Business and Government: Friends or Enemies?

The opposition of business and government is a common trope in political and economic commentary. Corporate interests defend laissez-faire capitalism, the story goes, while disinterested government agencies strive to curb the excesses of the market.

This purported dichotomy is highly misleading. In fact, businesses—like all other institutions—are composed of people. And businesspeople—like all other people—are themselves diverse, reflecting an array of interests, motivations, and values.

To be sure, some business leaders, along with associated institutions, have been champions of limited government and market freedom. Pierre Goodrich founded Liberty Fund, which has remained true to his conviction that “a free society can maintain and enhance individual liberty and excellence, a genuine concern for others, a framework for social order, and economic well-being.” The Foundation for Economic Education, with initial and continuing support from corporations and business magnates, has similarly remained a locus of free-market analysis and advocacy. Grassroots associations of businesses—for example, the National Association of Manufacturers—have been largely reliable promoters of market principles.

Yet businesses also frequently ally with government to stifle market freedom—or, more precisely, to stifle potential competition. An entire subfield in economics—stimulated by the pathbreaking, Nobel-winning research of James Buchanan and Gordon Tullock—has flourished for several decades, examining the alliance between business and government in this project of limiting competition and preserving the status quo. In describing the features of this collusion, “public choice” economics contributed new terms to the lexicon of economic analysis, such as “regulatory capture” and “rent-seeking.”

A recent example of public choice theory in actual practice is the machinations of oil companies regarding the Inflation Reduction Act. “In the wake of the IRA,” Laura Arce and Ryan Yonk point out, “the oil industry has invested at least $128 billion in renewable fuel, carbon capture, and similar technologies, and expects a large return on those projects in the form of tax credits and publicly funded subsidies. Without the subsidies, those investments make little financial sense and ultimately leave the oil companies holding the bag. As a result, they’ve joined the voices to protect at least some of the IRA’s provisions.” Government intervention in an economic sector does not mean that the public interest has prevailed over special interests; it means simply the creation of a new arena within which special interests will contend for supremacy in the control of government power.

So it has ever been. Historians of the left and the right have documented the reality (as opposed to the political rhetoric) of government enterprises such as antitrust departments and regulatory agencies, ostensibly created to rein in the excesses of business and the market but in effect becoming instruments for the rich and powerful (often business executives) to shape the economic landscape in their favor.

At times, collaboration between government and business has gone beyond tilting the playing field and into the realm of exploitation. In their illuminating Black Liberation through the Marketplace, Rachel Ferguson and Marcus Witcher documented the grievous practice of convict leasing in the postbellum South. The arrangement thrived at the nexus of a racist legal system, corrupt government, and unscrupulous business firms. This abuse “was not a product of capitalism,” they remind us; “it was the direct consequence of government’s colluding with business to prevent a market for labor.”

As I noted in a previous commentary, Burton Folsom was a pioneer in unveiling the misunderstanding of business as a monolithic universe. Folsom differentiated entrepreneurs from “robber barons” in the nineteenth-century railroad industry, demonstrating how, even within a single sector during a particular time frame, business leaders took different approaches toward government.

I tracked a similar phenomenon in my book-length survey of businesspeople and clergy in American history. In their attitudes toward faith and religion, commercial professionals have been as diverse as the American people generally. The relationship between merchants and ministers has ranged from friendly cooperation to hostility, with every gradation between.

The story of the relationships between business, the market, and government is likewise complicated. Some business leaders fight for freedom, standing on strongly held principles of justice, competition, and liberty. Some are lukewarm, accepting compromise with government as the “price for doing business.” And some actively collude with government to gain advantage, pouring resources into lobbying and currying favor with politicians in an effort to gain or retain the upper hand in the marketplace. There is no single “business community” or “business lobby” or “business position.” There is no “corporate America.” There are businesses and businesspeople, and they are a wildly diverse lot, just like the rest of us.

But, also like the rest of us, they respond to incentives. For business enterprise, as for society in general, the best system for encouraging action toward the common good is the market, where actors are rewarded for providing what people demand. Shifting responsibility to government separates the provider from the customer, creating a new set of incentives that may or may not be aligned with the public interest. The opposition that really matters is not government versus business, but freedom, competition, and subsidiarity versus coercion, collusion, and centralization.

Kevin Schmiesing is research director at the Freedom & Virtue Institute and editor of the Freedom & Virtue Review.