Home Uncategorized Why business (and the rest of us) needs limited government

Why business (and the rest of us) needs limited government

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Many people take government involvement in the economy for granted. They agree that government should, among other things, determine who business should hire (equal opportunity/affirmative action legislation), what and how to pay employees (minimum wage laws, insider trading laws) and how to protect their health and safety (health and safety regulations), with whom it can collaborate (anti-trust laws), how much emissions it can release, whether and where it can build oil pipelines (various environmental regulations), and who can own what (foreign ownership restrictions).

The last in the list of government controls, foreign ownership restrictions, has been at the center of discussion lately in Canada, with the proposed takeover of Nexen Inc., one of the large integrated Canadian oil companies, by CNOOC Ltd. (Chinese National Offshore Oil Company) http://business.financialpost.com/2012/08/23/cnooc-nexen-takeover-bid-must-be-in-canadas-best-interest-harper/. Government of Canada wants to “carefully scrutinize” the proposed deal in order to make sure that the proposed deal is “in the best interests of Canadians.”

But none of the above controls are needed to protect people against business, whether foreign or domestic. By imposing controls such as those listed above, government harms companies and anyone with whom they deal. 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).

The myriad government controls on business are based on the assumption that most businesspeople are evil exploiters who would not hesitate to harm others in the pursuit of profits. Even if this assumption were correct, government regulation of business would be unnecessary. 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 wrong-doing by or against business, whether it involves employees, customers, competitors, investors, or anyone else. Endangering anyone’s life or safety would bring government sanctions, as would violations of property rights (such as fraud or pollution of others’ property).

Such a limited role for the government requires 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 selling assets to foreigners or compensating employees with company stock. No amount of government scrutiny can determine what is in our interest since there are no collective interests, only interests of individuals (such as the shareholders of Nexen Inc.) which only they themselves can—and must be left free—to choose.

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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.

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