Cries of socialism obfuscate our political dilemma. Are we a capitalistic country with a 36% tax rate and a socialistic one at 39-1/2% rate? Truthfully we crossed the socialistic divide some time ago; now it is just a matter of degrees.
We have long outgrown the labels used to describe our political conflicts. We have long grown beyond the left and the right, the conservative and liberal, the red and the blue. But we are seeing a change in the relationship between our government and our business community, the producers who generate the tax revenue that supports our country.
We are rapidly moving from the economic capitalism that has grown the economy to political capitalism that seeks to harvest it. This change is not surprising considering the damage to our economy from the financial sector. Complicated derivative instruments, reckless lending standards, irresponsible leverage, outrageous compensation, and delusional confidence in unrealistic models have done worse than destroy people’s wealth. They have destroyed the public’s confidence in the business community and our financial stewards.
This recession has shown gaping holes in our regulatory system. New financial products escaped the jurisdiction of the SEC, the FDIC and the Treasury. Congress itself exempted Fannie Mae from oversight of the regulatory agencies and fought efforts to restrain and over see this agency at the center of the mortgage crisis.
While receiving campaign contributions from the agency they regulated Congress became outraged over voices of concern over the systematic risk posed by the agency that fulfilled their political goal of universal home ownership. Resistance was on practically straight party lines.
This should be a loud warning of the dangers of political capitalism. When business seeks to serve political self interest instead of economic self interest the engine of economic growth will come to a grinding halt. Atlas Shrugged will be read as prophecy.
My employees and I have a relationship based on mutual economic self interest. My customers and suppliers also serve each other’s economic self interest. Economic self interest brings clarity and consistency to the business model. These two values are essential for a business to assume the financial risk to make a long term investment and commitment.
Politics are notoriously unclear and inconsistent. Tax rates go up and then come down. Regulations, tax deductions, depreciation schedules, and a host of other concerns are anything but stable.
But when a business’s priority becomes to serve the political self interest rather than stakeholder’s economic self interest, the incentive to grow and invest dies. When businesses are required to serve the government’s purpose of increasing unionization (clearly a political payoff), funding health insurance, funding cobra extensions, or extending legal claims they will quietly and steadily redeploy their capital elsewhere; perhaps the safety of secure investments without the risk, perhaps another country where economic self interest is still respected.
I would much rather trust my future to my employees, my customers and my suppliers than to a political hack who got elected promising my assets to someone with no interest or knowledge of my business.
A political cynic once defined an election as an advanced auction of stolen goods. If we advance the replacement of economic self interest with political self interest this will become our reality.