Neoliberalism and Government Control of Business

Introduction

One of the main qualitative aspects of today’s living in the West is that it is the advocates of the specifically libertarian (neo-liberal) economic theories, who now enjoy a largely undisputed dominance in the discursive domain of economics. Partially, this explains why it now became a commonplace assumption that the functioning of a market-based economy cannot be anything but solely profit-driven.

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As Giroux noted, “Under neoliberalism everything either is for sale or is plundered for profit”.1 As a result, many of today’s economists experience a particularly hard time, while trying to reconcile the neo-liberal convention that government should not be trying to ‘control’ the economy, on one hand, and the self-evident need for the governmentally imposed rules and regulations for business, on the other. This situation, however, does not make much of a sense – the mentioned phenomena is nothing but a result of the libertarian economic paradigm being innately fallacious – at least in relation to what it considers to be the main driving forces behind the observable qualitative dynamics in human societies.

In my paper, I will explore the validity of this statement at length, while promoting the idea that it is not only that government should exercise strict control over the economy, but that the main corporate agenda of the privately-owned commercial enterprises should be concerned with striving to contribute to the society’s overall well-being.

Body of the paper

Among the main characteristics of Libertarian economic theory can be well considered the fact that its adherents (the most famous of which are Milton Friedman and Friedrich Hayek) never ceased to proclaim that the extent of the governmental intrusion into the realm of economics should be severely limited, “Friedman… (favored) free exchange between private enterprises. This did not eliminate the need for government but gave it a role as a forum for determining the rules of the game… The market was thus seen as the mechanism that minimized coercion”. 2

In the eyes of Libertarians, this point of view makes a perfectly logical sense. The reason for this is that, according to them, just about any human society is merely the sum of its individual members (and of their characteristics, as individuals). In its turn, this means that the manner, in which this society addresses economic challenges, continues to remain thoroughly reflective of how the society’s members interact on a ‘one-to-one’ basis.

For example, the increased demand for a particular commercial commodity naturally makes it possible for the newly created market-niche to be claimed by the most industrious profit-seeking entrepreneurs, which in turn almost instantly takes care of the mentioned demand. This, of course, naturally presupposes that there is simply no need for government to be in the position to affect the society’s economic functioning.

This Neo-Liberal idea, however, cannot be referred to as such that represents an undisputed truth-value. The reason for this is that being essentially material (they are made of physically embodied individuals), human societies can be well discussed in terms of an open thermodynamic system. Consequently, this implies that the dynamics within a particular society are not being directly defined by what happened to be the quality of this society’s integral elements – quite contrary to what Neo-Liberals/Libertarians believe happened to be the case.

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In other words, even though the principle of profit does determine the essence of the interrelationship between citizens on a personal level, there is no good reason to believe that this also happened to be the case, within the context of what accounts for the overall purpose of the society’s existence, as a systemic entity. In other words, just about any society is so much more than merely the sum of its systemic elements.

This, of course, suggests the conceptual erroneousness of the Libertarian idea that there can be no other but strictly economic incentives for the development of a market-based economy to take one turn or another, which in turn implies the auxiliary role of government. The reason for this is that, while interacting with each other, the society’s members create a qualitatively new discursive realm, which in turn defines the workings of the affiliated economy, and not vice versa.

To illustrate the validity of this suggestion, we can well refer to the well-known fact that the effectiveness of a capitalist economy positively relates to the measure of its ‘specialization’ (a division of labor), which is defined as, “An aggregate of individuals assumed to be performing different tasks by virtue of the occupational titles and classifications assigned them by official statistics”.3 In its turn, this implies that the ongoing socio-cultural progress, which defines the realities of today’s living, is thoroughly objective, as it is being ‘fueled’ by people’s greed for money – something that in turn keeps a capitalist society on the path of becoming increasingly ‘labor specialized’.

Hence, the main reason why Libertarians believe that government should not be involved in regulating business, “(Free-market economy)… does not tolerate any deliberate social organization independent of that created by the market. Indeed, the system could be seen as automatic, self-adjusting and efficient only because there is no organized interference with it”.4 According to them, the mentioned ‘specialization of labor’ comes because of the ongoing free interplay between the forces of supply and demand within the market.

Nevertheless, it is also being known that the more efficient (‘specialized’) a capitalist economy happened to be, the more acute would the individual risks of investing in it. Adam Smith was the first to note it, which in turn prompted him to come up with the following suggestions:

  1. By growing increasingly ‘specialized’, a capitalist economy is able to ensure its overall operational effectiveness, which in turn enables the continuation of socio-cultural progress.
  2. There are limits to the economy’s ability to grow ever more complex, in the structural sense of this word, which in turn implies that eventually, just about any capitalist economy is doomed to collapse.
  3. In order to maintain the appropriate level of its competitiveness, a profit-driven economic system must remain in the state of a constant expansion, as only the mean of postponing the impending ‘crisis of capital’, which always takes place when the extent of the economy’s ‘specialization’ reaches a critical point.

As Bassiry and Jones noted, “A capitalist system might fall victim to its own material successes (and excesses) as the social emphasis shifted from production to consumption and the values necessary to sustain labor productivity and capital accumulation lost their influence”. 5

What it means is that, contrary to the Libertarian point of view, in this respect, there is no good reason to believe that a capitalist economy is self-sustainable and that it develops in an evolutionary justified manner. Moreover, there is also very little reason to think that the way, in which a particular society functions, is being solely defined by the sporadic supply/demand fluctuations in the market. Quite to the opposite – the very functioning of the economy is much more of the sociological than that of the economic phenomena. After all, the mentioned earlier ‘division of labor’ takes place only in structurally complex societies.

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This is exactly the reason why the measure of the economy’s productivity is being reflective of what happened to be the extent of the affiliated society’s evolutionary development – the society itself exerts a strong influence on the very essence of how the concerned economy operates. The discursive implication of the above-sated is quite apparent – the Libertarian assumption that government should refrain from regulating business does not hold much water.

The reason for this is that, as it was shown earlier, a capitalist economy cannot be ‘self-regulative’, by definition. If such an economy is being allowed to function on its own, this will inevitably result in it becoming utterly vulnerable to financial crises, such as those of 1931 and 2008. This simply could not be otherwise, because, as it was mentioned earlier, in a highly ‘specialized’ economy; the individual risks of manufacturers are very high, which in turn calls for the creation of some instrument to address this situation – a banking system. The main function of banks is to lessen the severity of investment-risks.

Nevertheless, given the fact that privately owned banks always apply a ‘loan interest’, while providing loans to third parties, it becomes only a matter of time, before the members of a particular capitalist society begin consuming much more than they could possibly produce. In its turn, this adds an exponential momentum to the growth of the concerned society’s budget deficit – the direct consequence of the fact that there is only one way for a loan-depended economy to go about ensuring its vitality – continuing to accumulate more and more debts.

The main implication of the above-stated is quite apparent – it represents the matter of crucial importance for the government to be able to exercise control over the functioning of the economy (especially over the banking sector), as the mean of preventing bankers from running it into the ground – something that had happened already twice in the history of the U.S.

Thus, there is nothing ‘unnatural’ about the idea of government regulating business. In fact, if there is something truly ‘unnatural’, in this respect, it would the Libertarian assumption that by meddling in economic affairs, the government reduces the economy’s overall effectiveness, as it prevents the Darwinist principle of ‘survival of the fittest’ from defining the qualitative dynamics of how this economy operates. The reason for this is that, for as long as the functioning of the economy is being concerned, there can be no ‘effectiveness’ in terms of a thing-in-itself. As they strive to remain competitive, businesses are being forced to adjust to the potentially affective fluctuations of the surrounding environment.

This, of course, implies that there can be no much rationale behind the Libertarian belief that, the more businesses end up sustaining bankruptcy (due to the lack of governmental protectionism), the better, because it presumably frees space for the much more competitive ones. After all, this point of view is thoroughly arrogant of the fact that there can be many circumstances, under which the company’s high commercial profitability (successfulness) would not be considered as such that proves that this company is indeed competitive, in the full sense of this word.

The discursive validity of this suggestion can be illustrated, in regards to the fact well known to historians – many revolutionary leaps of progress, which took place in the history of humanity, were made possible by those who were ‘evolutionary unfit’. For example, the emergence of animal husbandry can be directly traced to the fact that, at a certain point back in history, the number of unsuccessful hunter-gatherers in the world has reached a critical mass.

In its turn, the emergence of agriculture has been predetermined by the growth of the population of unsuccessful nomads, etc. Essentially, the same can be said about the functioning of the economy – the commercial effectiveness of a particular company cannot be deemed thoroughly reflective of this company’s actual worth. To illustrate the validity of this suggestion, one can well mention the practice of outsourcing, commonly deployed by many Western companies, which is concerned with the process of these companies moving their production lines to the countries of the Second and Third World, because the cost of labor is much lower there.

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When initially assessed, this practice makes perfectly good sense, as it helps the affiliated companies to remain thoroughly competitive. Nevertheless, if one was to scrutinize the issue within the methodological frame of the theory of systems, he or she would realize that, despite being fully justified by the considerations of economic reasoning, the practice in question is far from being referred to as a socially productive one. The line of argumentation behind this suggestion is as follows: outsourcing naturally results in slowing down the pace of the ongoing technological progress. After all, it is much more economically justified to have a particular production-process (especially if is highly standardized) taking place within the setting of a sweatshop, as opposed to being performed by robots in the country where the outsourcing-practicing company is based.

Yet, as it is was pointed out earlier, the ever-increased technological complexity of manufacturing processes is the main precondition for a capitalist society to be able to grow increasingly ‘labor specialized’, which in turn allows it to generate the increased amount of the so-called ‘surplus product’ – something that prevents this society from collapsing, due to the forces of economic entropy.

It is understood, of course, that this once again confirms the soundness of the suggestion that government should be in charge of regulating business. After all, since, as it was shown earlier since there are so much more sociological overtones to the notion of society then there are economic ones, it will be only logical to assume that government is indeed being in the position to control business, as the mean of living up to the actual purpose behind its existence.

What is more – since it has been established that society does in fact affect the workings of a market-based economy, this can mean only one thing. When it comes to discussing what should be considered the tolerable level of the government’s involvement in economic affairs, it is important to remain fully aware that it is specifically the economy, which serves the affiliated society, and not the other way around. In other words, the significance of the government’s intention to remain in control of the economy’s functioning should be assessed within the context of whether it serves the interests of those who account for the society’s majority – the representatives of the middle and lower classes.

This naturally brings us to conclude that the issue is best discussed with the conceptual framework of the ethical theory of Utilitarianism. According to it, the moral/rational soundness of one’s decision to choose in favor of a particular course of action, while facing an organizational dilemma, positively relates to this decision’s ability to benefit as many people, as possible – even though this can often be achieved only at the expense of disadvantaging minors.

As Tittle noted, “We ought to maximize good and minimize bad – ‘the greatest happiness principle’ (Mill). Thus, putting the two elements together, utilitarianism is ‘the greatest good (happiness/pleasure) for the greatest number’”.6 The main provision of Act-Utilitarianism should come in particularly handy, in this respect, “An act-utilitarian judges the rightness or wrongness of actions by the goodness and badness of their consequences”.7

While keeping the above-mentioned considerations in mind, we will be able to once again confirm the validity of the suggestion that government should exercise a considerable influence on business, as the mean of ensuring a fair distribution of the society’s wealth among its members, and also as the mean of guaranteeing the most effective usage of limited natural resources. The mainline of the reasoning behind this idea can be outlined as follows:

It is in the very nature of a commercial organization, ‘liberated’ of any governmental control, is to preoccupy itself with trying to generate the specifically short-term commercial profit, because if failed, in this respect, this organization will not be able to remain competitive. This is exactly the reason why managers are being encouraged to believe that one of their main objectives, within the context of how they go about addressing their professional duties, is to ensure that the associated production-costs remain as low, as possible. In its turn, this explains why there will always be unemployment in those societies that function in accordance with the prescriptions of the Neo-Liberal economic paradigm.

Apparently, laying off workers is the main instrument of reducing operational costs, deployed by capitalists. When assessed through the conceptual lenses of Utilitarianism, however, the practice in question will appear utterly inappropriate. The reason for this is simple:

  1. laying off employees may only benefit a few (owners) while rendering many of the would-be-fired workers useless;
  2. the increased number of unemployed individuals in a particular society substantially undermines the measure of its structural integrity – hence, reducing the rate of this society’s overall competitiveness.

In other words, the actual price of the already rich owners of commercial enterprises being able to grow continuously enriched, while enjoying the absence of governmental interventions, is the accumulation of social/economic tensions within the society. This, of course, cannot result in anything else but in negatively affecting just about anyone in this society, and in making the collapse of law and order in it only a matter of time.

Governmentally controlled economies, on the other hand, operate much differently. Once such control is being ensured and as a result, privately owned businesses can no longer treat employees as an expendable commodity (due to the governmentally enacted laws and regulations), this will naturally prompt the affiliated owners to choose in favor of adopting the ‘intensive’ (as opposed to ‘extensive’) approach towards designing a competitive strategy.

For example, while being perfectly aware that government will not allow him to lay off many workers, regardless of what happened to be the economically justified considerations to choose in favor of this course of action, a company owner will have no other option but to consider other means of increasing the extent of the concerned organization’s operational effectiveness. One of the possible ways to address the situation, on this owner’s part, would be deciding to invest in the development of the would-be applicable robotics-technology, for example.

Even though, as far as the owner’s personal greed-driven agenda is being concerned, this kind of decision may appear rather inappropriate, there can be only a few doubts that, because of having favored it, the individual in question will be able to increase the company’s long-term likelihood to remain well ahead of the competition with others. What is even more, this decision will also result in contributing to society’s overall systemic stability.

What has been mentioned earlier implies that it indeed represents the matter of crucial importance for the government to be able to regulate business – the main precondition of preventing the business from becoming ‘government of its own’. Unfortunately, in some Western countries, this process is well underway – something that can be illustrated, in regards to the fact that many of the recently enacted business-related legislation appears to have been passed on behalf of those large companies, the functioning of which they aim to regulate.

To explain the logic behind this suggestion, we will need to return to the earlier mentioned main principle of political economy – the economic efficiency of a particular society is extrapolated by the measure of its functional ‘specialization’. What accounts for the crucial prerequisite for this ‘specialization’ to persist is that, within the market-based economic system, there is always a number of ‘middlemen’, which enable the most efficient flow of commercial transactions between this system’s sub-divisions. Because ‘middlemen’ deal with many suppliers of essentially the same commodity at once, they naturally strive to attain a monopoly in the targeted market.

What appears to be particularly dangerous about it, is that the emergence of trade-monopolies make it increasingly harder for policy-makers to maintain the adequate rate of ‘specialization’ within the society. This is exactly the reason why; as time goes on, more and more people in Western countries realize the necessity of passing as many anti-monopolist legislations, as possible – while continuing to function within the boundaries of the Libertarian paradigm of economics, Western societies are being slowly transformed from ‘democracies’ into ‘oligarchies’.

The validity of this statement can be shown, in relation to the fact that nowadays, the outcomes of political elections in the West directly depend on the amounts of money, invested by the oligarchs in every particular candidate. In its turn, this creates a precarious situation – as of today, we can no longer think that the idea of ‘government controlling business’ stands in a striking contradiction to the conventions of classic Capitalism. The reason for this is that we live in times when private business is actively adopting the functions of government, which in turn explains why many of the recently enacted business-regulations in the West are not being concerned with regulating business per se, but rather with allowing the business to regulate dynamics in the public sphere.

To exemplify the legitimacy of this suggestion, one can well refer to the recent enactment of the so-called ‘copyright’ laws, which are being presumed to help the creators of intellectual content to be able to take monetary advantage of their creativeness. Nevertheless, it will not take a genius to realize what accounts for the true purpose of ‘copyright’ laws – enabling the holders of ‘intellectual rights’, which consist of a few transnational media-corporations, to continue enjoying a monopoly on reselling over and over digital content that they once acquired for ‘peanuts’. After all, it does not represent any secret that royalties of the actual content-creators rarely account for more than 5% – the rest goes towards ensuring the luxurious lifestyles of these corporations’ owners.

Within the discursive framework of Utilitarianism, this situation can hardly be considered appropriate. There are ethical overtones to it, as well – the continual monopolization/privatization of the intellectual sphere in the West will inevitably result in the intellectual marginalization of more and more people. As Houwelling pointed out, “An atomistic copyright system is crowded with protected works and rights, owned by rights-holders… whose preferences may be idiosyncratic”. 8

What it means is that, had it been responsible and truly independent in making its decisions, the government would have introduced ‘anti-copyright’ laws, which would stand against the monopolistic aspirations of copyright-holders. The fact that this does not happen can be seen as yet another indication that, as of today, the majority of government officials acts on behalf of large corporations, which in turn presupposes that government is simply being in no position to control business – at least in the politically-economic sense of this word.

This, however, does not make the necessity for this control less acute. The mentioned example with the enactment of ‘copyright’ laws will again help us to illustrate the point – this time from the ethical perspective. The reason for this is that, contrary to what the advocates of Libertarianism would like us to believe, one’s possession of ‘intellectual property’ cannot be discussed outside of what were the discursive aspects of this person’s upbringing, which in turn reflected whatever happened to be the predominant socio-political discourse at the time.

In other words, ‘intellectual property’ overwhelmingly consists of socially acquired knowledge about the world, on the part of its ‘owner’, which in turn presupposes that the share of all the society’s members in this ‘property’s’ worth is much larger than that of the former. What it means is that it is indeed utterly immoral restricting access to one’s ‘intellectual property’, because it does not only produce a number of negative effects on the economy but also contributes to the likelihood for the affected society to end up consumed by its own consumerism.

This, of course, once again suggests that, if left to function on their own, businesses eventually begin to take over the functions of government – solely for increasing its revenues. Because this will naturally result in slowing down the pace of technological progress (which will negatively affect everybody), the government should adopt an active stance, while trying to keep business under control – something that is now happening in today’s Russia, as we speak.

In light of what has been said earlier, the Libertarian idea that it should be left up to private companies to finance the implementation of different welfare-inducing social programs will appear rather ridiculous. The reason for this is quite apparent – since the betterment of society is last on the list of the privately-owned company’s priorities, it will only proceed with making social contributions, for as long as it is being required to do so by some external force.

Since Neo-Liberal endorsement of the privatization of the public sector is based upon the assumption that this process should be ‘self-regulated’ (uncontrolled by the government), we can well predict the initiative’s eventual consequence – a total collapse of the country’s educational, infrastructural, and healthcare systems.9 This could not be otherwise. Since the functioning of these systems has nothing to do with the ability of oligarchs (who control the economy) to generate substantial short-term profits, once the concerned individuals experience the total absence of the governmentally induced incentives to share some of their riches with the rest of society, they will simply decide to dispose of the ‘burden’ altogether.

Conclusion

I believe that the earlier provided line of argumentation, in defense of the idea that controlling business is the primary function of just about any government, is fully consistent with the paper’s initial thesis. Apparently, there are indeed a number of reasons to consider the Libertarian point of view, in this respect, conceptually misleading. Thus, it will only be appropriate to conclude this paper by reinstating once again that the legislative empowerment of government is the main key to ensuring the social beneficence of commercial transactions, within the society.

Bibliography

Bassiry, G. R. and Marc Jones. “Adam Smith and the Ethics of Contemporary Capitalism.” Journal of Business Ethics 12.8 (1993): 621-627.

Freidson, Eliot. “The Division of Labor as Social Interaction.” Social Problems 23.3 (1976): 304-313.

Giroux, Henry. “The Terror of Neoliberalism: Rethinking the Significance of Cultural Politics.” College Literature 32.1 (2005): 1-19.

Houweling, Molly. “Author Autonomy and Atomism in Copyright Law.” Virginia Law Review 96.3 (2010): 549-642.

Rosenzvaig, Eduardo and Ronaldo Munck. “Neoliberalism: Economic Philosophy of Postmodern Demolition.” Latin American Perspectives 24.6 (1997): 56-62.

Sirgy, Joseph; Lee Dong-Jin and Grace Yu. “Consumer Sovereignty in Healthcare: Fact or Fiction?” Journal of Business Ethics 101.3 (2011): 459-474.

Smart, J.J.C. “An Outline of a System of Utilitarian Values.” In Ethical Theory: A Concise Anthology, edited by Heimir Giersson and Margaret Holmgren, 95-106, Toronto: Broadview Press, 2000.

Tittle, Peg. Ethical Issues in Business: Inquiries, Cases, and Readings. Toronto: Broadview Press, 2000.

Footnotes

  1. Henry Giroux, “The Terror of Neoliberalism: Rethinking the Significance of Cultural Politics.” College Literature 32.1 (2005): 2.
  2. Eduardo Rosenzvaig and Ronaldo Munck, “Neoliberalism: Economic Philosophy of Postmodern Demolition.” Latin American Perspectives 24.6 (1997): 58.
  3. Eliot Freidson, “The Division of Labor as Social Interaction.” Social Problems 23.3 (1976): 307.
  4. Ibid.: 305.
  5. G. R. Bassiry and Marc Jones. “Adam Smith and the Ethics of Contemporary Capitalism.” Journal of Business Ethics 12.8 (1993): 624.
  6. Peg Tittle. Ethical Issues in Business: Inquiries, Cases, and Readings (Toronto: Broadview Press, 2000), 38.
  7. J.J.C. Smart, “An Outline of a System of Utilitarian Values.” In Ethical Theory: A Concise Anthology, ed. Heimir Giersson and Margaret Holmgren (Toronto: Broadview Press, 2000), 95.
  8. Molly Houweling, “Author Autonomy and Atomism in Copyright Law.” Virginia Law Review 96.3 (2010): 555.
  9. Joseph Sirgy, Lee Dong-Jin, and Grace Yu. “Consumer Sovereignty in Healthcare: Fact or Fiction?” Journal of Business Ethics 101.3 (2011): 470.
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