“Pro-business” and “pro-market” are not the same thing!

Earlier this week, the White House and Cass Sunstein launched a new initiative to streamline regulations.  For many on the  left, this was viewed as Obama pandering to / wooing the business community. But I think this is another case of failing to distinguish between “pro-business” and “pro-market”.

A priori, there’s no particular reason to believe removing regulations is any more “pro-business” than it is “pro-consumer”.  In fact, a dirty little secret of the business community – meaning those people who currently own/run businesses – is that there are lots of regulations they actually really like, because they make it more difficult for potential competition to enter the market, which would drive down their profits (to the benefit of consumers).  Sure, businesses chafe at the idea of the government telling them what they can and can’t do, but the reality is today’s business owners benefit greatly from countless rules that keep would-be competing owners from opening up their own businesses.  Indeed, in some senses “pro-business” and “pro-market” policies could be considered opposites: remember that one of the key features of a truly free market in the ECON 101 definition of perfect competition is that profits equal zero.  Obviously businesses wouldn’t be too happy about that.

(As a side note, it’s important to remember that “the business community” doesn’t represent the interests of the abstract/theoretical/potential business owner, but rather the entrenched interests of actual business owners.  Likewise labor unions don’t represent the abstract worker but rather a specific group of current workers, which is why many of their policies – such as efforts to set pay based on seniority rather than performance – aren’t focused on transferring rents from owners/consumers/etc to workers, but rather about transferring rents from one group of workers to another.)

But while the left’s tendency to dismiss market-friendly reforms as pandering to the business community is a problem, the opposite tendency – the right’s attempts to mask pro-business policies as being blessed by Adam Smith – is even more pernicious.  Far too often you hear Republican politicians try to sell policies that will benefit specific business owners by talking about the virtues of the free market and capitalism.  The fact is, most truly market-friendly reforms aren’t going to be backed by the Chamber of Commerce, because those reforms would take away its members’ profits.

(FYI, Matt Yglesias is at his best in explaining the progressive case for eliminating bad regulations, especially on the stupidity of barber and dental hygienist licensing.)

 

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