Business-Government Partnerships

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Earlier this week Hillary Clinton was touting her ability to create jobs and revitalize the economy through “partnerships” between government and business. Everyone “working together” to solve problems might sound like a good idea. Sometimes entities from the private and public sectors must work as partners, but the less this happens the better.

There are two problems with government-business partnerships. First, government is not an equal partner with any other institution. Government has a monopoly on force and will always be the senior partner in any arrangement. Put another way, when government and business “work together,” it’s usually government telling business what to do. This bleeds into fascism.

Second, government and business have distinct goals and responsibilities. Just as business shouldn’t be strapped with determining what is in society’s best interest, government shouldn’t be picking winners and losers in commerce. The differences between the two are obvious. Government obtains revenue by force from individuals who may not benefit—at least not fully—from the confiscation. If you don’t like your government, you can’t easily switch to another one unless you are willing to leave your state or nation. On the other hand, business obtains revenue voluntarily from individuals who benefit from the transaction. If you don’t like a business, you don’t have to make the transaction. Government is ill-equipped to compete, and business is ill-equipped to address social policy.

Herein lies both the problem and the irony. Government and business serve different functions, but in a corrupt way, each has something to trade the other. Businesses prefer not to deal with pesky competitors, and government can stifle new entry to a market through various forms of regulation. Government prefers to circumvent an irate public when attempting to control an economy, and business can help by lending its support through markets. Partnerships usually morph into such trade-offs and ultimately cronyism. Promoting partnerships while decrying cronyism is like suggesting that zoos eliminate cages and complaining when the lions attack the patrons.

Some do not see the connection between partnerships and cronyism, but others do. Many in government and business see these alliances as security blankets that allow them to evade their responsibilities. I believe most business and government leaders fully understand the ensuing cronyism when they tout government-business partnerships. Indeed, most of the problems they purport to solve with partnerships would be solved more effectively if business would stick to honest competition and government to protecting individual liberty.

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The HB2 Hypocrisy

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My last post addressed Target’s social agenda and the boycott over its bathroom policy, as well as Charlotte’s related ordinance and NC’s HB2 response. The DOJ has since attempted to coerce NC by threatening to withhold education, transportation, and other funds. NC responded by filing suit, so it looks like this will end up in court. Kudos to Governor McCrory for navigating this storm calmly and rationally.

Unfortunately, most news reports are advancing two narratives here, but overlooking two larger points. The first narrative is the notion that HB2 violates the civil rights of members of the LGBT community. However, gender identity is not a protected class for a number of reasons, not the least of which is the fact that it’s subject to interpretation. AG Loretta Lynch’s attempt to equate HB2 with Jim Crow is beyond a stretch. Enough said for the time being.

The second narrative is that Governor McCrory’s move is costing NC jobs. Tell that to the city of Austin, where a December ordinance required fingerprints and background checks for Uber and Lyft drivers. The companies backed Proposition 1 to overturn the measure and spent over $8 million to persuade voters, but it failed last weekend. Uber and Lyft halted operations on Monday. Is the city of Austin thwarting economic activity? Perhaps so, but this back-and-forth is part of the process. I don’t hear a public outcry over Austin.

But two bigger issues are NOT getting much attention. The first is AG Lynch’s hypocrisy when it comes to HB2. Sanctuary cities represent an obvious rejection of federal immigration law. According to the Center for Immigration Studies, there are over 300 cities, counties and states that shelter illegal immigrants and ignore federal law. Their existence costs taxpayers billions every year and represents a threat to national security. Even if Lynch is correct with regard to HB2—which she is not—her silence on sanctuary cities is deafening and demonstrates her selective outrage.

The second issue is the hypocrisy of businesses and performers threatening to boycott the state. Consider a few examples. Paypal does business in Iran, Saudi Arabia, and Sudan, but apparently finds the climate in NC to be too abusive for its operations. Bryan Adams is refusing to perform in NC, but has done so in Syria, Qatar and the UAE. Bruce Springsteen is refusing to perform in NC as well, but does so in Italy, where same-sex marriage is not recognized. I guess it’s okay to require a bakery to bake a cake for a same-sex couple, but Hollywood types are free to transact business—or not—when and where they please.

It’s time we have a debate about hypocrisy. If federal law trumps state law, then why not when sanctuary cities are involved? If companies want to “take a stand” on social issues, when why not demand that they apply the stand consistently? If individuals and firms cannot refuse to transact business with others because of personal or religious objections, then why are artists permitted to do so?

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Target’s Social Agenda

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In my last post I noted that corporate America has become more activist in recent years, but on the left, not the right. Although still decried by leftists as evil capitalists, many large firms have taken social positions consistent with their detractors.

There are a number of possible explanations for this. One is that supporting a progressive social agenda can keep a large, visible firm off the boycott list. The problem, of course, is that promoting a leftist agenda can lead to boycotts from the right. Such is the case with Target.

The company posted the following on its website on April 16:

We believe that everyone—every team member, every guest, and every community—deserves to be protected from discrimination, and treated equally. Consistent with this belief, Target supports the federal Equality Act, which provides protections to LGBT individuals, and opposes action that enables discrimination. In our stores, we demonstrate our commitment to an inclusive experience in many ways. Most relevant for the conversations currently underway, we welcome transgender team members and guests to use the restroom or fitting room facility that corresponds with their gender identity.

Target has a right to take a stand on any side of this issue. Likewise, investors or customers who find this objectionable can take their funds elsewhere. Target has likely gained and lost business for its stance, but the ongoing boycott promoted by the American Family Association suggests that it went too far this time, and the response is hurting business.

Most Americans are tolerant of different views and lifestyles as long as theirs are protected as well. Transgender individuals have been entering bathrooms inconsistent with their biological sex for some time without an uproar. But the problem is one of a statute’s unintended consequences. Codifying anyone’s right to enter any restroom at will opens the door far beyond the transgender person who intends no harm. Charlotte’s attempt to enshrine this right is what prompted HB2 in North Carolina. At the corporate level, Target’s progressive directive opens the door to sexual predators and has prompted a boycott.

A boycott is a tool for keeping firms in line with stakeholder expectations, but most aren’t effective and lack staying power unless the numbers are high and the issue at hand is important. I usually give companies the benefit of the doubt on most issues, but I’m not shopping at Target until it takes a more reasonable stance. I see two possible long-term solutions: (1) A third, gender-neutral facility akin to the “family bathrooms” with baby changing facilities available in some locations, or (2) individual private facilities for everyone. Either option would require some remodeling. If Target feels so strongly on this issue, perhaps the company could pony up the modest funds to redesign restrooms in its own stores to accommodate everyone in a way that does not invite trouble.

The ongoing Target case underscores the reality that businesses cannot always escape social issues. Sooner or later they must stand for something, and inviting opposition by actively taking a stand can come at a cost. The conventional wisdom today is that siding with progressives is the wise alternative because it presents the company as “in touch” with a changing society and its demands for a “more caring” approach to business. Besides, those on the left seem more inclined than those on the right to fight back. This assumption is probably correct, but Target is discovering some new economic boundaries with this issue.

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The New Corporate Social Agenda

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Many progressives argue that large corporations use their market power to promote their own financial agendas at the expense of “social advancement.” The facts tell a different story.

It is true that firms traditionally stayed on the sidelines with regard to social issues, leaving them to the people and their elected officials. But most Americans believe that firms have a “social responsibility” above and beyond the honest pursuit of profit. In fact, a recent survey by the Global Strategy Group reported that 78% of Americans want firms to be active in social policy. Companies like Hobby Lobby, Koch Industries, and Chick-fil-A have taken conservative or libertarian views on various issues in recent years, only to face vilification in the media and threats of boycotts from activists. These firms are the exceptions, however.

Seeking to avoid the attention of activists, many companies have become advocates for the progressive agenda. Apple’s support for gay rights is well known. Large firms and the U.S. Chamber of Commerce have lobbied for legislation softening laws and enforcement with regard to illegal immigration. There are other examples as well.

Citing contradictions with its own human rights policies, Dow and Monsanto are fighting legislation in Indiana and Missouri that allow firms to deny same-sex couples certain benefits as a matter of religious freedom. Ironically, these companies have been on the receiving end of progressive vitriol for years. This fight is a convenient way for these companies to balance the ledger of perceptions and stay off of the boycott list.

The National Basketball Association even announced that it would relocate its 2017 all-star game from Charlotte if the State of North Carolina did not amend HB2, a measure that requires men and women to use public restrooms in accordance with the gender noted on their birth certificates. The NBA’s PC agenda has made it harder for me to watch the professional version of the game I love. It’s difficult to see why the league should seek to bully the NC governor and state legislature over this issue.

Overall, the political influence exerted by big business is mostly on the progressive side of issues today. Ironically, the left continues to castigate business as evil and the firms capitulate accordingly. But if anyone should be offended by the corporate political agenda, it should be the political right. Times have definitely changed.

Perhaps this is why more and more rank-and-file Republicans and Libertarians are actively opposing the corporate largesse. Perhaps this is why many are attracted to Donald Trump’s brand of populism.

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California’s Minimum Wage

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At least California Governor Jerry Brown tried to tell the truth when he signed a bill this week to raise the state’s minimum wage to $15 an hour by 2022:

“Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids in a much more satisfactory way.”

Brown’s first point is correct, an admission that he understands what is obvious to most economists. A minimum wage is not sound economic policy. When an employer is forced to pay an individual more than that person would otherwise earn in a free economy, then several things can and will happen: (1) the employer will absorb the cost and pass it along to the customers, (2) the employer will hire fewer workers, (3) the employer will automate more so that humans become expendable, or (4) the employer will cut other benefits to make up the difference. The best option depends on a host of factors, from the cost of training to the competitiveness of the industry. Most employers choose a combination of the four. Whatever the choice, an increased minimum wage means fewer jobs and higher prices.

Why have a minimum wage in the first place? Brown gives us an answer; it’s good ethically, socially, and politically. He’s definitely right in terms of politics. Most voters subscribe to the Marxist rhetoric of workers and consumers as powerless, and demand that politicians force them to play fair. In this sense, raising the minimum wage is good politically.

Brown’s social claim is elusive. The concept of social justice—also rooted in Marxist thought—is ill-defined and typically refers to making things right where the market fails. If your labor is worth the $10 an hour you get in your present job, then the market is not failing. You need to work your way up or build your track record so you can get another job.

But Brown’s notion that a $15 minimum wage is ethical (moral) is the kicker. He claims that parents can raise their kids more effectively when the minimum wage is higher. Of course, few minimum wage earners are actually full-time workers heading households. I guess parents earning the minimum wage who don’t lose their jobs after a mandated increase will be better off, but what about everyone else? How is the minimum wage better for consumers who must pay higher prices, teenagers who can’t convince an employer to pay them $15 an hour, or those without skills who need a place to start at any wage? What kind of incentives does it create for young workers deciding if high school or job training is worth the effort? And what about the employers whose businesses are at risk?

No, raising the minimum wage is not moral. If it were, then why not be “more moral” and raise it to $50 an hour? Employers can’t afford $50, you might say, so that would be a bad idea. Then why do you assume they can always afford $15?

It’s really simple. Raising the minimum wage is bad economics, so it’s not the moral thing to do.

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Trump, Lewandowski & Fields

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By now everyone has viewed the Michelle Fields – Corey Lewandowski video dozens of times, if not frame by frame. I’ve drawn my own initial conclusions from the video, but I will wait to pass judgment until all of the facts are in. As videos depicting Michael Brown and others have underscored, there’s usually more to the story than meets the eye. In this post I will analyze Donald Trump’s response to the incident. He’s the candidate, and we can learn a lot of studying his approach.

Predictably, most pundits and all of the other Democrat and Republican candidates called for Trump to fire his campaign manager. The incident is a distraction, Lewandowski put himself in a difficult predicament, and he should go. Besides, this is politically expedient, as it positions the other candidates as proponents of high standards at Trump’s expense. But is this valid?

It is commonplace to unload a member of your political team when detractors demand a scapegoat. Arguably, Lewandowski’s behavior might have been a little more combative than necessary, but there is no clear evidence that he intended to physically harm anyone. He made a split-second decision to get between Fields and Trump in what has become a heated campaign environment. He shouldn’t be penalized for making a tough call.

People frequently make the wrong split-second judgment or choose the wrong words to answer a question. The only way to avoid such mistakes is to avoid action. Business leaders like Trump understand and appreciate this reality. In the world of politics and spin, elected officials are expected to avoid offense at all cost and fire anyone on their team who is called into question. This is the personification of political correctness and it’s a big part of the reason why Trump is getting so much support. Many Americans are tired of the PC mentality and they want to elect a president who is as well. They respect Trump for not throwing Lewandowski under the bus.

Trump noted—and rightfully so—that Lewandowski should have been let go immediately if he had pulled Fields to the ground. I agree. There is a point where serious action should be taken, but there is no evidence that this occurred. For this reason, I believe Trump handled this situation properly. It demonstrates his strong leadership instincts and loyalty to his fellow team members.

Like Trump or not, he got this one right.

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Grading the Candidates on Cronyism

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It looks like a Trump-Clinton race for president, but Cruz and Sanders still have mathematical paths to their party nominations. In this blog I grade these candidates on their ability to combat cronyism.

For the record, I chose not to grade Kasich because he cannot obtain the number of delegates required to obtain the Republican nomination. His only chance is in a brokered convention, in which case there could be a multitude of other possibilities.

Let’s start with a definition. Cronyism exists when firms are able to sidestep the market and profit through collusion with government. This can be done in lots of ways, including government grants, favors, or regulation of competitors. Some refer to cronyism as crony capitalism. There’s nothing capitalistic about it, so I prefer to use the simple term, cronyism.

Hillary Clinton: Grade of F. Secretary Clinton has received a ton of support from Wall Street donors. She proposes to heavily regulate most major industries, including banking, energy, and healthcare; her recent attack on the coal industry is a prime example. High regulation means that it will be necessary for companies to play by her rules to succeed. In a Clinton administration, you can expect more collusion between government and business. They call it cooperation and partnerships, but it’s still collusion.

Bernie Sanders: Grade of D-. Senator Sanders would have gotten an F as well, but he is inclined to take over some industries altogether. If the feds run a single-payer healthcare system, collusion between government and business is reduced because private healthcare providers would be eliminated, not just regulated.

Donald Trump: Grade of C. Trump is difficult to grade because of his outsider status. He’s played the political game extensively as a businessperson, but there are two possible explanations for this type of activity. Sometimes executives cuddle up to government to gain unfair access to markets or to place restrictions on competitors, but sometimes they pursue government to fend off regulatory efforts by their competitors or activist groups. Trump is a disrupter, so my guess is that he would tackle some forms of collusion. But he is short on specifics. Trump proposes to “close loopholes” in his tax plan, but it’s difficult to tell how this would play out.

Ted Cruz: Grade of B+. Cruz is one of the best, but I’m not an easy grader. His opposition to the corn subsidies during the Iowa primary tells us that he’s not afraid to take on big business. His tax proposal would be a boon for the economy, but it retains the earned income tax and child credits, as well as deductions for savings plans. This signals a general comfort with eliminating a lot of government intervention, but perhaps not all of it.

There are some caveats with my grades. Sanders did a little better than Clinton, but only because he prefers a complete takeover of some industries. Neither Sanders nor Clinton have much respect for property rights or business liberty. Cruz didn’t get an A, but it’s impossible to eliminate all cronyism in one swoop. Trump is a wild card, but given the nature of Washington, he might be able to put a dent into the current system.

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Surviving the Polls

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With the presidential primaries in full swing, we are being inundated with constant political analysis and poll results. Polling is mostly a science, but even when done correctly, the interpretations are often suspect. There are lots of problems with polling, but here are three serious issues to consider when digesting the next one.

1. Did the pollsters ask questions that respondents could readily answer? Most exit polls pass this test because they ask voters how they voted and why. Assuming they tell the truth—or that the lies are evenly distributed among the candidates—polls like this are generally reliable if those sampled are representative of the voters at large. If not, the problems are obvious. For example, a poll of younger Democrats would suggest strong support for Sanders while a poll of older Democrats would favor Clinton. Respectable pollsters usually ensure that this is done correctly, although minor errors can result in inaccurate predictions, especially in close races. This is why results can vary widely in polls deemed to be scientific.

Polls that assess hypothetical head-to-head matchups do not pass this test. Likely voters are asked how they would vote given all of the scenarios and the results are supposed to suggest which candidates have the best chance of winning in November. The problems with this approach are legion. It’s not uncommon for voters with a strong primary preference to claim that they will “sit out” the November election if their candidate isn’t the nominee, or possibly crossover to the other party. So much can and will happen in the next eight months that polling hypothetical preferences today is a waste of time.

2. Are the questions worded properly? A pollster with a political ax to grind can modify a word or phrase, or not ask a particular question to paint a skewed picture of reality. For example, if you ask Americans if they favor gun control, you’ll likely get some yes answers from largely pro-gun individuals because they support some, notion of gun control (perhaps convicted felons or the mentally ill). Ask them if they support gun rights, and some largely pro-gun control individuals will likely answer yes because they favor some rights (perhaps hunting rifles). Organizations with a given political position often choose the wording in such instances as a means of influencing public opinion.

3. Are the responses properly interpreted and reported? This isn’t always easy to do, but many reporters and analysts simply don’t understand the science or are willingly misleading their audiences. A simple example is the reporting of gender and ethnicity “gaps” with certain political candidates. Pundits are constantly telling us that Republicans have a problem attracting women voters. Given the rough 50/50 split between women and men and the general balance of power in Washington, it is just as accurate to say that Democrats have a problem attracting men voters. This is rarely suggested, however, because such a conclusion doesn’t follow a predetermined narrative.

A subtler example can be found in recent polls concerning why Republican primary voters select a particular candidate. We are told that those who are most concerned about winning in November overwhelmingly support Rubio, but the evidence is really weak. Voters are typically asked who they selected (or will select) and why. The fact that Rubio voters are more likely than Trump or Cruz voters to identify prospects for winning the general election as the top reason for their vote doesn’t necessarily mean that Trump or Cruz voters aren’t equally convinced that their candidates can win. Indeed, Trump voters are more likely to suggest preference for an outsider as the top reason, but most probably think that their candidate has the best chance of winning in November as well; it’s just not the overriding reason they selected Trump. It could be that Rubio voters don’t really like him very much as a candidate except that they think he has the best chance of winning in November. We are supposed to believe that supporting Rubio is the best choice if “we really want to beat Hillary,” but the alternative explanation I just proposed paints Rubio as a lukewarm choice with a less-than-energetic base of support, thereby making him a less desirable candidate in November. Frankly, I’m not sure which explanation is most accurate, but I’m willing to put both explanations on the table.

I’m not anti polls, but I’m tired of their prominence in lead stories. They are fraught with problems. Most reporters either understand this reality and choose to overlook it or they they don’t fully understand what they’re reporting. Frankly, I think the issue with most is ignorance, but either way we have a serious problem.

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Why Carrier is Shipping 1400 Jobs to Mexico

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It was recently reported that Carrier plans to shift 1400 jobs from its plant in Indianapolis to Mexico in an effort to cut costs. Average wages in Indianapolis exceed $20 per hour, but would drop to around $3 south of the border. While union leaders are understandably upset about the move, it’s really about economics.

http://www.reuters.com/article/us-carriercorp-layoffs-idUSKCN0VP2R6

But the story doesn’t end here. According to an article in yesterday’s The Internet Post, Carrier received $5.1 million in “clean energy tax credits” as part of the stimulus package in 2013. When receiving the funds, Carrier officials said they planned to use the money to “expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line.” Apparently Carrier officials didn’t mention their Mexico plans when getting the check.

http://theinternetpost.net/2016/02/17/carrier-received-5-1-million-in-obama-stimulus-cash-before-move-to-mexico/

Some are upset simply because Carrier is considering moving jobs from Indianapolis to Mexico. Worker anger was already present before the story broke about the $5.1 million stimulus payment. I understand this anger, but companies have a right to move production to minimize costs. The wage gap usually has to be substantial to justify a move outside of the US, but it’s the company’s right to make the decision. The idea that Carrier should “save US jobs” and not move is shortsighted because it assumes that the company can remain profitable while paying higher wages. Whether or not a particular company should relocate production abroad is often complicated and depends on factors unique to the company and its industry.

However, my view changed completely when I learned of the stimulus payment. While details are still forthcoming, this smells like more cronyism and unintended consequences to me. A government stimulus program is supposed to boost production and hiring in the US. As with most government programs designed to spur business activity, the bulk of the money either has little if any appreciable effect on long-term growth or ends up in the hands of cronies. As President Obama put it when confronted with the fact that the $787 billion 2009 stimulus package (ie, the American Recovery and Reinvestment Act) wasn’t working as promised, “Shovel-ready wasn’t as shovel ready as we expected.” He should not have been surprised.

This is a story worth watching and Carrier has some explaining to do. In the interim, it should remind all of us why government meddling in business affairs on either side of the equation rarely makes any sense.

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More on Wal-Mart

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Since announcing the closure of 269 stores globally (see previous post), there have been two interesting developments in the Wal-Mart saga. The company also announced that all of its workers will get a raise this month. Meanwhile, some of the workers at the Winnsboro, SC Wal-Mart Supercenter are soliciting signatures on a petition in hopes that the corporate office will reconsider closing it later this year.

While some pundits and big labor tell the story of a corporate giant squeezing suppliers, competitors and labor, a closer look at Wal-Mart tells a different story. It is probably true that Wal-Mart executives factor in some of the negative press when making strategic decisions, but most of them are based on economic reality. Wal-Mart is struggling because of a flat economy, increased preference for online shopping, and the strength of smaller discounters like Family Dollar. Its experiment with small, concept stores hasn’t worked out, at least not yet. Meanwhile, labor costs are creeping up, forcing many stores to raise wages to retain top employees and avoid costly high turnover. Wal-Mart is refocusing its strategy to deal with the changing landscape.

These recent developments underscore two realities that are often overlooked. First, the best way—if not the only way—to increase wages over the long term is not to mandate a higher minimum, but instead to grow an economy that creates more opportunities for workers. In such an environment, companies have no choice but to increase pay.

Second, current wages at Wal-Mart and other retailers are generally in line with the market. This is by definition. Most Wal-Mart workers who are legitimately underpaid—that is, they could do better elsewhere—will find other opportunities. Those that stay need something from Wal-Mart that they cannot get elsewhere. For some, it might be better hours, attractive working conditions, or a convenient location. For others, it’s a job. Companies like Wal-Mart and McDonald’s offer excellent entry-level job opportunities. Workers who prove themselves can move up or move on. Demanding higher wages so workers can stay in their current jobs long term misses the point altogether.

It’s human nature to think you’re underpaid, but when you don’t leave, you probably aren’t. The Wal-Mart workers petitioning the company to retain its Winnsboro store demonstrate that these jobs are, for many, solid employment. It’s fair to have a debate about practices at Wal-Mart or anywhere else, but it should be an honest one.

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