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The Paradox of the
Statist Businessman

by Theodore J. Forstmann

ossibly because I was never properly trained at a business school, I have always found entrepreneurial capitalism appealing, easy to understand, and as natural as walking or breathing. It is an economic model that focuses on growth and allows the individual the opportunity to employ his God-given talents. Success can be pursued and failure tolerated--in short, that is the way the world should work.

So when Ed Crane [Cato Institute president and CEO] asked me to talk about the statist businessman, two things immediately struck me. The first was the theoretical contradiction in terms as, of course, most ordinary citizens would equate the word businessman with capitalist, not statist. The second was that it would be difficult to find anything too nice to say about that particular breed. But since I don't want to end up sounding like one of the retirees in southern Florida who went to a restaurant one night and complained so much that the waiter finally asked, "Is anything all right?" I want to preface my remarks with something that is right. It's a quote by Domingo Cavallo, finance minister of Argentina. "Each peso," he stated--and you could substitute "dollar" or any other currency--"is a contract between the government and the peso holder. That contract guarantees that each peso--as a unit of value that the holder has worked hard to get--will be worth as much tomorrow as today. If the government breaks the contract, it's breaking the law. The only role of government in the economy should be to guarantee the integrity of market transactions."

That's a simple statement, but somewhat revolutionary--revolutionary because its premise of a passive, limited government is radically different from the activist role government assumes today. But these are revolutionary times, and the real revolution is one that reaches beyond politics and partisanship to challenge some very basic assumptions about the way the world works. Our new Speaker of the House, Newt Gingrich, has warned that "American businesses can't win in the marketplace for products and services if they concede defeat in the war of ideas." The battle lines of that war are not drawn so much between Republican and Democrat, or even conservative and liberal, as they are between two diametrically different worldviews.

The Statist Worldview

One view begins and ends with government. It is of a statist society in which the government regulates and mediates most human relationships--economic and otherwise. The other view begins and ends with the individual. It is of a civil society in which people organize themselves through voluntary association and exchange. Statist society promises you happiness in exchange for the better part of your freedom. Civil society merely guarantees your freedom. Happiness is up to you.

Perhaps we can understand the statist impulse on behalf of the unskilled and unschooled, the disabled and the disenfranchised, the infantile and the infirm. But why would the businessman choose to bargain with his most precious capital--freedom?

It would be easy to dismiss the statist businessman as either a knave or a fool. The sad truth is that he's neither. Remember what Voltaire once said: "It is dangerous to be right when the government is wrong." The statist businessman is simply doing his job. He's probably just part of a big corporation. He didn't make the rules; he just follows them. He doesn't ask why the government holds all the cards; he simply accepts the hand he's dealt. To play it safe, the bureaucratic businessman plays along.

But by joining rather than fighting the forces of an activist big government, he becomes part of the problem. Indeed, he becomes a significant part of the problem to which he contributes in three ways. Number one, he is a conservator--not a creator. Number two, he is a lobbyist. And number three, he is used as an argument against capitalism even though he is not a capitalist at all.

My first point is that the statist businessman is a conservative in the most literal sense of the word. He is a caretaker, not a risk taker. Rarely the owner of his own enterprise, he places a premium on permanence over growth. In his mission to preserve and protect, he seeks state shelter against what Schumpeter called "the perennial gale of creative destruction." Put simply, he wants government to guarantee him security without risks, the opportunity to succeed without the possibility of failure.

The taxicab driver, the dry cleaner and the barber can't operate that way. They don't have accounting departments; they can't afford to hire lawyers and lobbyists. The small businessman is close to the ground while the big businessman is flying at 50,000 feet above it--and at that altitude you don't see individuals, you see aggregates. The barber doesn't deal with aggregates; he deals with electricity bills and supplies and customers. As George Burns once said, "It's too bad that the only people who know how to run the country are too busy driving cabs and cutting hair."

Given the essential conservatism of corporate culture--the aversion to risk, the resistance to change--you'd think that the statist businessman would quickly become a casualty in our ever-changing economy. If we were operating in a truly free market, he would. But he has bought himself insurance against that eventuality, which brings me to his second contribution.

Businessman as Lobbyist

The statist businessman is, by definition, a lobbyist. Having made his peace with 20th-century collectivism, he is fundamentally concerned with "who gets what" from government's redistributive powers. He seeks subsidies for himself and penalties and regulations for his competitors. He is the miserable figure Ronald Reagan described as the fellow who hoped the crocodile would eat him last.

After the election I read an article that reported that corporations and business PACs that had supported Democrats during the campaign were now tripping all over themselves to pay off the campaign debts of the Republican winners. It's called "catching the late train" in politics, and its destination is Washington. Those corporate contributors did not have some sort of epiphany or conversion; they merely reshuffled their political portfolios. In the words of one donor, "We don't really look at it as an eraser on the pencil, but as a way of letting the winner know we'd like to be the same friend to him as we were to the guy he defeated."

It's that kind of "friendship" that Secretary of Labor Robert Reich called into question when he challenged Congress to cut "corporate welfare." Using a list drawn up by the Progressive Policy Institute, Reich estimates that the federal government could save $225 billion over five years by cutting what he calls "Aid to Dependent Corporations"--welfare for the wealthy in the form of special subsidies and tax breaks. The list includes such things as tax breaks for pharmaceutical firms operating in Puerto Rico, credits for producers of ethanol, subsidies to farmers whose food sells at below government-set prices, and subsidies to utilities serving rural areas long after electrification--the program's original purpose--has been achieved. The statist businessman would tell you that Reich is completely wrong. I don't agree. Amazingly, I believe he is completely right. Subsidies granted to particular corporations by the government are quintessentially anti-capitalist. But predictably, of course, Reich is right for all the wrong reasons. He wants to cut corporate welfare so that he can expand social welfare. He's in favor of limiting business's claim on government--he's not in favor of limiting government's control of business. He's eager to abolish subsidies--not penalties. Because of that, statist Republicans will complain that Reich is hostile to capitalism. They are right. But remember, in this Alice in Wonderland debate, the programs he seeks to cut have nothing to do with capitalism to begin with.

Trashing Capitalism

The bureaucratic businessman is no better than any other special-interest group that feeds off of Washington. But in one important sense he is much worse, which brings me to the third part of the problem he creates. Lobbyists give a bad name to the things they lobby for. The NEA gives a bad name to education. The AMA gives a bad name to medicine. But the statist businessman does not give a bad name to statism; he gives a bad name to capitalism!

The quote that's always trotted out to indict capitalism is from Thomas Murphy, former chairman of GM. "General Motors is not in the business of making cars. General Motors is in the business of making money." In a truly free market, you wouldn't be able to make money without making a quality product. But the bureaucratic businessman is constantly finding ways around that difficulty. For instance, he can lobby the government for trade sanctions against Japan. He can lobby the government for subsidies. He can lobby the government for a taxpayer-paid publicity campaign. There are all sorts of ways that one can subvert the free market and still make a buck--all in the name of capitalism!

By committing statist sins under capitalist cover, the bureaucratic businessman bears false witness against the free market. And that's why I'm here today simply attempting to clarify the terminology of this debate. Think of it: we live in a world today where the liberals are really the conservatives; the conservatives are really the liberals; and half the businessmen aren't even capitalists. That's why I suggest that we anchor our debate to Cavallo's very simple definition of the role of government: "to guarantee the integrity of market transactions."

What does it mean, for example, when the president tells us, as he did in the State of the Union address, that the federal government still wants to be "partners" working "hand in hand" to help the middle class? Given the monumental evidence of government failure over the past 25 years, I'm not sure whether we should interpret that as a promise or a threat. Clinton is promising, once again, to "reinvent government." But what he doesn't understand is that the people don't want government reinvented; they want it reduced. They don't want bureaucracy modernized; they want it minimized.

What should we think when the president proposes a budget that would spend $1.6 trillion and then tells us how much money that's going to save? When we're told that our government will spend $1.6 trillion next year, our eyes glaze over. That's because trying to imagine $1.6 trillion is like trying to imagine eternity or infinity. Finally, what does it mean when Republicans and Democrats alike warn us about all the "pain" involved in cutting government spending? Where's the pain in their spending less of our money? Maybe it's painful for the politicians, but for the average citizen, what pain is there in keeping more of his own money to invest the way he wants?

I also wonder what Mr. Cavallo would say about the whole debate over how much different plans to cut taxes would "cost" government. No government in the history of the world has borne the cost of anything. Taxes cost people. Tax cuts do not cost government.

Those simple principles are as true for Arizona as they were for Argentina. And it was a senator from Arizona who perhaps articulated them best. "I have little interest in streamlining government or in making it more efficient," said Barry Goldwater, "for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution, or that have failed in their purpose, or that impose on the people an unwanted financial burden. . . . And if I should later be attacked for neglecting my constituents' 'interests,' I shall reply that I was informed that their main interest is liberty and in that cause I am doing the very best I can."

We should be thankful that we're not in the situation we found ourselves in only 20 or 30 years ago, when many feared--or hoped--that we were on the verge of becoming a socialist America. No one talks, as George McGovern or John Kenneth Galbraith once did, of nationalizing industries. By and large, the question of whether government can improve on the free market has been settled, and the answer is "no, it can't." It can't because that's not its role.

Extending the Capitalist Revolution

The question for the 21st century will be whether the free market can improve on the government, and I believe the answer is, "Yes, it can." As we look ahead to the challenges of tomorrow's globalized economy, the answer is not just that it can but that it must.

I am talking not just about the direct costs of exorbitantly expensive socialist policies; I am talking not just about the opportunity costs of all those who will not be joining us in creating the new economy; I am talking about the price of the continued human degradation of those whom statism has failed to help and capitalism has failed to reach. That situation is not just morally unconscionable, it is politically untenable. Remember, the statist businessman does not discredit statism, he discredits capitalism. And believe me, any increases in joblessness, or homelessness, or child poverty since the day the 104th Congress convened will be seen not as statist failures but as capitalist failures. If we were either a statist country or a libertarian, free-market economy, we'd know what to do. But we're neither. And we're both.

The hardest thing for a country to do is to cross the bridge of revolution. That's because no matter how bad things get on this side of the bridge, there's always the fear that things on the other side could be even worse. I believe that as we approach the 21st century, we need leaders who can tell us stories of the future--leaders with a vision of what life looks like on history's other side. Because in the final analysis, revolutions are fueled not just by frustration, not just by theories, not just by outrage, but by a vision of a better future and the will to cross the bridge. NJ

*Who is Ted Forstmann?

Theodore J. Forstmann is co-founder and senior partner of Forstmann Little & Co., an investment firm with an unparalleled 20-year record of investment performance. Investing nearly $15 billion in 23 acquisitions, he is well known for creating huge improvements in businesses such as General Instrument, Dr. Pepper and Gulfstream Aerospace, where he led a spectacular turnaround resulting in billions of dollars in profits for his investors. In addition to his success on Wall Street, he has long been committed to numerous philanthropic causes dedicated to helping children. Most recently, as co-chairman and CEO of the Childrenšs Scholarship Fund, Forstmann led the effort to create equal educational opportunity through a competitive educational environment by providing $170 million worth of scholarships enabling 40,000 low-income children to attend the school of their choice. He delivered these remarks at the Cato Institutešs 1995 Benefactor Summit, held outside Tucson, Arizona. They are reproduced here by his permission..


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