…or at least not the way I do.
Listening to Saskatchewan Premier Brad Wall talk about climate change the other day, I was reminded of a piece that I wrote for Policy Options a long time ago, about the difference between being pro-market and being pro-business. I still find it very helpful, when listening to conservative politicians, to classify their views using this distinction. Wall’s position on carbon pricing, for instance, is a perfect example of a conservative politician being pro-business, rather than pro-market.
Here is how I drew the distinction, way back when:
Those who are pro-market are enthusiastic about capitalism because they understand the virtues of the price system. They know that a properly structured competitive market is the most effective institutional arrangement for ensuring that resources and labour flow to their most productive employment.
The key to their endorsement, however, lies not in the magic word “market,” but rather in the qualifications that precede it. The pro-market camp believes that the virtues of private enterprise lie not in the system of private property per se, but rather in the competition that a properly structured market induces among enterprises. It is this competition that drives innovation, forces productivity gains and, most importantly, generates lower prices for consumers.
Those who are pro-business, on the other hand, are less concerned about the structure of the market, and are more impressed by the incentives that ownership creates. Thus they tend to think that the virtues of private enterprise lie in the business culture that it promotes within organizations, or in the entrepreneurship that it motivates.
These two stances can lead to very different conclusions when it comes to concrete policy questions. With respect to environmental regulation, for example, those who are pro-market are willing in principle to accept such regulations. Firms are entitled to make a profit, but not when doing so involves imposing uncompensated costs upon third parties. Government regulations aimed at internalizing such externalities are legitimate, because these regulations are simply one way of ensuring that the market is “properly structured.”
Those who are pro-business, on the other hand, will tend to follow Milton Friedman in rejecting environmental regulation altogether, on the grounds that it constitutes an illegitimate imposition of “social responsibilities” upon business. (One could see these two perspectives played out last year in the low-level debate that took place in the National Post over the Kyoto Accord, between Andrew Coyne, who is generally pro-market, and Terence Corcoran, who is simply pro-business.)
Some things change, some things never do. That was written in 2003, and yet here we are again, with another iteration of the same old debate.
People who are pro-market support carbon pricing. Why? Because we all know that the current price of carbon – zero – is too low. You don’t have to know how high it should be to know that $0 is not the correct price. (Actually, in practice it’s less that zero, because of the various ways in which fossil fuel production is subsidized.) So in order to get a properly structured market, and to eliminate the unfair competitive advantage that hydrocarbons enjoy over other energy sources in the current market, one needs to put a price on carbon. What will be the effects of raising the price? Who knows? The beauty of the market is that we don’t have to know. What we do know is that raising the price will improve the allocation of resources and increase welfare.
Wall, however, favours a hodge-podge of subsidies, “technology funds” and other government interventions in the energy sector. On paper, it looks like something that the old NDP would cook up. So why is he supporting this? Basically because it involves a lot of hand-outs and give-aways to the private sector, and it doesn’t ask anyone to pay for the cost of their activities. The fact that he supports this suggests that his politics are driven more by identification with the interests of the business class than they are by any principled understanding of how a market economy is supposed to function.
In other words, Wall’s support of the “free market” is not the sort of ideological conviction that arises from a sober assessment of the virtues of private enterprise, but more like a set of ideas picked up on the golf course, from hobnobbing with CEOs. It is essentially class politics, not responsible governance.