There are dozens of examples in recent years that fit a pattern worrisome to free-marketeers: big business pursuing profit by lobbying for more spending and stricter regulations. So what should a defender of capitalism do about it?

Name and Shame

Tom Borelli spent much of last decade trying to steer companies away from big government. He co-founded the Free Enterprise Action Fund, a mutual fund that bought stocks in companies for the sake of filing shareholder motions. The fund has typically targeted corporate execs who embraced big government policies that would reduce profits, such as members of the U.S. Climate Action Partnership supporting federal climate legislation that would raise taxes on energy companies.



But lately, Borelli has targeted companies who are cozying up to government to increase their profits -- such as Boeing designing export legislation that improves their lot and tax laws that squeeze out competition for H&R Block.

When the Obama administration issued new IRS rules in early 2010, analysts at UBS said the regulations would "help Block by ... add[ing] barriers to entry (or continuation) for small preparers, [and] provid[ing] revenue as Block may sell their continuing education and competency tests to others."

It is these arrangements -- in which the industry loses, but one company wins, or a few big companies win -- that free-marketeers should pay more attention to.

While Borelli's first trigger for a complaint was an executive selling out his shareholders, Borelli's second trigger is far loftier. It is, in his own words: "Is this ultimately good for the free market? Is this ultimately good for liberty?"

Borelli has given up the shareholder suits -- executives have too much power to quash them -- but he's still trying to pry corporations away from government. His new tactic: "Shaming." This can move businesses, because they care about their "billion-dollar brands being tarnished," Borelli argues.

Liberal groups try to impose a reputation cost on companies that don't protect the environment, hire enough women, or pay high enough wages. Conservatives can create a reputation cost for companies that embrace big government.

To some extent, Borelli argues, it's working: "If I go to a Tea Party rally, all I have to do is mention General Electric, and there are audible boos."

The Rickety Big-Government Bandwagon

Another way for free-marketeers to talk businessmen out of seeking profit (besides name and shame) might be to persuade them that getting into bed with Washington often ends messily.

John Allison, former president of BB&T Bank and now head of the libertarian Cato Institute, says businesses that "seek favors from the government ... very seldom do well in the long term." He points to the 1998 tobacco settlement where the five big cigarette companies cut deals with the state governments. In exchange for massive fines, the big guys bought themselves some protection, as state governments fought to keep out new entrants. "The industry's just in the process of self-liquidating," Allison says. "They didn't win. They committed Hari Kari."