The Economist - USA (2022-01-15)

12 Special report Business and the state TheEconomistJanuary15th 2022

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The future

The liberal fightback

O

nthesurfacebusinesshasseldomhaditsogood.Profits

andsharepricesarenearrecordlevels.Pandemic­reliefpack­

ageshaveinvolvedlittlearm­twistingbygovernments,andlotsof

corporatewelfare.Megadealsareatanall­timehighinAmerica

andplentifulelsewhere.What’snottolike?

Asthisspecialreporthasargued,quitea bit.Todaymayturn

outtobea high­watermarkforbusiness.Almosteverywherepeo­

plearebecomingmoremistrustfulofit.Soaretheirpoliticalrep­

resentatives.Theupshotisthatthestatewantsa greatersayover

whatfirmsdo,wheretheyoperateandhowtheyarerun.Theanti­

corporatesentimentmakesitharderforbusinessestodefycalls

fornewrulesorhighertaxes.

Someofthesearereasonableenough.Profit­seekingenterpris­

escannotbeexpectedtovolunteertopaymoretaxortodealby

themselveswithsuchhugechallengesasclimatechangeandin­

comeinequality,stilllessgeopoliticalsquabbles.MiltonFried­

manisreputedtohavesaidthatthebusinessofbusinessisbusi­

ness.Companiesmayneedincentivestodotherightthing.

Buttheincentivesmustspurnfavouritism,spurdynamism

andmaintainopenness.Andmanynowbeingbandiedaboutor

enacteddonot.Havingburiedtheageofbiggovernmentunder

BillClinton,Democrats areenthusiasticallyexhumingit,with

evensomeRepublicanscheeringthemon.Britain’srulingConser­

vativeshavelosttheirThatcheritemoorings.Theeu, aproject

witha stronginterventionistreflexfromitsinception,isgivingin

toit.Chinahasmoveddecisivelyawayfromliberalisingitsecon­

omyintoa neweraofovertstateguidanceandcontrolofbusiness.

Politicalleadersagainbelievetheycanpickwinners,andsome

bossesareonlytoohappytobechosen.Regulatorsareintroduc­

ingevermorerules,andusingthosedesignedforonegoal(pro­

motingcompetitionorgood corporategovernance) toachieve

others(dataprivacyorworkforcediversity).Governments see

friendlesscorporationsasa handypiggy­bank.Andcountriesare

turninginward,givinginternationaltradethecoldshoulder.

Dangerousshifts

These changes carry two dangers. As the state becomes more in­

volved in business, however well­meaning its motives, compan­

ies’ focus tends to shift from satisfying consumers towards curry­

ing favour with political leaders. Preferred firms grow flabbier and

less  innovative.  Regulations  dampen  animal  spirits.  Cronyism

rears its head. A chosen few win big. Everybody else loses.

The second danger is subtler. As some firms and governments

become chummier, others may conclude that they have no choice

but  to  do  the  same—especially  if  cosiness  seems  to  work.  This

could lead to a soft, self­imposed decoupling, even as traditional

trade barriers also go up. “You are seeing flows of people, technol­

ogy, capital all being curtailed,” observes Hank Paulson, America’s

former  treasury  secretary.  One  European  industrialist  predicts,

“The era of shortage will drive more egotism.”

The world has been here before. Post­war state meddling, in­

spired by the belief that only governments could rebuild societies

after 1945 and by the apparent success of central planning, led to

flagging  dynamism  and,  by  the  late  1970s,  out­of­control  prices

and stagnant living standards. It was only in the 1980s, after eco­

It is time to reassert the case for less state intrusion

nomic failings in the West and the bankruptcy of the Soviet sys­

tem both became undeniable, that liberal remedies or freer mar­

kets, lower taxes and greater openness proved more attractive.

China  is  not  doomed  to  failure  as  the  Soviet  Union  was.  Its

economy is more sophisticated and, in pockets, genuinely inno­

vative: look at Alibaba and Tencent, its digital titans. Yet its model

is not a superior form of capitalism. For all its progress, China is

poor by Western standards, leaving room for state­directed catch­

up growth. The most impressive Chinese businesses, including in

big tech, have thrived in markets that the state until recently kept

mostly at arm’s length. In focusing attention on China’s top­down

policymaking rather than its bottom­up entrepreneurial efferves­

cence, some in the West draw the wrong lessons.

China’s course seems set for the foreseeable future. But a swing

away from today’s interventionist mood remains possible in the

West. The Tories may rekindle their inner Thatcher. As a club gov­

erned  by  consensus,  the  eumay  listen  more  to  Nordic  liberals

when they say “strategic autonomy” is little more than a cloak for

protectionism.  Clintonian  small  government  may  seem  a  lost

cause  among  Democrats,  but  Republicans’  pro­market  memory

may kick in if they can only disavow Trumpian populism.  

The broad liberal principles rediscovered in the 1980s remain

as powerful as they were 40 years ago. For that reason alone, politi­

cal  and  business  leaders  mess  with  them  at  their  peril.  The  pre­

cepts are also valuable in themselves, as expressions of freedom:

for entrepreneurs to invent, consumers to choose and citizens to

live  as  they  see  fit.  That  is  why  it  is  essential  to  defend  them

against attacks from populists, opportunistic cronies in thepriv­

ate sector and those who have lost faith in free markets. For allits

imperfections, liberal capitalism remains a vital force for good.n