This article is re-printed from the Economic Freedom website.
The role that business plays in society is straightforward – businesses produce goods and services that people consider beneficial. If a business can do that while wisely using resources, it makes a profit. Successful businesses benefit society by producing goods or services which improve people’s lives, and are then rewarded with profit. Those profits enable businesses to innovate or offer more goods and services, further improving people’s lives. Businesses must cater to the needs of society or they will find that they are not rewarded with profit and may well no longer exist.
At least, that’s how it works in a free market. There is another path for businesses to make profit other than providing valuable products. It’s called cronyism. Cronyism occurs when a business colludes with government officials to create unfair legislation and/or regulations which give them benefits they could not have otherwise obtained voluntarily.
Cronyism allows businesses to succeed without fulfilling the needs of society. Instead of directing their resources towards satisfying consumers, businesses find it more profitable to use those resources to get government favors. Also, instead of the government making decisions about how to use its resources to protect our liberty and property, they instead determine where to send resources based on the political influence of their cronies. All of the resources diverted toward cronyism from both business and government could instead be used to improve the quality of life for the rest of society.
The beneficial role of business in American society is being undermined by cronyism right now. Examples are abundant, from regulations on light bulbs to ill-decided loans made to the energy industry to taxpayers footing the bill for hundreds of billions of dollars to bailout companies with close ties to the government. Federal government officials frequently gives grants, loans, tax credits and other special favors to their politically connected friends and business associates or even entire industries. Legislation or regulations (sometimes drafted by the businesses themselves) are often designed to stifle competition and create barriers to entry in the market, or even to mandate that consumers purchase a certain product. The businesses in these examples are not benefiting society by providing valuable products to consumers, but are instead harming society by directing their resources in collusion with the government.
A society whose businesses engage in cronyism instead of serving people will not be prosperous, and in America it is clear that cronyism is becoming a more common choice. This increase is easy to explain. Businesses will only lobby for their unfair benefits if the government has enough power and resources to give them away, and the size and scope of our federal government has been steadily increasing. If we want to end the harm that cronyism is doing by perverting business’ proper role in society, then we must limit the ability of the government to grant these favors. If the government upholds only the rules necessary for the protection of economic freedom, and doesn’t have the power or resources to engage in cronyism, then businesses will not seek government favors and will instead seek to serve society’s needs.