What Should The Role Of Government Be?

September 3, 2012

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There have been many comments on the President’s statement about businesses, that “you didn’t build that, someone else did.” The right wing talking heads claim that this is obviously a socialist statement that all is owned the collective. The left wing talking heads will defend the statement by rephrasing the lead up comments, that without the aid of government, the roads, electric, internet, educated workers would not be available for the success of the business. Both are correct and both are wrong.

Business of any kind is the action of human beings on raw materials to increase the value of a product and provide it to others for the benefit of the business. The raw material can be ideas, services or actual physical resources. Can you actually say that the government provided someone with the cleaning business that they have built up? Most would claim that the government has done almost the reverse with regulations. But again, could that business exist without the guarantees of property, the enforcement of laws and the security provide by the armed forces?

The government only took over the maintenance and building of roads in the last 100 years. Government education is also about 100 years old. Before that, individuals and businesses built the road that they needed and educated themselves through apprenticeships or the world of hard knocks. What about the raw materials? Most people do not understand that the ownership of resources has only been sure for about 300 years. Prior to the British commonwealth, the strongest person or group owned the resources, usually obtaining them through force and violence or the threat of violence.

Let’s look at the simplest form of a business, the small farm. The farmer claims some land, by his own strength, he plants seeds, raises animals and gathers his harvest. He can live off of his produce and trade is excess for goods he cannot make himself, such as better plows, stronger horses, etc. It all looks like the perfect growth plan. But he has to defend his land from predators, not all of them wild animals. If he is not well enough prepared, someone else will take what he has, and if he is fortunate enough to escape with his life, he may start the process all over again.

So both camps are right in that each can point to points that support their argument, but both are also wrong in stating it is an either/or argument. Without government programs, no business can succeed very long without becoming a government of their own (see the Mexican drug cartels or the British East India company). Claiming that the government has come claim over a business beyond the taxes paid to fund the services that make running the business easier and those government functions that allow the business to exist, is statism (whether you call if fascism, communism, socialism, despotism, does not really matter).

Now no part of this essay suggests that government has no part in business. Government is essential in providing security and restraint on business. If a business becomes too powerful, excesses can result that are harmful to the community that the government is expected to protect. In the United States, the government has stepped in to support the rights of workers from abuse. The government has also intervened when one business becomes too powerful within an industry, resulting in artificial increase in cost for what could be considered an essential product or service.

Recently (within the last 50 years), the effort to protect workers has migrated at times to punitive actions against businesses that are not for the good of the worker, but for the good of the individual political office holder or the organizational hierarchy of the labor organization. Also (within the last 25 years) the government has started to protect businesses that are “too big to fail” rather than harnessing those businesses into manageable sizes.

As examples, in the early 1900s, intervened to help workers including assisting in establishing work weeks and holidays. Now the emphasis is on increasing the minimum wage. The stated goal is to get people more money to spend, but the minimum wage is for entry level jobs, not full time careers. The result of increases in the minimum wage is the loss of entry level jobs until the market can adjust to absorb the increased costs. So the net result is a loss of opportunity, not an increase. But, there is a side effect. Most union contracts have a wage clause that pushes up the cost when the minimum wage is raised. The biggest effect is on contracts with government agencies resulting in a positive feedback.

Also in the early 1900s and as late as the 1970s, the government broke up large businesses. Standard Oil became 7 separate companies, Bell telephone was broken up, and railway crossings were regulated so that one company could not block common roads with trains to prevent their competitors from getting their raw materials. In 2010, the government was bailing out car companies and financial institutions.

As with any political action, there is some good and some bad for everyone involved. With unions, workers are protected, but now have to pay heavy dues to fund a top heavy highly paid administration. With unions, businesses cannot set the wages across and industry and have to provide certain benefits to lure skilled workers to their doors. With government interference, large businesses have been broken into smaller pieces for some short term pain for their customers, but overall better climate for all concerned. With government interference, large businesses have been “saved” to continue along flawed business plans that can only result in additional bailouts in the future.

The point of this essay is not to suggest that we return to the 1800s. The point is to expose that both the left and the right are both correct and incorrect in their interpretation of the role of government and business. We must have government protection of workers, communities, and other businesses. We must also avoid the idea of a collective. Each worker and business should be rewarded for the value of the work they do. It does not matter what you perceive the value of your effort is, only what the community determines the value is. If you have spent a lot of money on a college degree that will not get you a job, then you have prepared poorly. It is not the responsibility of the government or anyone else to assure that you effort is rewarded. If on the other hand, you build up a business that fills a need in the community, you should not be penalized. Restraint should only be applied if you are harming someone in the process of you effort.

One Comment (+add yours?)

  1. Peter Shaw
    Sep 05, 2012 @ 11:00:50

    Your article makes sense. Studies have shown that private property rights and standard of living coincide. Nations with strong private property laws that are vigioursly enforced the standard of living is much higher than nation with weak or no private property rights. I believe the governemnt works best when they only prevent others from working ill will to their neighbors.


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