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Chapter 09: How to fix what’s wrong with Big Business

“Monopoly favors the rich (on the whole) just as competition (on the whole) favors the poor.” —Author George Watson, Journal of Economic Affairs

“Capitalism is so successful partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk…It’s time to take the crony out of capitalism…” —American author and columnist Nicholas D. Kristof

What’s wrong with

Big Business

  • Big Business buys politicians. They spend huge amounts of money on campaign contributions, lobbying, and public relations. They also dish out favors that aren’t available to regular citizens, such as opportunities to participate in lucrative Wall Street initial public offerings. The politicians they support reward them with tax breaks, bailouts, favoritism in regulations, and unfair advantages over their smaller competitors. As special interests go, Big Business is every bit as bad as Big Labor, and business intrusion into government is every bit as worrisome as government intrusion into business.
  • Government bailouts reward reckless executives. Big businesses keep getting bigger, often because of special treatment from the politicians they support. When reckless behavior gets the businesses in trouble, the politicians declare them “too big to fail” and use taxpayer money and credit to bail out the culprits. Then the executives reward one another with big bonuses. Nothing could be more disgraceful, and both major political parties are guilty of this practice.
  • Obscene corporate compensation. There’s nothing wrong with rewarding executives for building real value for their shareholders. However, big companies often engage in a form of corporate cronyism that allows top executives to feather their own nests to a much greater extent than is justified by their contributions to the company’s success—and often at the expense of employees and shareholders. Interlocking directors and fat-cat consultants are a part of this game. Too many corporate boards have cozy “you scratch my back and I’ll scratch yours” interlocking directorships and consulting firms. These groups are paid handsomely to justify the ridiculous compensation packages of the executives. Their excesses tend to feed class warfare, provide ammunition to socialist “reformers,” and strengthen the case for government to take action.
  • Big Business has corrupted some charities too. Because many top executives also sit on the boards of charities, many charities have been corrupted by the Big Business mentality. The CEOs of charities often draw exorbitant salaries—at least far more than should be necessary if the organization’s goals are truly charitable. Important note: there are still many wonderful charities that have not been corrupted by Big Business; you can check the CEO’s salary to determine which ones still deserve your support.
  • Big Business uses government to hurt smaller competitors. Big businesses are run by bureaucrats, so they think like government bureaucrats. They love rules, regulations, and complexity. They can afford lots of accountants, lawyers, administrators, tax experts, and lobbyists. But the more complex things become, the harder it is for smaller businesses to compete. Big Business knows this, so they play these games brilliantly—sometimes posing as responsible reformers by supporting more regulation, fully knowing that their lobbyists can write the regulations in ways that will give them yet another advantage over their smaller competitors.
  • Big Business is monopolistic. Instead of thriving on competition, many big businesses attempt to buy it out or stomp it out—often by exerting their influence on politicians and governments. They want consumers to have fewer choices because companies with near-monopoly status can charge whatever they want for their goods and services. They use their sheer size and political influence to kill off smaller competitors. Big businesses can afford, for example, to temporarily undercut prices to drive smaller competitors out of business; it’s a small investment because they can jack up prices later. And they can use their profits from one near-monopoly situation to create additional near-monopoly situations. Big businesses sometimes try to bait smaller competitors into lawsuits. There they can drag the smaller company through endless legal maneuvers. Eventually the smaller company has to give up or be bankrupted by the legal fees.
  • Big Business + Government = Trouble. When government meddling and Wall Street greed caused the housing boom and bust, politicians bailed out Wall Street. Corporate executives still got their obscene bonuses, and the politicians still got their obscene pensions. Working people lost their homes, and taxpayers got stuck with the government bailouts. (See the chapters “Economics” and “Government” for more about this issue.)
  • Antitrust laws seldom work. Government bureaucracies seldom do anything well, including enforcing antitrust laws. It’s often impossible to prove anticompetitive tactics, legal fees make it too expensive for small companies to challenge bigger ones, and it’s too easy for big businesses to unduly influence regulators and buy off elected officials. When government regulators do challenge a company, it’s too often because that company doesn’t happen to be one that’s favored by the politicians in power.

How to fix the problems

 with Big Business

  • Stop government bailouts. No more government bailouts (at the expense of taxpayers) for businesses. Why should greed and bad behavior be rewarded? (But can you blame the executives when they can take big risks, reap big rewards, and pass any losses on to the taxpayers—all courtesy of our bought-and-paid-for politicians?)
  • Corporate tax reform. Get rid of the overly complex tax code that puts smaller businesses at a huge disadvantage in competing with larger businesses because they can’t afford the accountants and tax consultants required to stay in compliance. (See “Taxes” for more about this proposal.)
  • Progressive corporate income taxes. A graduated corporate income tax rate would discourage monopolies and encourage the voluntary breaking up of huge companies into smaller ones. The rate could be 0 percent for smaller companies and steadily increase as companies get bigger. (More about this in the “Taxes” chapter.)
  • Stop welfare for businesses. Get rid of crony capitalism and let all companies compete on a level playing field with a simplified and fairer tax code. Phase out tax loopholes and government payments to businesses, including special tax breaks to selected groups, such as oil companies and hedge fund managers. Eliminate agricultural subsidies, Amtrak subsidies, “green” incentives, government loan guarantees, and corporate bailouts. Special breaks simply open the door for more lobbying by big companies and more payoffs to politicians.
  • Regulatory reform. Reduce the overcomplicated governmental rules, regulations, reporting requirements, and paperwork that make it so difficult for smaller companies to compete. (Big businesses can afford lobbyists to shape the government regulations and the big bureaucracies necessary to comply with the regulations; small businesses can’t.)
  • Election reform. Campaign contributions by businesses should not be permitted, and it should be a felony for a company to pressure its employees into making political contributions. (See the “Election Reform” chapter for more details about this proposal.)
  • Court reform. Big companies sometimes use the complexity of our laws and courts to bankrupt smaller competitors with lawsuits and endless legal maneuvers. “People’s courts” (in which disputes can be heard and resolved without lawyers) could go a long way toward protecting the “little guy.” (Also see the “Crime, Courts, and Prisons” chapter.)
  • Legislative reform. Businesses are being overwhelmed by the thousands of new laws that are passed each year. Limiting the number of bills that each lawmaker can introduce would force politicians to be more selective and would simplify compliance for everybody. (For more details see the “Congressional Reform” chapter.)
  • Corporate governance reform. Executives should be rewarded for creating long-term value (new and improved products that win acceptance in the marketplace), not for short-term cost-cutting that may destroy long-term value. Stockholders should demand an end to boardroom cronyism, interlocking directorships and fat-cat consulting firms that allow management to rip off their companies at the expense of employees and shareholders. The government should not—and politicians could not be trusted to—play a role in corporate governance reform.

“The incestuous relationship between government and big business thrives in the dark.” —Columnist Jack Anderson

 

“Politicians who talk about failed policies are just blowing smoke. Government policies succeed in doing exactly what they are supposed to do: channeling resources bilked from the general public to politically organized and influential interests groups.” —Robert Higgs, author of “The Myth of ‘Failed’ Policies”


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