The Essential Business of Business

In our modern American political system, which party represents the interests of big business?

If you listen to the media, it's the Republicans, of course - they're always agitating for tax cuts for "the rich" and Wall Street, the fabled home of Big Business.

If you listen a little more closely to Bernie Sanders' supporters, though, the picture becomes more complex.  Nobody would mistake Hillary Clinton for a Republican, so why was she collecting millions of dollars giving speeches to Goldman Sachs which are of such import and of such high value that she won't release the transcripts so we can know what she said?

And even the New York Times has noticed that its wealthy constituency largely doesn't vote Republican:

Democrats represent a majority of the richest congressional districts, and the party’s elected officials are more responsive to the policy agenda of the well-to-do than to average voters. The party and its candidates have come to rely on the elite 0.01 percent of the voting age population for a quarter of their financial backing and on large donors for another quarter.

Of course, it wouldn't be the New York Times if it didn't implicitly blame Republicans for what Democrats do:

On economic issues, however, the Democratic Party has inched closer to the policy positions of conservatives, stepping back from championing the needs of working men and women, of the unemployed and of the so-called underclass. In this respect, the Democratic Party and its elected officials have come to resemble their Republican counterparts far more than the public focus on polarization would lead you to expect.

In other words, according to the Times, supporting big business is the foundation of conservatism, and any move in that direction is ipso facto a conservative one even if Democrats are getting bribed to do it.

But that's a lie.  There is nothing conservative whatsoever about supporting big business, and to see why, we need to first explore what "business" is supposed to be.

To Buy, And Sell, And Get Gain

What is a business?  We all think we know what the answer is: it's an organization that sells something and tries to make money by selling it for more than they had to pay to get it.

There are lots of organizations that don't sell anything; they aren't businesses.  Charities like the United Way and the World Wildlife Fund deal in dollar amounts larger than all but the biggest businesses, but nobody would ever mistake them for a real company even though their executives are paid as if they were.

Of course, there are charities that do sell things, like the Girl Scouts.  But while the Girl Scouts do "make money" from the cookie sales - that's why they do them - the money mostly goes to further the goals of the organization, not back to shareholders.  The Girl Scouts may be in the business of selling cookies, but it is not a business.

Perhaps that's why they aren't very good at it: the Girl Scouts unwisely contracted a subsidiary of the Keebler Company to manufacture their cookies for them, and then shortly thereafter - surprise! surprise! - those devious Keebler elves released their own imitations which, unlike the originals, are available year-round.

We may think we know what a business looks like.  It has an office; it has a name and a logo; it almost certainly has a website; it wants your money, and it offers you something in return.

But... what about Aeroflot in 1980, the national airline of the Soviet Union?  It had a name and a logo; it had offices all over the world; and it had a vast number of employees, including executives who resembled what you'd expect.  It even wanted your money: you could buy a ticket on Aeroflot, as you can to this day, and expect to be taken for a ride.

Nevertheless, Aeroflot was not a business during the Reagan years; it was a thinly-disguised branch of the Soviet government.  Aeroflot did not answer to a board of directors or to shareholders; it answered, ultimately, to the Soviet premier just like everyone and everything else in Russia at the time.  That's why a fair few of their commercial passenger planes were designed so that they could be converted into bombers or at least military trainers; even the Pentagon never tried that wheeze.

Today, things have changed; you can buy and sell shares in Aeroflot, and theoretically share in any profits they make.  Does this mean they're now a private business?  Actually, no: Aeroflot is 51% owned by the government of Russia, so only what President Putin thinks really matters.  You're welcome to own a share, and you'll get exactly what Mr. Putin wants you to have, no more and no less.  Despite appearances, Aeroflot is not a real business.

Lest we think this is purely a Communist phenomenon, consider Amtrak.  It has a logo, offices, executives, and sells services.  It even has stock, but you can't buy any; it's 100% owned by the government.  In the opinion of the Supreme Court, no less:

“Given the combination of these unique features and its significant ties to the government, Amtrak is not an autonomous private enterprise,” Justice Kennedy wrote. “Amtrak was created by the government, is controlled by the government and operates for the government’s benefit.”

Does Amtrak make money? No.  Does Amtrak answer to independent shareholders? No.  Does Amtrak return profits to its shareholders - ever?  Nope, not that either; for a half-century there haven't been any, and there's no reason to believe there ever will be.

The only reason Amtrak continues to exist is because our elected representatives keep on shoveling in your tax dollars.  Amtrak is no more a private enterprise than the DC Metro.

The Hidden Hand of Government

In fact, if you look closely, you will find the hidden hand of government behind all sorts of "businesses" that appear at first blush to be genuine private enterprises.  The simplest way to tell the difference is to watch what happens when things go wrong.

When a real business runs into financial trouble, its executives scramble to raise additional capital - from banks, from investors, or the like.  They also start cutting whatever spending they can - wages, investment, benefits, and so on.  If this doesn't right the ship, they may try to sell the business to someone else entirely, as US Airways sold itself to America West Airlines (which renamed itself US Airways), and then American Airlines sold itself to US Airways (which then renamed itself American Airlines.)  But the same executive team, headed by Doug Parker, was at the helm through all three mergers and name changes, because he apparently knows how to run an airline and make money whereas the ex-CEOs of US Airways and American Airlines didn't.

Why did the executives at American Airlines give up their cushy jobs, chauffeured limousines, private jets, and legions of minions by selling their companies?  Because at least that way their stock options retained some value, which they wouldn't have done if American Airlines filed bankruptcy as happens so often in the airline industry.  Indeed, selling the company at a higher valuation than the current trading price makes it more likely that they'll find employment elsewhere should their golden parachutes not suffice.

Yet when we look at the auto industry, another enormously large sector, we see that there haven't been any real mergers in years.  After the financial crash of 2008 when nobody was buying cars, the textbook solution would have been for the weakest company (at the time, Chrysler, but arguably also GM) to merge with somebody else.  At the very least, they could have sacked half the management layers and large chunks of overlapping dealers between the two merged companies, saving a bundle.

They did no such thing.  Instead, they famously went to the government which bailed them out.  This didn't even bail out the shareholders, at least not most of them: it was the unions that came out on top, at taxpayer expense, when all justice and economic reality should have allowed the greedy UAW to go down with GM.

How was this possible?  Because the government was shoveling out the money, the government was making the rules, and the result was what a Democrat government ordained.  After ensuring that the UAW bosses stayed in clover, the government finally sold its shares at a $10 billion loss, but that was just taxpayer money so who cares!

The bottom line is: For several years, GM was not a real business, because it did not have to concern itself with making money by selling things to people that they wanted to buy at a price greater than what it cost to make them.

What's more, GM isn't necessarily a real business today, although it's no longer owned by the government.  The executives now know that, if they get into trouble, they can run to Uncle Sugar for a bailout.  Do you think this will induce them to make better business decisions, or worse ones?

The same is true for our giant "too big to fail" banks.  Yes, it's true that our government allowed Lehman Brothers to go bust, but not the big banks whose mortgage frauds had caused the underlying problems.  Again, Wall Street now knows that it can take big risks because the government will bail them out if it goes south.  The giant banks may be making record profits, and they may even be distributing them to shareholders, but they aren't a real business, because the "profit" is in effect looted from unwilling taxpayers because of the implicit government guarantee.  Heads, they win; tails, we lose!

That's not capitalism, and it isn't business, and the left is right to be outraged about it.

If You Can't Die, You Aren't Alive

What, then, makes a business real?  Simple: the possibility of its dying, other than by government action.

Now, this doesn't mean that every business will die at any given time.  Most businesses have to be run at least halfway decently or their executives will get sacked and replaced by someone better.  Some businesses carry on for decades or centuries, though we note that the Dow Jones Industrial Average (DJIA), created in 1896, today contains just one of the original members, General Electric.

What happened to the rest?  Some died; many merged; some are still around, but are now too small to be relevant.

For the vast majority of the charter members of the DJIA, their fates were determined by the skills or lack thereof of their executives and stockholders and they eventually vanished.  That is the way capitalism is supposed to work, for good or ill... and if it doesn't work that way, it's not capitalism.

Today, Bernie Sanders inveighs against the evils of the giant banks, and rightly so!  But he's not railing against capitalism even if he thinks he is, because these giant organizations are in effect arms of the government without even the limited accountability our Congresscritters must tolerate in that we can vote them out.

The behavior of our big banks has nothing to do with capitalism or conservatism; it is corrupt cronyism, pure and simple, and we agree with Bernie that they need to be turfed out.  But this doesn't mean we're anti-business: the big banks are not truly businesses at all.

Alas, they aren't alone.  How many other businesses can you name which are so heavily controlled by the government that their fate and profits are not in their own hands?

 - Health insurance: the government tells the companies what insurance may be sold and how much they may charge for it, then tops them up again with a massive subsidy.  They don't have to persuade anyone to buy their wares, we're forced to by the law.

 - Medical drugs: it's illegal to sell a new drug unless the government approves it, after decades of research and billions of dollars in testing.  Then, once the drug is approved, nobody will buy it unless the insurance companies and Medicare agree to pay for it, which is also under government control.  The handful of private citizens who may purchase a few pills with their own money are nearly irrelevant.  Do you think the drug companies will invest a billion dollars in a drug that you want if the government has something else they'd rather approve?

 - Mass broadcast media: the airwaves and broadcast bandwidth are controlled by the government, and the broadcast networks can use it only by government sufferance.  Hardly a day goes by when the government doesn't make noises about cracking down on what they're allowed to say; do you really think that what you would like to see and hear matters all that much except at the margins?

 - The entertainment industry, whose products would be freely and profitlessly pirated by everybody in the world were it not for massive government efforts on behalf of copyright owners and against ordinary citizens.

 - Even traditional industrial companies are coming into thrall to the government due to environmental regulatory threats and legal action: dozens of states are suing Exxon, claiming that they have committed fraud by arguing against the bogus "settled science" of climate change!  If this effort is successful, it'll be hard to say if there are any real businesses of any size left, given that every one will be under existential threat from trumped-up government action.

Conservatives, Friends of Real Businesses Only

So does our fervent opposition to these giant, corrupt "businesses" put us in the socialist camp of Bernie supporters?  Hardly: we devoutly believe in private enterprise.  It's just that we expect the private enterprise to be truly private: that is, the actual owners run the show, reap the rewards, and pay the price of failure.  These days, that sort of business is mostly found in the tech sector although the giants of that industry are working hard to enslave themselves to government favor just like their predecessors in New York and Detroit.

But if anyone bothered to care about the Constitution, he'd find that our government has no business involving itself in any of these enterprises.  And when it does, then the subject in question is itself no longer a business.

So which party is the Party of Business?  Alas, the answer is: neither one.  Both parties wholeheartedly support the sort of giant crony-"capitalist" enterprise that rips you off and lines their pockets, and the rest of us can go hang.