Government-Business Partnership a Bad Idea

Marc Kilmer Jan 23, 2012

Would Maryland be better off if the state government and businesses worked together as partners? Many conservatives would be tempted to say “yes” to this. I’m not so sure. While I don’t want government to unduly interfere with business, I also don’t want government to be a partner with it. Promoting a government-business partnership is just another way to say that crony capitalism, not the free market, is the best economic system for America.

These thoughts came to mind reading a recent article by Donald Fry at Center Maryland. In that article he says, “The road to job creation and economic recovery will be smoother and stronger if state government partners with business to develop policies rather than imposing policies on the private sector.” I agree with the last part of that statement. Government’s imposition of policies that interfere with the free market have impeded job creation and economic recovery. Obviously, some regulation of the private sector is necessary, but when regulation is aimed at moving the economy towards certain ends instead of controlling harm to individuals, the regulation is probably unnecessary.

A support for removing government impediments to economic growth does not mean the government should partner with business, though. In fact, usually when government partners with business it tends to impose more impediments to economic growth. As Adam Smith said, “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.” The only way these people can enact their wishes, though, is through the government. That’s why I am very skeptical that a partnership between business and government is a good idea.

In fact, history has repeatedly shown that when business partners with the government, it’s often to ensure that the government policies favor certain businesses and limit competition. At a national level, Tim Carney of the Washington Examiner has done an excellent job of exploring the myriad problems that crop up because of government-business partnerships.

A previous article of Fry’s illustrates the type of partnership that he desires. In it, he praises the Maryland Stadium Authority, an entity which the state used to provide millions of dollars in corporate welfare to the Ravens and the Orioles. There is no economic rationale for funneling taxpayer money to sports stadiums. These stadiums enrich the owners of sports teams but do not result in an increase in overall jobs or economic activity.

The sort of business-government cooperation championed by Fry would certainly be good for some business owners. It would lead to job creation in some areas. But it would not help all business owners in the state. It would not result in a higher overall level of job creation. In fact, it would likely hurt both economic growth and job creation in the aggregate. Only certain businesses would benefit from these policies. Every other business would have to pay the higher taxes necessary to fund the policies and suffer from the regulations that were designed to help only certain businesses.

Instead of a business-government partnership, we need government to champion policies that are broadly pro-development. We don’t need tax credits or loan programs for certain industries. We need a broad-based tax structure that has low rates. We shouldn’t have regulations crafted around the needs of certain businesses. We should have a regulator structure that is flexible and does not thwart the emergence of new competitors to established businesses.

Crony capitalism isn’t what’s needed in Maryland. We need a government that favors the free market, not one that partners with business. There’s a big difference between the two.