An impetuous balance between the free market and government intervention
This month, for the first time, Switzerland has usurped the position that United States has always held as the world's most competitive economy. This was attributed to Switzerland’s ability to remain stable in what has been called the largest global recession in decades.
The World Economic Forum (WEF) attributes the repositioning of the United States to the concerns “about the government's ability to maintain arms-length relationships with the private sector.” It goes on to say that there is an “increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards.”
No one understands that better than the citizens of the United States. While our country is still trying to get back on its feet from last years financial meltdown, American citizens are taking a really hard look at why this happened and how not to let it happen again. With the scandals of Wall Street, the mortgage crisis, and the financial ruin of the automakers, it is almost impossible to look at anyone without placing some blame. And who is responsible? The government, who was in charge of monitoring the regulations in place, or the free market that heralded the idea of an economy without restraints will breed progress and prosperity for all. But how can we look to the future and know where to take the economy without looking back at the past.
There has always been a debate between the ideals of a free market economy and the need for more government intervention. With a free market economy, businesses are allowed to grow at its own pace to meet the demands of the consumer. Profits are made and then re-invested in future industry and technology. Evidenced in President Reagan’s “trickle down economics” – it argues that with the right incentives in place, America’s wealthiest will pass along the profits in the way of spending. The economic train will be fed by the needs of the consumer.
On the other hand, history has also shown a need for government intervention. Creating rules and regulations provide the “checks and balances” that are needed to keep big businesses from destroying the market place and becoming monopolies that erode the efforts of the small business owner trying to compete. The questions are, “How much control do you insert?” and “How do you keep the economic control from becoming a political process?”
On the 17th of January 1961, President Eisenhower gave his farewell address to the nation where in part he stated:
“Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers. The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present -- and is gravely to be regarded.”
We have created the beast, now we must feed it. This sentiment has been echoed throughout time. Each moment in history has carried with it a need for the government to decide how much or how little a role they will play in our lives. In order to understand which direction to take for our future, we should be able to understand how we arrived at where we are today.
Government intervention became prominent in the late 19th and the early 20th century, with Presidents Taft, Wilson, and Roosevelt saw a need to break up the monopolies in order to protect the public interest. They set up laws that regulated certain markets to provide essential public services to everyone. These public services – water, electric, communications, and transportation were vital to the industrial revolution that was taking place. As time went on, the need to further the protection of the American public was deemed necessary. With the establishment of the Sixteenth Amendment, a federal income tax was created and provided the ability to use a tax structure that paid for these services. During this period, the American government also created laws that controlled how the employees of a company were treated. Shorter working hours, higher wages, and better living conditions were given to the worker along with the ability to unionize and demand the banning of unfair labor practices. Child labor laws were enacted because companies would not draw the line. Programs like Social Security, Unemployment Benefits and the Welfare were developed and gave the American worker the protection that it needed against the robber-barons of industry. These government regulations proved to lay the foundation of the American workforce as we know it today. What once was an idea is now a fundamental right of the American worker.
As time went on and the markets improved, the government began to develop a more entrepreneurial approach to the economy. It was felt that prices, determined by competition, become more advantageous than those set by a regulatory process. A “free market” was seen as the answer to creating competition and allowing entrepreneurs the opportunity to meet the needs of supply and demand. This free market required protection of property rights, but without regulation, subsidization, single monetary systems, and no governmental monopolies. The free market economy provided a means of production that are privately controlled, allowing the opportunity for profits that, in turn, are reinvested in new technologies and industries. The thought was that it would create an open market that would solve all “evils of our economy” and promote individual freedoms set forth in our constitution.
Presidents Nixon and Ford started to pursue a significant change in regulatory policy that took a pro-competitive direction. The thinking was that if we are allowed to move about freely without the constraints of the government, then we will be able to achieve a true capitalistic state. A “free market mentality” was fully embraced by President Reagan and was attributed to his success of bringing the American people out of one of the largest recessions seen since the Great Depression. These four Presidents began to dismantle the regulations set forth by their predecessors, allowing the deregulation of all forms of transportation, energy, and communications. Giving the consumer a choice was a philosophy embraced by all.
President Reagan took the “free market” a step further by stimulating the economy with large, across-the-board tax cuts. Coined “Reaganomics”, his principle philosophy was that economic growth would occur when marginal tax rates were low enough to spur investment. The thought was that this would lead to increased economic growth, higher employment and wages. To this day, his theories are often disputed.
So flash forward twenty years. We can see that throughout history, we have been on a Ferris wheel of economic development. In order to break up the monopolies of business, (i.e. the railroads) our government stepped in and created regulation, which in turn created more monopolies (i.e. Bell telephone). Then our government sought to break up the monopolies once again with deregulation, there for creating more monopolies (i.e. Bank of America and Citicorp.)
But the truth lies in the foresight of President Eisenhower’s farewell speech. The deregulation of the banking industry helped create businesses that were deemed, “too big to fail.” When the stock market began to tumble on a downward spiral last year, industries began to cry out for government intervention. The Banking industry and auto manufacturers ran to the government and ultimately the American people to help stop the hemorrhaging of their institutions. Jobs were at stake along with the personal finances of millions of Americans. As a result, the government stepped in and the American taxpayers ended up footing the bill.
Forty eight eight years earlier, President Eisenhower warned us of the perils of a relationship between the government and business.
“But each proposal must be weighed in the light of a broader consideration: the need to maintain balance in and among national programs, balance between the private and the public economy, balance between the cost and hoped for advantages, balance between the clearly necessary and the comfortably desirable, balance between our essential requirements as a nation and the duties imposed by the nation upon the individual, balance between actions of the moment and the national welfare of the future.”
Is this balance possible? Is there truly a possibility that a free market economy can be allowed to prosper when it’s only avenue is to eventually doing itself in? Is government intervention required in order for the American people to survive? Are big business and the government so different from each other? The concept that business is divorced from the responsibility of government is simply ludicrous. And business left unattended goes to the point that any one business can become so strong and powerful that it eliminates all its competition – which then is no longer operating in a free market. Corporations, which in effect seek to dismantle the trade unions and workers ability to elect their own representatives, create the need for government intervention. Government can also become so big that it moves away from being a democracy and into the confines of a fascist state.
So where do we go from here? With an unemployment rate that reached 9.7 percent this past month, many have lost their livelihoods and are now dependent on the same government programs that have been so criticized in the past. Medicare, unemployment benefits, and social security have become programs that millions of Americans depend on. And while they are often subject to criticism, many will argue that these programs are working.
We can also go a step further and agree that the government programs that provide vital services can not exist under a free market. These services include, but are not limited to: water, sewer, garbage collection, public education, police and fire, libraries, parks, and also electricity and gas. Some will even go as far to say that it should also include health care and public housing.
It is irresponsible for anyone to sell the American people on the idea that a free market will provide all of the same services as the government programs. That is no different from a snake oil salesman telling you that his elixir will cure everything that ails you- from the boil on your backside to putting the hair back on your head -it is just not possible. If you understand business, then you will understand that the market place takes the easiest road to make the most amount of money. That’s what a profit margin is built on.
For example: people who live out in rural communities, where it is cost prohibitive to reach them, would have been years behind their city-dwelling counterparts if it was left up to industry, assuming they got serviced at all. A perfect example of that is the cable company of today. You can go to enough places in the United States and still not have cable available. It’s a pie-in-the-sky dream being sold by the same person who will be running to the government for help when it’s beneficial to them.
Businesses do not always do what is in the best interest of the people. They do what is right for the business. Let’s take a look at the auto industry. Almost all of the safety regulations had to be legislated. A proponent of the free market would argue that we didn’t need to regulate the automakers and say that they would have eventually come around to doing this on their own because the public demanded it. But would they have really? People have been driving cars since the late 1800’s and yet the seat belts were not required by law until the 1970’s, 100 years later.
The French term “laissez-faire” (leave it alone) was coined by Adam Smith, the 18th century Scot who writings influenced the growth of the American capitalist. His theory was that if everything was left well enough alone, then the actions of private individuals who were motivated by self interests would end up working together for the greater good. He went as far as to acknowledge that the government should establish a set of ground rules, but then go no further.
The electric car of the 1990’s is an example of what Smith had in mind. In 1990, the government of California had put into practice a program called the CARB ZEV (Zero Emissions Vehicle) that promoted the use of the electric cars. With that came the GM EV1 - an electric car produced and leased by the General Motors Corporation from 1996 to 1999. It was the first time a mass-produced and purpose-designed electric vehicle of the modern era came from a major automaker. The government set up the guidelines and industry took over – creating something that would be beneficial to all.
What Adam Smith didn’t take into account was big business. The oil companies were in fear of losing the trillion dollar profits that were coming in from the fuel monopoly that they held over the American consumer. So very much like the health care debate of today, they rallied a campaign against the electric car and declared that there was no public interest for a vehicle that could only go 80-100 miles on a single charge. Lawsuits were filed and an immense pressure was placed on GM from other automakers, oil companies and the administration of George Bush – where three of his advisors: Condolezza Rice, Vice President Cheney, and Andrew Card had all been former executives and board members of oil and auto companies GM eliminated the vehicle from its line. But instead of phasing out the vehicle, they actually destroyed all 90 cars that had been produced. The cars were either dismantled or were crushed at the junk yard, giving them no chance of being found on the road.
How do we stop industry from becoming the bully of the American people? How do we keep things in perspective without allowing the profit margin to become the only motivating factor? We consider ourselves a “free society” and yet we all we recognize that we cannot live with out rules or guidelines. As Eisenhower pointed out, even the small inventor working in his garage has no chance of competing with the large corporations without a little help. In order to protect the individual who is able to produce new ideas that can change our future, it is the role of government to step in keep that person from being smothered by big business.
The United States Patent and Trademark Office, a government run agency, helps provide the support and protection of people likeHenry Ford and Alexander Bell. What would have stopped Bell’s designs of the acoustic telegraph from being taken over by someone else if the government hadn’t been there to regulate the patent?
So we take away the role of the government, then what? Some people would have you believe that the role of the government is strictly to run the military. Show me that there is a difference between the military and big business. Take a look at how many businesses have links to the military. From Popeye’s Chicken to Halliburton, the wars we fight are heavily invested by corporations who have now included the military as a part of their business plan. If the presumption is that the government is only to fight wars, then it is a government for big business.
But we have a government that is for the people. Our forefathers set up a nation that asks the government to represent and protect the will of all people. Some where along the line the individual people has to have a venue that allows them to say they are being treated unfairly. It’s simply not practical to think that the government is not responsible to step in when needed. The question should not be whether we want government regulation, but how much government regulation should there be. The fact that you want the government to regulate things doesn’t make it socialism. And the fact that you need programs that the government supplies, doesn’t mean you are giving up your rights as a free society.
Somewhere we have to learn a balance. We need to make sure there remains the opportunity for companies like Starbucks, McDonalds, and Apple computers to grow without the restraints of too much regulation. But we also have to be able to step in when companies like Wal-Mart become so big that they can control their suppliers and kill any chance of the “Mom and Pop” stores to compete.
If we have learned any lessons over this past year, it is this- one element cannot exist with out the other. A deregulated business is in fact a government regulation. A free market will open the doors for the future and government intervention will help us not repeat the sins of the past.
“As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.” – Pres. Eisenhower