CAMBRIDGE – A businessman walks into a government minister’s office and says he needs help. What should the minister do? Invite him in for a cup of coffee and ask how the government can be of help? Or throw him out, on the principle that government should not be handing out favors to business?
This question constitutes a Rorschach test for policymakers and economists. On one side are free-market enthusiasts and neo-classical economists, who believe in a stark separation between state and business. In their view, the government’s role is to establish clear rules and regulations and then let businesses sink or swim on their own. Public officials should hold private interests at arm’s length and never cozy up to them. It is consumers, not producers, who are king.
This view reflects a venerable tradition that goes back to Adam Smith and continues a proud existence in today’s economics textbooks. It is also the dominant perspective of governance in the United States, Britain, and other societies organized along Anglo-American lines – even though actual practice often deviates from idealized principles.