James Pethokoukis

Politics and policy from inside Washington

Obama should be pro-market, not pro-business

July 21, 2010

Should the Obamacrats be friendlier to Corporate America? Big Business has certainly amped up its kvetching of late. But it’s not Washington’s job to be pro-business and make nice with CEOs. That smells of crony capitalism and often just means rewarding big campaign contributors with government favors. The better measure of any given Washington policy is whether it respects markets.

To hear many U.S. CEOs tell it the nation’s free enterprise system, as they call it, is faltering. General Electric boss Jeff Immelt, a member of President Barack Obama’s economic advisory board, says government and business are “out of sync.” Ivan Seidenberg, CEO of Verizon and head of the Business Roundtable, complains that “by reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.”

The cranky guys in the suits make some good points. As the U.S. Chamber of Commerce pointed out in an open letter to the White House and Congress last week, the U.S. corporate tax rate is the second-highest among advanced economies, Congress has failed to push through key trade agreements and federal spending is on a worrying trajectory. In a nation suffering from a sluggish recovery after a deep recession, every government policy should be optimized for economic growth. Addressing some or all of these problems might nudge American companies to put to work some of the $1.8 trillion in cash they are sitting on, according to the Federal Reserve.

Yet while a pro-business agenda may intersect at points with a pro-market one, they are not the same thing. Pro-market public policies make markets function fairer and more efficiently for everyone. They encourage competition and “creative destruction” and entrepreneurial capitalism. Pro-business policies often shift taxpayer money and other government goodies to favored companies, raise barriers to entry and otherwise defend the status quo.

For instance, the Chamber wants the government to cut spending by reforming the social insurance system. That sounds good — but how about also reducing the $90 billion a year in subsidies and tax breaks that the Cato Institute reckons businesses get every year? The oil and gas industries alone benefit to the tune of $4 billion annually. It would be better to eliminate such distorting political blessings and then lower the corporate tax rate for everyone.

It’s clear the 11,000 registered lobbyists working in Washington aren’t all there to foster competition and boost market forces. Their job is to gain an edge for specific corporate paymasters. During the healthcare reform debate, for instance, Wal-Mart actually lobbied for employers to be forced to provide employees with insurance coverage. The company knew it could more easily afford it than many smaller retailers.

Or take financial reform. While big banks may complain about the tidal wave of new regulation, they also know they got off easy in some respects. They weren’t broken up, nor were size limits put in place. In fact, the biggest banks have gotten bigger since the financial crisis and have every incentive to keep doing so since the bigger they are, the more likely Uncle Sam will see them as too big to fail. And what sort of climate change policy has Big Business pushed? Cap-and-trade whose size and complexity make it the perfect target for lobbying and rent seeking.

What’s good for business can also be what’s good for America. Tackling the budget deficit is one example. But whatever companies and their lobbyists would have politicians believe, it’s not always so.

Comments

Agreed 100%. Well said, Jimmy!

Posted by wfl | Report as abusive
 

Your statement “It’s clear the 11,000 registered lobbyists working in Washington aren’t all there to foster competition and boost market forces.” seems to say it all. I’m just finishing the book, “Free Lunch,” which describes many of the ways wealthy individuals and corporations avoid paying taxes in the U.S. Conservative types keep talking about how “uncertainty in the marketplace” is keeping the private sector from creating jobs. So, what do they want, a “free lunch” from taking risk?
What we want is a level playing field, not something that is continually rigged. It’s like all the money and all the action now is centered in Washington, D.C., as if federal government wheeling and dealing is where the big money and low risks are found.
What we also need is a growing middle class, not a continuation of the super rich getting rich every year because of all the tax breaks and the disincentives to really invest their money in creating jobs.
Obama is a great leader. I think that he know who the “real” people are in our country. Viva Obama!

Posted by Gfulmore | Report as abusive
 

Hmmm… how does one make a pro-market change? Perhaps by getting the government out of the markets! Naturally, where clear abuses are occurring (typically due the exploitation of the lack of understanding of complex issues by less educated people), regulation is in order to prevent people from being deprived of their property through fraud. However, other types of regulation are typically simply burdensome, and achieve nothing but distorting proper market functioning. When the government tries to achieve particular social objectives through tax code meddling, the Law of Unintended Consequences nearly always takes effect.

Gfulmore, it’s not that the private sector is opposed to risk taking. The problem arises when the risks are seen to be unforeseeable, or worse still, subject to the whims of government officials trying to micromanage the economy. IMO, your charge is simply unfair. Naturally, anyone who can find a free lunch will typically eat it – this is simply human nature. This is not the fault of the individuals who take advantage of the tax code – it is the fault of the tax code. Congress and the president control the tax code. The Democrats (including Obama) have controlled both for the last 18 months. they could have “fixed” these “problems” anytime they liked. It seems inconsistent for you to claim that the wealthy take advantage of the tax code and also that Obama is a “great leader”. Obama could have suggested revisions to the tax code at any time in the past 18 months to address the wrongs you claim. He hasn’t, so how can you consider his performance stellar if he hasn’t addressed what to you seems the key issue?

Posted by VinceD | Report as abusive
 

Of course!

BIG business CEOs are the real socialists. Many rig the market from the top by relying on lobbyists and campaign contributions, and then screw down with nearly identical (fixed) pricing but cosmetic differences in products and services – instead of earning their customers and profits from the bottom up in a truly free market.

Posted by XRayD | Report as abusive
 

I would also add that government should be pro-consumer, not pro-labor.

Posted by harrassee | Report as abusive
 

Exactly James. Most of the Wall Street political contributions goes to the Democrats for crony capitalist favors.

Republicans, disciplined by the Tea Party movement, must restore the fairness of free market competition and an environment friendly to all business equally.

Until that happens, the jobs will remain non-existent.

But if anyone thinks the Obammunists will ever let this happen voluntarily, they are delusional.

Posted by FreedomFan | Report as abusive
 

The Obama administration did not embrace alternative progressive proposals, such as the public provision of health insurance, banking services, and energy. President Obama instead favors a level playing field between consumers and businesses through more and better information, greater competition among businesses, and consumer protections through minimum standards.

Conservatives in Congress could have found all of this in their intro micro textbook, if they had bothered to look. But they’d rather spend their time on fabricating an alternate reality that seeks to score political points but does not engage on the policy discussions that could actually strengthen our economy.

Ken Enlarge

Posted by kenfry13 | Report as abusive
 

Most people appear not to have noticed that a major cost-reduction in Obamacare is the introduction of a much more efficient market, and the (unfortunately) slower move to get everyone into it.

These markets are going to be listing exchanges, web pages essentially, whereon every insurance company that aims to cover people must list their prices in a standard coverage format. This initiates a few different things:

(1) It immediately introduces more competition. (2) It reduces consumer transaction costs to nearly zero. (3) It allows the building of bigger risk pools. (4) Because it is all listed on one page, there doesn’t have to be any marketing cost, and this eliminates a whole budget item for the healthcare insurers, while competition will make them tend to pass the savings right back to the insured. (5) This zero marketing cost also allows a non-profit to enter more easily, to build its risk pool, and to offer prices that are 5% to 10% lower than the for-profit insurers.

You can’t reduce consumer transaction costs and reduce producer marketing costs without cost savings. It’s definitionally impossible.

Posted by Lee_A_Arnold | Report as abusive
 

Anyone who believes Obama is pro-market has only to look at his approach to health care to be shed of that notion. Instead of initiating reform in the direction of restoring a free market in health care, his administration and the Dem Congress moved sharply AGAINST free market reforms. Imagine if the food sector of our economy were arranged like Obamacare—we all would be compelled to purchase food insurance which would pay for a list of required government food items. Any deviation from that list would require the approval of government bureaucrats. How is that a free market approach? The sort of reform that we need is the kind that re-unifies the roles of consumer and payer in a single individual. Only then can we have a free market in health care. But we are moving in exactly the opposite direction.

When we wanted to alleviate starvation and make sure that all Americans had access to sufficient food supplies, we didn’t initiate a government takeover of the food sector. We left the free market in place and simply created subsidies for the needy in the form of food stamps and commodity programs. The result is a system where an almost infinite array of choices have been created by the free market, all the way from the cheapest alternatives of bulk commodities and food stamps to mass food supplies available from ordinary grocery stores in competition with one another for customers and on to the most expensive restaurants costing hundreds of dollars for a single meal. The key factor is that the same guy who eats the food pays the bill. THAT is what we need to see in health care. Think health stamps instead of food stamps.

Posted by doodle | Report as abusive
 

@Lee_A_Arnold The web site is a great idea– one I thought of long before the health bill. The question is, why doesn’t a web site like this already exist? We have ratings and comparison shopping sites for just about everything except for medical care. Why? Likely because government intervention in healthcare and protection of existing health providers and insurance companies has reduced competition and made it impossible and/or unprofitable to create such a web site. I have severe doubts over whether the government will succeed where the market failed.

Posted by Mikeikon | Report as abusive
 

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