Free Markets Aren't Conservative

Free Markets Aren’t Conservative
by Sheldron Richman, June 2001

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 flacks for corporate interests.

But that conclusion crumbles when we realize that businessmen historically have opposed laissez faire. One need only read Gabriel Kolko’s Triumph of Conservatism to see this. Kolko, a Marxist historian, thoroughly documents that the regulations put on business in the Progressive Era were supported — and often initiated — by many prominent businessmen. This includes regulation by the Interstate Commerce Commission, Federal Trade Commission, Food and Drug Administration, and antitrust laws.

Free markets were too uncertain for many businessmen; they never knew day to day what competitor might pop up and take away market share. So they were willing to accept regulation in return for stability. Besides, the regulation hurt their smaller competitors and potential competitors more than it hurt them.

Kolko explicitly points out that, contrary to what the high-school textbooks say, the Progressive Era regulations were not imposed because markets were becoming more monopolistic.

On the contrary, he writes, it was the absence of monopoly that drove the campaign against laissez faire. In other words, businessmen turned to government to obtain what they could not get in the free market: safety.

This is an interesting twist for a Marxist, and I know for a fact that Kolko was annoyed that libertarians were excited about his book back in the 1960s.

The Kolko thesis is still largely true today. Stephen Labaton, writing in the New York Times, vividly pointed this out in a discussion of regulatory policy in the Bush administration.

He notes, for instance, that Microsoft, which did everything it could to defeat the antitrust suit brought by the Clinton administration, nevertheless favored restrictions on AOL in its merger with Time Warner. Microsoft — Microsoft! — complained to the government that AOL was 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. Bill Gates is certainly no opponent of regulation in general.

Labaton writes,

There are broad areas of the marketplace in which the government [under Bush] will remain active, not least because of demands from American business itself.

Preston Padden, Disney’s top lobbyist, was quoted as 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.

Laissez faire for me; socialism for everyone else!

Government suppression of competition

Padden is unusually blunt, but his position is par for the course. And it didn’t begin with the Progressive Era. 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 union and 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, and therefore protect themselves against, existing and potential competition.

Taxes that make it difficult to accumulate capital in order to expand or set up businesses clearly favor established companies even if they have to pay them too.

The same is true for regulations. Older and bigger firms can more easily contend with such burdens than newer, smaller, or not-yet-founded ones. IBM and AT&T have bigger legal and accounting departments than a nascent garage operation. Many ideas for new businesses never get off the ground because the regulatory and tax barriers cripple them.

What the critics of capitalism have never realized is that there is nothing conservative about capitalism. Even most conservatives don’t realize this. (Some conservatives do realize it, which is why they give at most two cheers

for capitalism.) Capitalism — the self-regulating market economy — respects no established interests. Competition, even if it is only potential competition, is an ever-present concern.

The consumer is sovereign

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. As Ludwig von Mises put it, consumers

are merciless bosses, full of whims and fancies, changeable and unpredictable.. If something is offered to them that they like better or that is cheaper, they desert their old purveyors. In their capacity as buyers and consumers, they are hard-hearted and callous, without consideration for other people.

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?

Under those circumstances, it is understandable (though not excusable) that businessmen seek political shelter from consumers. Life is so unpredictable for a business at the mercy of consumers who can take their business elsewhere at a moment’s notice. (Contrast that with the “customers” of the government’s schools, post office, and Social Security system.) Under capitalism the consumer really is the captain, as Mises said.

It is often 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. We consumers could pay higher prices in order to keep less-efficient stores in business — but we don’t want to. I’ve yet to hear of Wal-Mart’s forcing even one person into the store or preventing shoppers from patronizing competitors.

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. (The Microsoft antitrust case is a perfect example.) 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 apparently 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. Regulations don’t protect consumers as well as the free market does. Since the self-regulating market is a process for discovering how consumers may best be served, regulations harm consumers by impeding that search. Behind virtually every regulation is a businessman trying to win what consumers refuse to award him.

Capitalism has been harmed by its invalid association with established conservative interests, when in fact it is a force for exploration, evolution, and progress.

Sheldon Richman is senior fellow at The Future of Freedom Foundation and editor of Ideas on Liberty.

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