Government role in business has always been controversial, often inefficient and even illiberal. Communism was the most problematic. Postwar experiments in liberal European countries with state planning and state-owned enterprises became largely discredited by the 1980s. For example, industries at the “commanding heights” of the British economy were nationalized in the late 1940s but that experiment was reversed by privatization under Margaret Thatcher’s government.
There were exceptional results with state enterprise, such
as in Singapore where state-owned enterprises became a more efficient sector
than the local private sector (dominated by property and trading enterprises).
Even so, Singapore emulated Thatcher’s privatization to some extent, to bring
in private-sector efficiencies and capital. Other government roles had some
success, such as Japan’s Ministry of International Trade and Industry coordination
of national industries.
Free societies are today demanding more elaborate control of
business, if not by state ownership then other state interventions. The state
is expected to solve complex needs for control of enterprise, as political
leaders are under pressure from their constituencies to resolve issues with
capitalism –including interventions that are not necessarily within the power of
political elites or even wise such as a role in labor relations, finance and
banking, and lately the pandemic lockdowns and safety protocols for industry
and education. Under intense political pressures, democratic leaders are
intervening in their businesses, expected to resolve modern problems ranging
from global warming, technology monopolization and data abuse, banking and
financial stability, social responsibility of private enterprises for
diversity, eliminating poverty, etc.
State ownership is only one means of government
intervention, and generally declining. Much state ownership constitutes
minority interests, or by holding companies, sovereign wealth and pension
funds, or other professional owners and managers. Today, governments mostly
intervene in other ways.
President Trump was critical of globalization and adopted
populist policies, including trade wars with China and even American allies. President
Biden engages in protectionism, requiring domestic suppliers and union labor, and
general policy priorities to return wealth and power to American workers. Biden
has engaged his administration in resolving supply-chain problems, bailing out
businesses, promulgating pandemic safety policies in businesses, and many other
interventions. Even China is tinkering with its communist model to achieve
“common prosperity” and also tame its free-wheeling entrepreneurs and compel
political obedience.
America never relied on state ownership of enterprises as
much as Europe and East Asia. Yet today America has broadened the range of
national security concerns where government intervention is justified, notably
energy industries. Technology export controls, punitive sanctions on foreign
countries’ trade and finance, and screening foreign investment are increasingly
frequent options. Subsidies are devised for more R&D and capital spending,
such as Biden’s $52 billion program to support semiconductor production.
The primacy of shareholder wealth maximization –in vogue
from at least the 1970s, is finally being questioned, as firms are expected to
raise their concern for other stakeholders – consumers, employees, the
environment, and even respect for competition and healthy markets including
helping smaller firms. Governments have promulgated “ESG” investment codes to
score firms’ wider responsibility for energy efficiency, worker safety, board
independence, etc.
Negative impact of state intervention is pervasive, but more
subtly includes both the state and its firms’ need to balance conflicting
interests. For example, fossil-fuel firms must protect jobs and prosperity in
their community (and long-term profits), and so may avoid any divestment needed
to protect the environment. Trade embargos against China about human rights
blocks cheaper imports. Businesses anyway cannot make these judgements, which are
government decisions. Such decisions increase costs and impair open
competition. If businesses attempt any role, they find more need for political
involvement, including even corruption.
Government investment, through ownership or simply
subsidies, has always been a means to direct national resources toward desired
industry. It seems illogical to engage in industrial policy for ideological
reasons, but some countries have been more encumbered by political or
bureaucratic pressures and may invest unwisely. Although the record in America
has been less propitious at “picking winners”, than for example East Asia, the
US government has played a crucial role in creating so much of American
industry in internet, biotechnology, and many of the other strong industries of
today. Now it invests in AI, quantum computing, medical science.
Where a need for industrial policies is obvious, such as
energy industries in the age of global warming, certainly the US government is
obligated to play a role. During the pandemic governments focused their
investment to enhance domestic capacity. France’s “2030” plan earmarks
expenditures of 160bn euros over five years in medicines, small nuclear
reactors, but also cultural investments. With respect to the last mentioned state
initiative, grand dreams are obviously a government proclivity.
Competition between governments to make their industries
international “winners” may simply result in an “industrial policy arms race”
–competitive government subsidies. Governments are also notoriously mercurial, wanting
not only to create new national champions but also not letting losers fail.
A frequent tendency of industrial and competition policy is
to police private sector behavior that may have socioeconomic impact, such as
antitrust, improper pricing or other harm to consumer welfare. In China,
children have been prohibited from playing video games more than three times
per week, it being a distraction from studies. Antitrust concerns are
broadening to the kind of concerns reflected in the way companies like Facebook
compete, including the “killer acquisition” to takeover Instagram to prevent
that enterprise becoming a competitor with Facebook. Regulators such as the
Fair Trade Commission look to long-range and global competitive outcomes in
business decisions.
Thus, bureaucracy and politics are rising in their impact on
business. In China the state holds the power in business interventions, while
in Europe or the USA the courts and legislatures are preeminent. In any case, interventions are increasingly
prevalent in the modern world. The result is more bureaucracy and “red tape”;
and once new regulators are created and funded, politics and bureaucratic
inertia stymie efforts to defund.
