By Katharina PISTOR
For decades, we have been told that government-operated businesses are bad for the economy. A staple of the “Washington Consensus” that emerged in the 1980s was that “private industry is managed more efficiently than state enterprises,” because the threat of bankruptcy keeps managers in private companies focused on the bottom line.
Originally formulated for countries in Latin America and then applied during the post-communist transition in Central and Eastern Europe, the Washington Consensus has been the dominant economic policy paradigm ever since.
But what happens when business people are in government? What does it mean for people’s ability to set the rules by which they are governed? Such questions are rarely asked, because bringing experienced entrepreneurs into government is reflexively celebrated.
They supposedly know how to run things efficiently, and their involvement is usually ad hoc. But while recruiting individual entrepreneurs into government is one thing, Donald Trump’s administration appears intent on handing over the entire government to businesspeople.
To be sure, positioning yet another financial tycoon, Scott Bessent, as Secretary of the Treasury is no surprise, given the long list of predecessors with similar backgrounds. Likewise, the rollback of antitrust enforcement and environmental and financial regulation is familiar from previous Republican administrations, often with bad long-term results – from the 2008 financial crisis to increasingly frequent and severe fires, heat waves, and ice storms.
But the second Trump administration is going much further. If a picture is worth a thousand words, the image of Big Tech founders and CEOs (including from Amazon, Meta, and X) filling the front row at Trump’s inauguration is a manifesto.
They were given priority even over the president’s cabinet nominees. While Big Oil and the finance industry were slightly less visible, their shadows also loomed large.
These images sent a message stronger than any verbal statement: not only is this US government “good for business”; it is business. The old adage, “the business of America is business,” has been taken to a new extreme: the government of America is business, too. Call it the New Washington Consensus.
Of course, business has always played an outsize role in American history. A joint-stock venture, the Virginia Company, established the first permanent settlement in North America, and the Dutch West India Company controlled much of the transatlantic slave trade, building forts and settlements in the West Indies and America. More than just public-private partnerships, these entities were rulers in their own right.
And the East India Company, which established British colonial rule over the Indian Subcontinent for almost a century, even asserted its own sovereign power over territories it had conquered. (Though the Company’s Warren Hastings, who had been appointed governor-general of British India, was impeached for this power grab, he was ultimately acquitted.)
History suggests that a “company-state” is at best a mixed blessing. The logic of business leaves little room for freedom unless you are one of the few at the top. Business allows for only two types of humans: workers and consumers – the former as inputs for production, the latter as buyers of products or services. In both cases, people’s only purpose is to help maximize shareholder value.
Thus, labor costs must be kept down, and demand must be kept high, by whatever means available. There is no place for loyalty, community, or individual rights. Top managers in the United States may get golden handshakes (large payouts) when they leave, but workers can be fired at will.
Consumers are portrayed as the lucky ones whose lives are enriched by purchasing products they crave – even when those products sicken or kill them, as in the case of tobacco or alcohol.
The model of boosting profits through addiction has been perfected by today’s big digital companies. The dopamine-boosting “likes,” endless scrolling, and algorithms that make posts go viral all ensure that quitting causes distress akin to drug withdrawal. There are no checks and balances, no mechanisms of accountability, and no defenses against intrusions into one’s personal life.
A simple click upon signing up submits millions of people to private autocracy. And make no mistake: autocracy is what we are dealing with. Markets may be about bargaining among free and equal parties, but firms, as Ronald Coase taught us, are about central control.
Private islands of corporate autocracy have always been in tension with democratic self-governance, and the fate of past company-states suggests that this time it might not end well either. Rebellions and mutinies against the East India Company led British rulers to assert direct control over the subcontinent, and eventually to dissolve the company.
Elsewhere, colonial companies often governed ruthlessly, hiding behind legal protections that shielded them from responsibility before succumbing to excessive debt burdens or mismanagement. In North America, the colonial companies’ charters were gradually transformed into proto-constitutions that limited executive power and gave voting power to the people.
Keeping business out of government is becoming more and more difficult, and not just in the US. The prospect of eliminating controls on private power by seeking public power is too tempting for business leaders with sufficient time and money.
Now that we have watched business take over government in broad daylight, the only alternatives are to democratize business or abandon any pretense of democracy.
Katharina Pistor, Professor of Comparative Law at Columbia Law School, is the author of The Code of Capital: How the Law Creates Wealth and Inequality (Princeton University Press, 2019).
