An undergraduate business student recently told me: “People of my generation trust government more than they trust business, particularly large corporations.” While I wasn’t entirely surprised, it was still disappointing to hear, particularly at the end of the semester after we had discussed different social systems (capitalism, socialism, mixed economy) and the roles of business and government in each.

The student was writing a paper on Google, and he was concerned that the company does not divulge how it uses the information it collects from customers while they use Google’s products. He was suspicious that the company would use the information to manipulate users to act against their self-interest.

Like my student, many people believe that business has sinister motives, always ready to defraud customers and others. Big companies are perceived “powerful” and therefore, scary. Yet, people view government—which is much bigger in our mixed economy system than most business and much more powerful—as the benevolent nanny that will take care of us.

Why is such a view common? I think it stems from a failure to grasp what roles both the government and business properly should play in our survival and flourishing.

The students in my business ethics class understood the view that our primary means of survival and flourishing is reason: we survive and succeed by thinking, adhering to facts, and then acting on our thinking. They could explain, for example, that acting on a whim or deliberately ignoring facts would be detrimental to business success. Instead, success would require adherence to facts, such as market demand, competition, one’s resources and capabilities, including the ability to raise capital.

However, less clear to the student who trusted government over corporations was the social condition that facilitates rational thinking and action. To be able to think and act on our choices, we need freedom—the absence of coercion. We must be free from physical force or fraud initiated by others, to be free to pursue our values and to flourish.

The proper role of the government—its only role—is to protect our freedom to think and act against the initiation of physical force and fraud by others. This means the government’s functions are limited to the police, the military, and the court system, through which the government uses physical force in retaliation against its initiators.

My student, however, did not think such a limited government could sufficiently protect us against “evil” corporations. He thought that corporations should be strongly regulated. Hey should be told, for example, whom to hire, what to pay them, what products and services they can and cannot provide, how to price them, with whom to collaborate or not, how to market they products, and who can own them.

What the student failed to realize was that such government regulations would restrict the freedom of business to create and trade products and services, thus limiting their profitability and the benefits of such wealth creation also to the rest of us: more and better, less expensive goods and services, job opportunities, higher standard of living.

As for the “power” of companies: they have no political power to coerce anyone. No matter how large, they can only persuade us to buy their products and services. No matter how much data companies like Google have about us (such as our purchasing patterns), they can only use it to persuade (through targeted advertising, for example). They cannot make us buy anything or prevent us from doing so. We are free to be persuaded, or not.

Governments everywhere are much more powerful than any corporation, no matter how large. Statist governments can initiate physical force against individuals and businesses, through regulation, taxation, and other intrusions in our lives—as they do today.

It is possible for companies to engage in fraud and deception; however, it is not in their self-interest to do so. Therefore, only a small fraction of businesses attempts fraud and criminal deception. It is in Google’s interest to create wealth for its shareholders for the long term, which is only possible by creating value for its customers, not by defrauding them.

These are the reasons why I trust companies over the government.

In an ideal system—capitalism—government would be limited to the full protection of our individual rights. It would deter their violation strongly, leaving us free to trade with others.  In such a system, we could trust corporations to respect our rights and the government to protect them, which would lead to more flourishing for all.

 

Inspired by an original post on 6 December 2013

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