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date: 13 June 2021


Abstract and Keywords

The Overview to this book starts by explaining the development of the field of the study of the relationship between business and government. Both, it states, are major forces in our lives, locked in a relationship with each other. The nature of that relationship varies across countries, over time, and between different sectors of the economy. The concern of this book is with the efficacy of the relationship between business and government. This book reviews the state of the literature across a number of disciplines, but it also identifies areas for future work.

Keywords: business and government, relationship, development, efficacy, literature, future work, economy

The relationship between business and government is undeniably important: both are major forces in our lives. They are locked inextricably in a relationship with each other, but the nature of that relationship varies over time and between countries, firms, and sectors of the economy. At a fundamental level, the exercise of power by business has implications for democracy. Some would see it as a threat to democracy, while others would regard a successful free market economy as a precondition for the existence of democracy.

That is an important literature, but our concern here is also with the efficacy of the relationship between business and government. If it does not work well, desired economic goals such as growth and employment will not be secured. It also makes it difficult to tackle global public bads such as climate change. If business is constrained too much by poorly designed and executed government interventions, the tax base that funds merit goods such as public health services and education will be undermined.

Markets are not naturally occurring phenomena; they need to be embedded in a structure of laws and rules. Without such a framework, markets cannot function and deliver net welfare gains. Governments are therefore impelled to make interventions in markets, although their extent and nature varies over time in response to prevalent ideological frameworks and the state of the economy. The quality of government interventions in markets conditions their long‐term success in developing such benefits. Equally, sometimes the state has to intervene to save markets from themselves and to guarantee their continued existence, as in the crisis of 2008. Particularly (p. 2) in response to such crises, but also at other times, governments, depending in part on their partisan composition and long‐term national perspectives on the legitimacy and desirability of intervention, may intervene to try to restructure their national economies. The reproduction of such interventions at an EU level has been advocated and even attempted, but with relatively limited impact.

Business is a key political actor. It dwarfs other interest groups in terms of resources and political displacement. It touches most areas of public policy. Business helps to shape policy agendas, formulation, and implementation. The driver of this involvement is that the costs of doing nothing can be considerable. It may result in legislation or regulation that has substantial intended or unintended consequences for business and competitiveness. For its part government has to become involved with business because left unchecked it can inflict substantial costs on society in terms of various forms of market failure, for example, anti‐competitive behavior that prevents the benefits of competition being realized and negative externalities such as pollution. Following Polanyi's argument that labor cannot be treated as a commodity without having a dehumanizing effect, there also needs to be a framework of employment protection for workers and provision for health and safety at work. If training is simply left to employers, the result is likely to be an undersupply of the skills needed to maintain an economy's international competitiveness. A much broader issue than making the market work effectively is the use of government taxation and spending to redistribute income. The existence of a much skewed redistribution, as in Brazil, can affect a nation's ability to function effectively economically, socially, and even politically. There is also a moral case derived from Rawlsian notions of justice, among other arguments, for redistribution.

The study of business–government relations has grown from a low base point. The subject area is still undersupplied with theory. Early Marxist accounts of business power were often crude “reading off” that ignored the subtleties in Marx's own work. Later work became more aware of the existence of “fractions of capital,” permitting a more nuanced account from a Marxist perspective, but still failed to capture the range and variability of business political activity. Simplistic business accounts of business as one pressure group among many were challenged by Lindblom's account of the structural power of business. The corporatist debate stimulated considerable empirical research on intermediate structures such as trade associations, but deflected attention from the growing phenomenon of political action on their own behalf by large firms. It is in this area of micropolitical activity, exploring the motivations of firms and the extent and or organization of their political activity, that the greatest theoretical deficit exists and one that this volume seeks to remedy.

A number of disciplines have contributed to the study of business–government relations and they are all represented in this volume. Political science has been interested in how business organizes to operate politically and the opportunity structures it encounters. Historical institutionalism and its emphasis on path dependency has been a substantial influence, notably through the Varieties of Capitalism debate which seeks to identify distinctive national patterns of interaction that are shaped by the historical form that the state had adopted. How much these (p. 3) patterns have been undermined by globalization, the core paradigm of international political economy, remains a highly contested issue.

Another approach has been to look at the historical development of ideal typical state forms in which one form supplants another while retaining elements of the earlier form. Thus the regulatory state has become the increasingly predominant state form in developed countries, but substantial elements of the preceding form, the “Keynesian welfare state,” remain in place. Keynes set out a model which enabled capitalist economies to run at a higher level of employment equilibrium than had been possible in the depression of the 1930s, although his model was less useful in coping with the inflation problem that arose when economies were run at a higher level of employment. However, it was only possible to afford an extensive welfare state if unemployment levels were not so high that a great deal of expenditure was spent on benefit to those out of work. The Keynesian model, as developed by his disciples, ran into considerable difficulty in the 1970s and this was one of the factors that led many countries to reduce their involvement in the economy. However, where natural monopolies remained, some sort of regulatory framework was required and this was one of the factors contributing to the emergence of the regulatory state. The concept of the regulatory state has been developed in the work of Moran (see his chapter in this volume). The state has understandably played a central role in political science analysis, particularly after it was “brought back in,” but this has arguably produced an imbalance in analysis that has led to an insufficient focus on the firm as a political actor with the political side of the equation often been conceived in terms of the intermediaries privileged by the neo‐corporatist tradition. The state sets the rules of the game for business, but the game can be played in different ways both strategically and tactically.

Economics, and in particular the microeconomic tradition of rational choice that is concerned with understanding the behavior of utility maximizing agents, has drawn our attention to rent‐seeking behavior by interest groups. By modeling the firm as a profit maximizing entity, economics has provided us with robust and testable models of micro‐level behavior. These have not been matched in political science by a political theory of the firm. Economics identifies cases of market failure that may justify state intervention, but also reminds us that attempts to remedy a market failure may simply lead to government failure. From economic history we learn that abstention from intervention, or the wrong interventions, may worsen an economic slump as in the 1930s.

Business studies have led the analysis of the growing phenomenon of corporate social responsibility, its motivations and consequences. It has also drawn our attention to the distinctive characteristics, agendas, and needs of small firms. Through the use of the case study method it has brought out the complexity and dynamic nature of the challenges facing the individual firm. A longer term perspective on these challenges has been provided by the work of business historians which has helped us to understand the importance and consequences of changes in the management structures of firms over time as ownership and control became separated.

(p. 4)

Legal studies focus on what it means to be a corporation in terms of rights, responsibilities, and liabilities. What are the political consequences of the legal personalities of corporations? How are corporate executives constrained by law? Thus as Shaffer notes in this volume corporations are not naturally occurring phenomena but are created and structured by laws.

Unfortunately, this work within different disciplines has not been well integrated. Each captures a bit of the reality. Knowing one piece without having any sense of the whole gives incomplete, even misleading results, such as being impressed by the poor lobbying performance of US business in the 1950s without appreciating their more general strength in US society (notably the “military–industrial complex”) and the global economy could lead to misleading inferences about their weakness. There have, of course, been cross‐disciplinary influences, notably through Olson's work on the logic of collective action which has had a profound impact on the debate in political science about business political activity.

While there are considerable continuities in business–government relations in particular countries which have not been swept away by globalization there is also substantial instability. Some of this is evident in short‐term fluctuations. The nature of the exchange between business and government can change over quite a short time period, shorter than might be implied by some of the propositions of the Varieties of Capitalism literature. Fluctuations in the policy cycle and policy outputs will influence the nature of business–government exchanges. In periods of high legislative activity, the emphasis is on speedily available informational outputs. In periods of low legislative output, the focus is more on building downstream relationships and consultation. This could involve deepening relationships with one set of interests or it could lead to a process of broadening out to other interests. However, business–government interactions can also shift in the longer term in response to changes in market structure and the political system.

In the post‐war period the dominant economic model was that of the mixed economy, a market economy with substantial government involvement. Government often owned public utilities or at least regulated them very tightly. Many governments engaged in indicative planning, although such efforts often foundered on the autonomy of the firm when it came to key investment decisions. This was succeeded by a period in which the market was seen as the preferred logic of economic activity, reflected in the preferences of the Thatcher government in the UK and the Reagan administration in the US and at an international level by the “Washington consensus.” Neo‐liberalism began a long march through the institutions. It should be emphasized that neo‐liberalism was about redesigning markets and restructuring them, rather than simply relying on the market to deliver desired outcomes. The role of the state did not diminish as much as was sometimes claimed, but it was seen more as the servant of the market and of business than its controller. Thus, while regulatory frameworks generally remained in place, they were often interpreted in a looser way or enforced less strictly, although there was considerable variation by country and in terms of forms of regulation.

(p. 5)

Does the financial crisis of 2008 represent the start of a new era in business–government relations? It is difficult to believe that it will be “business as usual.” In particular, regulation of the financial system is likely to be tighter given that it represents a distinctive and particularly serious form of market failure. Trust in business, and in particular in banks, has been damaged and will take a long time to recover. However, there is no viable alternative model to free market capitalism on offer, even if it is likely to experience a period of state market capitalism. This has already involved the provision of very substantial sums of government money to bail out banks and industrial firms, but the US and UK governments have seen these as temporary interventions from which they have remained at arm's length. New formulations may arise, not least in France with its “dirigiste” tradition, but President Sarkozy's call for a European industrial policy received an unsympathetic reception from other member states. Governments are eager to disengage from their involvement in banks and troubled automobile companies, but it is often easier to get in than get out.

The relationships analyzed in this volume are therefore of fundamental importance. This book reviews the state of the literature across a number of disciplines, but it also identifies areas for future work. The debate has been going on for over fifty years, and many insights have accumulated, but there is a sense in which it has only just begun. (p. 6)