The Siren of Partnership; E. Ross

Ernest G. Ross THE SIREN OF PARTNERSHIP AN ANCIENTSOUND echoes across the troubled waters of American poli tics-a haunting, alluring chant. Free economy advocates must rec ognize that this is not a call which would lead America forward to a safe harbor of economic rejuvenation, but one which beckons ominously back onto the reefs of economic stagna tion and decay. This deceptive sound is none other than the plea for formation of a partnership between government and business. Several outspoken politi cians have been pounding podiums about business and government "pulling together" to spark the econ omy. The essentials always come out the same: We must have a con scious, national decision to unify the major purposes of government and business. The idea can be superficially atMr. Ross is an Oregon commentator and writer es pecially concerned with new developments in human freedom. 440 tractive. After all, if both partners decided to move in the same direc tion, wouldn't much otherwise wasted energy be saved? In busi ness, cooperative partners tend to do better than feuding ones. So why not seek the same kind of cooperation between government and business?

There is a fundamental reason why not. In a government partnership with business, it is always the gov ernment which becomes the more powerful, or "senior" partner. It is ultimately government which ends up setting the direction. And when that happens, the efficiency and mo rality of the free market are sacri ficed. The entire idea of free markets is that they be able to function without government intervention. Bringing government into the markets "merely" as a partner guarantees intervention. To see why this is so, let us review some of the major ways in which government might act as a THE SIREN OF PARTNERSHIP 441 partner with business: (1) by setting economic development goals, (2) by protecting preferred industries, (3) by subsidizing research and devel opment, (4) by establishing favor able tax policies. SettingEconomicDevelopment Goals The argument for having the gov ernment set priorities in develop ment is usually a variant of arguing for economic stability. If we had a national policy for development, goes the rhetoric, everyone would be able to plan better, to make business de cisions without having to worry about conflicting viewpoints and an tagonism between government and business. We'd all be setting our sails in a way that would best catch the wind and speed our jointly-run ves sel ahead.

It sounds so easy-yet it is an im possible idea, one that has never worked. It is merely the old con trolled-economy tenet put into slightly new language. And the cen tral refutation of this tenet is still that no government, no national consensus, is capable of predeter mining the market. The market is too vast, too complex, outside the scope of even the greatest minds to direct. Setting aside the fact that our economic planning bureaus are not suffused with the greatest of minds to begin with (as fifty years of gov ernment-managed economic boondoggIes demonstrate), it is patently absurd to believe that deciding on economic development goals will make economic rejuvenation possi ble. Will is not enough; that which is willed must also be consonant with reality; reality in this case is that the market cannot be accurately predetermined-only a god could do that, and men are not gods, nor can they become so by passing laws which assign themselves godlike duties.

And since it is the senior partner of the government-business partner ship which retains the power to make and enforce laws through coercion, it is to the senior partner, proven the less efficient of the two, that these godlike duties would accrue. Not only would we assign our partnership an impossible task; we would choose the less competent partner to make and enforce our economic decisions! Even if economic development goals of this type could work, there still would be a serious moral bar rier in the way: mandating certain goals automatically requires gov ernment to thwart other goals, the goals of individual producers (and consumers) who may not agree with the government. Their individual rights would be violated, they would be left with the dregs, with what ever tidbits of freedom of enterprise the government allowed them after its own major priorities and cus tomers were served.

442 THE FREEMAN July This situation cannot be avoided under a government-business part nership. For when government swings its massive legislative and taxing powers behind certain favor ite areas of economic development, other areas must suffer. This should become clear as we consider our next three major ways in which govern ment might act as a partner with business. Protecting Preferred Industries The main form of industrial pro tection in our modern age is not the tariff, the tax break, or the subsidy. It is favoritism through government contracts. Establishing national de velopment goals presumes that spe cific types of industries are neces sary for the goals' achievement. A national goal of putting a base on the moon is unlikely to require much help from the lumber industry; a na tional goal of increasing employ ment by building thousands of new timber mills is unlikely to require the skills of those capable of build ing a moon base.

We've had a real example very similar to this. When Congress agreed with President Kennedy in the early 1960s that America should land a man on the moon,. the redis tributed tax dollars went to favored electronics, aerospace, chemical, and other related high-tech firms-eco nomically, at the expense of other industries. And while the actual achievement of the moon landing was wonderful, a tribute to man's inge nuity, very few people thought to ask: What other companies might have grown up, what other firms might have survived-but did not-had all that tax money spent on the moon project been left to circulate freely in the economy? Would the same in dustries have thrived? Possibly-but good arguments can be made other wise. The same questions can be asked about hundreds of govern ment projects ranging from freeway construction, to public housing, to dam building, to economic consult ing, to banking, to defense pro grams.

Further, because political pull is always a powerful factor in deter mining which firms receive bids for government contracts (despite as surances by the government of its own objectivity!), the case can be made that favored companies are not necessarily the best, not necessarily the ones most "deserving" to sur vive-not if we measure survival by the standards of the free market. Broadly applied, government pro tection of preferred industries tends to populate the market with the less able, the less efficient, the weaker. This in turn encourages malinvest ment, lowers productivity, and de pletes the overall health of the econ omy which the partnership was originally intended to strengthen! As has been well documented 1983 THE SIREN OF PARTNERSHIP 443 elsewhere, other forms of protec tionism have similar effects. But considering the enormous amount of government spending today, protec tionism through government con tract favoritism is by far and away the biggest form of it, if not the worst form.

Subsidizing Research and Development Weare often told that one of the ways the United States can regain its technological lead is by acceler ating government subsidies of re search and development. This is a central premise of the new "Atari" liberals, that group which wants a new government-business partner ship to favor the high-tech indus tries. But again, it is the main partner, government, which would be deal ing the cards, deciding which areas of research and development are "most" worthy. We've all heard of the Golden Fleece Award type R&D projects receiving often quite sub stantial government funding-proj ects which, if R&D funding were left to the free market, wouldverylikely stand a much tougher time getting the needed dollars.· Perhaps to most of us, such projects seem the epitome of waste. Yet, they are precisely the result of our existing, implicit part nership between government and the scientific community. Worse than the questionable nature of such obscure projects is the economics involved: When government redistributes wealth to fund these pursuits, there is that much less money available in the market for perhaps much more productive endeavors.

What would those endeavors be? Neither you nor I can say, and that is precisely the point. It is the free market in scientific research which is distorted when the government is a priority-setting partner. How many new consumer products would we have seen, how many as yet unmade scientific discoveries might have oc curred, how many new technologies would have been born had the mar ket determined where R&D should go? All we can say is that undoubt edly free markets make many dif ferent decisions about what is im portant to human beings-different from the decisions of governments. While we cannot predict the differ ences, we can confidently assert that the decisions would have more closely matched the preferences of the American public because that is what free markets are most adept at doing. (As a counter to the contention that government R&D funding necessar ily spawns government interference in research and development, it is often argued that much of the money goes to universities or other institu tions which are free to determine for themselves how to spend the money.

However, this misses the central 444 THE FREEMAN point that a free market may not have given any funding to those uni versities and institutions-or, per haps, many times more! Govern ments are no more proficient at determining "worthy" institutions or schools than they are at determin ing "worthy" individual scientific projects.) EstablishingTax Policies Setting the tax structure has al ways been a major function-and weapon-of government. Tax breaks or deductions would be a key tool of any new government-business part nership. The power to selectively lower taxes is an effective way for the state to encourage the growth and devel opment of industries which its goals require. When one industry is al lowed to keep more of its wealth than another, it will stand a much better chance of survival. In a sense, it is a bizarre sort of favoritism. One cannot morally begrudge a policy which allows an industry to keep more of what it has rightfully earned. But one can begrudge the fact that other industries are al lowed to keep less. This is the way the situation should be viewed. Both morally and economically, the em phasis should not be on the "unfair"

tax breaks some companies get; it should be on the higher tax rates which remain imposed on other in dustries. The tax money is not the government's first; it is the produc ers'. The chief inequity is not in the selectively lowered taxes, but in the majority of selectively higher ones. Higher taxation discrimination against some industries is a method for keeping those industries from becoming dominant in a way the government might consider inap propriate (or less appropriate) to na tional goals. This is the other side of the goal-setting coin: The "senior partner" must not only actively aid the industries it favors; it must keep penalties on those it disfavors. If it did not, the latter would rise in the marketplace, impudently reflecting the priorities of those whose choices the government has ultimately usurped: the buying public. It should be clear that the call for a "new" partnership between gov ernment and business is not only a bad idea, but an old one. It is merely another cry from the haggard Siren of central planning.

In order to attain economic reju venation of the American economy, it is not a partnership we need. Rather, it is a dissolution of a de facto partnership. Government has al ready muscled in too heavily as a participant in business planning. The more we can push government back out of the market place, the faster we'll free Adam Smith's invisible hand to help bring a lasting recov ery to America. @ A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN HERBERT HOOVER: The Engineer GEORGE NASH, the author of The Conservative' Intellectual Movement in America Since 1945, was an in spired choice to write a definitive bi ography of Herbert Hoover, who had the bad luck to be President at the onset of a depression that turned many an intellectual to an ill-con sidered radicalism that still dogs our political life. As the historian of the contemporary conservative revival, Nash is just the man to touch hands with an earlier America, when an orphaned Bertie Hoover, the son of an Iowa blacksmith, could scratch his way through geology courses at Stanford University to make his for tune in mining ventures all over the world and "retire," at age 40, to start a second career in public service that led to the White House at a most inopportune time.