Friday, July 31, 2009

“Progressive” Government & Big Business: Common and Corrupt Bedfellows

After examining the moral justification for capitalism and the hypocrisy that exists within government regarding the policy of price controls and monopolies, it would be reasonable to conclude that businesses would want as much freedom and competition free from government control as possible within the marketplace. However, ever since politicians and economists first began enacting policies to regulate and “plan” the free market, there have been a contingent of traditionally larger businesses that have been strong advocates for government control and manipulation of the markets. Why would these businesses jump in bed with the government? The answer lies at the end of what my grandfather wisely taught me about years ago: “Follow the money trail.”

A byproduct of the consumer-friendly competition created by capitalism is the requirement of every business to pull its own weight and create value for consumers or risk being overtaken by more innovative, creative and driven competitors. So what is the best way for a large established company to avoid the hard work required to remain its status at the top of its industry? Run to the only institution capable of forcing businesses and individuals to comply with its demands: the government.

Traditionally, political pundits and historians have painted the interests of big business as being aligned with a conservative agenda. However, an examination of the Obama administration’s “cozy embrace of big business,” through its economic policies and bailouts, persuasively illustrates that big business has rarely had such an ally as the government in shielding them from the cruel realities of competition.

A few examples I have stolen from Jonah Goldberg (writer for National Review) will illustrate my point: (1) it has been well publicized that when President Obama called for healthcare reform, insurance companies quickly adopted the mantra that they wanted to be “at the table rather than on the menu.” Translation – insurance companies wanted to ensure that they were in a position to play a profitable and integral role in the upcoming welfare state that will be created through socialized medicine; (2) Phillip Morris, the largest of the tobacco companies, recently supported and realized passage of a so-called “anti-tobacco” bill that benefited Morris’ position in the market because it made it more difficult for smaller, more innovative competitors to compete (the bill made it more difficult for tobacco companies to advertise their products – a nice bill for a large tobacco company looking to retain its 50% market share); (3) GE has willingly jumped into bed with the government on the global warming hysteria by peddling “green” products to Uncle Sam rather than creating and selling competitive products on the free market that create value for consumers. Why? Because GE knows that it wants to position itself as a “favorite” of Obama when cap-and-trade passes so that it can attain a protected industry status, thereby ensuring decades of government subsidization; (4) finally, the most obvious and blatant example of protectionism for big business is President Obama’s proposed plan to deal with “systemic risk” in the financial markets. A quick summary of the proposal shows that big businesses in the financial markets – large banks, insurance companies, etc – will not be permitted to fail if it is determined by the Federal Reserve that such a failure would threaten the stability of the financial markets. This policy creates an obvious incentive for larger financial firms to grow as quickly and attain as much influence within the markets as possible in order to attain a “too big to fail” status (even if it were to involve irresponsible “investments”). By attaining a “too big to fail” status, a business can become lazy and rest assured that it has become a ward of the state and can operate as a careless chronic welfare recipient that has no incentive to do anything other than maintain its status.

Who loses when big business jumps into bed with the government? You do. Individual consumers and small businesses seeking to expand by offering better products at lower prices lose. Individual consumers lose because we never experience the drop in prices and development of new, innovative and more efficient products by smaller, hungrier and aggressive entrepreneurs. Small businesses lose because they don’t have the benefit of government protection from competition and are required to play from an uneven playing field, thereby limiting the prospects of success.

The examples discussed above provide a wonderful illustration of how a planned economy creates inequities that far outweigh the claimed “unfair” consequences of a free market economy. What is the end result of President Obama’s policies that protect big business at the expense of small business and consumers? Any Rand summarizes it best: “The inevitable result of planned economies is a ‘syndicalist or corporative organization of industry in which competition is more or less suppressed but planning is left in the hands of the independent monopolies of the separate industries. This places the consumer at the mercy of the joint monopolist action of capitalists and the workers in the best organized industries.” See what happens when government confuses and corrupts the free market by taking sides and protecting certain “big” business? I don’t fault big business for looking out for their interests by attempting to capitalize on a corrupt government; I fault our corrupt government for taking sides and corrupting the free market.

Sunday, July 5, 2009

The Moral Justification for Capitalism

The topic of capitalism vs. planned/organized economies and their variations (socialism, fascism, communism, etc) is too complex to completely dissect in a blog posting but due to the fact that so many of President Obama’s domestic policies (health care, cap & trade, extensive regulation of the financial industry, wealth redistribution policies employed under the tax system) are based upon a perceived deficiency of capitalism and the free markets, it is important to examine the moral justification for capitalism when compared to planned economies. This blog posting will only examine the moral justification for capitalism and will reserve discussion regarding planned economies and President Obama’s concept of a planned economy for soon-to-be posted blog discussions.

When considering whether a social system should be adopted by a society, it makes sense to ask whether individual citizens will retain their freedom under the proposed system. A number of economists, philosophers, and Founding Fathers of our country have outlined the concept of freedom and the reality that in order to guarantee freedom, a social system must uphold and protect the rights of the individual. As the Declaration of Independence and other Founding documents have indicated, a citizen’s individual rights can only be assured by upholding a political and economic system that guarantees an individual’s right to his own life, his own liberty, and to the pursuit of his own happiness. If we assume that the primary goal of a social system is to provide and protect freedom, we must consider whether the system respects individual rights and whether physical force is banned from human relationships.

Although many of the concepts and thoughts about capitalism that I am about to discuss are common knowledge, I think it is important to revisit them from the moral perspective of who is permitted to make decisions and the freedom provided under capitalism. Generally, capitalism is defined as “an economic and social system in which trade and industry are privately controlled (instead of state-controlled) for profit.” Under capitalism, all human relationships (investments, distribution, income, production, pricing, and supply) are voluntary. As a social system, capitalism respects individual rights by respecting the concept of property rights. A cornerstone of capitalism is the concept of privately-owned property. The concept of private property (the right to keep property purchased and earned as a result of one’s labor) provides an incentive for each individual to strive to pursue his own good for his own sake. By allowing human relationships to remain voluntary, capitalism permits each individual to decide what product or service provides the most value. Additionally, capitalism, through the mechanism of competition, creates an incentive for each producer to continue to provide better quality and lower priced products in order to survive. By allowing every business, producer and consumer to keep the property they have earned as a result of their labor and value created within the market, capitalism provides an incentive and reward for all parties in the market: consumer, producer and service provider.

The economic benefits of capitalism are widely recognized but many proponents of capitalism advocate its use for efficiency reasons, while neglecting the freedom of choice free from coercion that capitalism provides. As an example, many passive proponents of capitalism argue that the concept of the free market can only be justified because it provides for the “best allocation of the national resources” or that it represents “the best way to achieve the common good.” These arguments are misplaced because as Ayn Rand and F.A. Hayek and others have pointed out, man is not a national resource and the fact that capitalism provides the most effective means of achieving the “common good” is merely a secondary consequence and not the primary justification for capitalism.

Many critics of capitalism argue that this desire to act in one’s own self-interest through the existence of the “profit motive” is immoral because it creates greed, excess and a misallocation of resources that leaves a segment of the population neglected and in poverty. This focus on selflessness/altruism is an admirable quality for individuals to pursue in their own lives. However, altruism is a philosophy that should be accepted or rejected by each individual based upon their own decisions, not a political philosophy employed and directed by the government. When government imposes altruism upon its citizens through claims that every citizen must act in the best interest of the public or that each citizen has a social or societal duty, it imposes a moral duty upon the competent to serve the incompetent and the willing to serve the unwilling.

The moral justification for capitalism is that it is the only system that provides for and protects the individual and his right to exist for his own sake. Capitalism provides an equal opportunity to each individual and does not discriminate or make judgments upon individuals: “The economic value of a man’s work is determined, on a free market, by a single principle: by the voluntary consent of those who are willing to trade him their work or products in return. It wholly rejects altruism (the deliberate pursuit of the interests or welfare of others or the public interest). Man is not the property or the servant of society – a man works in order to support his OWN life and must be guided by his own self-interest and if he wants to trade with others he must not expect sacrificial victims.”

The Founding Fathers always expressed their deepest respect and conviction for the freedom of individuals in society and the necessity that governments limit their sphere of influence and control. It was for this reason that America has long remained the most free of all men since its founding. Our Founding Fathers also knew that government should concern itself with providing a framework in which freedom and equality of opportunity can be assured and maintained and understood that it is wiser to leave altruism and benevolence to the moral conviction of each individual and the philanthropy of every man.