Political Free-Market Prosperity May Be Turning Corner

The political equivalent of a market correction is underway in the relationship between business and politics.

For at least 20 years, business has thrived in the political world. Candidates with business backgrounds have prospered at the ballot box. Business arguments against government regulation have flourished. And reformers in both parties have argued that government should rely more on market forces in pursuing its goals.

Although some of this has been positive, at times the trend toward sanctifying markets has gone to extremes. The free market is an unparalleled engine of prosperity, but it can’t guarantee all the goods a decent society demands. And it isn’t the repository of all wisdom about how society should operate. If the uproar over cooked books and the collapsing stock market drives home those simple truths, it could play a useful function--at least as long as this backlash also doesn’t go too far.

Post-Enron and WorldCom, the balance of power between the political and business worlds is shifting on all three fronts, starting with campaigns.

There’s a long history of business executives with no political experience seeking top offices; the GOP nominated Wendell L. Willkie, a charismatic utility executive (no, that’s not a contradiction in terms), as their presidential candidate in 1940. But, much like the stock markets themselves, the trend has boomed in the last generation.

Six governors today are business people who held no previous political office. Four senators also fit that description. In 1992, Ross Perot applied the model to the most successful third-party presidential campaign in decades.

The business background hasn’t been a sure winner in politics. Some candidates from the executive suites have stalled on the runway. Others have won less because they dazzled voters than because they deluged their opponents with massive TV advertising campaigns financed from their own thick wallets.

But money doesn’t explain all the success of business candidates in the last generation. They’ve also had a wind at their backs: the public’s declining confidence in government, and rising faith in business, especially as the market soared in the 1990s. Business candidates have sold the argument that their corporate experience would enable them to run government more efficiently, and they successfully touted their lack of political experience as an asset--emphasizing their distance from a political system widely seen as corrupt.

An unusually large class of business candidates (especially in gubernatorial races) has been vigorously pressing those arguments this year. But now almost all of them are under fire for their own business dealings. The trend is bipartisan: Texas Gov. Rick Perry, a Republican, has been denouncing the business ethics of his Democratic rival, banker Tony Sanchez, as aggressively as California Gov. Gray Davis, a Democrat, has been lashing the record of his GOP opponent, investor Bill Simon.

Undoubtedly, some of the charges flying against these business candidates will prove to be exaggerated or misleading. But the tougher scrutiny they’re facing is still a good thing.

By puncturing the illusions about business, the corporate scandals will allow the business candidates to be judged more on their own qualities, rather than by a knee-jerk reflex that Washington should be run more like a company. A business pedigree shouldn’t disqualify candidates, and probably won’t. But it shouldn’t guarantee them a presumption of more integrity and common sense than career politicians, and now it may not do that either.

The scandals may restore the same sort of balance to debates over government regulation. For years, conservatives portrayed regulation as a bureaucratic dead weight hobbling dynamic entrepreneurs. House Minority Leader Dick Armey (R-Texas) memorably encapsulated that conviction when he wrote: “The market is rational, and the government is dumb.”

What the accounting scandals remind us is that the market can also grow irrational, not to say immoral, in its pursuit of profit, and it needs a strong referee to prevent abuse. The lesson applies not only to the stock market but to the environment, workplace safety, and everything else that government regulates.

Markets need rules. Those rules don’t always need to be rigid. But government courts anarchy when it relies too much on the markets to police themselves--as even Armey seemed to reluctantly acknowledge last week by voting for the sweeping corporate reform bill in the House.

Government regulation is often intended to protect markets from their own worst instincts. Conversely, over the last 20 years, reformers have tried to adapt more of the best things about markets--their responsiveness to consumers and openness to innovation--to government programs. In both major political parties, for instance, cutting-edge thinkers have argued that schools can be improved by exposing them to more competition for students (Republicans through vouchers, Democrats through charter schools and more freedom to transfer within public schools).

The Wall Street mess is already inspiring a second look at the extent of the government’s reliance on market forces. An immediate casualty of the meltdown may be President Bush’s plan to allow workers to invest part of their Social Security taxes in stocks and bonds; to many workers, the chaos on Wall Street is likely to reinforce the value of maintaining Social Security as an island of stability beyond the markets’ reach.

But that doesn’t mean government should abandon all its efforts to learn from markets. The value of vouchers remains unproved, but schools can benefit from more competition for students within the public system. And regulatory programs that create a market in pollution reduction often can generate more environmental improvement at less cost.

The common theme here is approaching the intersection of business and politics with open eyes. Too often--in campaigns or policy debates--business has been seen as inherently superior to government. Assuming the reverse would be just as bad. Even after Enron, understanding the strengths of markets is as important as recognizing their limitations.

Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: www.latimes.com/ brownstein.