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What Makes the Business-Government Relationship in the United States (US) Unique?


The business-government relationship in the United States is complex. It is made up of a veritable web of competing interests (see Exhibit 1: Competing Tensions) and influences, yet this relationship is considered by many to be one of the most successful examples of any business-government relationship in the world.

Exhibit 1: Competing Tensions

Thus, “What makes this relationship so unique?” While many features shape the business-government relationship in the US, four distinct features are most salient:

  1. A broadly free market system with little government-owned means of production;
  2. Government protection of property via robust property laws that support innovation and economic growth;
  3. A weak system of organized labor that provides little strength and protection to blue-collar workers; and
  4. A strong lobbyist influence that champions particular interests rather than the general interest.

Therefore, I argue that there are broadly four distinct features of the business-government relationship: two of which represent key strengths and two of which represent potential liabilities.


KEY STRENGTHS OF THIS RELATIONSHIP

(1) The Role of Free Markets

The greatest strength of the business-government relationship in the US is its largely free market orientation. Both history and economics have shown that free market systems produce greater wealth more efficiently than state-owned enterprises because competition in the free market incentivizes businesses to produce more efficiently, lower costs, lower prices, or differentiate its products — all features from which consumers benefit.

Therefore, the government has an interest in encouraging a free market economy, simply put, because such an economic system produces a higher standard of living for its citizens and greater taxable wealth.

This taxable wealth can later be used by the government to provide services to its citizens — working participants in the free market. These services address concerns — such as equity, fairness, and overall social welfare — that are typically not inherently features of a free market economy.

Indeed, history has repeatedly shown that free market systems have higher GDPs than the GDPs of countries whose governments are market interveners and control some or all of the means of production.

(2) The Protection of Private Property

Author Thomas West of The Heritage Foundation has argued that a free market and protection of property (both intellectual and otherwise) are two of the most, if not the most, fundamental founding principles. According to American Economist William Baumol, the American free market system is characterized by competition leading to a relentless drive to innovate that is buoyed and accelerated by the government’s protection of intellectual property.

While supply and demand produce efficiency in markets, competition stimulates innovation; thus, it is of little surprise that US is the world leader in research and develop (R&D).

However, innovation in the US would not be so widespread and successful without a complementary system of laws that protect the outputs of this R&D. As an example, take the US intellectual property (IP) system. The US has the most robust, most innovation-friendly system of laws on IP of any country in the world.

These protections, mixed with a free market system, form foundation on which companies, such as Google and Apple, have built their global firms.


POTENTIAL LIABILITIES OF THIS RELATIONSHIP

(1) A Weak System of Organized Labor

According to a recent Moneywatch poll, only 7% of private sector employees are members of a union. Thus, one of the greatest potential liabilities that characterize the business-government relationship is a weak system of organized labor.

Two functions of this relationship produce a weak labor system. First, demand and competition drive business behavior, such as innovation, and this behavior does so with profits — not workers rights — in mind. Second, the US government has been slow / reluctant to directly intervene and champion the rights of workers.

As such, one is left with a system that favors management and measures such as cost-cutting and outsourcing over the rights of workers. Weak labor unions in the US may very well be one leading reasons why the US lacks the social welfare programs common in European countries.

Drew Desilver of Pew Research has argued that European unions have helped to stymie wealth inequality, such as the income gap seen in the US. Many other governments that favor a more interventionist economic market have increased the rights of unions in exchange for labor market rigidity.

(2) Strong Lobbyist Influence

Arguably, the greatest liability of the US business-government relationship is the strength of influence that business-backed special interest lobbyists groups can have on government (see Exhibit 2: Levers of Influence). These groups — lobbyists included — promote particular interests rather than the general interest.

Through leveraging existing relationships or through monied interests, lobbying efforts guide the creation of policy to favor business interests over the interests the government or individuals — particularly, non-monied minority interests.

Since the ruling of the Supreme Court in Citizens United v. FEC, the influence of Super-PACs — large business-backed lobbyist groups — on government has grown exponentially. In 2018 alone, the 10 largest Super-PACs have already spent over $150M on the midterm elections.

Exhibit 2: Levers of Influence

THE BUSINESS-GOVERNMENT RELATIONSHIP TODAY

The events of 2018 have increased the importance of addressing challenges inherent to the business-government relationship. In particular, blue-collar workers desperate for government protection have responded intensely and en masse to President Trump’s proposed protectionist measures to “bring back coal” and to put American first (and last).

Likewise, The Trump Administration championed substantial tax reform that largely benefits wealthy business owners and corporations while increasing the burden on less wealthy individuals.

On-the-other-hand, it is encouraging to see an Administration seek to remove regulation — thereby reducing some of the regulatory burden on business — rather than simply further regulating to correct the failures of existing regulation.

Thus, two immediate changes can directly address the liabilities distinctive to the business-government relationship in the US while simultaneously capturing the current cries for reform:

  • Provide Greater Federal Benefits to Blue Collar Workers
    In lieu of increasing the rigidity of the labor market, the US government should provide greater federal benefits to current workers and the unemployed. For example, the federal government should increase the availability and quality of retraining efforts for all. Increasing these benefits will provide workers with the necessary protections that they clearly so desperately desire without stymying market competitiveness and sacrificing economic growth.
  • Limit the Influence Monied Interests 
    Greater transparency and disclosure of the influence of monied interests are needed. Because of the symbiotic relationship of business and government, we must understand and monitor the influence of money and seek to mitigate its impact. As such, Congress should promote campaign finance reform that establishes limits on the amount that business interests can donate to political candidates via third parties, such as Super-PACs.

Ultimately, to maintain the delicate balance of the business-government relationship, the challenges that characterize the business-government relationship must be addressed through coalitions of both government and business actors. Only by having all parties at the table can true compromise — even in today’s turbulent political environment — be achieved.