Opinion

Government cannot be run like a business

Despite his big-government record as a governor, Mitt Romney has run for president as a conservative who would allow the free market to work. To bolster his credibility, he points to his success as CEO of Bain Capital. Romney led that company to become one of the largest and most successful private equity investment firms in the nation.

Many of his supporters have been able to look past the fact that he consistently raised taxes and pioneered Obamacare in Massachusetts because of this private sector success. They echo Romney’s argument that “the government should be run like a business” and believe that only a proven, successful businessman can do the job.

There are two problems here. The first is that history has already shown that successful businessmen are terrible for the free market whenever they get anywhere near government power. The second is that government cannot be run like a business. Its very nature makes that utterly impossible.

Regarding the first problem, one need only study the 19th century. If you don’t like the progressive movement, you can thank the 19th-century Republican Party for creating the conditions that led to its birth.

The entire period is a record of big business getting together with government to intervene in the free market. Always under the pretense of protecting consumers, the true purpose of these interventions was limiting or eliminating competition for connected companies.

For example, Republicans wrote and passed the Sherman Antitrust Act, which was drafted at the behest of Standard Oil’s competitors. In 1890, when the act was passed, Standard Oil was the most efficient oil company in the world, and its competitors were struggling to compete with it. The act broke up a company that had over 300 competitors and had lowered its prices for decades, so that other oil companies could survive selling their oil at higher prices.

John D. Rockefeller, the founder and chairman of Standard Oil, learned from this experience. Contrary to popular myth, Rockefeller was not a robber baron in the oil business. Like Romney, he had achieved his success honestly in the market through reinvestment, voluntary contracts and his commitment that “we are refining oil for the poor man and he must have it cheap and good.”

However, when he got into banking, his strategy was different. Having seen the advantages of having government as a partner, Rockefeller made sure that he was well-represented at the secret meetings held on Jekyll Island to create the Federal Reserve System.

Pitched as a consumer protection against bank instability, it set up a government cartel that controls the money supply, interest rates and most banking activity in general. Free market economists cite the Federal Reserve System as the chief cause of economic booms and busts, including those that led to the Great Depression and the 2008 housing crisis.

Railroads provide another example. Nineteenth-century government-subsidized railroads were plagued by fraud, waste and recurring bankruptcies, while James J. Hill’s non-subsidized Great Northern Railroad operated profitably. Unable to compete, his subsidized competitors persuaded the government to pass the Interstate Commerce Act of 1887 and the Hepburn Act of 1906. As Thomas DiLorenzo observes, “What these two federal laws did was to outlaw Hill’s price cutting by forcing railroads to charge everyone the same high rates. This was all done in the name of consumer protection, giving it an Orwellian aura.”