acting as the state) to support long term and expensive research has been critical to the advancement of technology and civilization.

This is not to take away from private sector research, but much of it is built upon public sector foundations. As would be expected, private sector research now tends to focus on short term profits rather than long term research. Unfortunately, this view has infected the public sector as well—as public money for research is reduced, public institutions seek private money and this money often comes with strings and the risk of corruption. For example, “research” might be funded to “prove” that a product is safe or effective. While this does yield short term gains, it will lead to a long-term disaster.

The state also helps further enterprise through laws regulating business. While this might seem like a paradox, it is easily shown by using an analogy to the role of the state in regulating the behavior of citizens.

Allowing business to operate with no regulation would be like allowing individuals to operate without regulations. While this might seem appealing, for an individual to further their life, they need protections from others who might threaten their life, liberty and property. To this end, laws are created and enforced to protect people. The same applies to protecting businesses from other businesses (and businesses from people and people from businesses). This is, of course, the stock argument for having government rather than the unregulated state of nature. As Hobbes noted, a lack of government can become a war of all against all and this ends badly for everyone. The freer the market gets, the closer it gets to this state of nature—a point well worth remembering.

It might be assumed that I foolishly think that all government involvement in business is good and that all regulation is desirable. This is not the case. Governments can wreck their own economies through corruption, bad regulations and other failures. Regulations are like any law—they can be good or bad, depending on what they achieve. Some regulations, such as those that encourage fair competition in business, are good. Others, such as those that grant certain companies unfair legal and financial advantages (you might be thinking of Monsanto here), are not.

While rhetorical bumper stickers about government, business and regulation are appealing in a simplistic way, the reality of the situation requires more thought and due consideration of the positive role the state can play—with due vigilance against the harms that it can do.

 

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8 Responses

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  1. TJB said, on December 19, 2016 at 11:09 am

    Mike, what rhetoric do you suggest people use if they want to dial government regulation back from “11” — where it stands now — to a more reasonable “7”?

    Every time someone suggests there is too much regulation, the answer from your side is always “so you don’t think we need a government, eh?”

    This is what you did here. No one is seriously suggesting the government does not have a role to play in promoting our prosperity. This is just a strawman.

    • williamtpeabody@gmail.com said, on December 19, 2016 at 1:34 pm

      Strawman is kind of a fake argument. Should strawmen prove to cause a significant harm to philosophy such that academics and non-government organizations are unwilling or unable to counter, then the state could be justified in stepping in.

  2. DH said, on December 19, 2016 at 1:16 pm

    You’re not likely to get too much argument about the kind of involvement you’re using as some of your examples here. Protecting the citizens against invasion from foreign powers, regulating currency, creating laws for inter- and intra-state commerce, creating roads and highways and (by extension of that) creating a railroad are all Constitutional mandates – specifically enumerated powers granted the government by the founders – and have little or nothing to do with the kind of over-reach of government that critics talk about today.

    I would offer two cautions to your argument.

    One is as it pertains to the railroad. First of all, the idea of the transcontinental railroad was not about government involvement in business enterprise, it was about westward expansion and Manifest Destiny. To the extent that it was a “joint effort”, however, it became perhaps the most corrupt government/business collusion in American history – politicians handing out land grants and speculators buying land on inside information given in exchange for political influence; the unabashed exploitation of Chinese immigrant workers; the enrichment of the favored few and the destruction of the uncooperative others that would make even Harry Reid or Hillary Clinton blush. Take a half hour and skim the surface of the Credit Mobilier scandal and imagine that kind of thing happening today outside of perhaps the inner circle of the Clinton Foundation.

    http://railroads.unl.edu/topics/corruption.php

    From a purely forensic point of view, I would not use this as an example of the success of a “government leg-up” to business – you will get destroyed on the details.

    The other caution is for you to be a little more clear on what you mean by “The State”. Do you mean the Federal Government, or do you mean “The State of Oklahoma”. In this country, that can make a huge difference. In that instance, the corruption in the above example is very similar to the crafting and passage of Obamacare. Funding for state projects, federal support for Medicare and even political support were traded for votes which, when cast properly, empowered the few and destroyed the many.

    On the other hand, the kind of federal involvement that really IS a problem is the enactment of regulations that will make or destroy businesses for political gain, whether via corrupt means or otherwise. The attempted destruction of the coal industry, which was perhaps one of the major downfalls of the Clinton campaign, is one example. The Federal Government, in its attempt to come down on the side of “Settled Science”, put thousands of people in the coal industry out of work. In the same vein, the failed investment in solar energy by the federal government has looked great on politicians’ resumes (as long as no one looks past the first paragraph), but has resulted in a waste of billions of taxpayer dollars.

    http://dailysignal.com/2012/10/18/president-obamas-taxpayer-backed-green-energy-failures/

    The problem here is that the government does not realize that infusion of capital or forgiveness of debt are meaningless without robust markets – which all 34 of the above named companies lacked.

    In concept, the EPA is a good idea – who wouldn’t want our environment to be protected? However, there’s a pretty wide gap between the spirit and the letter, as the following example illustrates:

    http://www.businessinsider.com/heres-one-example-of-regulations-killing-a-small-business-2011-11

    This is not a one-off anecdote; it is this kind of overreach and over-regulation that is destroying small businesses, putting thousands of people out of work, and undermining the core of American entrepreneurship and success.

    As TJB points out, there is certainly some regulation that is needed and appreciated – the FDA, for example, and the patent laws that you mention, are all protections designed to help businesses and consumers alike. The problem, as TJB also points out, is not “getting rid of government” but dialing involvement back from “11” to “7” – or even “5” or “4”.

    “If men were angels”, as Madison so eloquently posits in his Federalist paper #51, “no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”

    Unfortunately, nether men nor governors are angels, so we need the balance and control of keeping an eye on each other. Today, in 2016, the pendulum has swung too far and needs a readjustment.

  3. DH said, on December 20, 2016 at 9:14 am

    What’s up with the “waiting for moderation”?

    • Michael LaBossiere said, on December 20, 2016 at 7:56 pm

      Comments with multiple links often get flagged by the spam filter and I have to manually approve them.

      • DH said, on December 20, 2016 at 9:32 pm

        Got it. I’ll remember that. Thanks.

      • DH said, on December 20, 2016 at 9:34 pm

        You can delete one of these posts… They’re identical. I tried twice.


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