I believe that government has an important role to play in a capitalist economy, although that role is clearly much smaller than in a socialist economy. If we accept my premise that capitalism generally results in an optimal solution as long as its basic principals hold up then it follows that the primary role of government in a capitalist economy is to enforce the conditions that allow capitalism to reach its highest efficiency.
This means regulation. Regulation has become a dirty word among those who claim to support capitalism. They purport to believe that any government interference in the free-market is a hindrance. Nothing could be further from the truth. The people who make that argument either fail to understand capitalism or are intentionally attempting to subvert it to provide an artificial competitive advantage for themselves.
The question is not whether regulation is good or bad. The question should be “What is the purpose of the regulation and how does it enhance the basic tenets of capitalism?”. There are smart regulations and ineffective ones. Smart ones are those that reduce impediments for entrepreneurs to enter the market, increase the flow of accurate information, and ensure that competition between produced is based on who can produce the best product at the lowest cost and not on who is best able to obstruct competitors, obscure the flow of information, and otherwise gain an artificial competitive advantage.
In addition there are sectors of the economy in which the basic tenets of capitalism are not applicable. These are generally termed “the public sector”. For instance it is difficult to imagine how the private sector could provide national defense or protection from criminals. Where would the profit come from to provide incentive to entrepreneurs? Where would the competition come from? Two armies? Two school systems?
Some projects are simply too large to expect private industry to be able to undertake. Consider the interstate highway system and the national park system. Would it be possible to build two interstate systems and allow consumers to choose between them? Two national park systems? Two space programs? There is a need at times for some top-down planning in the public sector but that doesn’t mean that the public sector has to build and maintain them. As long as competition and profit can provide incentive the private sector should be allowed to work its magic.
Some things, such as defense are clearly in the public sector. Some things, such as the production of automobiles, are clearly in the private sector. Still other things, such as health care and education are not so obvious. Arguments can and have been made for both but those arguments are generally made premised on some esoteric and undefendable, but deeply held and emotional ideas such as “health care is a universal right” and “free markets are always better than government”. My goal is to discuss these issues in terms of the basic principals of capitalism. How have those principals been violated to result in so much inefficiency that they have become political issues and how might those principals be applied in such a way as to produce an optimal result. There may ultimately be disagreement as to what truly belongs in the public or private sectors but hopefully discussing them in these terms will provide more areas of agreement than exist in today’s heated political environment.