Why Does Capitalism Enjoy So Little Support From Politicians?

As government grows, businesses try to adapt, often by opening government affairs offices in Washington. Yet the regulatory burden continues to increase as public attitudes toward business continue to decline. Seeing little return on their defensive investments, it is not surprising that many firms despair and adopt strategies of appeasement. If you can’t beat ’em, join ’em!

This is foolish. Capitalism can scarcely survive if capitalists surrender. Businesses must first understand why they–and capitalism itself–come under attack. It is a mystery why a system that has succeeded so well at increasing wealth finds so little political support. That question was addressed well by Joseph Schumpeter in his 1942 essay “Can Capitalism Survive?” However, his gloomy answer–No, I do not believe it can–need not become reality.

In today’s mixed economy businesses must find creative ways to manage the conflicts between the two worlds in which they operate: the private world of competition and customers and the political world of regulation and critics. Increasingly issues are decided in the harsh glare of media coverage. Absent any popular understanding of how attacks on business affect their values, few citizens oppose such attacks.

The result has been a steady shrinkage of the private sphere vis-à-vis the political. In 1950 the Federal Register contained “only” 3,800 pages of federal regulations. Today it exceeds 68,000. And as the latest edition of CEI’s annual survey of the federal regulatory state, 10,0000 Commandments, notes, the cost of regulation in 2010 exceeded $1.7 trillion. America’s regulatory burdens are hindering our success in the global marketplace as foreign competitors are increasingly reducing their regulatory costs.

If this situation is to improve, businesses must move from defense to offense–from appeasement to a positive legitimization campaign aimed at liberalizing the economic environment in which it operates. We need real liberalization, not a “pro-business industrial policy.” To encourage economic growth, government need only get out of the way. One does not need to teach the grass to grow, simply move away the rocks! The challenge facing business is to make that rock-removal campaign politically viable.

Schumpeter believed that capitalism’s success would create powerful antimarket forces that would undermine its foundations. Business leaders, he suggested, would respond to such attacks like bulls to red capes, and thus rarely develop the political and communication skills needed to defend themselves. As Schumpeter noted, “A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose–both in the drawing room and on the platform. Knowing this he wants to be left alone and to leave politics alone. …”

Even worse, “[W]hen facing direct attack [businessmen] talk and plead–or hire people to do it for them; they snatch at every chance of compromise; they are ever ready to give in; they never put up a fight under the flag of their own ideals and interests … “

However, amid his gloomy forecast, Schumpeter provides grounds for optimism. He argues that, for business, sound defenses are “not entirely lacking and history is full of examples of the success of small groups who, believing in their cause, were resolved to stand by their guns.”

If a firm is to ensure its profitability in a sustainable fashion, it must stand by its guns. Its bottom line depends on its success in both the private and political spheres. It must gain the reputation in the private sphere needed to ensure profitable sales, and gain legitimacy in the political sphere to reduce its vulnerability to political attacks.

Future columns will cover the steps that business must take to achieve these results. These will include:

The Cultural War on Business 

If business is to address Schumpeter’s pessimism, firms must recognize that its enemies can be won over. That realization is a pre-condition to the legitimizing strategies they need to implement.

Telling (Better) the Business Story 

Too often the message that business presents to the public is apologetic. Business leaders seem unaware of the critical difference between the market world of positive-sum transactions and the political world of negative-sum transactions. As a result, they’ve extended a strategy appropriate for addressing irate customers (The customer is always right!) to the very different challenge of addressing irate political critics (where, most assuredly, your critics are not always right!).

Effective Use of the Firm’s Resources 

As Schumpeter noted, the modern firm has many resources that might more effectively be employed to defend itself, indeed to demand economic liberalization in its field of operation. This management challenge has been neglected in the political sphere.

Seeking Allies in the Policy Arena 

Business does little to reach out to its allies in the intellectual world. Not all intellectuals succumb to statism; an increasing number champion the market and could be useful allies.