Feb 03, 2009
Imagine you are a young Bill Gates. You’re smart. You’re ambitious. You’re thinking about starting a business to put your talents to their best use for you and for society.
Then you turn on the television and see President Obama say that “now is not the time” for entrepreneurs to make profits and get bonuses.
You hear Vice President Joe Biden say of corporate CEOs: “I’d like to throw these guys in the brig.”
You pick up the newspaper and read about a bill sponsored by Sen. Claire McCaskill (D-Mo.) to cap the salaries of top executives (“idiots” in her words) of firms that accept government bailout money.
And you read about another bill speeding through Congress that will allow judges to alter the terms of mortgage contracts after the fact; to unilaterally reduce the amount of principal borrowers agreed to pay back when they signed their mortgage contracts.
The Vice President is Threatening to Throw Businessmen in the Brig. Why Take the Chance?
What lessons does a young entrepreneur learn from listening carefully to the voices advocating more and more government regulation and intervention in our economy?
He learns that the President has more faith in government to save the economy than free enterprise. So why not get a nice, safe government job instead?
She learns that starting a business and creating jobs may put her in the cross hairs of the Vice President. Maybe he means that part about throwing her in the brig, maybe he doesn’t. Why take the chance?
He learns that when politicians like Claire McCaskill get involved in economic enterprises, politics -- not economics -- rules. Why risk everything to have your future controlled by Washington?
And she learns that contracts aren’t worth the paper they’re written on. When judges can unilaterally re-write contracts, lenders will charge more to lend. So why even try to get that small business loan?
Biden and McCaskill Should Be Outraged With Themselves
Vice President Biden, Sen. McCaskill and others who are advocating greater and greater government intervention into private business are rightly outraged at reports of corporate CEOs receiving billions in taxpayer bailout dollars and then turning around and awarding themselves and their cronies lavish corporate bonuses.
This outrage is entirely justified. Politicians are understandably looking for someone to blame for this breach of the public’s trust.
But they should be looking at themselves. Vice President Biden and Sen. McCaskill should be outraged with themselves.
The reason is simple: If there had been no big government bailout of these companies, their CEOs would have no fiduciary duty to the taxpayers. It wouldn’t be any of Sen. McCaskill’s business how they compensate themselves.
But government offered the money, and private companies took it. So now government is in charge.
The Rules for Spending Taxpayers Money Don’t Work in the Private Market
The great management guru Peter Drucker taught us that there is a set of rules for spending the taxpayers’ money that is antithetical to the proper functioning of a private business.
For instance, when taxpayers are footing the bill, it’s perfectly legitimate for the people, through their representatives in government, to set limits on compensation.
In the free market, however, if government sets arbitrary limits on compensation, the best minds and greatest talents will go to where there are no limits. Politicians will have set these companies up to fail.
And if government decides some contracts are no longer politically tolerable, they erode the value of all contracts. And in the case of home mortgage contracts, government abrogation only makes future mortgages more expensive.
Rent Seeking Capitalism: The Growth of “Fusion Enterprise”
The danger is not simply that government will hobble private enterprise with regulation once it has become a stakeholder.
The greater danger is that the act of going into business in America will come to mean simultaneously going into the government lobbying business. Future “entrepreneurs” will compete, not just for private capital, but for government investment to give them the edge over their competitors.
Former American Enterprise Institute President Chris DeMuth calls this “fusion enterprise” and warns that it’s catching on:
Already, the government-appointed chief executive of AIG is boasting to his
customers and others that his firm is much better capitalized (that is, by
Washington) than the mere private firms it competes with. Several of those
rivals see the point and are lining up for their shares. We have no economic
theory, and only fragmentary casual examples, to resist this halfway house
between comprehensive socialism on the one hand and conventional regulation on
the other …
“He Who Does Not Work Does Not Eat”
Since the earliest American settlers at Jamestown in 1607 adopted Captain John Smith’s rule, “He who does not work does not eat,” America has thrived in a system of private enterprise and incentives for hard work and risk-taking.
Today, we are on the verge of repudiating 400 years of free market principle.
And the irony is that the $900 billion big government, big bureaucracy, big politician stimulus package that is being passed in the name of speeding our economic recovery may make emerging from the economic downturn that much harder.
What Began as an Economic Crisis is Becoming a Cultural Crisis
This crisis, which began as an economic crisis, is becoming a cultural crisis. And the lessons being learned by young entrepreneurs are precisely the wrong ones.
We are teaching young Americans to ignore American history and look to government first.
We are teaching young Americans not to start businesses when small businesses are the engine of job creation.
We are teaching young Americans not to compete on the level playing field of the free market, but to seek to co-op government in the pursuit of profit.
In his inaugural speech, President Obama singled out the “the risk-takers, the doers, the makers of things” as the source of American greatness. Does President Obama mean what he says? Or is this one more example of his moderate rhetoric not matching his liberal deeds?
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