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However justified it may be, increased state intervention risks being counterproductive


THEN THE SURFACE business has rarely been so good. Profits and stock prices are near record highs. Pandemic relief programs have involved little pressure from governments and a lot of corporate welfare. Megadeals are at an all time high in America and abundant elsewhere. What not to like?

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As this special report has argued, not bad. Today can prove to be a highlight for businesses. Almost everywhere people are more suspicious of it. The same goes for their political representatives. The result is that the state wants to have more say in what companies do, where they operate and how they are managed. Anti-business sentiment makes it harder for businesses to defy calls for new rules or higher taxes.

Some of them are quite reasonable. For-profit companies cannot be expected to voluntarily pay more taxes or tackle challenges as huge as climate change and income inequality on their own, let alone geopolitical bickering. Milton Friedman is renowned for saying that business is business. Businesses may need incentives to do the right thing.

But incentives must reject favoritism, stimulate dynamism and maintain openness. And many of them that are being talked about now or that are being enacted do not. After having buried the era of great government under Bill Clinton, Democrats enthusiastically dig it out, even some Republicans cheer them on. The conservatives in power in Britain have lost their Thatcherite moorings. the I, a project with a strong interventionist reflex from its inception, gave way. China has steadfastly moved away from liberalizing its economy to enter a new era of overt state leadership and control over business.

Political leaders believe again that they can pick winners, and some bosses are only too happy to be chosen. Regulators are increasingly introducing rules and using those designed for one goal (promoting competition or good corporate governance) to achieve others (data privacy or workforce diversity). Governments see friendless businesses as a convenient piggy bank. And countries are turning in on themselves, ignoring international trade.

Dangerous changes

These changes have two dangers. As the state becomes more involved in business, regardless of the good intentions of its motives, the attention of businesses tends to shift from satisfying consumers to seeking favors from political leaders. Favorite companies are getting softer and less innovative. The regulations dampen the animal spirit. Cronyism is at the tip of its nose. Some elected win big. Everyone else is the losers.

The second danger is more subtle. As some businesses and governments become friendlier, others may conclude that they have no choice but to do the same, especially if the comfort seems to work. This could lead to a soft and self-imposed decoupling, even as traditional trade barriers increase as well. “You see the flow of people, technology, capital all shrinking,” observes Hank Paulson, the former US Treasury secretary. A European industrialist predicts: “The era of scarcity will lead to more selfishness.

The world has been here before. Post-war state interference, inspired by the belief that only governments could rebuild societies after 1945 and by the apparent success of central planning, led to faltering dynamism and, with the end of the 1970s, at uncontrollable prices and stagnant living standards. It was not until the 1980s, after the economic failures of the West and the collapse of the Soviet system became evident, that liberal remedies or freer markets, lower taxes and greater openness came into being. turned out to be more attractive.

China is not doomed to failure like the Soviet Union was. Its economy is more sophisticated and, in its pockets, truly innovative: look at Alibaba and Tencent, its digital titans. Yet his model is not a superior form of capitalism. Despite all of its progress, China is poor by Western standards, leaving room for state-led catch-up growth. China’s most impressive companies, including big tech ones, have thrived in markets that until recently the state mostly kept at bay. By focusing attention on China’s top-down policymaking rather than its bottom-up entrepreneurial effervescence, some in the West are learning the wrong lessons.

China’s course seems set for the foreseeable future. But moving away from today’s interventionist mindset remains possible in the West. Conservatives can rekindle their inner Thatcher. As a club governed by consensus, the I Nordic liberals perhaps listen more when they say that “strategic autonomy” is little more than a cloak for protectionism. The small Clinton government may seem like a lost cause among Democrats, but Republicans’ pro-market memory may come into play if they can only disavow Trumpian populism.

The great liberal principles rediscovered in the 1980s remain as powerful as they were 40 years ago. For this reason alone, political and business leaders attack them at their peril. The precepts are also valuable in themselves, as expressions of freedom: for entrepreneurs to invent, for consumers to choose and for citizens to live as they see fit. This is why it is essential to defend them against attacks from populists, opportunistic cronies in the private sector and those who have lost faith in free markets. Despite all its imperfections, liberal capitalism remains a vital force for good.

This article appeared in the Special Report section of the print edition under the title “La response libérale”

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