Mar 27, 2019

What Do Business Leaders Think about Government Favoritism?

Nine Things to Know
Matthew D. Mitchell Senior Research Fellow , Christian McGuire Staff writer

From Wisconsin’s dubious deal with Foxconn to New York’s failed bid to lure Amazon’s controversial HQ2, government privilege of particular businesses has made headlines in recent months. These events have sparked a national debate about the propriety and effectiveness of this favoritism.

With a recent survey of 500 American business leaders, Mercatus scholar Matthew D. Mitchell adds a new layer of detail to the conversation. He asks these leaders about their personal experience with government favoritism and explores how this experience correlates with beliefs about free markets, about regulation, and about favoritism itself. Here are nine things to know about their responses:

1. Most business leaders (61 percent) believe that their firms benefit from some form of government privilege.

The survey defines privilege to include “direct loans; loan guarantees; subsidies; bailouts (or the expectation thereof); regulatory barriers to competition; tax breaks or privileges such as tax credits, tariffs, or quotas on foreign competition; government-created monopoly; or other assistance.” The average respondent said that their firm benefitted from two forms of privilege. The most common privileges were tax breaks; the second and third most common were direct loans and regulatory privileges.

2. Business leaders who reported that their firms are “favored” are more likely to say that they support the free market, in the abstract.

Respondents were asked “should markets be free?” and given a scale from 0 to 6 on which to log their answers, with 0 indicating markets “should be heavily regulated” and 6 indicating they “should be totally free.” Interestingly, the respondents who believe that their firms benefited from government privileges are about 10 percent more likely to affirm the principle that markets should be free.

3. But they are also more likely to say that, at present, the US market is “too free.”

While the respondents who self-identify as working for favored firms are supportive of free markets in the abstract, they are also more likely (by about 10 percent) to say that the current US market is too free. Furthermore, they are five percent less likely to say that the current American market is “not free enough.”

4. They are more likely to support government efforts to favor certain firms.

Mitchell recently wrote that the newfound popularity of socialism in some quarters is partially attributable to people who confuse crony capitalism with a genuinely free market. It seems that confusion might extend to some business leaders as well. Despite having a higher degree of support for free markets in the abstract, those business leaders who work for favored firms are twice as likely as leaders from non-privileged firms to support government favoritism.

5. They are three times more likely to hold contradictory beliefs about favoritism and free markets.

A genuine free market is incompatible with favoritism. And most business leaders—whether they work for favored firms or not—seem to understand this. But compared with business leaders at non-favored firms, those business leaders who work for favored firms are three times more likely say that markets should be free and government should favor particular firms or industries.   

6. They are more likely than other business leaders to believe that markets should be heavily regulated.

Business leaders who work for privileged firms are more likely to say that regulation is beneficial, both for the economy as a whole and for consumers in particular. To be precise, working for a privileged firm is linked to a 16 percent higher chance of saying that regulations are beneficial for the economy, and an approximately nine percent higher chance of saying that regulations are beneficial for consumers.

7. They are more likely than other business leaders to view competition as “unfair.”

Competition is an integral part of the free market system. But respondents who say their firms benefit from government favoritism are 8.5 percent more likely to say that competition is unfair to business, and over 10 percent less likely to disagree with that statement.

8. They are less likely to say that customer focus or a unique business model are important.

Compared with other business leaders, those who work for favored firms are 9.8 percent less likely to say that the most important factors in business success are customer focus or a unique business model.

9. They are more likely to say that favoritism or connections matter.

Business leaders at favored firms are more than seven percent more likely to say that the most important factors in business success are government connections and assistance.

While most of the public’s attention has gone to a few high-profile examples of government favoritism, it seems that large numbers of business leaders believe that their firms benefit from public privileges. Furthermore, the attitudes of these business leaders are substantially different from those of their non-privileged peers on a number of economic and political issues. While the debate over ‘government-granted privilege’ isn’t likely to end any time soon, these responses give us a valuable insight into its extent, as well as the beliefs that are often associated with it.

Support Mercatus

Your support allows us to continue bridging the gap between academic ideas and real-world policy solutions.Donate