Wednesday, February 06, 2008

Will big business leaders defend economic freedom?

Chris Dillow reckons they often won't and uses Mark Moody-Stuart's desire to ban high emission cars as an example. I think Chris is right. Bosses don't present the same danger to economic liberty that Government does - Moody-Stuart cannot actually do the banning. However despite being in a fine position to understand the benefits of a liberal economic order - their capital will chase less regulated, low tax economies - they're clearly very unreliable allies for economic liberals. Why?

I can see two key reasons.

1) They're facing a prisoner's dilemma. Firms face a host of different groups trying to lobby them to accept various curbs on economic freedom - greens, animal rights activists, safety bores and innumerable others. Few of them have much political clout but it doesn't matter. Each company faces a simple choice:

The firm can concede the argument to those pressuring for economic illiberalisms: that brings political kudos for being the good guys if your competitors don't follow suit, if they do then at least you won't be singled out for abuse. Or, our firm can choose to resist calls for coercion: if all the others do the same then everything's fine - they'll fight the good fight - but if other companies don't follow suit our firm risks ExxonMobil's fate - being singled out, boycotted and hounded at every turn. The rational choice is obvious isn't it? Give in.

Everyone will make the same decision if they're behaving rationally and the bosses won't stand up for free market capitalism.

2) Incumbents can be defended from new entrants by regulation. Most bosses, unsurprisingly, work for companies that already exist. Regulation can increase the cost of starting a new business or make it hard for some companies, with smaller margins or capital constraints, to stay in business. If a big business can get rid of some or all of its competition by encouraging new regulations then it could easily be better off even if the regulations increase its own costs somewhat.

An international coffee cartel was maintained for some time thanks to America - the coffee growers' biggest customer - agreeing to act to enforce the agreement by freezing those who welched on the deal out of the market. Big coffee roasting companies in the States used their political influence to encourage the US Government to take up this role. The new cartel would cause their smaller rivals far more trouble than it would them, might put many out of business, and reduce competition.

Bosses are human. If they have every incentive to kowtow to the anti-capitalist tendency then many will do so. We shouldn't rely on them standing up for the free market.

3 comments:

John B said...

Less cynically, they may also believe that their shareholders' long-term interests won't be best-served by their customers being cooked/drowned/starved/etc.

(and whether or not you personally accept the existence of or the threat posed by anthrogenic global warming, it's not unreasonable to expect firms to believe the predictions of most climate scientists)

Matthew Sinclair said...

This debate isn't just about AGW and people who agree on its existence can come to radically more or less economically liberal conclusions about what our policy response should be.

Moody-Stuart chose just about the least economically liberal policy response - outright bans.

ad said...

To summarize: those with the power to influence the government are rarely reliable about trying to reduce the power of the government they can influence.

Not really hard to guess why.