Libertarianism Versus Reality

As a business writer, I've found that an increasing number of people who run businesses are self-proclaimed libertarians. Actually, what most of them espouse might be better described as Libertarianism Lite. It's not so much a thoroughly-worked-out philosophy as a set of half-articulated beliefs like these:

1. Capitalism, competition, and open markets are natural phenomena that spring up automatically wherever people are free to pursue their self-interest.

2. Growth, innovation, and prosperity are spontaneous products of individual human energies that government can only inhibit.

3. Since the "invisible hand" of the marketplace automatically encourages the positive effects of competition and discourages the negative effects, any social or economic outcome produced by unfettered competition is ipso facto good.

4. Regulation of business only suppresses the natural benefits of free enterprise, creating perverse incentives that promote inefficiency and discourage growth.

5. Businesses and business people are morally obligated to pursue profit alone. When businesses try to blend profit-making with a "do-good" agenda, they fail as businesses and (ironically) harm rather than help the intended beneficiaries ("the law of unintended consequences").

Of course, most of the business people who subscribe to this point of view haven't studied philosophy or read their way through any single book of Adam Smith or F. A. Hayek. They get their ideas from a mish-mash of Wall Street Journal editorials, Ayn Rand novels, magazine columns by people like George Gilder and Steve Forbes, and the opinions they hear spouted around the gym or the golf course.

As a practical philosophy, Libertarianism Lite involves reflexive opposition to things like Social Security, environmentalism, consumer protection laws, affirmative action, and Eliot Spitzer. It's expressed through proud, pugnacious (if inaccurate) remarks like Dick Cheney's boast during the 2000 vice presidential debate about the billions earned by Halliburton during his tenure as CEO: "Government had nothing to do with it." (Inaccurate since, of course, lucrative government contracts had everything to do with Halliburton's profitability, then as now.)

The executives who have made Libertarianism Lite the quasi-official philosophy of US business pride themselves on being hard-headed realists. Which is odd, since the mythology behind Libertarianism Lite--especially the assumption that free markets represent an idyllic state of nature with which governments unfortunately interfere--is utterly divorced from reality.

Those who've studied how the real world works acknowledge what should be obvious: the absolutely crucial role of government in making free markets possible. Here's an example. The current (June 2005) issue of the Harvard Business Review includes a section on "Risk and Reward in World Markets," describing opportunities and strategies for companies interested in international expansion. It features a pull-out chart listing 60 questions managers should ask about countries in which they might invest. Some sample questions:

Are the roles of the legislative, executive, and judiciary clearly defined?

Do the laws articulate and protect private property rights?

How strong is the country's education infrastructure, especially for technical and management training? Does it have a good elementary and secondary education system as well?

How reliable are sources of infomation on company performance? Do the accounting standards and disclosure regulations permit investors and creditors to monitor company management?

Are regulators effective at monitoring the banking industry and stock markets?

Is there an orderly bankruptcy process that balances the interests of owners, creditors, and other stakeholders?

These are certainly the kinds of questions I would want answered before investing in any overseas market. And the right answers all depend on the existence of active, strong, well-managed government.

If our self-proclaimed libertarian entrepreneurs are really sincere about getting out from under the heavy hand of government and pursuing wealth with no help from anybody, they are welcome to ignore the advice of the Harvard Business Review and invest in countries that are blessedly free from rules, red tape, and bureaucracy. They are known as "failed states," and they currently include such havens of prosperity and freedom as Nepal, Congo, Liberia, Afghanistan, Tajikistan, and Sierra Leone. Any takers?