Traditionally, business was the most important political backer of free markets, which made sense because business needs markets in order to exist at all. However, in the last generation, the views of business, as expressed by the U.S. Chamber of Commerce and other outlets, have increasingly diverged from the free-market ideal. As crony capitalist ideas have come to dominate business thinking, so crony capitalism itself has come to dominate the U.S. economy, with dire results for productivity growth and the living standards of Americans.
In some respects, the Chamber of Commerce and domestic business generally remain committed to the remnants of free-market principle in an environment where they have been beleaguered. The Chamber vehemently opposes the efforts of trial lawyers to divert shareholder funds to their own pockets. It generally supports free trade; indeed it is especially adamant in supporting the freedom to offshore operations from the U.S. to emerging markets where costs are lower. It supports the Keystone pipeline.
As might be expected, the Chamber also opposes a number of Obama administration initiatives that directly increase business costs. It opposes Obamacare in general and is especially vehement against the Consumer Financial Protection Bureau’s lack of accountability and surplus of regulations. It also, as might be expected, opposes restrictions on atmospheric carbon and retains its historic opposition to the trade union movement.
The Chamber would naturally oppose legislation that imposed costs on business; in the same way, it naturally favors provisions that reward business with tax breaks not available to the public as a whole. However, in general its anti-market positions bear only modest relation to the economic interests of business, and instead reflect a corporatist agenda that is thoroughly detrimental both to the interest of ordinary people and to the overall U.S. economy.
The most egregious anti-market attitude of modern business, at least the largest businesses, is on immigration. Here it favors essentially the abolition of all restrictions. Thus, it wants to import high-skill immigrants in tech sectors to compete with U.S. STEM graduates for the limited number of jobs available (we learned this week that Microsoft, one of the advocates of increased immigration, is to lay off 15,000 U.S. workers.) This is a very shortsighted policy indeed; by driving down the wages paid to STEM graduates, so that computer scientists earn less now than they did in 1999, business lobbyists are ensuring that the best and brightest U.S. students head for careers in areas such as law where they are better protected from foreign competition.
At the low-skill end of immigration, business generally favors both legalization of the 11 million illegal immigrants already in the country (thus encouraging a further flow, as we are seeing currently) and the establishment of not one but two guest-worker programs, under which further low-skill workers can be imported to drive low-skill wages down to subsistence levels. Needless to say, this is not in the interest of the U.S. people as a whole, who are impoverished thereby. It is not even in the long-term interest of business. Very high low-skill immigration and declining U.S. living standards degrade the gigantic domestic market so that it is no longer the template against which international competition must measure itself. Without the world’s richest and most sophisticated consumers, U.S. business will be at a growing disadvantage against competitors from richer and better-ordered countries such as Japan, Germany, Scandinavia and eventually South Korea, Taiwan and others in South-East Asia.
The free-market approach to immigration recognizes that people are not goods and that the arguments for free trade in goods break down when the item moving from country to country is an immigrant. Barbers are paid more in Boston than they are in Bangalore because of the greater wealth surrounding them, and an extra barber imported to Boston competes directly with the local workforce and plays far more havoc with domestic living standards than an imported car, machine tool or item of software. Hence, to prevent Boston barbers’ living standards from being driven down to those of the Congo, we must restrict imports of people. The cheap labor lobby, whether in the tech sector, in agriculture or in low-wage service sectors, is attempting to enrich itself by immiserating its fellow citizens.
Business in general and the Chamber of Commerce in particular are further violating free-market principles by their approach to education, for which they favor a “Common Core” standard imposed by a remote bureaucracy in Washington. Raising educational attainment is desirable, but in most respects the Common Core standards are dumbed down and politicized compared to the state standards that preceded them. The problem becomes worse if education funding is made dependent on standardized test results. At that point, all effort goes to satisfying the test results rather than getting the best out of the academically gifted, and study beyond the core syllabus more or less disappears.
The free-market approach to education is precisely the opposite of that favored by the U.S. Chamber of Commerce: to decentralize it as far as possible, introducing competition between schools and localities and allowing parents to choose both where they live and where within that area their children go to school. Of course, top-up payments should be made to ensure that schools in poor or educationally deprived communities are capable of raising the standards of their pupils, but this is best achieved by a voucher system, with additional vouchers for poor or disadvantaged families. While parents lack the knowledge to choose optimally between different educational approaches, so do educational bureaucrats, and the parents are much more likely to choose approaches that fit the needs and aspirations of their children.
A third policy area in which business opposes the free market is in infrastructure spending, typically funded by the state. Here costs have escalated far in excess of general inflation, by a factor of five or 10 times in real terms in the last 50 years, yet business still pushes for high spending, expecting it to be funded by the taxpayer, and does little or nothing to dynamite the union rules, environmental constraints and sheer mindless regulation that makes it so impossibly expensive. The free-market response to the infrastructure problem is a moratorium, refusing to fund any new projects until costs have been returned to their historic level in real terms (ample documentation is available to show where cost savings must be made.) Only when a bonfire of regulation and litigation has occurred should infrastructure spending again be resumed, this time at reasonable cost to the tax-paying public.
Business is also anti-free-market in the patent and copyright area, where it favors excessive and costly patent grants and copyrights extending far beyond a reasonable return for the creation concerned, so that 1923 seems destined to survive forever as a fixed date after which copyright will be eternal. It plays games with pension funding, hoping to pass off much of the cost of eventual defaults on taxpayers through the Pension Benefit Guaranty Corporation. It favors the US Eximbank, even though that crony capitalist institution supports a tiny minority of businesses, lands taxpayers with credit losses and provides subsidized competition to other businesses such as Delta Airlines.
Finally, the most damaging betrayal of free markets by U.S. business is its support for the Fed’s current extreme monetary policies. Here there is a disconnect between the needs of business itself, which wants at all costs to avoid another destructive meltdown like that of 2008, and those of corporate management, who want a continual bubble-led inflation of stock prices to maximize the value of their options. The Chamber view even extends to decrying the 2008 Fed as having been too tight – something that can have been true for at most a week or so, given the persistent negative real interest rates of that year.
Business in general and the U.S. Chamber of Commerce in particular retain a theoretical support for the free-market system. But that support is increasingly counterbalanced by practical opposition to it on issue after issue. It’s not very surprising; as the economy gets pulled further and further away from a true free market, with larger and larger government, more and more regulation and an increasingly destructive monetary policy, the interests of business increasingly become locked into the statist status quo. The beneficiaries of crony capitalism are rich and thriving in a crony capitalist world; those of a true free market are increasingly beleaguered, as they represent businesses that never came into existence or were stifled early on by monstrous regulation.
If a full free market, with Volckerite or gold-standard monetary policy and regulation sharply cut back were ever re-established, much of today’s business would bitterly oppose it, as no doubt would the Chamber. We even saw a simulacrum of this process in the run-up to the 1980 election and the early Reagan years, when much of the business establishment was dragged kicking and screaming into the new world. The effect today would be much stronger as the deviation from a free-market economy has gone much further since 1988.
We are at present in the gloomy world of Ayn Rand’s “Atlas Shrugged,” in which an alliance between the crony capitalist James Taggart and the regulator Wesley Mouch is driving the innovators into bankruptcy—or in that case, into a secret hideout in the Colorado mountains that was, alas, pure fantasy. There is still hope for a reversal into something better, but the business lobby will initially oppose bitterly any such move.
About the Author: Martin Hutchinson is the author of “Great Conservatives” (Academica Press, 2005) which examines the British governments of 1783-1830. He was formerly Business and Economics Editor at United Press International. Martin’s weekly column, The Bear’s Lair, is based on the rationale that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. This article originally appeared on the economics website “The Prudent Bear” and is republished here with permission.