Shouldn’t they learn about this in school?

Published 3:54 pm Wednesday, January 29, 2014

By Daniel Sutter

Millions of Americans were angered by the government bailouts of financial institutions caught up in the 2008 collapse of the real estate market. Leading financial institutions can now use the “too big to fail” mantra to shift their losses to taxpayers and keep any profits for themselves. At least if they are on good terms with politicians.

Economic freedom, although crucial for prosperity and human flourishing, has been eroding in the United States over the past decade or so. Our rank in the Fraser Institute’s Economic Freedom of the World Index fell from 3rd in 2000 to 17th in 2013. History shows that such a decline in freedom will in time translate into slower growth, lower standards of living, and less freedom to craft the lives we want to live.

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One factor behind the decline in economic freedom has been the rise of crony capitalism in the U.S., as exemplified by the 2008 bailouts. Crony capitalism retains markets, but provides tax breaks, subsidies and other advantages to politically favored firms. A crony system harms economic growth because businesses will profit more from currying favor with politicians than better serving customers.

Yet cronyism’s greatest threat to free enterprise may be its potential to be mistaken by the public for real capitalism or free enterprise. The free enterprise system is built on voluntary exchange and the principle that people must deal with each other based on mutual benefit, not as means to their own ends. Businesses organize to provide goods and services for which people willingly pay. Market forces in free enterprise guide business starts and failures, not government loans and bailouts as in crony capitalism. People may, unfortunately, believe that crony favoritism is an essential element of free enterprise, and mistakenly view even greater government control of business as a remedy.

We might hope that our nation’s business leaders would take a firm stand against such government meddling, since it compromises the system which enables business to flourish. Yet all too often today business leaders seem to view government assistance or subsidies as par for the course. This attitude is somewhat understandable: if you see other companies, including your competitors, getting government assistance, you might consider it only fair for your business to receive these benefits.

The Johnson Center at Troy University studies economic freedom and its impact on our lives, as well as the forces leading to an increase or decrease in economic freedom. The words and deeds of business leaders significantly shape the public perception of free enterprise. The silence of so many business leaders regarding cronyism raises the question of whether they have learned about the value and purpose of the free enterprise system. To explore the role of business education on economic freedom, the Johnson Center welcomes to Troy this week Dr. Derek Yonai, a professor of economics and director of the new Center for Free Enterprise at Florida Southern College. Dr. Yonai has been a leader on the issue of free enterprise education for business students over the past few years, first at Campbell University and now at Florida Southern.

An outsider might think that business schools do nothing but teach about capitalism, but this is not generally so. The leading business school accreditation body requires instruction on corporate social responsibility and sustainability, but not free enterprise. What has happened to training about the free enterprise system? Dr. Yonai explains that “business education 80 years ago brought philosophy and political science into the well rounded liberal arts education of a business student. Today, we teach students all the technical aspects of using and doing business but leave their minds empty.” As a result, relatively few business students learn how markets work and why business is important.

If you are interested in hearing more about free enterprise education within business schools, Dr. Yonai will talk this evening (January 31) at 5:30pm in Bibb Graves Hall on the Troy campus. His talk is free and open to the public. Dr. Yonai will also be my guest on next week’s edition of Econoversations, which will air at 7pm Monday on TrojanVision.


Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University. Respond to him at and like the Johnson Center on Facebook.