August 30, 2014

Government Cannot Be Run Like a Business

Despite his big-government record as a governor, Mitt Romney has run for president as a conservative who would allow the free market to work. To bolster his credibility, he points to his success as CEO of Bain Capital. Romney led that company to become one of the largest and most successful private equity investment firms in the nation.

Many of his supporters have been able to look past the fact that he consistently raised taxes and pioneered Obamacare in Massachusetts because of this private sector success. They echo Romney’s argument that “the government should be run like a business” and believe that only a proven, successful businessman can do the job.

There are two problems here. The first is that history has already shown that successful businessmen are terrible for the free market whenever they get anywhere near government power. The second is that government cannot ever be run like a business. Its very nature makes that utterly impossible.

Regarding the first problem, one need only study the 19th century. If you don’t like the progressive movement, you can thank the 19th century Republican Party for creating the conditions that led to its birth.

The entire period is a record of big business getting together with government to intervene into the free market. Always under the pretense of protecting consumers, the true purpose of these interventions was limiting or eliminating competition for connected companies.

For example, Republicans wrote and passed the Sherman Anti—Trust Act. Standard Oil’s competitors were unable to deliver similar quality oil at the same price, so they went to the government for help. They successfully broke up a company that at the time the Act was passed had over 300 competitors and had lowered its prices for decades. Why? So that they could survive selling their oil at higher prices.

John D. Rockefeller, founder and chairman of Standard Oil, learned from this experience. Contrary to popular myth, Rockefeller was not a robber baron in the oil business. Like Romney, he had achieved his success honestly in the market through reinvestment, voluntary contracts, and his commitment that ““we are refining oil for the poor man and he must have it cheap and good.”[1]

However, when he got into banking, his strategy was different. Having seen the advantages of having government as a partner, Rockefeller made sure that he was well-represented at the secret meetings held on Jekyll Island to create the Federal Reserve System.

Pitched as a consumer protection against bank instability, it set up a government cartel that controls the money supply, interest rates, and most banking activity in general. Free market economists cite the Federal Reserve System as the chief cause of economic booms and busts, including those that led to the Great Depression and the 2008 housing crisis.

Railroads provide another example. 19th century government-subsidized railroads were plagued by fraud, waste, and recurring bankruptcies, while James J. Hill’s non-subsidized Great Northern Railroad operated profitably. Unable to compete, his subsidized competitors persuaded the government to pass the Interstate Commerce Act of 1887 and the Hepburn Act of 1906. As Thomas Dilorenzo observes, “What these two federal laws did was to outlaw Hill’s price cutting by forcing railroads to charge everyone the same high rates. This was all done in the name of consumer protection, giving it an Orwellian aura.”[2]

Romney’s economic policy as laid out on his issues page continues in the interventionist tradition. According to Romney, “History shows that the United States has moved forward in astonishing ways thanks to national investment in basic research and advanced technology.” He must read the same history books as Barack Obama. True proponents of free markets argue that entrepreneurs have moved the United States forward despite government intervention, not because of it.

Romney makes the distinction of “investing” in basic research rather than “politically favored approaches” to energy solutions. However, basic research is just another investment that should be made by private capital in the hope 0f profits, not by government for “the common good.” The latter is just more of Barack Obama’s collectivism repackaged. It will yield similar results: more bridges to nowhere, bankruptcies, and waste.

Despite the popular conservative misconception, government cannot be run like a business. Government simply does not exist under the same conditions as private firms. It does not receive its money voluntarily from its “customers.” The ability of customers to choose not to buy is the driving force behind all market innovation and efficiency. Private companies are not owned and run by more noble creatures. They are simply under conditions that force them to innovate and control costs in order to survive.

Contrary to the arguments made by Romney, Santorum, and Gingrich, there is only one role for government in a free market economy: to protect private property rights and enforce contracts. Regardless of good intentions, anything else the government does destroys the market. Only Ron Paul understands this. If you truly believe in free markets, he is your choice for president.

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.


[1] Folsom, Burton, Jr. John D. Rockefeller and His Enemies from The Freeman http://www.fee.org/pdf/the-freeman/0805FreemanFolsom.pdf.

[2] Dilorenzo, Thomas How Capitalism Saved America Three Rivers Press New York 2004 pg. 120

Comments

  1. Ya, right. It has been a corporate entity for some time protecting its own and pilfering from its clients and delivering nothing sustainable for many years.

    So you are correct cannot because it is stealing but it has and it is stealing.

    And we the producing have been robbed by very bad management practices right before our eyes.

    We don’t have a Republic we have share holders who enjoy creating the debt they hold us responsible for and that is a lucrative business for them and not so much for us at all.