Free Markets, Free People

Quote of the Day: Pro-market edition

From Professor Luigi Zingales:

“There is not a well-understood distinction between being pro-business and being pro-market. Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticising business, because they assume they will be seen as criticising the free market. But we need to stand up and criticise business when business is not helping the cause of free markets.”

We talk a lot about crony capitalism.  Well what the good professor is talking about when he says that businessmen like free markets until they get in one and then they try to “block entry to others” is part of what we’re talking about.

One aspect of cronyism is where businesses attempt to use the power of government, if they can so influence it, to give their company sweetheart regulations, raise artificial barriers to entry and to otherwise impede competitors to the point that they have an advantage.  I’d like to say advantage in the “market”, but the market, at that point, no longer exists as a free one.  It is now a distorted market due to government cronyism.

That’s something that badly needs to stop.  Whether at this point that’s even possible and if it is, how we’d actually go about it are some interesting questions to discuss.

However, the primary point is being pro-business does not necessarily being pro-market and it certainly doesn’t mean you are necessarily for free markets.

We need to change the way we discuss this.  We nee to talk about free markets and roundly condemn any business that attempts to use the coercive power of government to it’s advantage in markets as well as condemning those in government who use its power for such things.


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16 Responses to Quote of the Day: Pro-market edition

  • For the most part, Democrats are rarely pro-business or pro-free-markets, but rather pro-union, in the model of the unions in the 1950’s when the US was the industrial base of the world.  They prefer a business that can be sucked dry by the unions they love so much, much like GM which still isn’t free of it’s pension obligations that will eventually drag it into the ground.
    The Establishment end of the Republican Party is more pro-business than pro-free-trade, while the libertarian, Tea Party, wing is the other way around.
    The Democrats and the Establishment Republicans are both purveyors of “crony capitalism,” or as I like to look at it … “dividing up the spoils.”   The Constitution says nothing about “dividing up the spoils” but rather “establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.”  Nothing there about provide for individual anything .. nothing there for “rent seekers” either.

  • In his book Applied Economics, Thomas Sowell points out (paraphrase) “Businessmen, politicians, and unions HATE free markets; consumers and entrepreneurs love them!”.

    • I came of age politically with Ronald Reagan and must say it took me a while to realize that the old line Republicans were so anti-free-trade and so pro-corporationist with all the impediments to entering markets as many of the moderate Democrats.

  • A good modern re-statement of what Smith observed back in 1776.
    No revelation, but a good reminder.
    Another way of delineating the two types of enterprise is “entrepreneurial business” (which can still be quite large and diverse) and “political businesses”.  The first thrives on innovation.  The second thrives on supplication.

    • I can remember a Senior VP of Lucent Technologies (RIP) explaining how all those standards that were supposed to keep out regionalism and supply a “level playing field” were actually there to do the opposite.  They created regional standards and the IP locked up in the standards kept out newcomers to the field (just look at what Google and Microsoft has be going through with cell phones).  While all the old players did a wash on IP with each other, the same wasn’t true with newcomers who had no IP in the standards to trade.

  • I suspect that one day this topic will be the exclusive topic of thousands of forums and blogs like.

    Our current political system doesn’t just protect regulatory capture aspect of the economy, it is the heart and soul of our political system.

    Everyone with a stake in the political system is going to have to slaughter some sacred cows. Conservatives are going to have to find a way separate money from speech, and liberals are going to have to find a way let unions fend for themselves with their employers.

    We don’t have a free market, so applying free market principles to the edges of the not free market we have won’t work.

    There are probably 100,000 laws and regulations affecting business that pick winners in one way or another, and they all need to be repealed, but that can’t happen as long as our government is paid not to do that. If the First Amendment is prohibiting a free market, people need to  make some difficult decisions.

    My opinion is that since SCOTUS has ruled that money IS speech, we are stuck in a worsening cyclce of crony capitalism that won’t stop until the whole thing falls apart. When an individual, or a business, or a union, spends millions of dollars to get something that specifically benefits them, it has absolutely nothing to with the best interests of the country.

    On the other hand, if you take the cash out of the equation, corporate leaders, very wealthy individuals, and union leaders, will still have access to power, they just won’t have leverage. If they make a good case for something that will benefit them, and it appears to be beneficial to the best interests of the country, lawmakers will consider it. But the key is that there would be no reason to push really bad laws and regulations as payback to benefactors.

    I am a capitalist, but what we have isn’t capitalism. So as McQ said, coming down on the side of business in every question is in no way supportive of free markets.

    Supporting Republicans over Democrats or vice versa is a waste of time.

    If I had the time and the power, I would organize a boycott, a political boycott. If a significant number of people withheld their votes until or unless a candidate accepted a pledge to never take campaign donations over $100 or to enjoy lobby gifts, eventually, there could be enough people that a good candidate could win when the boycotters show up to vote for them. If it didn’t work, so what, voting in this system is a waste of time anyway.

    • I think there is an over-sensitivity to money as speech.  Like everything else there is a law of diminishing returns.  I noticed a couple of elections ago that I was just plain getting sick of some of the commercials and began to pay attention to whom I had become tired of.
      Anybody who expects the parties to advance sometime better than the current candidates is fooling themselves.  The parties already believe that they can corrupt anybody who wins so they are already putting forth anybody that they think can win.  If you want somebody better, seek them out yourself.

  • “I think there is an over-sensitivity to money as speech.”

    I think there is an under-sensitivity to what politicians will do for money.

    My supporting evidence, our government 😉

    • That is different from money as speech. As you are aware many very wealthy people have lost elections to relative paupers…see California’s last election cycle. Thus we can prove that money does not equal winning.
      What you are referring to perhaps is people like Daschle who make millions as “consultants” or amakudari as the Japanese phrase it. That could be curtailed possibly via high taxes on such activities ala Instapundit.
      Of course, that might not be legal – so what next? Reduce chances for big consultant fees by reducing the scope and power of government. Note this does not mean you have to deregulate – you just change your regulations to be simpler and harder to game. Banks for instance, could be made to simply be under a certain % of GDP  – there you go, no thousands of pages of rule making to be gamed and lobbied by ex-pols.

  • “Banks for instance, could be made to simply be under a certain % of GDP  ”

    Wow, a regulation that any sane person could get behind.

    Didn’t Obama propose this as part of the wall Street reform proposal back in 2010.

    I thought it was two pretty simple rules, limit the size of banks relative to the GDP (and I think the mechanism was basically an automatic NO to any mergers or acquisitions that would put a bank over a certain threshold, I think it was 10% of the GDP, but that seems high to me.)

    I think the other rule was to limit banks to banking, and I think to a limited extent, this made into the bill.

    I am with you on simplicity, and the only reason I would argue that it can’t all be simple is that people have found more and more complex ways to rob people without breaking the law, so new laws were made. For example, insider trading wasn’t illegal before 1933.

  • “Thus we can prove that money does not equal winning.”

    Let’s clarify this, I would agree that MORE money does not ALWAYS equal winning (only 93% of the time), but no money equals losing.

    But the cost of running a campaign for congress is over $1M and for Senate it’s over $7M.

    And here’s the thing, decent, honest, albeit likely narcissitic power mongers, but with integrity, can run for Congress and never believe for a second that they have compromised their values. Imagine just how good at their job a million dollar a year (or more) lobbyist is at their job. And then think about what their job is. All they need to do is convince someone (who they are giving money, vacations, $1000 dinners) that what the lobbyist wants is exactly what the congress critter wanted to do all along and frame it in exactly the way that the congress critter could frame it if he were talking to a constituent. And if it is a particularly nasty idea, the lobbyist has PR firms that will make the general public (or enough of them) think it’s not a bad idea.

  • Pardon the interruption all, but how did the discussion devolve from chrony capitalism to money as speech? Chrony capitalism at it’s best is the government manipulating the market to benefit a few. At its worst, it is political payback and money laundering. All that aside, my simple intellect leads me to a few basic principles that if followed, would have a huge impact on government influence in the market.
    1.  Ban lobbyists from capitol hill. If your company needs government action to solve a problem, get your happy ass out of your plush CEO office, and take a trip to DC. Your appearance before congress will of course be televised, so be careful what you ask for….
    2.  Stop writing regulations. If we are agreed that government has no business in the market, then they have no business in passing regulations that affect it – for good or bad. A truly free market will ALWAYS regulate itself.
    3.  As to free speech, say what you want, ala Chik-fil-ay. If the market likes what you say, you will profit by it. If it doesn’t you will regret opening your mouth. If you want to support a candidate, do so – with YOUR money, as opposed to company funds. I may not like how the leaders of my company act politically, and frankly, I don’t care, as long as they aren’t spending money that wold otherwise be profits, a portion of which belong in my 401k. So ban corporations donating, and return that exercise to individuals alone. Companies do not speak. People do. Only the most dense members of the SCOTUS couldn’t see that.
      Have a ball y’all.

  • “1.  Ban lobbyists from capitol hill.” All a lobbyist is is a person who is exercising their right to petition government, they cannot be banned. The only action that could be legally or Constitutionally take is to prohibit elected officials from excepting ANY benefits from people who are lobbying.

    “2.  Stop writing regulations. If we are agreed that government has no business in the market, then they have no business in passing regulations that affect it – for good or bad. A truly free market will ALWAYS regulate itself.”

    Here’s the thing, in a genuine free market, it would regulate itself to an extent, The government should only need to do what is necessary to protect people’s rights from being violated. But as markets become more complex, the only a way their can be confidence in a market is if their is third party oversight. In a more primitive market, there’s no problem, you walk up and inspect a bushel of corn, it looks good, you buy it. But in financial markets where you are paying real money for an intangible asset on the promise that there is really something there to back it up, the government will always be looked to for the promise of a honest market.

    Would the market regulate itself out of insider trading? If there were no oversignt, it couldn’t.

    “3.  As to free speech” I don’t think anyone is talking about what people actually say with their voices, it is more about what they say with their money with respect to elections. This is by far the trickiest element of dealing with crony capitalism and if there is no Constitutional manner of limiting how deep pockets can benefit candidates, then there is no way to deleverage the desires of benefactors from the desires of elected officials to please benefactors.

  • Cap,
    I think for the most part we agree loudly. On the finer points, not so much. A lobbyist is not an individual exercising their right to petition the government. A lobbyist is a paid spokesman representing other’s interests. In that respect, they are abusing their right to petition the gov.  They cannot reasonably claim to exercise an individual right while acting on some one or some thing’s behalf. I consider the money aspect more along the lines of gaining access with it, and agree that it needs to be removed from the process. The size of your wallet should not be a fa for in how strong your message is.
    As to regulations the vast majority of our citizenry sees only the most basic form of the market, as consumers. In that regard the affect of regulations is largely invisible. We care  more that the price went up than we care why. The impact is the same either way. For us mere mortals it is almost always the bushel of corn. I am not saying there should be no rules. I am saying there are regulations in the form of rules and there are regulations that are interference. The former are necessary ( to a reasonable extent) while the latter are the government manipulating.
    I also think we could eliminate a lot of this malfeasance on the part of our elected officials if we could eliminate riders and other attachments to bills that go by without our notice or on the quid pro qou basis ie “I will vote for your law if your include funding for my new boondoggle. ”