Thursday, March 18, 2010

Pro-Market versus Pro-Business

Within political arenas, there is a distinction that is far too often overlooked: pro-market vs. pro-business. Republicans, at least the fiscal conservatives, tend to call themselves pro-market. They speak in terms of supporting the market, free-trade, competition, and business. Democrats, in turn, disparage the concept of being pro-market and criticize Republicans for really being bosom buddies with Big Business.

The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.

In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.

As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.

In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).

In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.

This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.

Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.

At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.


  1. Well said, but it seems almost impossible to envision politics devoid of the influence of business. Also, how do we acquire (and then pass on) the wisdom to judge when Google gets too big? :-}

    If we could do the above (rid ourselves of business influence and find a way to objectively judge business fairness), I believe we would all benefit hugely.

    The thing I find intriguing in the Cornell alum discussions is that they never conclude. Despite the healthy exchange none of the participants seem to draw nearer to compromise or even a conclusion. All the discussions just peter out.

    There is a trend that the Internet is bringing very forcefully to businesses. That is the openness and visibility of dialog generated by their end users. Displeasure is much more visible to everyone. The user observations can range from the trivial to the sublime, but they get attention. I agree in principle to your assertion in an earlier exchange that we need a republic, rather than a true democracy. Why can we not find a way to get more cogent thought into government using the visibility of the net? The root may be in your observation that government stakeholders have no incentive to improve. Are there any theories by which they would get that incentive?

  2. Jim~

    It isn't solely the influence of business on politics, but politics on business (subsidies for instance) that are nefarious. But I don't think the answer is to put up government controls about how business can attempt to influence politics, but build politics around the notion of working around the proper way to construct our government. How, as you point out, this is done in practice is a much more difficult question. If voters focus on electing politicians that are committed to ideas that resonate it will be at least a first step in the right direction.

    I think these unfortunate trends in discourse that you point to are partially due more to the fact that most particpants are arguing in terms of their conclusions, not first princples. Regarding healthcare debates it is often one of reform vs. no reform. When arguing in terms of the free-market princple (as I try to do here) the counter-argument given is often about how the current system doesn't work. But this is not a proper counter-argument because the free-market princple is not being met today in the insurance markets. People want reform and see no real alternative except for ObamaCare - what most don't realize is that there is a fundemental tension in the healthcare debate, not about reform, but about socialism vs. capitalism. Most of the pro-Obamacare advocates argue why reform/Obamacare is good and why the current system is bad. The anti-Obamacare often argue why capitalism is good. I think this disconnect explains why we don't ever get to a common ground. I think if the pro-Obamacare forces would attempt to defend their plan on the economic theory of socialism we would see a much different arena. I think they would quickly lose - not because socialism is a dirty word (which it is in America) but because it lacks economic merit.

    Your closing question though is one of the toughest and one I don't have an answer for. I believe that humans are innately self-interested, can only act in their self-interest. Incentives and disincentives need to be structured to match one's self-interest with what society deems to good. I think the only ways to change someone's assessment of a situation is to directly increase costs or benefits to make them reevaluate actions or educate (through formal and informal means) to let them "see the light" so to speak.

    thanks for writing


  3. Josh--

    A very well-written and thought-provoking piece. Honest question to which I don't know the answer: how do you reconcile neoliberal economic policies with the needs of a global economy reeling from the excesses of deregulation that marked the past 30 years?


  4. Karl~

    Thanks for the compliments. I think its a very good question and I'm not sure I have an answer either. Without having thought anything through there are ways to stimulate the global economy that do not involve huge government meddling in the private sector. For instance growth in developing countries can be fostered through promoting entreuprenurship and innovation, by helping to establish rules that allow a competitive marekt to develop. In essence, I think a lot of the business cycle is due to mispricing of risk - booms are fueled by overconfidence and thus cheaper risk, busts by underconfidence and thus overly expensive risk. If governments help the flow of information it may mitigate some of these downturns. Once the irrationality (fear) is driven from the market, you will see it grow again; however, we should be sure to check overexuberance that just leads to the next boom.


  5. Interesting article. Unfortunately, we remain stuck on the "how to fix" part of the problem. We all agree that beter information, greater mobility (ability to react to changes in the supply of jobs, homes, etc.) and leaders or at least politicians not owned and operated by some vested interest on any of the multiple sides would get us to a more stable and presumably better place. I believe the reason we never finish the discussions is that there is no answer and most of us have no particular leverage to make a significant change.

  6. Thanks Eric~

    I think you are right in a sense. People largely speak in terms of the concepts you refer to, but often in reality do not act in accordance. Greater mobility for instance is not helped by policies that hinder trade, establish unions and the like. Of course there are always tradeoffs, but I think too often in America many are duped by short-run benefits that cause greater long-term costs. It is the nature of our political culture (and to some degree human nature) that we often fail to really outline what is good and bad in a plan. Instead of planning for the long-term we operate on a 2 to 4 year agenda that establishes systems that benefit us now.

    Information flow will do a lot to change this - if people are willing to listen. That, I think, might be the crux of the problem - most people aren't willing to take the time and expend the energy to challenge their own beliefs and listen to others. We have a political and social system that hypes partisanship and a lack of dialogue (currently one party that ignores discussion and pushes ahead, and the other that often says no, but fails to solidify real debate).


  7. I'd like to take it back to the bi-directional influence peddling between business and members of Congress (mostly - there's a good bit of this at the state level too, but one cesspool at a time).

    What is your view of so-called clean election laws where meeting a threshold of small donor contributions garners a candidate sufficient public funding to wage a credible campaign without large donor/bundled contributions which are a pretty good approximation of corporate contributions, absent Congressional legislation to overturn the latest SCOTUS campaign finance ruling, soon to be funds right out of the corporate treasury without the executive middleman.

    I guess there is still an argument to be made that small donors care just as much as big about legislators bringing home the pork, but I suspect the influence in that is far less direct than the need to formulate legislation to please entire industries (Wall Street, Oil, Pharma, etc.).

  8. Joe~

    You raise a great issue in campaign finance reform and honestly I am very much on the fence. On the one hand there is clearly an influence from corporate donations. On the other there are issues of free speech. I think its a delicate balance. One plausible approach utilizes the same conception of information flow as necessary for a functioning free market. Rather than the government getting involved in the personal decisions of corporations and those running for candidates, require rigorous disclosure of information - possibly in terms of who donated and how much and maybe even to the extent of meetings between donors and candidates. I think the public space (journalists, bloggers) can link the candidates platform and votes to donors that make it politically unwise to accept bought votes. Of course, any actual buying of votes or fraudulent behavior should be punished accordingly. With the flow of information, it becomes easier for voters to display upset with unjust behavior.



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