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Businessmen: from free traders to mean courtiers?

by trpliquidation
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A caravan on the Silk Road around 200 A.D. according to DALL-E

You would think that businessmen should easily understand the importance of trade. Some certainly do, trying to lobby newly-elected President Donald Trump not to follow through on his protectionist threats (“CEOs want Trump to change course on tariffs. He does not deviate,Wall Street JournalDecember 15, 2024). They seem to defend their freedom to trade, to buy and sell goods (and services) as they please.

I guess “businessman” means roughly what “supplier” means in economics: anyone whose main occupation is to make a good or service available to market demanders (consumers or other businesses). This includes business owners, business executives, and intermediaries such as merchants or traders. Workers are suppliers, but only of the services of human capital in the labor market, and are generally not included among businessmen. (It goes without saying that the “men” in “businessmen” include the two sexes of humanity.) According to Nobel Prize economist John HicksMarks the rise of the merchant or trader as a specialized intermediary, who buys goods and then resells them, the first phase in the emergence of the market economy.

Merchants governed city-states and largely autonomous medieval cities. These cities were not only richer than the rest of the country, but also much freer. A legal maxim circulating in Europe was that ‘the city air makes you free’. A serf could be freed from his landlord if he could “reach a town and remain there a year and a day” (see Alexander William Salter and Andrew T. Young, The Medieval Constitution of Libertywhich I recently assessed in Regulation). Merchants understood that in order to trade (relatively) freely, a general institutional climate of freedom was necessary.

However, many analysts have noted that businessmen, and perhaps especially business leaders, have become poor defenders of trade and markets. Samuel Brittan, late Financial times columnist, wrote in his 1973 book Capitalism and the tolerant society:

A further difficulty is that the type of intellectual professionally qualified to explain the arguments for capitalism is the economist. Business people can usually be relied upon to defend the indefensible aspects of their activities while yielding to their collectivist opponents on all essential points. Nor is it a criticism: businessmen are paid to exploit the system rather than understand or explain it, and nothing is more pathetic than seeing politicians from both parties approach industrialists or bankers for advice they are not qualified to provide. give.

A contrarian might note that Brittan’s phrase “run the system” downplays the liberal idea of ​​a self-regulated order that does not need to be “run” and which obviously resists top-down authority. This slip of the tongue is, of course, nothing compared to the collectivist preaching of naive business associations, of which the World Economic Forum is an example.

Juan Perón, a former army officer, ruled the Argentine government as a left-wing populist politician from 1946 to 1955 and from 1973 to 1974. His economic knowledge was non-existent, a phenomenon not rare among politicians, especially among populist politicians. He seemed to believe that businessmen who had become wealthy understood economics ipso facto. Economist Roberto Cortés Conde notes (The Political Economy of Argentina in the Twentieth Century [Cambridge University Press, 2009]):

Perón did not have very well developed or refined economic ideas [sic]. During both of his reigns, he put the treasury in the hands of men who knew how to get rich, demonstrating his overly simplistic view of economic phenomena.

Merchants, the ancestors of all businessmen, were commercial drivers, if we may use the expression. Today’s business people often seem like the clients and courtiers of those in power. Why have businessmen become so alienated from economics and laissez-faire? One reason could be that the economy has become more complex and difficult to understand.

Another hypothesis – formalized by public choice theory – is that when the state has reached a certain size or level of what has become fashionable to call ‘state capacity’, the name of the game becomes rent-seeking . The opportunity to dip their toes into public coffers through government contracts and subsidies is becoming increasingly valuable. To obtain privileges from the good graces of the rulers, they must join and obey the state. When the rule of law disappears before the government of men, businessmen begin to fear that these men could ruin their businesses. To survive, they must kiss the state ring. Like the Wall Street Journal says it after seeing how CEOs of major technology companies felt obliged to contribute to the inauguration of the new US president: “The CEOs of The Week bent the knee to Trump.”

But isn’t it still better to allow businessmen to bribe politicians or bureaucrats, directly or indirectly, legally or illegally, rather than silencing the demand intensity of their customers? Perhaps, but the costs of this crony capitalism are high. Pareto-reinforcing corruption encourages politicians and bureaucrats to finance their activities through this type of extortion. It amounts to a tax that, like any other tax, entails a deadweight loss. It also undermines the rule of law and the ethic of reciprocity on which a free and prosperous society rests. As James Buchanan suggests, the corruption of public morality can lead to the debasement of private morality. Why I’m not a conservative either), which will further weaken the social institutions on which efficient cooperation depends.

The degradation of public and private morality and the transformation of the businessman from a pusher of consumer satisfaction to a customer and courtier of the state is exemplified by automakers threatened with arbitrary and disruptive tariffs on their imports from Mexico and Canada. They compete to deceive the politician who has the power to interfere with their trade (“Hyundai is doing everything it can to woo Trump as tariffs loom,” Wall Street JournalJanuary 11, 2025):

Hyundai in particular has launched an aggressive campaign to build relationships with Trump’s advisers. The company has told aides to the president-elect that it is working to create American jobs and support the American auto industry.

Hyundai executives, including Muñoz and Hyundai Motor Group Vice Chairman Jaehoon Chang, will be allowed to attend the inauguration events, the people said. A $1 million donation will provide six tickets to a private candlelight dinner with Trump and his wife Melania Trump on Jan. 19, one day before Trump is sworn in as president, according to a benefits package reviewed by The Wall Street Journal. The contribution also makes possible six tickets to a private reception on January 18 with Trump’s Cabinet picks, as well as other exclusive events.

Hyundai is, of course, just one example of the many perverse incentives created by bullying politics.

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A caravan on the Silk Road around 200 AD according to DALL-E

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