If politicians called the shots in business we’d probably all starve

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Appeared in the Ottawa Sun, April 12, 2023
If politicians called the shots in business we’d probably all starve

Government ownership of business is an idea, quite appropriately, in wide disrepute. But government ambitions to control business never cease, so members of Parliament are employing the more publicly accepted strategy of trying to browbeat private businesses into serving political and social objectives.

For example, the Trudeau government recently grilled Google executives and attacked Meta (Facebook) over their responses to a government bill that would make Big Tech companies pay when their platforms display links to Canadian news sites. And earlier this year, a Parliamentary committee interrogated grocery store executives over their corporate strategies and food prices.

Presumably federal politicians and supporters of governmental inquisitions of private companies think government control of businesses would make everyone better off. But it’s a primary insight of modern economics that the public is better served by profit-seeking businesses than politicians and others purporting to force businesses to operate for the public good.

As Adam Smith famously wrote, “I have never known much good done by those who affected to trade for the public good.” Profit-seeking businesses, on the other hand, do effectively serve the public. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” Smith observed, “but from their regard to their own self-interest.”

Google, Meta, Loblaws, Sobeys and other companies must promote the interest of their users and customers. They operate in competitive environments, and if their users or customers find another company with a better offering—in terms of price, convenience, user experience, product quality or anything else—their businesses and shareholder equity will decline.

Economics journalist Henry Hazlitt shared Smith’s skepticism of government owning, controlling or running business for the public good. “The politicians who keep themselves in power by conciliating pressure groups,” he said, “will of course have only concern for ‘the general social advantage,’” but businessmen “whose success depends upon the degree to which they satisfy consumers, will of course have no concern.”

The ongoing political attacks on grocery stores juxtaposed with federal agricultural policy provides an excellent illustration of this point. The favourite whipping boy of federal politicians is Loblaws. Its company value (which includes grocery stores, pharmacy and banking businesses) is $37.4 billion. Meanwhile, the value of farm quota in Canada is $43.8 billion as at the end of 2021.

Loblaws’ $37.4 billion company value is approximately its expected future net income to shareholders over the life of the company discounted to the present day—income it can only earn by satisfying customers better than its competitors. Meanwhile the $43.8 billion quota is the purely artificial monopoly value of government privileges that restrict farm output with the intention and effect of driving up food prices in Canada.

So even if Loblaws shareholders all agreed to turn the company into a non-profit, driving the company value down to zero, and using all that money (which again includes income from its pharmacy and bank) to lower food prices, it still would not offset the federal government’s deliberate efforts to drive up food prices by creating artificial scarcity.

Whether in technology, food or anything else, we’re fortunate that businessmen—not federal politicians—remain, for the most part, calling the shots. If Loblaws, Sobeys and other grocery chains were run by the federal government instead of Galen Weston, Michael Medline and other capable corporate executives, we would probably all starve.