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January 12 2012

Real Capitalism Isn't the Problem

Carrie L. Lukas

Sabrina wrote yesterday about the lame, populist GOP attacks on current front-runner Mitt Romney, and Charlotte argued that we should be want a President who knows how to fire people. The only silver lining I see in this ugly political cloud is that Americans need a thorough conversation about what capitalism is and isn't, as well as what's fair and what's not.

I bet that most Americans understand that someone getting fired or a business shutting down isn't a failure or symptom of a problem with our economic system. We may be sad to hear about the hardship faced by laid off workers, or that a store had to shut its doors, but we understand that this is a necessary, even healthy, part of the economy.

Companies can't keep poor employees if they want to be competitive and offer customers the best deals at the lowest prices. And costumers are going to naturally reward those companies that offer the best value, which means that many will be found lacking. It's a competition after all. Inevitably, there are going to be winners and losers.

The problem is when it isn't a fair game that's being played. We've heard a lot about how our economic system favors the “1 percent” at the expense of the rest of the country. And this is in fact a problem at the root of our current economic crisis. But that's not a problem inherent in capitalism's—it's just a part of the crony capitalism that has been created by bad government policy that rigs the rules in favor of the power brokers and politically-connected elites.

One big company buying up another company and closing down the inefficient parts of the business, including firing workers, may not be one's favorite capitalist moment, but there is nothing inherently wrong with that process, which ultimately is likely to reallocate resources to more productive uses. What is a problem is when government bails out companies that should be going out of business, sets up rules that rig the competition in favor of one industry or company over another, or just plain doles out money to some companies, giving them an unfair advantage over others.

All those practices have been commonplace for too long. One can only understand our incredibly complex regulatory system and tax system through this lens. The many complications benefit some people—powerful political people—and keep down others. Conservatives are often derided as being too “pro-big business” when they talk about regulatory reform, but for the most part, big business love regulations since they have the infrastructure to figure out how to benefit while those rules. Small businesses and would-be entrepreneurs are the real casualties of our current regulatory regime.

This administration's green energy boondoogle—handing out millions to select companies that of course just happen to be political allies—is a perfect example of the problem with a politically-driven economy. But while the President should be embarrassed by the inherent corruption of what went on with Solyandra (and taxpayers should be outraged), this type of relationship has been common in Washington (though perhaps generally on a smaller scale).

Today Fred Barnes discusses in the Wall Street Journal how Romney should turn the conversation about Bain capital toward a pro-growth agenda and tax reform. Yet I think it's worth lingering on how a free economy should function and how getting power out of the hands of Washington is the real key to creating a system that's fundamentally fair.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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