Monday, February 12, 2007

What Businesses Want

Conventional wisdom hold that corporations love free markets, which is why they don't want to be nationalized. However, some economists note that corporations hate free markets, which is why they lobby the government to get special laws that make their job easier (subsidies, tariffs and so forth). Both have a good point. How do we reconcile this?

The fact of the matter is, corporations love the free market to the extent they love competition. They want a lot of flexibility to sell their product and a lot of flexibility to buy inputs (workers, materials, energy, etc). When selling, they hate competition, thus they want little free market activity. They desire special favors and exclusive contracts. It makes selling easier. When buying, they love the free market. They want the cheapest stuff possible and the ability to change their minds. This is what the free market allows.

So what do they like more? Generally, inputs exceed outputs so companies have more to gain by restricting trade on a particular product than to liberate trade on a different product. But the relationship is far from pure.

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