Classical Liberals Aren’t Naive About Big Business

Big business has become a point of friction between conservatives and classical liberals, especially social media and other internet companies that fall under the heading of Big Tech. Conservatives are increasingly likely to say that large companies need to be constrained by law, such as antitrust, to prevent them from threatening American values. Classical liberals disagree, which sometimes leads to accusations of naivety from our conservative friends. I respectfully dissent; classical liberals have always been wary of big business.

We can trace that skepticism all the way back to Adam Smith, who famously noted that, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” While this is often used to suggest that Smith would have endorsed economic regulation, the opposite is true. The rest of the passage notes that such conspiracies are normal reactions to regulatory restraints. We place burdens on businesses, so they raise prices, hurting consumers. Jen Psaki and Elizabeth Warren, take note.

Conservative business critics often make a similar mistake in reasoning. Businesses offshoring production hurting heartland towns? Clearly a conspiracy against the public inspired by love of Mammon! No, far more likely is the final breaking of the camel’s back after years of regulations and taxes piling on. Technology companies restricting speech? They obviously hate us and want to silence us. No, that’s far more likely a reaction to laws around the world that punish companies for “misinformation” and to threats of stricter regulation in the U.S. Companies going “green” or pandering to racial agitators? Look at the number of laws and regulations around the world pushing them in that direction.

We have seen the results of businesses attempting to stand up to government over the years. It rarely ends well for them. Lobbying is one of the few tools they possess, but their ability to do that is always under attack. And now they have vice presidents of environmental and diversity acting as government agents from within, often using the company’s lobbying power to call for more restrictions.

Nor do classical liberals naively think that all businesses are champions of freedom or doing God’s work. Again, Adam Smith is our guide. He noted that, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

In other words, businesses are selfish, perhaps even greedy. However, the market turns those sins to virtuous results. We do get our dinner because of them, and market discipline prevents the sins from being too much of a problem. When regulation gets in the way, market discipline breaks down. For instance, that discipline gives us good customer service, but in a jurisdiction where tips are banned, the incentive for better service goes away.

This suspicion of business, combined with the recognition of the beneficial effects of the market economy, is why most classical liberals describe themselves as pro-market, not pro-business. We might celebrate some of the great advances Amazon has brought us in terms of bundled services, quick delivery, and lower transaction costs, but we would have no problem with Amazon being outcompeted into oblivion.

It is that relentless process of competition that leads classical liberals to celebrate what we call creative destruction. Old companies crumble as new ones arise, delivering greater value to consumers and new jobs for workers. Yet, that process can be short-circuited by regulation, which creates entry barriers against innovative newcomers and entrenches old businesses in place.

Curiously, that would be the effect of policies many conservatives now endorse. Notice how many streaming videos these days show an ad from Facebook touting the company’s support for “updated Internet regulations,” such as amending the law known as Section 230? Those “updates” would make it harder for an upstart social network to compete against Facebook.

Ah, say conservative critics, but what about monopolies? Adam Smith knew the source of monopoly power was government, and wrote that “monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price.” But competition is relentless, so monopolists require a government charter or its regulatory equivalent to maintain their position.

All antitrust law does is to substitute government action for competition, with all that implies. Government regulates, companies achieve monopoly status, government breaks them up, and the extant regulations help to create new monopolies. It’s ever decreasing circles of bureaucracy.

When it comes to riding the tiger of bureaucracy, just who is being naive? Classical liberals who say that government power corrupts or conservatives who think that this time things are different and that they will be able to direct the bureaucratic machine—made up of staff members who disagree with the conservative’s aims—to perfectly achieve their ends? The latter is known as the Nirvana Fallacy. If there is a central virtue in the conservative worldview, it is that it learns from history. It is odd that when it comes to big business, it is classical liberals who remember that lesson, and conservatives who forget it.

Far better to let the market operate instead. The invisible hand beats the ink-stained hand of the bureaucrat every time.

Iain Murray is a vice president at the Competitive Enterprise Institute and author of The Socialist Temptation.