What really regulates corporations

Among the strangest notions ever to be believed by large numbers of adults is the “progressive” notion that private corporations wield vast and socially destructive powers to the extent that they aren't regulated in fine detail by government. This notion is exactly the opposite of the truth. Yet I know from countless discussions with friends on the left that it is sincerely believed to be true.

But it's bizarre. A corporation operating in the market can only make offers to consumers and to suppliers. Consumers and suppliers — including suppliers of labor (workers) — are free to accept or to reject these offers. With no coercion involved, consumers and suppliers accept only those offers that they estimate will make them better off. Corporations that consistently have too few of their offers accepted must make their offers more attractive. If they fail to do so, they go bankrupt.

Also, corporations have no power to prevent other corporations and entrepreneurs from competing with them. And as the history of market economies makes clear, such competition is unending and intense. The only “power” a corporation can exercise to enhance or to maintain its market share is to continually produce better mousetraps and offer them to consumers on terms that consumers judge to be better than those of other companies.

Consumers' and suppliers' abilities to reject corporations' offers, along with the incessant struggle of corporations and entrepreneurs to take business away from each other by making better offers to consumers and suppliers, regulates the market. This regulation is far more reliable, objective and fast-acting than are the government edicts and bureaucratic supervision that are today called “regulation.” Regulation by the market is far more sensitive to the actual wishes of consumers and suppliers. Market regulation is also immune to the many political pressures that infect regulation by government.

There's more: Corporations exist side by side, each serving different consumers simultaneously. Bill doesn't like beer, so he buys wine. But Bill's neighbors fill their fridges with beer. To get wine, Bill doesn't have to persuade his neighbors also to choose wine over beer. Each consumer gets what he or she wants.

Government policies, in contrast, are one-size-fits-all. The woman who would take a chance on a miracle drug can't do so if the FDA deems that drug too risky. Also, unlike with private corporations, if you disapprove of some government policy, it's impossible for you to reject that policy unless you move out of the government's jurisdiction.

Progressives object to this claim by pointing to the right to vote. Yet the ability to vote is of no practical use to any individual.

“Heresy!” the progressive replies. But ask yourself how useful your vote is for avoiding government policies you dislike. Unlike in the market, you are in reality a slave to the will of the majority, with no practical ability to avoid “consuming” policies that you find objectionable.

Why progressives believe that an imperious one-size-fits-all government, ruling from a distant capital and always prone to favor politically powerful elites, is somehow necessary to protect ordinary people from corporations is a deep mystery.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.