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Why Business Needs A Stronger And Wiser Uncle Sam


Economic Viewpoint

WHY BUSINESS NEEDS A STRONGER--AND WISER--UNCLE SAM

The American contempt for government, paradoxically, is harming American free enterprise. The prevailing view, of course, is that strong government and efficient private business are adversaries--that big government and excess regulation damage entrepreneurship. But when we descend from the realm of theory and get down to cases, the story becomes far more complex.

Exhibit A is health care. Other industrial nations are less fearful of government, and they empower it to regulate competently. Efficient, consensual regulation--not a contradiction in terms--explains why Germany, for example, is able to have a health system as advanced as ours but at a cost of 8.2% of gross national product, rather than our 12%. Their system stops short of government health insurance, but the German government does regulate everything from doctor and hospital charges to capital outlays. The government has the expertise and the public consent to do the job competently, so there is little of the waste and the cost-shifting that plague our nonsystem.

Exhibit B is banking. During the 1980s, we confused two concepts--regulation and supervision. Not only did the government substantially deregulate and allow financial institutions to compete for deposits and invest more adventurously, it also walked away from adequate bank examination and supervision. Our system today is paying a heavy price for that confusion. Interestingly enough, other major banking systems give their banks much broader powers--but nobody in Britain, Canada, France, Germany, or Japan seriously advocates weakening bank supervision. Indeed, the logical precondition for viable deregulation is strong supervision. The result is that nations with stronger government supervision enjoy stronger banking systems. This offers real financial advantages to our competitors, as well as an absence of banking failures. We alone have that expensive legacy of laissez-faire.

MISPLACED TRUST. Exhibit C is worker training. Other advanced industrial nations make up for the failure of the private market to adequately invest in human capital. France requires that companies either spend 2% of their earnings on training or pay a tax into a common training fund. Sweden spends 2% to 3% of its GNP on worker retraining through a system of local labor-market boards responsible to management, labor, and local government. Germany has a world-class system of classroom instruction and on-the-job apprenticeship, which turns out first-rate technical workers. Trusting the market, fearing government, we have none of the above.

The common element in all of these cases--and others--is our relative failure to allow government to do its job competently. The common consequence is competitive disadvantage. Our distrust of the state dates back to the flight of the Pilgrims from England, the Declaration of Independence against the crown, and to our Constitution, which sharply constrained the very government it invented. The problem, however, is that this deep libertarian streak in the national character weakens our ability to use government as an instrument of common purpose.

Moreover, unlike the Europeans or the Japanese, we have seldom given public service the respect, prestige, or pay that other elites in society command. As a result, the brightest young people who go into civil service today see it as a stepping stone to a career in law, consulting, or private business rather than as a worthy career in itself. The legal whiz who stays in a regulatory commission beyond, say, age 35, at one-fourth the salary paid to a comparable private power-lawyer, is either very dedicated or a fool.

VICIOUS CYCLE. This skimming off of the best and brightest deprives our public agencies of both institutional memory and competence. Given inept government, we keep government weak, which sets up a vicious cycle. In his recent book, The Democratic Wish, political scientist James A. Morone of Brown University describes a recurring pattern in American history: a dread of government, followed by a chronic anger that government fails to deliver--which perpetuates dread of government.

Yet another costly side effect of our congenital distaste for government is an explosion of litigation. As Daniel K. Tarullo noted in the Spring, 1991, issue of The American Prospect, stronger government is better able to broker consensual solutions to difficult social problems. In the absence of social brokering through competent regulation, conflicts don't go away; private litigation fills the vacuum. The flip side of rugged individualism and weak government is endless lawsuits. Not surprisingly, Europe and Japan suffer far less litigation. Professor Theodore J. Lowi of Cornell University calls our peculiar system "jellyfish government": The government is everywhere--and too weak to be of much constructive use.

Someday, Americans will wake up to the fact that a feeble government as well as an overbearing one can erode our liberties. Competent government and efficient enterprise are complements, not opposites. In the meantime, our fetish for crippled government also cripples American enterprise.ROBERT KUTTNER


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