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Opinion

State of the Union shows Obama is now pro-business. He should be pro-growth.

In last night's State of the Union address, President Obama urged greater US competitiveness. But there's a big difference between cozying up to businesses and promoting policies that foster economic growth.

By Donald J. Boudreaux / January 26, 2011



Fairfax, Va.

Much is being made of president Obama’s new-found friendliness toward business, punctuated by his call “to make America the best place on Earth to do business” in last night’s State of the Union address. While moderates seem pleased, liberals dislike it, and conservatives suspect that the president isn’t sincere.

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As an economist, I worry that Mr. Obama is sincere. But my concern about the president’s cozying-up to business differs greatly from the concern that animates the political left.

Contrary to popular presumption, being friendly to business is not the same as being pro-economic growth or pro-free-market.

Adam Smith explained that a nation is wealthy only if its people have ready access to goods and services that make their lives healthy, comfortable, and enjoyable. The greater this access, the wealthier the nation.

Of course, to make available the goods and services that consumers want requires businesses. Unfortunately, throughout history, businesses have too often been saddled with excessive taxes and regulations in well-intentioned but misguided attempts to help workers and consumers.

Economists (especially the free-market variety) – concerned always to keep outputs of goods and services as high as possible – typically defend business against counter-productive government interference. We economists do so, however, not because we have special fondness for business. We do so because we understand that government interference in business often results in fewer goods and services for ordinary men and women – as consumers – to enjoy.

In short, an economy’s success is best measured by how well it pleases consumers, not by how well it pleases businesses.

Surprise: Businesses don't like competition

Each business sees matters differently. It wants to profit as much as possible. In a free market, businesses profit only by pleasing consumers. But a business that obtains special favors from government can profit without pleasing consumers. And it’s here that trouble starts.

Consider Obama’s commitment to make America more “competitive.” (He used variations of the word “compete” nine times in his address as part of his argument that American firms and workers are threatened by their foreign counterparts.) “Competition” sounds good. But businesses don’t like competition; they like protection from competition – along with subsidies, special tax breaks, and other government favors that relieve them from the need to cater energetically to consumer demands. So a pro-business president is prone to curry favor with businesses by shielding them from competition.

Tariffs and other import restrictions are examples of pro-business policies. They increase the bottom lines of those businesses that no longer must compete vigorously against foreign rivals. Such pro-business policies are also anti-consumer and anti-market. They rob consumers of choice; they shrink consumers’ spending power by enabling protected businesses to raise prices; and they stymie economic growth, in part by channeling entrepreneurs’ efforts into lobbying government for favors and away from figuring out how to build better mousetraps.

The irony is that such policies – which really should be labeled “crony capitalist” – are often labeled “competitiveness” policies. Because these policies increasethe profits of some domestic businesses, they are mistakenly believed to make the domestic economy more “competitive” when, in fact, they make it less so.

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