Government and Business

An article in The Economist makes some good points about the relationship between government and business. A government should be pro-market, not pro-business.

What can be and is easily overlooked is that the American government, despite its supposed reckless market-fundamentalism, actually spends more than $90 billion of the federal budget each year on hand-outs to business: farm subsidies (which mainly go to agri-businesses, not farmers), research grants, export-credit guarantees, incentives of many kinds. Moreover, that figure, calculated by the Cato Institute, a Washington think-tank, is certain to be an under-estimate, as the true extent of what such critics call "corporate welfare" is not disclosed. Other rich countries do the same, especially for agri-businesses, but not only those. In 2000, export-credit guarantees outstanding from the 30 OECD members totalled $330 billion.

This is bad because it distorts the true economic picture of the companies that benefit, thus causing a future misallocation of economic resources to companies that don't truly have the best rate of return. To businesspundits like myself, this is despised because we believe in survival of the fittest of businesses. If you can't cut it, you go under.

But it brings up an interesting point about government and business and markets. Can we survive if we become, as a society, unethical? Self-interest is fine, but lying and cheating undermine the capitalism process. Having government intervene doesn't help because there is no guarantee government is any more honest.

I think about this a lot as I listen to Mrs. Businesspundit talk about her auditing experiences. Everyone wants auditors to be ethical, except when they find something wrong at YOUR company, then they want you not to report it. What do you do? If you anger your client, you may lose the account. If you concede, then what is the point of the audit other than to rubber stamp the company's financials?

As with many things I post about, I don't think there is a good answer. No laws or government programs can fix this. It requires a cultural change – a shift in attitudes. It requires a thank-you from the CEO to an auditor who exposes poor accounting controls. It requires companies who don't beg the government for handouts when they can't cut it on their own. It requires business leaders who look out for the interests of their shareholders above all else. And it requires shareholders who hold their leaders accountable, and deny them ridiculous compensation packages when they don't perform as expected.

To me, there are few things as beautiful as an ethical, profitable, customer-centered, well-run company. When all pistons are firing and the employees have fun, grow, and make money, it is an awesome thing. But the world is full of too many people who want to take short-cuts, and get rich quick at the expense of others. That's a shame, because true capitalism provides wonderful long-term rewards to those who accept it, and play by the rules.