Category: Government & Politics

People tend to become better at doing thing they are rewarded for doing. Entrepreneurs are good at turning money into products, politicians are good at getting votes, and bureaucrats are good at increasing their budgets and influence.

In markets systems, there is a tendency for explicit and actual motivations to match.  For example, Apple, BMW, or Wal-Mart want to make stuff I want because they are rewarded to the extent that they make stuff I want.

In politics, the trend is reversed.   Incentives in politics are often the opposite of political promises or goals.   For example, politicians and bureaucrats may honestly want to fix poverty, pollution, corruption, and terrorism, but they are more often rewarded for making all these things worse.   The worse the problem becomes in the voters mind, the larger the politician’s power and scope for action.  The more power a politician has, the greater his ability to rewards the pressure groups who fund his campaigns.

The more efficient a democracy, the more it tends to reward those who re-direct resources away from problem-solving activity and toward towards vote-generating activity. In an inefficient or indirect democracy, someone who is a good problem solver can win though the support of a minority that directly rewards success.  In a popular democracy, the ability to get votes will tend to triumph over the ability to achieve campaign promises.  By contrast, the more efficient a market is, the better it is at directing the production of goods towards what consumers actually desire – a harmony of consumer and producer values.

In the big picture, the intentions of politicians and voters are irrelevant – whether they are good or evil, the outcome depends only on what kind of behavior is incentivized. Studies show that most voters are altruistic, not selfish — and this is very destructive. Selfish voters tend to vote based on their own evidence and reward problem solving. Altruistic voters tend to vote based on campaign platforms, have no empirical basis to evaluate a candidate’s proposals, and no incentive to follow up on outcomes.

Following this week’s Supreme Court ruling, there is much confusion about what legal rights a corporation has and how it is different from other groups:

In a free society, any person has the right to associate with any other person by mutual consent. As long as both parties consent to their transaction, no third party (be it a government or anyone else) has the moral right to prevent or punish their interaction. This is as true for friendships, romantic relationships, and political advocacy as financial transactions. The only difference is that financial transactions exchange material values whereas social interactions exchange non material values.

A business – be it a sole proprietorship or a multinational corporation is just a group of people who share a common purpose. Their motive may be profit, but it may be something entirely different (such as changing the world with a new product, or just getting paid to do something cool, such as fly planes or invent new things).

The primary difference between a corporation and any other type of business is limited liability. Anyone who does business with a corporation (be it another business or a consumer) agrees that any liability incurred by the corporation covers the assets of the corporation, but not the individual assets of its employees. For example, just because you own Wal-Mart stock, Wal-Mart’s debtors cannot demand all your personal assets as collateral.

It’s important to understand that limited liability does not apply to criminal law. That is, if an employee of a corporation commits a crime, he is still personally liable for his actions. In no way does acting on behalf a corporation shield people from breaking the law. (Of course that is not universally true, but that is a corruption of the law, not an aspect of limited liability.)

Furthermore, individuals acting on behalf of a corporation have the same rights as individuals acting on behalf of any other group because people do not lose their rights by the nature of the voluntary associations they enter into. It should make no difference whether you act on behalf of yourself, a political pressure group, a union, a sole proprietorship, or a corporation – you do not lose your rights as a human being because you represent a particular association of other human beings acting toward a common purpose. Silencing the speech of an individual because he represents a particular group is censorship – no matter what the purpose of that group is.

If you really want to get business out of politics, get the government out of business. As long as governments try to control corporations with regulations that go beyond the protection of people’s property rights, corporations will have an incentive to control governments. Interventionism creates a vicious downward cycle hardly unique to corporations – first a lobby tries to extract special privileges from some politically neutral group, the group hires lobbyists to defend itself, and ends up using the influence it has gained to extract privileges at the expense of another neutral group, which must defend itself in turn. Campaign finance regulations just hide that process from the public and make it more difficult for non-elites to get elected or have a say in government. The only real solution to the problems caused by interventionism is to end interventionism – to separate government and economy.