The State & Business

T

he American anarchist Henry David Thoreau presents what has become a popular conservative view of the effect of government upon business: “Yet this government never of itself furthered any enterprise, but by the alacrity with which it got out of its way…Trade and commerce, if they were not made of India-rubber, would never manage to bounce over obstacles which legislators are continually putting in their way…”

While this sort of laissez faire view of the role of the state in business is often taken as gospel, there is the question of whether Thoreau is right. While I do find his anarchism appealing, there are some problems with his view.

Thoreau is quite right that the government can be employed to thwart and impede enterprises—this is often done by granting special advantages and subsidies to certain companies or industries, thus impeding their competitors. However, he is mistaken in his claim that the government has never “furthered any enterprise.” I will begin with the easy and obvious reply to this claim.

Modern business could not exist without the physical and social infrastructure provided by the state. In terms of the physical infrastructure, businesses need the transportation infrastructure provided by the state. The most obvious aspect of this infrastructure is the system of roads that is paid for by the citizens and maintained by the government (that is, the citizens acting collectively). Without such roads, most businesses could not operate—products could not be moved effectively and customers would be hard pressed to reach the businesses.

Perhaps even more critical than the physical infrastructure is the social infrastructure that is created by the government (that is, the people acting collectively and through officials). The social infrastructure includes the legal system, laws, police services, military services, diplomatic services and so on for the structures that compose the governmental aspects of society.

For example, companies in the intellectual property business (which ranges from those dealing in the arts to pharmaceutical companies) require the existence of the legal system and law enforcement. After all, if the state did not enforce the drug patents, the business model of the major pharmaceutical companies would be destroyed.

As another example, companies that do business internationally require the government’s military and diplomatic services to enable their business activities. In some cases, this involves the explicit use of the military in the service of business. In other cases, it is the gentler hand of diplomacy that advances American business around the world.

All businesses rely on the currency system made possible by the state and they are all protected by the police. While there are non-state currencies (such as bitcoin) and companies can hire mercenaries; these options are generally not viable for most businesses.  All of this seems to clearly show that the state plays a critical role in allowing business to exist. This can, however, be countered.

It could be argued that while the state is necessary for business (after all, there is little in the way of business in the state of nature), it does nothing else beyond that and should just get out of the way to avoid impeding business. To use an analogy, someone must build the stadium for the football game, but they need to get out of the way when it is time for the players to play. The obvious reply to this is to show how the state has played a very positive role in the development of business.

The United States has made a practice of subsidizing and supporting what have been regarded as key businesses. In the 1800s, the railroads were developed with the assistance of the state. The development of the oil industry depended on the state, as did the development of modern agriculture. It could, of course, be objected that this subsidizing and support are bad things—but they are certainly not bad for the businesses that benefit.

Another area where the state has helped advance business is in funding and engaging in research. This is often research that would be too expensive for private industry and research that requires a long time to yield benefits. One example of this is the development of space technology that made everything involving satellites possible. Another example is the development of the internet—which is the nervous system of the modern economy. The BBC’s “50 Things that Made the Modern Economy” does an excellent analysis of the role of governments in developing the technology that made the iPhone possible (and all smart phones).

One reason the United States has been so successful in the modern economy has been the past commitment of public money to basic research. While not all research leads to successful commercial applications (such as computers), the ability of the collective (us acting as the state) to support long term and expensive research has been critical to the advancement of technology and civilization.

This is not to take away from private sector research, but much of it is built upon public sector foundations. As would be expected, private sector research now tends to focus on short term profits rather than long term research. Unfortunately, this view has infected the public sector as well—as public money for research is reduced, public institutions seek private money and this money often comes with strings and the risk of corruption. For example, “research” might be funded to “prove” that a product is safe or effective. While this does yield short term gains, it will lead to a long-term disaster.

The state also helps further enterprise through laws regulating business. While this might seem like a paradox, it is easily shown by using an analogy to the role of the state in regulating the behavior of citizens.

Allowing business to operate with no regulation would be like allowing individuals to operate without regulations. While this might seem appealing, for an individual to further their life, they need protections from others who might threaten their life, liberty and property. To this end, laws are created and enforced to protect people. The same applies to protecting businesses from other businesses (and businesses from people and people from businesses). This is, of course, the stock argument for having government rather than the unregulated state of nature. As Hobbes noted, a lack of government can become a war of all against all and this ends badly for everyone. The freer the market gets, the closer it gets to this state of nature—a point well worth remembering.

It might be assumed that I foolishly think that all government involvement in business is good and that all regulation is desirable. This is not the case. Governments can wreck their own economies through corruption, bad regulations and other failures. Regulations are like any law—they can be good or bad, depending on what they achieve. Some regulations, such as those that encourage fair competition in business, are good. Others, such as those that grant certain companies unfair legal and financial advantages (you might be thinking of Monsanto here), are not.

While rhetorical bumper stickers about government, business and regulation are appealing in a simplistic way, the reality of the situation requires more thought and due consideration of the positive role the state can play—with due vigilance against the harms that it can do.

 

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  1. Science and technological innovations are the main reasons that any nation can thrive over another. They can not be hoped for, they must be earned through basic research. And while basic research can be stolen, this only levels the field which is not all bad.

    We are already seeing a transition where the private sector capacity dominates over the public one with regard to innovative technologies. The greatest benefit from government regulations will come in the form of disseminating knowledge. In the long run, if proprietary or classified restrictions mandate how science is diffused through society, then generation after generation will become weaker and less informed and only shrinking set of elites will have the privilege of knowledge and the power to control nature over others.

  2. Well said. Kevins view provides another perspective but questions remain:
    Agreed monopolies are prime examples where commercial difficulties can arise which often result in forms of regulative control to resolve.
    The monopolistic power exercised by any nation state requires other means to ameliorated the potential for bad outcomes.
    Placing Kevins contribution into simpler terms: The nation state could only effectively regulate the internet by some form of censorship of content including barring access to other regions outside of that nation state and taking action against its people, to maintain/match its own values. A few nation states are attempting that route. But that situation would create a monopoly of internet content restricted to their own interests. At the moment that situation appears paradoxical, because internationally there is no commonly agreed set of moral or regulative rules which encompass all social groups, and which are apparently implementable at the moment. (Some agreed sets of rules exist and others are/were being worked upon, but nation states/companies/groups/individuals are not perceived to consistently follow them, leading to confusion. An element of a form of social privacy (a boundary) which previously masked these issues is currently missing.)

    So the questions as seen by myself become: Because converting rhetoric into action is frequently difficult in that area does that mean there needs to be effective international enforcement of regulations to assure common international rules are followed, is there a need for understanding by every person in every nation why differences within the parameters of any rules exist, or should nation states shrink into their own comfort zones? Politics probably states the people do answer, but are they told what to do; are they informed of the differences/difficulties so understanding develops; or is it both; and if both how may their continuing coexistence be maintained?

  3. Just look at the state of parapsychology, one of the most underfunded scientific research areas in history.

    https://theastral.com
    -T

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