It's good to be king - and it always has been. Ever since the first government formed, there has been the idea that there are things a government can do that are illegal when done by private citizens. This power also extends into the world of commerce and business, where the government allows itself powers and latitude that private citizens and corporations simply do not get. Whether one wishes to argue that the government must do some of these things simply to keep the whole system running, it does not change the fact that the government does engage in behaviors that would be illegal for anyone else.

TUTORIAL: The Federal Reserve

Taxes - Involuntary Commerce?
Governments are unique in their power to levy taxes; in fact, it is one of the defining traits of a government. Even allowing that citizens do get something back for their taxes (roads, police, courts, etc.), the fact remains that it is not a voluntary transaction. There is no company out there that can similarly compel financial transactions - a homeowner can choose to turn off the power if that is their choice (though perhaps the new health care law in the U.S. will make health insurance inescapable). (For more, see How To Owe Nothing On Your Federal Tax Return.)

If a company somehow manages to rise to the top of its industry and operate so well that it effectively pushes out its competitors, it runs the risk of the government cracking down on its operation. Whether it was Standard Oil long ago, the original AT&T or Microsoft (Nasdaq:MSFT), the government has taken it upon itself to protect the public from the formation and operation of monopolies.

That is, of course, unless the government actually wants that monopoly in operation and gives specific permission for its ongoing operation. The postal service is one example; while living in a weird grey area between government and private, the postal service operates as an explicit monopoly. It is illegal, for instance, for a would-be rival like UPS (NYSE:UPS) or FedEx (NYSE:FDX) to deliver to mail boxes.

Many states also operate their own monopolies. In a few states, for instance, liquor can be legally sold only at state-owned stores (often called ABC stores). Likewise, many municipalities give exclusive contracts for services like waste removal or residential natural gas delivery. (For more, see A History Of U.S. Monopolies.)

Price Fixing
With few exceptions, businesses are not allowed to interfere with the normal price-setting mechanisms of the free market. There are, for instance, a variety of laws on the books against predatory pricing, as well as laws that forbid companies from discussing coordinated pricing in a market.

The government, though, can and does interfere with normal price mechanisms. More than once in the last 100 years, the U.S. government has resorted to wage and/or price controls in an attempt to control inflation. Elsewhere, the government continues to pay billions in farm subsidies and subsidies to ethanol refiners and blenders. Along similar lines, the U.S. has a specific program in place to keep sugar prices higher than they otherwise would by restricting imports, and the government likewise has exceptionally high tariffs on ethanol imports. (For more, see The Biofuels Debate Heats Up.)

Eminent Domain
In everyday life, someone cannot take your belongings against your will - that is called theft. Even if the robber leaves a $100 bill on your table, he or she is not allowed to come in and take your belongings without your permission. When it is the government doing the taking, though, sometimes it can be called "eminent domain" and made legal.

Most cases of eminent domain involve the building of roads, pipelines and utility facilities, but that is not always the case. The government has sometimes resorted to eminent domain in the interests of public safety (like the case of Centralia, Pennsylvania) or military security, but there are cases in the books of the government seizing property and then later handing it over to developers for commercial development.

While the government is obligated to pay a "fair" rate of compensation, and courts have often forced governments to increase their financial compensation, the fact remains that eminent domain undermines a fundamental principle of capitalism - the idea that people have the right to buy or sell if they want to do so, and the right to refuse to buy or sell no matter the price on offer. (For more, see Valuing A Real Estate Investment Property.)

Ponzi Schemes and "Creative" Accounting
Government critics love to trot out the tired and over-used notion that government programs like Social Security and Medicare/Medicaid are gigantic government-run Ponzi schemes. In that respect, then, it is only the sovereign power of government that separates them from Bernie Madoff.

Even though a Social Security can only be called a Ponzi scheme by completely misunderstanding the definition and operation of a Ponzi scheme, the notion persists. And even though Social Security is not a Ponzi scheme, it is hard to imagine a corporation that would be legally allowed to run its retirement or pension plan in such an irresponsible way and with such dubious accounting.

Going a step beyond that, the SEC (and to a lesser extent, the Depart of Justice) has prosecuted numerous companies over the years for deficient, misleading and otherwise creative accounting. Yet looking at how the government has tinkered with the unemployment, inflation and public debt calculations over the years, it would certainly seem to be a case of "do as I say, not as I do." (For more, see What Is A Pyramid Scheme?)

TUTORIAL: Personal Income Tax Guide

The Bottom Line
Governments have different goals, responsibilities and limitations than the private sector, so it is not entirely fair to expect the government to operate by the same rules as private citizens and corporations. The power to tax, for instance, is essential to the survival of a state and there are credible arguments that eminent domain serves a useful purpose when not abused. That said, it is a slippery slope and is difficult for a government to maintain the respect of its citizenry if it routinely engages in practices that would be illegal among the governed. (For more, see Government Regulations: Do They Help Businesses?)

Related Articles
  1. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  2. Stock Analysis

    The Biggest Risks of Investing in Berkshire Hathaway Stock

    Learn about the risks of investing in Berkshire Hathaway. Understand how issues of succession, credit downgrade risk and increased regulation could hurt it.
  3. Economics

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  4. Investing News

    Germany Tech Startups: Keep Them On Your Radar

    Many German companies, which are eager to catch up with the rest of the world by entering the digital age, are investing in tech startups.
  5. Economics

    Benefits of China Changing It's One Child Policy

    China's one-child policy is changing, and investors are looking for ways to cash in. The reform might not have the effects that many anticipate, however.
  6. Taxes

    Countries With The Highest & Lowest Corporate Tax Rates

    The United States is No. 2 in the world for its high corporate tax rate. There are ways around paying it, and many nations with lower rates are worse off.
  7. Entrepreneurship

    START-UP NY: How a Tax-Free Zone Would Work

    START-UP NY is an initiative designed to attract companies to New York State by giving them 10 years of tax breaks. Sounds good, but is it a success?
  8. Economics

    Explaining Capital Flows

    The movement of money for investing, trade or business production, is commonly referred to as capital flows.
  9. Economics

    Explaining Economic Integration

    Economic integration reduces or eliminates trade barriers among nations, and coordinates monetary and fiscal policies.
  10. Investing

    How Much Money Will It Take to Become President in 2016?

    Learn why the 2016 presidential election is likely to be the most expensive race ever, and estimate how much it is going to take the eventual winner to prevail.
  1. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  2. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  3. Is the Social Security administration a government corporation?

    The U.S. Social Security Administration (SSA) is a government agency, not a government corporation. President Franklin Roosevelt ... Read Full Answer >>
  4. What role does the Inspector General play with the Securities and Exchange Commission?

    The inspector general of the U.S. Securities and Exchange Commission (SEC) oversees, audits and conducts investigations of ... Read Full Answer >>
  5. What is a private secondary market?

    Two kinds of private secondary markets exist. The first is a form of buying and selling of pre-existing financial commitments ... Read Full Answer >>
  6. How does the role of Medicare/Medicaid affect the drugs sector in the U.S.?

    Medicare and Medicaid have enormous influence on the pharmaceutical, or drugs, sector in the United States. For instance, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!