Feature 01.07.2020 8 minutes

Enterprise over Ideology

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America thrives best free from market worship.

The most important sentence in Senator Marco Rubio’s important speech on U.S. industrial policy is this: “The decision to observe when the market advances the common good shouldn’t just be limited to those instances in which it its determination runs contrary to our national defense.” Rubio goes on to argue for other exceptions to free market theory, including the need for the U.S. to nurture highly productive industries that can sustain great numbers of high-wage jobs.

As a rhetorical strategy, identifying exceptions to free market ideology in cases like national defense and well-paying industries may make it easier to win over those who have been told for a generation by libertarian Republicans and neoliberal Democrats that the common good is always or almost always best served by reliance on unregulated market forces. Yet this strategy of asking people to recognize exceptions to a default free market norm risks conceding too much, I think, to those whom Senator Rubio appropriately calls “market fundamentalists.”

Pro-Enterprise Politics

Libertarians often declare that they are pro-market, not pro-business, and complain that too many conservatives as well as progressives are pro-business, not pro-market. But what is wrong with being pro-business instead of pro-market?

To make the point even more strongly, let’s substitute the term “enterprise” for “business.”

Markets are good to the extent that they serve particular enterprises—enterprises in sectors including national defense, manufacturing, education, health care, policing, and others. The enterprises that promote these national goals can take various forms. They can be for-profit firms, like those on which we Americans traditionally have relied for manufacturing and agriculture. But they can also be nonprofit institutions, like the private universities and religious hospitals on which we have long relied for higher education and health care provision, or government agencies, like the military and the police.

The use of private, public, or nonprofit enterprises to promote national goals is a matter of judgment and choice. Until the Cold War the U.S. Army and U.S. Navy made their own weapons in their own “socialist” federal arsenals, supplemented by private contractors in wartime. The jury is still out on the post-World War II experiment of outsourcing military production to a handful of private defense contractors who have only one major client, the federal government, and large sums to spend on members of Congress and other government officials.

Similarly, is a federal postal service still necessary, in the age of multiple forms of communication and package delivery? What about a taxpayer-subsidized public education monopoly? As a result of history, the U.S. has a regime of school choice in higher education but not in K-12. If history had gone differently, in the 21st century the U.S. might have a system of school vouchers for K-12—and U.S. armaments might still be manufactured by federal arsenals instead of private defense contractors.

When it comes to innovation and high-tech manufacturing, the libertarian case for favoring markets over businesses even in the private sector breaks down completely. The reason is that modern industrial capitalism owes its success to two institutions that represent drastic government intervention in markets: intellectual property and limited liability laws.

Monopoly Money

Free marketeers are against monopolies. But intellectual property laws create artificial monopolies enforced by the state. A breakthrough drug formula or a new kind of engine may be easily and cheaply duplicated, once it is discovered or designed. And yet IP laws bring the power of the state to bear to force people to pay tribute to the inventor or the designer for a period of time. This policy sacrifices free market logic and often offends notions of fairness as well in order to achieve the public purpose of incentivizing innovators, who can expect to be rewarded financially for their creative efforts.

Like intellectual property laws, limited liability laws are an affront both to free markets and to common sense conceptions of justice. By means of a charter of incorporation, a government can bestow on a corporation what in previous eras was the sovereign prerogative of limited liability. This means that investors in a corporation are not individually and personally liable for the corporation’s debts or crimes. While this may seem unfair, few investors would risk investing their own money in firms if they feared that the company’s creditors or victims could come after their own personal assets, once the corporation’s assets had been exhausted.

Market fundamentalists who attribute technological innovation and manufacturing productivity to free market competition rather than to pro-business government policies are therefore confused, to say the least.

In the absence of intellectual property laws, what little innovation there was would probably be funded chiefly by government; why would private innovators invest their own time and resources in research and development if their innovations could immediately by copied for free by others? And in the absence of limited liability laws that ensure that companies can fail without exposing their individual investors to lawsuits, we might still live in a world of risk-averse investors and tiny private firms, in which the only large enterprises would be government agencies or government-chartered monopolies, as in premodern times.

In short, large-scale industrial capitalism depends on intellectual property laws and limited liability laws which are pro-business, not pro-market.

Common-Good Prudence

In the debate over national industrial policy, the burden of proof lies with the market fundamentalists, not the supporters of business, or enterprises more broadly defined—for-profit, nonprofit and public.  Whether in foreign policy or domestic policy, the first question should be whether a particular objective advances what Senator Rubio calls the common good. If the answer is yes, then how that specific goal can best be achieved—by means of for-profit firms in competitive markets, nonprofit institutions, or government agencies—is a secondary and merely practical question, to be answered on the basis of prudence, not ideological dogma.

Pro-enterprise? Yes. Pro-market? Maybe.

The American Mind presents a range of perspectives. Views are writers’ own and do not necessarily represent those of The Claremont Institute.

The American Mind is a publication of the Claremont Institute, a non-profit 501(c)(3) organization, dedicated to restoring the principles of the American Founding to their rightful, preeminent authority in our national life. Interested in supporting our work? Gifts to the Claremont Institute are tax-deductible.

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