Many people take government involvement in the economy for granted. They agree that government should determine, among other things:

  • who companies should hire (equal opportunity/affirmative action legislation),
  • how much and how to compensate employees (minimum wage laws, insider trading laws) and how to protect their health and safety (health and safety regulations),
  • with whom companies can collaborate (anti-trust laws),
  • how much emissions companies can release (e.g., carbon taxes and carbon emissions caps),
  • whether and where companies can build oil and gas pipelines (government approvals, environmental regulations), and
  • how much of their profit companies can keep (taxation).

All of the above government interventions in the economy, the last three in particular, have contributed to the decline of investment in the Canadian oil and gas industry, one of the most important wealth creators in the country’s economy. According to Statistics Canada, the oil and gas companies’ capital expenditures dropped by 58% from their peak of $80 billion in 2014 to the end of 2018. As well, a number of foreign oil companies have pulled out of Alberta, Canada’s center of oil production.

By imposing controls such as those listed above, government harms companies and the rest of us.

By telling companies who they should hire and what and how to pay them, government prevents business from hiring the most qualified candidates and motivating them appropriately and thus hinders productivity and competitiveness. By imposing various regulations and minimum standards, government stifles innovation (e.g., new products, services, processes, and creative solutions to such problems as workplace and product safety and air, water or soil pollution). By imposing various regulations and taxes, government chases away investment, as in the case of the Canadian oil and gas industry.

The myriad government controls on business are based on the assumption that government is needed to direct the economy to function efficiently, to ensure “fair redistribution” of the wealth created in the economy.

As for directing the functioning of the economy, there is no evidence that it has ever succeeded—only mountains of evidence of governments’ failures to do so. What could politicians and bureaucrats teach businesspeople about creating wealth?

Government’s “fair redistribution” schemes also hurt everybody. They hurt business by reducing the incentive to produce and to create wealth, which in turn hurts everyone else because less wealth is invested. This means fewer job opportunities, lower wages, fewer products and services, and often, higher prices.

Government intervention in the economy is harmful, as it reduces prosperity and wellbeing. But business and the rest of us still need government—albeit only for one purpose: the protection of individual rights to life, liberty, property, and the pursuit of happiness.

Protection of individual rights is the only deterrent that is needed against any potential wrong-doing by or against business, whether it involves employees, customers, competitors, investors, or anyone else. Endangering anyone’s life or safety brings government sanctions, as do violations of property rights (such as theft, fraud, or pollution of others’ property).

The limited role of government means only three functions: the armed forces (to protect citizens against foreign invaders), the police (to protect against common criminals), and the law courts (to protect contracts). The last function is arguably the most important for business which depends on the adherence to and the enforceability of contracts.

Beyond protecting individual rights, government should leave business free to compete and trade the best way it sees fit, whether that involves hiring and compensating employees, collaborating with other companies, or producing oil and building and operating pipelines.

Government cannot determine what is in our interest since there are no collective interests, only interests of individuals that only they themselves can—and must be left free—to choose.

 

Revised version of an original post from 24 August 2012.

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

3 COMMENTS

  1. It’s even worse than ‘fair redistribution’:
    – government inevitably favours certain interests, sometimes their personal friends or fellow travellers (such as the present BC government to unions in the guise of equity of employment even though well run companies like Lower Mainland Steel have long hired on merit and train people)
    – government manipulates, such as with interest rates using the fallacy that there’s an inverse relationship between interest rates and employment (read economists like John Ridpath, Richard Salsman, and George Reisman rebutting that fallacy)
    – government manipulates the supply of currency, that causes inflation which hurts people on fixed incomes (as many pensions are)
    – the erratic nature of political interference in people’s lives creates volatility which is bad for people, especially anyone investing in businesses.
    – government interference in the economy creates an expectation of collectivism as the solution, instead of working harder and smarter oneself, and of bailouts if people don’t think really deeply about decisions.

    The key to getting sense in government is to convince voters that individual freedom supported by defense and justice systems helps honest people thrive.

    Today many voters are falling for the ideologies that deny effectiveness of the human mind for life. The books How to be Profitable and Moral and Negotiation for Life and Business provide clues to better ideas that are founded in the requirements of human life.

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