Opinion: Daily Journal

Why conservatives defend free enterprise

When conservatives advocate lower taxes and less regulation, their critics often retort that conservatives are just advancing the interest of business.

That’s either a misunderstanding or a purposeful mischaracterization. I have nothing against the business sector — some of my best friends are business executives, to paraphrase the old rationalization — but what I and my colleagues are actually defending is free enterprise.

To be pro-enterprise is not necessarily the same thing as to be pro-business, particularly if the latter is defined as encompassing any policy that might benefit a specific firm or industry. As the original pro-enterpriser, Adam Smith, put it in his Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Left-leaning analysts sometimes misquote Smith’s passage as an argument for government regulation. Smith’s argument was not that the inevitable collusion of business interests required a strong central government to police. Rather, Smith observed that because there is a natural inclination for economic actors to make use of whatever means might be available to give themselves an artificial advantage in the marketplace, governments should minimize the availability of such means.

Indeed, Smith followed up his warning about the potential for business conspiracies against the public by arguing against regulations or subsidy programs that allowed businesses to keep out competitors, or that aligned their interests with larger rather than smaller government.

Keeping merchants from talking to each other would be impossible “by any law which either could be executed, or would be consistent with liberty and justice,” he wrote. Instead, policymakers should protect the public interest by, for example, reducing trade barriers that protect domestic producers at the expense of consumers.

Modern-day conservatives apply Adam Smith’s insight across a variety of policy matters. On trade, we oppose the escalating tariff war between the United States and its trading partners in Europe, Asia, and the Americas, and reject as ill-advised and ill-fated the Trump administration’s stated “strategy” of imposing protectionist policies to try to convince other countries to become less protectionist.

But the concept also applies to state and local issues. Conservatives champion reforms of occupational licensing, hospital regulation, and scope-of-practice rules because we want to see more choice, competition, and innovation in these sectors. That will benefit both consumers and new entrants, even though it may well not serve the interest of existing providers.

We oppose special tax carve-outs for individual businesses or industries, even as we advocate lower tax burdens for all enterprises, large and small. That’s not a “pro-business” (or “anti-business”) position. It reflects our conviction that free enterprise is the primary driver of job creation, income gains, and social progress.

While governments do make some key investments in capital assets that facilitate growth, such as infrastructure, the vast majority of investment is private. It is very much in the general public’s interest that investors aren’t discouraged by excessive taxes or regulations from investing, and don’t have their investments distorted by targeted incentives.

In the long run, sustained gains in living standards — in how much we receive in take-home pay, and what goods and services we can purchase with it — are possible only if our labor gets increasingly productive. Capital investment is one way that happens. According to a recent study by several Iowa State University and business economists, the states that levy higher marginal tax rates on property, sales, and income earned from investment (through either personal taxes on capital gains and dividends or corporate taxes upstream of that) tend to have lower rates of output, wages, and personal income per person than states with lower, flatter, and more neutral tax rates.

When conservatives advocate smaller government, then, we don’t do it because we are “pro-business.” We do it because we are pro-progress. When government stays in its proper lane, some businesses may actually be hurt. But most of them, and most of us, are better off.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.