Politicians and Entrepreneurs

When perusing much public discourse concerning those in government and those who, say, are businessmen and entrepreneurs, one of the more striking aspects is how their economic roles and motivations are viewed as the complete opposite for what they really are.

Even though their achievements may, from time to time, be lauded, the businessman, entrepreneur or capitalist is almost universally despised for what appear to be his motives of greed, selfishness and exploitation. Central to this is the profit-motive, a factor that seems to receive exclusive attention at the expense of any other. Yes, it is true that people are in business to make money, usually as much of it as possible. But this completely overlooks the fact that no businessman, in a genuinely free market, is in a position to force anyone to contribute to his income. He can earn a return on his investment only if he is able to devote, with accuracy, the scarce resources available to the most highly valued ends of consumers. Even if he is devoid of any charitable motivation or any emotive feeling towards the people whom he serves, at the very least he is required to have a superior empathetic understanding of their tastes and desires. If he fails in this regard then the result is not a bumper profit but an eye-watering loss. In a free market, all transactions between businesses, their customers and their employees are entirely voluntary. People enter voluntary transactions because they expect to be better off as a result of them. Nobody is therefore put into a worse position through his interaction with a business, or at least they do not expect to be.

Counter this with the view of the politician. Perusing any list of supposed motivations for state office, one would think that only those with an angelic disposition need apply. Not only are they expected to be selfless and altruistic, thinking only of their "people" and of their "nation", they are also supposed to be utterly devoid of any kind of personal ambition. Asked whether he/she has any eye for high office, one is normally rebuffed with the rhetoric of “public service” and the apparent fact that the budding statesman is just there to “do his job”. In short, the implication is that government employment produces universally good and wonderful things that apparently require some kind of sacrifice for which there is very little reward. [1]

Nothing could be farther from the truth. The state receives its revenue from taxation, and taxes are paid compulsorily. Whereas the entrepreneur has to risk the entirety of his wealth in order to persuade his consumers that what he produces is a worth the price he asks, a politician faces no such restraint. They can charge as much as they like, deliver services that are despicably dire while commanding a personal income that often exceeds what they, personally, would be able to obtain on the free market. Furthermore, because the funds for all of their boondoggles have been levied by the threat of force, there is a very real loss experienced by the taxpayers, even if the resulting service seems relatively "good" in the abstract. For none of them would need to be forced to pay up if the state’s services were truly what people wanted to purchase with their money. Whereas an entrepreneur makes everyone – himself and his customers – better off, the politician only makes himself and the recipients of his tax loot better off. Those who have been forced to pay are left substantially worse off.

The failure to appreciate how entrepreneurs make everyone better off often reveals itself in the debates concerning taxes and tax avoidance. The wealthy and successful, by definition, will have raked in large revenues and profits that somehow requires them to “give something back” to “society”. Yet what is forgotten is that they have only been able to obtain these revenues and profits because they have created employment opportunities, and served the needs of customers by providing them with products that they want to buy. Yet for some reason we think it is just for us to charge them for this “privilege” of serving our needs. Further, is there not something incongruous about the whole rhetoric of “giving back”? If I wish to purchase a coffee from a café then I give them the money and they give me coffee; the café has already given in the form of a product that meets my needs. If the café has to “give back” some of its profit in taxation then why don’t I have to “give back” their coffee?

A related fallacy is that anyone who “owns resources” (i.e. land and capital goods) effectively just has to sit back and earn a perpetual income by virtue of this ownership. Although space precludes a detailed examination of the economics, a net return can only be earned from such ownership if the good is directed to a use more highly valued than that anticipated by other entrepreneurs. Failure to do this will simply result in losses. Try telling the former owners of Blockbuster or Woolworths that ownership of resources is a path to perpetual wealth and income. If anything, it is the government that yields a perpetual income from resources. For it can confiscate anything it wants by force, and display zero entrepreneurial talent with its use by spending it on any wasteful project it deems desirable to itself and its cronies. The only say we have in the matter is an “election” between approved and screened candidates once every four to five years.

It is true of course that, today, many of the largest corporations and businesses are in bed with the state, leading to a distinct merger between the political and the private sphere that tends to degrade our opinions of the latter. Indeed, many private billionaires and CEOs of large firms are likely to owe their wealth at least as much to their political skill as to their entrepreneurial efforts. But that makes it all the more important for us to state that the fulfilment of corporate greed through the state is not emblematic of a truly free market system. In the latter, it is the entrepreneurs, not the politicians, who are the true public servants.

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Notes

[1] It is true, of course, that our current crop of politicians are not exactly beloved. It is still the case, however, that the qualities we mentioned are attributable, in principle, to public office.