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Free Markets Aren’t Conservative

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One of the great myths of the Industrial Age is that businessmen generally like free markets. That myth has deep implications and consequences.

For example, someone who buys into it will tend to believe that proposals to deregulate markets are simply favors for special interests and inimical to the interests of most people. Advocates of deregulation are typically dismissed as flaks for corporate interests.

But that conclusion crumbles when we realize that businessmen historically have opposed laissez faire. The same is true today. Stephen Labaton, writing in the New York Times, vividly pointed this out in a discussion of regulatory policy in the Bush administration.

The Times noted, for instance, that Microsoft, which did everything it could to defeat the antitrust suit brought by the Clinton administration, nevertheless favors restrictions on AOL in its merger with Time Warner. Microsoft — Microsoft! — has complained to the government that AOL is trying to monopolize instant messaging on the Internet. Such positions make it hard to interpret as a matter of principle Microsoft’s opposition to the antitrust suit.

As the Times article pointed out, “There are broad areas of the marketplace in which the government will remain active, not least because of demands from American business itself.” Preston Padden, Disney’s top lobbyist, was quoted saying, “Sometimes a highly regulated administration is helpful and sometimes it is not helpful. What I would really like is the Gore administration to be regulating my competitors and the Bush administration to be regulating me.”

Padden is unusually blunt, but his position is par for the course. Businessmen, going back at least to the era of mercantilism 400 years ago, have typically embraced government as an effective tool to protect themselves from competitors. The word “protectionism” is usually restricted to business-supported barriers to cheap imports. But the term has far wider applications. Business interests have long favored all kinds of regulations and taxes to hamper existing and potential competition.

Taxes that make it difficult to accumulate capital to expand or set up businesses clearly favor established business leaders even if they have to pay the same taxes. The same is true for regulations. Older and bigger firms can more easily contend with such burdens than newer, smaller ones can. IBM and AT&T have bigger legal and accounting departments than some nascent garage operation. Many ideas for new businesses never get off the ground because of the regulatory and tax barriers.

What the critics of capitalism have never realized is that there is nothing conservative about capitalism. Even most conservatives don’t realize this. Capitalism — the self-regulating market economy — respects no established interests. Why is that so? Because the driving force of capitalism is the consumer. For a business to do well, it must please consumers. Businessmen understand that. But there is a problem: we consumers are a fickle bunch. A business can be “riding high in April, shot down in May,” as the old Frank Sinatra song said. Look what consumers did to Toys R Us, Boston Market, and an untold number of companies that were once hot properties and even dominant in their fields. We consumers don’t care how good a business was yesterday. What’s it done for us lately? You often hear it said that Wal-Mart, the model low-cost retailer, puts other stores out of business. Nonsense! Wal-Mart never put a single store out of business. It’s consumers who put stores out of business. True, Wal-Mart makes it attractive to shop there. But I’ve yet to hear of Wal-Mart’s forcing even one person into the store.

On the other hand, I’ve many times heard of businessmen asking government, in effect, to force other companies to stop serving customers as well as they would like to. Businessmen know their fate is in the consumers’ hands. They know there is no safe harbor in the free market — which is why so many companies try to get government to adopt anti-market — that is, anti-consumer — regulations and taxes. It’s the only way to prevent consumers from switching to a competitor they like better.

Once we understand that capitalism is not pro-business but pro-consumer, we will understand that it is time to dump the regulatory state we have labored under for so long.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.