Business Must Fight for Economic Freedom
Fred L. Smith, Jr.
President, Competitive Enterprise Institute
For the O’Neil Center for Global Markets and Freedom
“Reviving Economic Freedom in America” Conference
October 8, 2010
If any manufacturer says, I do not care what the common mass of people think about my business, whether it be popular or unpopular with them, that man is a liability to all industry. No major industry has any moral right to allow itself to be unexplained, misunderstood or publicly distrusted, for by its unpopularity it poisons the pond in which we all must fish.
-from Roland Marchand’s Creating the Corporate Soul
I’m honored to speak today on this most important topic, and to be on the program with intellectual and business leaders who’ve already accepted this challenge—who are already warriors in this war for economic freedom.
Capitalism is now under the most unrelenting series of attacks since the Muckraker era at the turn of the 20th century. Then it was Upton Sinclair; now it’s Michael Moore. The anti-business rhetoric of Presidents Teddy Roosevelt and Woodrow Wilson are now echoed by President Obama.
The assault of a century ago has intensified and the result has been a steady expansion of government and a steady restriction of entrepreneurial freedoms. American business finds itself today on a melting sheet of ice. Many—perhaps some of you—are even thinking of moving abroad.
Business entrepreneurs cannot sit out this fight. Their voices are critical if this battle is to be won.
Business must defend itself but it need not do so without allies. As this conference demonstrates, the intellectual antipathy to the market is not universal. Our challenge is to forge an Economic Freedom Alliance not dissimilar to that very effective alliance already created by trial lawyers and consumerists or environmentalists, between unions and Naderites.
But don’t despair. As many of you know, I’m no pessimist, although I do often describe myself as a despairing optimist! The current situation is bleak but need not remain so.
Business must recognize that survival requires both remaining profitable in the private world and fending off political predation.
Business has done well in the marketplace—Joan Consumer likes her car—but it has done less well in the political sphere—Joan Citizen has increasing doubts about the societal benefits of the automobile. And the same doubts are increasingly raised about fast food and affordable energy. People are happy with their own market decisions but they feel somewhat guilty about the market itself.
The concept of “rational ignorance” helps to explain this. Most businessmen are familiar with the private world—with reaching Joan Consumer. They realize that consumers are self-interested, and thus, can be educated. Our product is a good buy!
Businessmen, being rational, assume the same educational approach can be used to reach Joan Citizen. Too often, they believe, As soon as people learn our side of the story, they’ll agree with us!
But, in the political world, people have little reason to devote scarce time educating themselves about things about which they can do little. Survey after survey finds that most people have limited political knowledge. They rarely can name their legislators or the details of major policies. This should surprise no one. For most people, does it really matter whether their senator’s name is Murkowski or Mikulski?
In the political world, therefore, few people hear, much less “learn” the business side of the story.
I summarize this basic political fact as follows:
In the political world, people aren’t stupid because they’re stupid.
They’re stupid because they’re smart.
So, if we try to make them smart, then we’re being stupid!
Joan Citizen will, of course, have opinions about various public policies. But these opinions will be reached not by any educational process, but by how they “see” the issue, how it is framed. If a policy advances the values of Joan Citizen, she’ll be favorable; if threatening, opposed.
The enemies of capitalism are well aware of this, and are making the most of it. As the current political and media climate shows all too well, they have succeeded in spreading their narrative about the evils of unfettered private enterprise. Opinions about business are among the lowest in history!
Business must communicate how it advances the diverse values held by our diverse citizenry— using tools similar to, but distinct from, those used to communicate its reputation in the private world. Capitalism has not only expanded our freedom and increased our wealth, it has done more than any government program to democratize privileges that were once reserved for elites. Working with pro-market policy intellectuals, business leaders need to assert that reality.
Why Free Markets Came Under Attack
The great economist Joseph Schumpeter—writing in the middle of the 20th century, when socialism was ascendant everywhere—asked, “Can Capitalism Survive?” and answered, “Probably not.”
He argued that capitalism would give rise to a massive middle class and a new class—the intellectuals—not original thinkers but “second-hand dealers in ideas,” as Friederich Hayek described them.
Intellectuals, having lofty ideas of how to make the world fairer and more just, would look down on vulgar pursuits like industry and commerce. But they would grow envious of the greater prosperity of these merchants and industrialists. “If we’re so moral, why are they so rich?” That envy would drive them to create anti-business narratives which would influence public opinion and increase the political vulnerability of business. They would be joined by politicians and rent-seeking businessmen to expand government to resolve those injustices.
And just as Schumpeter predicted, government grew massively from the 1890s to today. And with the growth of our modern Mandarinate came higher demand for Mandarins! Intellectuals benefit psychologically and economically from the growth of the state—statism becomes the class interest of intellectuals!
How Business Has Responded to Attack and Why These Responses Have Failed
Many businessmen stay out of the fight, not wanting to “engage in politics.” That “ignore it and it will go away” problem is naïve in today’s world. Business has real enemies—not everyone likes economic liberty. A war is going on, and anti-business forces are well-organized, creative and unrelenting.
Those eager to be more active in political races spend large sums seeking to ensure that more pro-business “horses” are able to run in the political sweepstakes. Let’s not forget when Republicans swept into Washington in ’94, promising to reduce the size of government and drain the swamps, only to swiftly come to the view that it would be wrong to empty the hot tub!
Electing free-market types without addressing anti-business public opinion may do little. The public policy race track today veers sharply to the left. For some, this has led to an attitude of fatalistic acceptance. Negotiating acceptable surrender terms might advantage some individual firms vis-à-vis their competitors, but will harm all firms as it weakens the market. To respond defensively—or worse, to adopt a policy of slow capitulation—only encourages future attacks.
Examples are numerous. There are champions of “corporate social responsibility,” greater political control of business, and “green subsidies,” who hope that by bending a knee toward Chattering Class values, they will somehow gain an advantage. More brazen rent-seeking businesses, such as Enron, have created strong alliances with anti-business interest groups (Naderite “public interest” groups, labor unions, and various “victims” groups).
Whether ignoring, responding defensively, or championing the latest environmental mantra, the result is the same. Business discredits itself by apologizing for doing business.
Mea Culpa, Mea Culpa, Mea Maxima Culpa! You cannot apologize your way to respect! The firm apologizing for past pollution and noting major improvements is akin to a man who has stopped beating his wife. Business trying to appease an enemy that works relentlessly to undermine its legitimacy is as logical as feeding your leg to a crocodile expecting to make it a vegetarian!
Business must go on the offensive
In the private world, business has spent much time polishing its reputation with success. Most people like their purchases. But in the political world, business has failed to establish its comparable legitimacy. Far too many people don’t like or trust business.
This has long been the case, but at few times in history have those creating wealth and knowledge been subject to greater attack. Today, politicians of both parties feel free to regulate and legislate largely at will, with little fear of a pushback. For the politicians who promote the growth of government—and the public intellectuals and crony capitalists who cheer them on—this is a great arrangement.
Government—led by the best and the brightest—steers, while business rows! Like slaves in a Roman galley, business provides the fuel to propel its oppressors, as the latter bark the orders. But this is not sustainable.
Business regulations now impose a much larger burden on the economy than do corporate taxes—and that burden is growing much more rapidly every day. The constitutional protections of economic freedom have largely been destroyed, and business fights only a tactical retreat battle in most areas.
Many high-tech and high-labor-cost firms are seeking to relocate abroad (As Wayne Crews, one of my senior staff has told me, “Fred, there will always be an America; it just may have to move to China!”) But the anti-business alliance is already operating internationally—through the UN, various global treaties, and activist NGOs that operate across borders. There is no escape!
Schumpeter accurately predicted the prosperity capitalism would bring and the risks of its collapse. He failed to account for the fact that not all members of the new intellectual class would give in to the temptations of political power.
There now exists a strong, albeit minority, counterforce within the intellectual community, one that champions free markets. Made up of groups like CEI, this intellectual minority has a natural ally in business. The two need to work closer together if we are to save the free market.
Capitalism wasn’t needed to provide the royalty of Europe with silk stockings—they had them. Capitalism democratized those privileges, allowing the shop girls of England to similarly deck their equally lovely legs!
Business should express this when reaching out to Joan Citizen as well as to Joan Consumer. Most people don't care what you know, until they know you care. Businessmen must stop apologizing for wealth creation. In a world that is too poor nothing is more moral—stand strong be proud. Businessmen of the world, unite; you have nothing to lose but your political chains!