Monday, September 10, 2012

Charles Koch On Crony Capitalism

Charles Koch, a man for whom the mere mention of his name sends lefties into an immediate "two minutes of hate," has taken to the WSJ to criticize "crony capitalism" as being practiced in Washington today (and for the past two centuries, but it is getting worse under Obama.) It is an excellent essay, which you can find in toto here. Some of the highlights:

"We didn't build this business—somebody else did."

So reads a sign outside a small roadside craft store in Utah. The message is clearly tongue-in-cheek. But if it hung next to the corporate offices of some of our nation's big financial institutions or auto makers, there would be no irony in the message at all.

. . . Businesses have failed to make the case that government policy—not business greed—has caused many of our current problems. To understand the dreadful condition of our economy, look no further than mandates such as the Fannie Mae and Freddie Mac "affordable housing" quotas, directives such as the Community Reinvestment Act, and the Federal Reserve's artificial, below-market interest-rate policy.

Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.

. . . The role of business is to provide products and services that make people's lives better—while using fewer resources—and to act lawfully and with integrity. Businesses that do this through voluntary exchanges not only benefit through increased profits, they bring better and more competitively priced goods and services to market. This creates a win-win situation for customers and companies alike.

. . . So why isn't economic freedom the "default setting" for our economy? What upsets this productive state of affairs? Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.

We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.

We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries. There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn't ordinarily buy.

Because they have the advantage of an uneven playing field, crony businesses can drive their legitimate competitors out of business. But in the longer run, they are unsustainable and unable to compete internationally (unless, of course, the government handouts are big enough). At least the Solyndra boondoggle ended when it went out of business.

By subsidizing and mandating politically favored products in the energy sector (solar, wind and biofuels, some of which benefit Koch Industries), the government is pushing up energy prices for all of us—five times as much in the case of wind-generated electricity. And by putting resources to less-efficient use, cronyism actually kills jobs rather than creating them. Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.

The effects on government are equally distorting—and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.

Subsidies and mandates are just two of the privileges that government can bestow on politically connected friends. Others include grants, loans, tax credits, favorable regulations, bailouts, loan guarantees, targeted tax breaks and no-bid contracts. Government can also grant monopoly status, barriers to entry and protection from foreign competition.

. . . To end cronyism we must end government's ability to dole out favors and rig the market. Far too many well-connected businesses are feeding at the federal trough. By addressing corporate welfare as well as other forms of welfare, we would add a whole new level of understanding to the notion of entitlement reform.

If America re-establishes the proper role of business in society, all kinds of benefits will accrue. Our economy will rebound. Our liberties will be restored. And when President Obama tells an entrepreneur "You didn't build that," everyone will know better.

I couldn't agree more with Koch, but feeding at the government tit is not just a problem with businesses. It is likewise a problem with left wing organizations that are funded by our tax dollars. ACORN was the tip of the iceberg. There are its many clones, and others, such as Planned Parenthood, that are part of a massive web of radical left wing groups that the left has fed with our tax dollars over the past decades. Indeed, part of the Dodd-Frank law provides for the government to fund private organizations that will provide "counciling" for seniors and minorities on various financial matters. It could be called the ACORN Full Employment Act. But just as crony capitalism needs to end, so must this wholly corrupt method by which the far left raids our national purse.

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