Capitalism Requires Government
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Beyond the Myths of Government and Markets
In the end, anti-government conservatives get it wrong about both markets and government. In their zeal to justify shrinking the state, they intentionally misrepresent both of these institutions and how they interact. The market is not God and the government is not the Devil. Despite their enormous advantages, markets are not benign and self-regulating. They create numerous social, economic, and political problems that only government can correct. Government is also not the sworn enemy of business and capitalism. Conservatives can only promote this misleading caricature of government by deliberately ignoring the myriad ways that government aids business and makes a market economy possible.
Anti-government conservatives are constantly warning that government is primarily a threat to business and the economy – that unless we reduce it, it will “kill the goose that lays the golden eggs.” But as we’ve seen, this is far from the truth. The modern state is more like the farmer who feeds and waters the goose, builds the facility that houses it, inoculates it from disease, clips its wings so it can’t fly away, protects it from predators, cleans up its excrement, and tames it so it won’t bite people. If we appreciate those golden eggs, we should also appreciate the efforts of the farmer who helps make the egg production process possible. Similarly, those who celebrate the achievements of business and a market economy should also acknowledge and celebrate the role government has had in those accomplishments. This would be the fair thing to do; but of course it would not fit into anti-government conservative orthodoxy.
By chronicling all the ways that government is good for business and capitalism, I am not suggesting that we should look at government through rose-colored glasses. We should not deny that government can make mistakes and do things that are bad for business. It even has the potential to strangle businesses and hobble the economy. That was certainly the case in the former Soviet Union. But there is little evidence that this is happening in Western democracies. Numerous studies have shown that the size of the state seems to have little to do with economic growth.15 Some Western countries with small states have thriving economies and some with large states do too. And the rise of big government in the United States certainly did not prevent the economy from enjoying several sustained periods of healthy growth in the latter half of the twentieth century. None of this should be surprising. Even liberal policymakers have a strong interest in promoting the economic growth that provides the tax revenue that funds the social programs and regulatory efforts they favor. Of course democratic governments can sometimes get overzealous and passes regulations that put an undue burden on particular businesses, but we shouldn’t let these instances obscure the bigger picture about the relationship between government and business in the United States. On the whole, government has been very good for American business.
So the basic lesson is this: we Americans need to realize that our economy has thrived not in spite of government, but in many ways because of government. The American economy that so many people admire is not the mythical free market that operates without government interference. Our version of a market economy is highly constructed, regulated, subsidized, and humanized by government laws and policies. And we are all better off for it. Even if it were possible to create a world of free markets that were left entirely alone by government, none of us would want to live there.
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For more on the relationship between government and capitalism, see: How Government is Good for Business.
To see how government programs work quietly to improve our daily lives, see: A Day in Your Life with Government.
See also: Why We Need More Government, Not Less.
1. For more on this issue, see David Moss’ excellent book, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge, MA: Harvard University Press, 2002) chapter three.
2. Moss, chapter five.
3. Robert Kuttner, Everything for Sale (. New York: Alfred A. Knopf, 1997) p. 212.
4. Kuttner, p. 218.
5. Dick Armey, The Freedom Revolution (Washington D.C.: Regnery Publishing, 1995), p. 316.
6. Armey, p. 68.
7. See for example, Timothy M. Smeeding, et al., “United States Poverty in a Cross-National Context.” In Sheldon H. Danziger and Robert H. Haveman, editors, Understanding Poverty (New York and Cambridge, MA: Russell Sage Foundation and Harvard University Press, 2002) pp. 162-189.
8. Benard Wasaw, “Rags to Riches: The Americans Dream is Less Common in the United States than Elsewhere,” Century Foundation, March 19, 2004. http://www.tcf.org/4L/4LMain.asp?SubjectID=1&TopicID=0&ArticleID=456
9. Jo Blanden, et al., “Intergenerational Mobility in Europe and North America,” April, 2005. www.suttontrust.com/reports/ IntergenerationalMobility.pdf
10. "As Rich-Poor Gap Widens in the U.S., Class Mobility Stalls," The Wall Street Journal, May 13, 2005.
11. Charles Noble, The Collapse of Liberalism (New York: Rowman and Littlefield, 2004), p. xvi.
12. David Stockman, The Triumph of Politics: Why the Reagan Administration Failed (New York: Harper and Row, 1986) p. 394.
13. Edward S. Greenberg, Capitalism and the American Political Ideal (Armonk, NY: M.E. Sharpe, 1985) p. 93.
14. Thanks to Sam Rosen-Amy for making this point to me.
15. Max Neiman, Defending Government: Why Big Government Works (Upper Saddle River, NJ: Prentice-Hall, 2000) p. 162.