The principles of laissez-faire capitalism are clear that government should not control business.  This leads some people to think that government should have no involvement in business at all; that there is, or should be, a clear, bright line separating them.  Obviously, that can’t happen.  There is a constant dance about how they interact in terms of the total economy, but they are always interdependent.  The debates being waged in Washington just indicate how complex this relationship is, and may indicate large shifts in the forces that balance them.

Let’s start with the fact that there are layers of assumptions that usually stay behind the scenes.  For instance, while government is supposed to stay out of business, it is also expected to create an environment in which free markets can thrive.  An unstable political environment creates greater risk for business.  Businesses rely on stable currencies, educational systems to provide workers, legal systems to enforce contracts, transportation and communications infrastructures, and so on – all those things that are funded by taxes.  When the two systems are in balance, they work well together.  But keeping them in balance is a constantly moving target.

A major shift in balance occurred in the last administration, when President Bush, as the first “MBA president,” brought with him a strong set of assumptions which essentially said that government is inherently wasteful and inefficient, and business is inherently good.  That makes sense if you measure everything with the same scale, which is essentially what his administration did.  Every operation in government which could be outsourced was.  Even education was supposed to be measured as if it were a production facility, where students become components to be measured for quality at the end of the line.  (And then there was the defense budget, but that’s another story.)  If you measure government like business it assumes that government should function like business – that they do not have separate roles.

Compounding the confusion is the ever-present possibility for government intervention.  Historically, the agreed role has been to prevent monopolies, which kill competition.  Then there are the crises deemed large enough to require exceptional intervention, such as unfair trade practices by other countries.  And then came the era where select companies were deemed so critical to the overall economy that they were considered “too big to fail.”  And now we have the threatened collapse of the financial system itself (or at least the players considered too big to fail).

There seems to be no disagreement that government had to step in and do something.  The question is, and continues to be, what?

The first priority has been to get money flowing again.  If you stimulate the economy, theoretically, people spend money, jobs get created, families can pay their rent and mortgages, businesses make money, and eventually the system self-corrects.  So the initial response was a flooding the system with dollars.  Put a trillion or so dollars into the system and things are bound to start flowing, kind of like flooding the city drainage system.  Unfortunately, the analogy turns out to be more like air-lifting megatons of food into a starving nation.  You count on the existing institutions to distribute what’s been provided (in this case, banks) but it shouldn’t be a surprise if the people in those institutions feed themselves and their families in the process.  It doesn’t make sense to think that they will starve while they distribute provisions to others.

That brings us to the immediate debate.  There seems to have been an expectation that the bailout money would support the economy without necessarily supporting the banks as businesses themselves – that the money would flow to potential consumers without touching the debt that the banks showed on their own balance sheets.  It’s really just part of the same, big question.  If you look only at the function of banks as part of the economy, it makes a little sense.  From inside the banks, though, it’s pretty hard to understand.  So, how does government intervene in the economy without getting involved in business?

The problem will keep coming back to a balance of the roles, functions, and responsibilities between government and business.  They are not the same things, but they are interdependent.  Politicians should not be running corporations.  It doesn’t matter how good they are as business people, they are separate roles, and mixing them doesn’t seem to have worked out well anywhere.  Business, though, cannot continue to operate under some assumption of vicarious imminent domain – that the government exists only to give it access to resources to be exploited.  You can teach all the ethics courses that you want.  Until we reconnect leadership with a larger sense of responsibility, we will continue to have executives who believe that their only true goal is the creation of their own wealth.

The really hard questions, though, are at a higher scale.  What economy do we want to create?  Are we just trying to revive the one that we’ve had?

There are clearly short-term issues to be dealt with.  There are individuals and families in the US who are experiencing homelessness for the first time in their lives.  There are honest, hard-working people who have been pushed down into the ranks of the destitute.  Simply passing tax cuts and hoping that jobs trickle down to them in a few years is not adequate.

More importantly, though, if we did just revive the economy as it was (and it’s not clear that would even be possible) where would it take us in ten years?  Our role as the world’s consumers is not sustainable, economically or environmentally.  We can plan for change, or we can just let it happen to us, but it seems pretty clear that it’s coming.  And that, then, throws us into to the complexity of the debates that are occurring on top of the economic ones.  How do we put people back to work, but also prepare them for the future?  (Some 70% of US jobs, and 80% of our GDP, are already tied to services, but that is not how we train or educate students.)  How do we get healthcare and retirement benefits off the books of corporations, so that we level that part of the playing field with the rest of the world?

These are not decisions for the faint of heart.  Every bad decision only compounds the problems further.  The right ones will have to touch leverage points in the system where a little effort creates a lot of change.  We will have to address the debt left on balance sheets and reestablish basic property values.  We will also have to reestablish trust in the basic financial systems, and in the businesses that provide jobs that make it possible for people to buy what they need.  Immediately, though, in Washington, we are going to have to get clear about the roles and the responsibilities between government and business, and how they have to support each other.