Government does not “Approve” Capitalism

Detractors of capitalism often blame the market for government. I mean, it couldn’t be any more obvious here. The government (FDA) “approved” a product (cigarettes), which is now sold in a highly regulated market. It must be capitalism’s fault. You know, how leftists claim that “deregulation” has been a problem, and then go blame capitalism for regulations.

It really doesn’t make any sense how they’ve reached this conclusion. Somehow, deregulation equals regulation. More FDA should fix that.

But wait! Market capitalism will save you from the death and despair of de-regulated, FDA-approved cigarettes. Electronic cigarettes were born out of new technology and market demand for a safer alternative or better way to quit real cigarettes.

Of course, when a new product enters the market, the government sinks their teeth into it. This is a unique case because e-cigarettes are a new technology and largely unregulated by the federal government. The FDA, however, is considering the possibilities. Additionally, there are now many state regulations.

Government agency regulation creates a barrier of entry by increasing compliance costs. This slows innovation and reduces product improvement. For example, the pharmaceutical industry in Europe no longer innovates new drugs due to the regulatory costs, especially relative to the United States and Japan.

Markets spawn innovation. Government doesn’t approve of capitalism – only prohibits and restricts it. When government aids a firm to achieve its goals, whether through subsidy or protection, it is not capitalism; it is corporatism.

Two great examples are big agriculture and the Export-Import Bank.

Government imposed price controls on sugar, for example, prop up failing businesses by forcing Americans to pay double the global price for sugar. This is regulatory protection, and it’s no surprise that sugar companies spend millions to lobby for the Farm Bill.

The Export-Import Bank doles out subsidies under the guise of enabling American companies to compete globally. The reality, however, is that massive firms like Boeing, General Electric, and Caterpillar are long time beneficiaries. This is a subsidy that unfairly favors the competitive ability of these firms. If another firm were to compete against them, the advantage of subsidy unfairly promotes a certain outcome.

While capitalism does produce cigarettes, and has been since long before the FDA, the reason why is not government approval. If anything, government approval has only entrenched the existing market from possible competition. At the first threat of competition, government’s immediate reaction is to regulate, tax, and restrict; thus protecting cigarette companies from the forces of a free market. Corporatism and big government will always favor large firms because they have the resources to pay for politics.

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