The Causes of Wealth Inequality (18): Government Backed Corporate Expropriation

Consider these two commonly accepted ideas:

  1. the interests of business and government are incompatible: business wants as little government as possible, and government wants to regulate and tax business for the common good
  2. wealth or income inequality is to some extent or perhaps even principally caused by differences in effort, talent and productivity: those who have greater wealth deserve it.

These ideas have intuitive appeal and are undoubtedly correct in some cases. As overall assessments, however, they are clearly false. Inequality has many causes. Regarding #2: very deserving people may end up very poor, and very undeserving people may end up very rich. Many other factors besides effort or talent determine monetary outcomes, such as disability, the coincidence of place of birth, parental influence, education facilities, tax policy, discrimination, technological evolution etc.

Regarding idea #1: one could just as easily make the case that big business depends on government and uses government to acquire unfair advantages, thereby deepening the inequality gap. These unfair benefits should perhaps even be called forcible expropriation because some people are getting better off at the expense of those who have less, and are using the government for this purpose.

For example, you often see big corporations embracing government regulation of their business (e.g. Philip Morris accepting restrictions on cigarette advertising) because they know that smaller competitors will have a much harder time digesting the regulatory burden (and, in the case of Philip Morris, filling the name recognition gap when advertising is prohibited). Regulation in such cases gives big companies and big earners a competitive advantage, and causes the income gap to widen. Another example of regulation are quality standards: those also favor big existing companies and make it harder for new and smaller players to enter a market. The same is true for intellectual property rules, zoning restrictions, occupational licensing, capitalization requirements and many other types of regulation. Legislation or regulation is often embraced by big business and wealthy economic actors as a means to benefit at the expense of smaller actors.

Some types of collusion between big corporations and government are even more direct and open: protectionist import tariffs, subsidies, bailouts, expropriation of private property for corporate use (through eminent domain rules) and military interventions abroad.

By the way, this logic does not only widen the wealth gap but also drives the growth of government. Big business leads to big government, which in turn favors big business. Even if you don’t identify as a libertarian – and I don’t – you’ll probably do well to accept that government backed corporate expropriation is a thing.

More posts in this series are here.

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