-photograph by Nick Solari
What we need is a woman who has the guts to stand up to Wall Street, to the insurance companies, to the drug companies, to the fossil fuel industry.
-Bernie Sanders as quoted by James Taranto in the WSJ
When I saw the above anti-business quote from Bernie Sanders and many others like it from other progressive/socialist politicians, I was struck by the left’s adversarial stance against the business community. This opposition to business is far different from the relationship between the public sector and the private sector that made America the wealthiest and most powerful country in the world.
It is not hard to understand Mr. Sanders’ position. He is against business, especially big business. He says he is for mom and pop businesses, small businesses that employ most of the people in America. But only if they march to the progressive drumbeat by complying with an ever-mounting pile of regulations, mandatory benefits and minimum wages. But why should we care what Mr. Sanders thinks? He lost the primary election. It matters because the Bernie Sanders mantle is being taken up by the progressive wing of the Democratic Party. They hate business just as much as Mr. Sanders.
The left views the private sector as the enemy of the common people. The adversarial relationship is based on the beliefs of Karl Marx who saw the world divided between Bourgeois exploiters and exploited laborers (as if anything as complex as the world could be so easily categorized). But the purpose of this essay is not to criticize Marxist thinking (which has proven to be disastrous when actually applied in the real world) but to harken back to how government and business were intended to function together in America.
Alexander Hamilton, in his capacity as the first Treasury Secretary, was tasked with setting up the initial structures for finance and commerce in this country. He saw the growth of trade and business as a way to strengthen the fledgling democracy. He felt that keeping the agrarian model favored by Jefferson and the Republican-Democrats would leave the country enfeebled and at the mercy of the great European powers. The Republican-Democrats of that era feared the strong central government advocated by the Federalists (which they identified as favoring monarchy) and strongly supported states’ rights. They also feared the bankers and merchants up in New York City and Boston as well as the nascent manufactories that were bringing the industrial revolution from England to America.
Hamilton, as the thought leader of the Federalists, didn’t see government and business as adversaries. He saw them as partners. This is the only way to convert zero-sum Marxist thinking into win/win Hamiltonian thinking where everyone can benefit. It was this kind of partnership that allowed to government to grant land to the railroad companies in exchange laying tracks across the continent. Sure, the railroad companies and their investors grew very rich, but the transcontinental railroads helped forge America into a continental power. It was the American private sector that converted foundries making Pullman train cars into producing the Sherman tanks that helped win World War Two. And while the DOD’s Defense Advanced Research Projects Agency (DARPA) initially developed the concept of the Internet (then called ARPANET) it was private sector entrepreneurs that developed the World Wide Web that has morphed into the Internet we now know (and can't live without).
So why did this adversarial relationship develop (or rather why did the cooperative relationship, which is supposed to be so generally beneficial, not develop)? This lies in the underlying nature of human institutions. Human institutions, conceived by humans, created by humans, performed by humans and serving humans are flawed (by the presence of humans). We cannot create institutions that do not eventually suffer from the onslaught of particular interests.
There is nothing wrong with particular interest - doing things that improve our current condition such as getting promoted, increasing our wealth and passing it on to your children. But institutions are designed to serve common interests and the inclusion of particular interest to such an institution can divert it from its intended purpose. Government institutions are intended to serve the general interest - the interests of all citizens/not the particular interests of individuals, politicians, bureaucrats, or other special interest groups. It doesn’t matter if these institutions are democratic or socialistic, they will always become corrupted by particular interests because they are managed and operated by human beings who carry their particular interest baggage around with them wherever they go. Democratic institutions are, however, more amenable to reform and renewal than socialistic institutions.
The advantage of the free market economic system is that private sector companies and corporations, while serving the particular interests of the owners, managers and employees, can also serve the general interest of the country by supplying needed services and products. As Adam Smith stated, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
So the private sector can serve the general interest of the country, but only if it follows the rules and regulations that are an essential part of the social contract. Products should be safe and free of defects. Food should be fresh and healthful. Drugs should not have dangerous, unknown side-effects. The government is the enforcer of the rules and regulations that require products and services to meet these high standards. But that does not necessarily create an adversarial relationship between the private and public sector. A cooperative relationship between the private and public sectors will enhance the public’s level of trust in the products and services of the private sector. This increased trust facilitates the private sector’s ability to do business and promotes economic growth.
So we have a private sector that can serve the general interest of the country while addressing the particular interests of the participants in the private sector and a public sector that can address the general interest of the public while benefitting the private sector by increasing the level of trust in the private sector’s products and services. This is the win/win situation that should occur in the free market economy.
But if particular interest can corrupt the government and divert it from its mission to serve the general interest, then Smith’s invisible hand no longer serves the general interest. And if rules and regulations view the private sector as the adversary of the general interest, then the trust in the products and services of the private sector is diminished.
It is not just big corporations and their lobbyists that are trying to redirect government institutions toward their particular interests. It is also unions (such as SEIU and NEA) along with activist groups (such as Black Lives Matter) that try to get government institutions to address their interests. This the swamp that the new Trump administration faces in Washington, DC, where many of our governmental institutions have been captured or diverted from their original objectives by various particular interests.
Reform is a periodic exercise as even the most thorough purges will eventually be subjected to renewed assaults of particular interest. But the inevitability of future capture or diversion of our democratic institutions does not alleviate the necessity of periodic cleansings even if it requires Herculean effort. Simply reshuffling the deck, where new particular interests replace old particular interests, will not drain the swamp. Elimination of rules and regulations without a thought about how to rebuild the trust of the general public will not facilitate economic growth.
Principle-based reform will be difficult for President (elect) Trump, who appears to view situations on a case-by-case basis. The signature of the populist politician is that he can overcome the defects in the system (and make the trains run on time, for example). But if no fundamental change is made in the system, what happens when the populist leader departs (as they all must eventually do)? A great leader will reform the system so that it can better serve the general interest. This is not the work of a vainglorious populist who revels in publicity and the adulation of the populace. It is the hard work of a true democratic leader whose greatness may only be known in the course of history.