There has been a great deal of wailing and gnashing of teeth over President Obama’s recent $3.6 trillion budget proposal. Accusations of socialism have been leveled by the Republicans, who are now trying to cast themselves as the defenders of capitalism and fiscal responsibility.
Judging by the Socialist Party Platform of 1912, the US has been socialist to some degree for 75 years. On the other hand, a party that spent the last eight years demolishing the federal budget can hardly hold itself up as a paragon of fiscal responsibility. Indeed, it was Bush, Paulson and the Republicans who started the massive bailout process which the Democrats have inherited (and continued).
The Democrats are certainly not free-market capitalists, and then again, they don’t claim to be. Republicans pretend to support the free market, yet in 2007, the federal government spent $92 billion on corporate welfare. They spent $741 billion on the Department of Defense in 2008, a figure that does not include the wars in Iraq and Afghanistan, which are budgeted separately. The Republicans are not capitalists either; they are corporatists and militarists. This works well for the stockholders of Haliburton (Dick Cheney) and Exxon (or Enron) but not as well for the rest of us.
I am generally in favor of free market capitalism. However, after watching the Atlas-Shrugged-in-reverse antics of the last few years (instead of the masses holding back the captains of industry, it’s the captains of industry that screw things up for the masses), I have questioned the value of free market ideals. How do the principles of competition and innovation apply when companies that fail are bailed out because they’re big, and small businesses that fail (because of the failure of the large ones) are ignored?
The advantage of the free market is innovation and competition. New ideas and products can constantly be tried, and new solutions to problems can have the opportunity to flourish (or fail) in the open market.
Small businesses are a tremendous source of innovation. The massive corporations of today once started as small businesses with powerful new ideas. Microsoft and Apple were both started in a garage. Some corporations continue to grow and prosper (iPhone), while others grow stale and lethargic (Vista), and then must be replaced by other companies with better ideas.
The essence of the free market must be the ability of an entrepreneur to start and run a small business. Instead, small businesses are burdened by government action. As “>Jan Norman notes:
If you ask small-business owners to name the worst government regulations, how many different ones do you think they’ll come up with? Advocacy received nominations for 82 regulations . . . complying with federal regulations now costs U.S. businesses $1.1 trillion per year, more per household than health care.
The costs of complying with the dizzying array of federal, state, and local regulations can be devastating. Compliance is such a problem, there is even a small business with the role of helping other small businesses comply with state and federal regulations.
Small businesses, which are considered companies that have less than 500 employees, make up 99% of all employer firms in the United States. However, companies with less than 20 employees pay over 25% of all compliance costs.
To be compliant in the area of environmental, workplace safety, tax and economic regulations, the average cost per employee for a small business with less than 20 employees is $7,645. For a larger company that has 500 or more employees, the cost drops to $5,282, with companies between 20-499 coming somewhere in between that number. This is a staggering difference in cost in that statistically the revenues generated by larger companies and the tax benefits afforded them by the government are higher than those for smaller businesses. This leaves the small business owner needing to produce more revenue to keep up with its larger competitors while still fulfilling its obligations regarding federal, state and local regulations.
If the costs of complying with federal and state regulations are so burdensome for a small business, they must be crippling for large national and international corporations. After all, if Congress passes so many laws to regulate small business, they must really go after large ones. Right?
Actually, they give them money instead. No area of the economy with a powerful lobby is immune. There are subsidies for agriculture, foreign military purchases, commuter trains, shipping, energy, the Small Business Administration (which Congress sets up subsidies to help overcome the burdens of regulations passed by Congress), sugar, cotton, and more. Last year, there were $2.5 billion in subsidies to the oil companies, $37 million to Wal-Mart, billions of dollars of military waste, and much, much more. There are many more examples.
This problem is so egregious that both Ralph Nader and the libertarian Cato Institute agree that it’s a problem.
There is no question that government policy favors large corporations (with powerful lobbies and plenty of lawyers) over small businesses. This is a denial of capitalism. It is the essence of capitalism must be the opportunity for inspired and driven people to start their own business and inject new ideas into the marketplace. Neither the Democrats nor the Republicans support capitalism in this way. Both of them are, to varying degrees, socialist, corporatist, and militarist.
Simply put, there are no defenders of capitalism in American politics.
Libertarians defend capitalism.