September 4, 2012
To My French Friend:
Thank you, Jean-Luc, for the report on the re-emergence of state run enterprises, or state capitalism, as it is called. I had thought this phenomenon restricted to China, France, and a few other “backward” places, but now I see that it is widespread, a growing trend in Latin America and parts of Asia even beyond China. And it is not at all considered backward but the newest way to wealth and happiness. I discover that it is you and I who are backward, attached as we are to the idea that individual effort and responsibility are best.
To me the report shows that we are not mistaken. It cites data showing that state controlled companies are much less productive than independent companies, for example. This means that state controlled companies contribute less to economic well-being than independent companies. The report does lend some support to those who argue for a larger state role by noting the ways that governments help economies grow, by administering the rule of law, building roads, and such things. But in doing this, government is providing only some of the conditions that make economic success possible. If it does more than that, it risks creating the conditions that stifle growth.
These notions, of course, bring to mind the remark of President Obama that, “if you’ve got a business—you didn’t build that. Somebody else made that happen.” I am sure you have heard of this episode. If the President meant to point to the help that government gives to all our endeavors, he would have said the obvious. But his remark, the longer passage in which it occurred, as well as the controversy it generated, obscured a simple point. All the money the government spends comes from the wealth created by the hard work of Americans. It is the hard work and initiative of Americans that comes first and is the source of all wealth, even that used by the government to assist Americans. That will be the case unless the government completely dominates the economy, which presumably the President is not advocating.
If the initiative and hard work of Americans is the ultimate source of wealth, then the government should do nothing to discourage this initiative and hard work. It should do only what is necessary, so that the initiative of citizens has the greatest possible scope. In limiting its power, in leaving to each of us, in the greatest degree possible, the wealth our hard work has earned, a government does not only what is best for the creation of more wealth but also what justice demands.
The connection between limited government and justice is a point too seldom noted, I think. Most advocates of government intervention assume that such intervention will promote justice—social or economic justice, as it is now called. But the opposite is really the case. Have you and I not discussed many times how in France what can only be called a class of people moves from executive positions in government controlled businesses to executive positions in government ministries and then back again into the state owned firms? Have we not noted how this class protects itself and its privileges? Have senior positions in state enterprises in China not become the sinecures of those who run the government, the Communist party elite and their sons and daughters? Whatever wealth or privileges a government controls, it will tend to distribute not according to the merits of those who receive it, but according to the interests of those who distribute it. That is not justice.
You noted that the current fashion for government involvement in the economy puts an end to the Reagan-Thatcher revolution for smaller government. I appreciate your allegiance to the Anglo-American leaders so often criticized in your own country. But I think that the vogue for state capitalism is a threat to an older revolution, the American Revolution. To those who fought the power of government then, its injustices were more evident. Aristocratic privilege was embedded in law; means of redress were more limited. Taxation without representation was a clear injustice. But having won independence and the right of representation, the injustice inherent in the power of government remained. Thomas Jefferson understood this. That is why in his First Inaugural address he argued for what he called frugal government that “shall not take from the mouth of labor the bread it has earned.”
I hope with you that the current fashion for more government, at least in the United States, is nothing more than a response to the recent recession and that we will soon turn toward smaller government. Justice as much as economic well-being would be best served by such a turn. We have, of course, moved far from what Jefferson meant by frugal government. It may not be possible to return to that Jeffersonian standard, but there are good reasons to think that a smaller, less intrusive government will be both possible and necessary in the future. I will write to you soon about my reasons for thinking so.