On Tuesday President Obama claimed during his State of the Union Address that “we have to make America the best place in the world to do business.” On the surface, this may seem like a worthy goal. Businesses create jobs and millions of products that make our lives better. Encouraging an environment where businesses feel confident enough to invest and expand should be the goal of any economic policy. But the government’s track record of business promotion should give us pause, because it is easy for government to be pro-business without being pro-growth or pro-prosperity. Put another way, governments can help business without helping the economy.
Business leaders like to talk about their support for free markets, and many have been openly critical of President Obama’s perceived anti-business policies. In an effort to ease their concerns, the President brought along a veritable troupe of chiefs of business from all over the U.S. on his October 2010 trip to India. But free markets can be bad for large, established firms, because they encourage robust competition. As a result, we see profitable companies lobby for policies like import tariffs, farm subsidies, and loans from the Export-Import Bank, not to mention a whole host of onerous regulations, all of which undeniably favor American business but also create incredible waste. This type of crony capitalism stifles competition and slows innovation.
People prosper when businesses meet the demands of consumers, not when governments meet the demands of business. Under true capitalism, seemingly invincible firms are routinely brought to their knees by nimbler, more innovative start-ups. Producers meet the demands of consumers or they cease to exist. This type of “creative destruction,” as the economist Joseph Schumpeter termed it, accounts for the vast majority of American prosperity.
So when the President speaks about being pro-business while Jobs Czar and General Electric CEO Jeffrey Immelt nods along approvingly, we should be nervous, for the list of spending projects that help business while hurting taxpayers and consumers is long. Congressional funding for GE and Rolls Royce’s alternate engine for the Joint Strike Fighter is pro-business, but it also destroys wealth by creating a product that will never be used. Siemens, a massive German engineering firm, supports and stands to profit enormously from the state- and federally-funded high-speed rail projects Obama has promised. General Motors did very well by its $60 billion bailout and the Cash for Clunkers program, but taxpayers got stuck with the bill and thousands of perfectly good cars were destroyed. Such examples of corporate welfare are pro-business, but that does not make them a good use of taxpayer dollars.
Keep an eye out over the next few months. When President Obama talks about the need for government to make investments in our country that will help us “win the future,” make sure it’s not just the same old pork dressed up in a new package.