Free market doesn't mean pro-business

Bruce Bartlett
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Posted: Feb 10, 2004 12:00 AM

One of the biggest beefs that liberals have against conservatives is that the latter are reflexively pro-business. That is, whatever the business community wants, conservatives will bend over backward to give them. This is untrue for principled conservatives. But, sadly, the Bush administration and the Republican Congress keep giving liberals ample reason to believe that the stereotype is fact.

Principled conservatives believe in the free market. While this may seem to equate with a pro-business viewpoint, in fact it often does not. The last thing most businessmen want is a free market, where they must compete, slash prices, continuously innovate, suffer narrow profit margins and live constantly on the edge of bankruptcy. They would much rather have assured profits, monopoly positions, price supports, trade protection and the other trappings of a corporate welfare state.

The great economist Milton Friedman explains that the dichotomy results from the fact that the business community necessarily is made up of existing businesses. By definition, therefore, it does not include those that have yet to be formed. Moreover, the business community is comprised of large businesses with significant political clout and many times more small businesses that individually have no political influence whatsoever.

Big businesses are much more inclined to support governmental solutions to the problems they face because they have the muscle to get them. Government bailouts and trade protection are seldom, if ever, granted to small businesses, only to big ones with high profiles and many employees. It is doubtful that the Bush administration would impose tariffs, as it did for the steel industry, on an industry comprised of many small firms instead of a few large ones.

Consequently, those who expect big businesses to support the free market are constantly betrayed. Big businesses are even known to support tax and regulatory policies that harm their own industries -- provided that they could get some loophole for themselves so that their competitors are hurt worse. That gives them a relative advantage, which allows them to increase their market share.

Therefore, those who support the free market and truly want to help consumers often must labor alone and battle big corporate interests. In the words of Friedman: "We cannot expect existing businesses to promote legislation that would harm them. It is up to the rest of us to promote the public interest by fostering competition across the board and to recognize that being pro-free enterprise may sometimes require that we be anti-existing business."

George W. Bush is not a movement conservative, as Ronald Reagan was. I doubt seriously if he even knows the names of more than a small handful of conservative intellectuals and has read none of their work. The same can be said of almost all corporate executives. But without some grounding in the intellectual tradition of the conservative movement, it is very easy to assume that the conservative position and the business position are one and the same.

The worst example of subverting conservatism to aid business is the recently enacted Medicare drug benefit, which the Bush administration rammed through Congress with unprecedented pressure. This legislation will cost trillions of dollars. A key reason for the high cost is that it applies to all elderly, including those who already have drug coverage from their employers or private insurance. It would have cost a fraction as much to aid only those without drug coverage.

The incredibly more expensive option was chosen exclusively to benefit big businesses. The universal option justified the inclusion of large business subsidies in the legislation in order to keep companies from simply dropping their retiree drug coverage and dumping it all on the taxpayer. Some large companies are anticipating hundreds of millions of dollars from the federal government in coming years -- funds that go straight to their bottom lines because it relieves them of a liability they already have.

A Feb. 3 report in The Wall Street Journal notes that Delphi, an auto parts manufacturer, expects to reduce its future retiree health care costs by $500 million as a result of the drug legislation. And it has only 14,000 retirees and dependents to cover. Much bigger companies like General Motors and Lucent Technologies will save vastly more. The former has 440,000 retirees and dependents to cover, and the latter has 240,000.

I predict that when the federal government starts mailing checks for tens of millions of dollars to big corporations to subsidize them for keeping health coverage they have already promised their retirees, the excrement will hit the fan. It will be similar to the situation in 1982 when businesses could, in effect, sell their operating losses to give tax savings to other companies. The provision in the 1981 tax law allowing this was repealed almost immediately after a massive outcry.