Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

How the left bribes big business

Jerry Stratton, September 5, 2018

Baroque Obama: Let them eat IBM

The left often seems to assume that big businesses are a natural progression from small businesses, that big businesses naturally and easily outweigh their small rivals. This is mostly bullshit. Big businesses are almost always slow, unwieldy dinosaurs. They tend to be slow to respond to changes in what customers want while smaller businesses are nimble. They tend to be unresponsive to customer problems because management is often nowhere near the front lines of the business while smaller businesses, with management that is literally right with the customer, forge deeper and more meaningful relationships with customers and communities.

Big businesses are notoriously bad at staying in business once they build a bureaucratic wall between management and customer. The “first mover advantage” is mostly a myth, made possible because no one remembers the many failures that preceded the first long-term success. For the computer industry, read Fire in the Valley for a long litany of first-mover failures.

Big businesses have one advantage, money. This lets them make more mistakes and still survive (why IBM is still around). It also allows them to take advantage of economies of scale: better prices per part by buying more, applying fixed manufacturing costs over more product, and applying fixed selling costs (such as advertising) over more product. But that tends to be swamped by their many disadvantages which cause them to spend that advantage on the wrong thing. For example, the Atari graveyard, and the big three auto manufacturers selling big cars long after consumers had said loud and clear that they want smaller cars.

Getting great prices on all the parts doesn’t matter if the whole is something nobody wants and the administration is too isolated from the customer base to respond effectively.

There are three fields where bigger businesses do have an advantage over smaller businesses:

  1. Handling paperwork. The more paperwork that is required the more expensive being a small business becomes. Paperwork is a relatively much larger burden on small businesses than large ones, because it takes a relatively larger slice of their resources to manage. Often, just starting a single-person small business that might grow into a multi-person small business requires onerous licensing costs that do nothing except keep competitors out. Big businesses already have an excess of administrators to handle such busywork. Smaller businesses are often run by owners who are also workers, and for whom any paperwork comes at the expense of making the product. Often, such paperwork has to be paid for before the first service or product is ever provided.
  2. Hiring bureaucrats. In a small business, every employee needs to have some relationship to the company’s core mission. They can’t afford to pay employees to do things other than make their product or provide their service. The larger a business is, the more it can afford to hire employees who do not contribute directly to building their widgets or providing their services. The more complex the rules for managing a business or employees, the more disadvantaged small businesses are compared with larger. And the more that businesses are required to provide non-core services, the harder it will be for small businesses to compete with larger ones. All of the laws that require businesses to hire large HR departments to handle interactions with government, to handle interactions with health insurers, benefit bigger businesses by keeping competition out.
  3. Lobbying external organizations. Lobbying takes money, time, and expertise away from the business’s core mission. But these are things a large company filled with bureaucrats can much more easily spare. The very fact of their size and reach makes larger businesses more worthy of a politician’s attention because it involves more people. General Motors was bailed out because GM was big enough to grab the attention of the White House. Every business that GM’s employees would have created to revolutionize the automotive industry, or transportation in general, was killed by that bailout.

This is critical. The more complex the regulatory environment, the more dense the rules that must be followed, the more services that employers are required or strongly encouraged to provide for their employees (such as paying income taxes or providing health insurance), and the more involved the federal government is with an industry, the more likely we are to see consolidation of smaller businesses into bigger ones. And the less likely we are to see nimble competitors spring up who can provide us with better products at lower costs.

It’s hard to be nimble when the first thing you have to do is hire a bunch of lawyers, administrators, and lobbyists rather than engineers and factory workers.

There is a great anecdote in an old Steve Jobs interview where he talks about wanting to provide computers to every public school in the United States. It failed because the Speaker of the House refused to bring a bill with nearly universal support to a vote. Having read Peter Schweizer it is obvious that the Senate was just waiting on some lobbying dough, but Jobs didn’t realize that.1 Apple was big enough at the time to make such donations, but they hadn’t yet hired the expert lobbyists necessary. Why would they? They’re a computer company. And for that matter, had Apple done so and been successful, it would have been another example of how the system is set up to encourage big businesses. First, high taxes. Then, special breaks for bigger businesses, who can afford to lobby congress, to push their products in schools.

All of the talk ever since retailers got on the Internet about how Internet retailers should charge taxes according to where a buyer is, is nothing more than a huge gift to large existing businesses. Such a scheme would erect a tangled thicket blocking potential small rivals from competing against the giants. Amazon.com will easily weather such regulations. They can afford the experts necessary to know what taxes apply in what states, counties, cities, townships, and whatever other taxing entities exist in the United States. Your corner arts & craft store will find it more difficult. They’ll need to hire experts to run special, complicated software, and upload detailed data on their customers to those experts and/or that software. Using money and time they should be using to make and/or find better stuff to sell.

Whenever you hear about businesses being given tax breaks to move to or build in a new area—or provide free computers to schools—it is almost always a big business; smaller businesses don’t have the lobbying clout to get these breaks. The reason these breaks are effective is because government has erected barriers to starting businesses. The better solution, which the left is adamantly opposed to, is to remove those barriers, creating a level playing field for both big and small businesses.

These are gushing problems, too. When massive regulations drive up the cost of rental space, while at the same time other regulations make it illegal to start a business from your home, this obviously makes it more expensive to afford a location to start a business. When the federal government takes over the health industry, with the easily-predicted result that health coverage costs skyrocket, combined with the requirement that employers provide health coverage, this makes it much harder for employers to create those jobs with health coverage in the first place.

Superficially, some of this is more about the beltway class than about the left specifically. That Steve Jobs needed to donate to Bob Dole’s campaign fund2 in order to be allowed to give computers to public school, for example, is just how business is done in the swamp. But the reason that’s how business is done is because the left’s model of government is for the federal government to have their hands in everything.

Their model of government is to control everything, and then dispense special favors. To tax everything, then give some companies tax breaks for purposes approved by the expert bureaucracy. To regulate everything, and then provide means of bypassing the regulations for those who can afford it.

It was the left whose rules and employer-level entitlements made it so time-consuming and expensive to start a business that both inner cities and small towns are being destroyed. They have fewer and fewer people creating employment opportunities. Neighborhoods and small towns, almost by definition, can only have small businesses, because smaller communities have a smaller number of potential customers. Strangling small businesses with regulations, unnecessary licensing requirements, and mandated services unrelated to the reason the business exists strangles neighborhoods and towns. It keeps individual entrepreneurs from starting businesses; it keeps small businesses from growing and employing more people; it keeps neighborhoods and towns from thriving. Most importantly of course, it keeps small businesses from growing and competing with big businesses.

This is a well-known effect; but the left is so enamored of the power and influence that comes with a cronyist relationship with big business that they don’t care enough to change their policies to stop strangling neighborhood and small-town startups. Except for occasional lapses, the left claims to be against big business and for the little guy; yet, time and again they champion measures that make it more expensive and more difficult for individuals to compete with big business.

In response to The Bureaucracy Event Horizon: Government bureaucracy is the ultimate broken window.

September 12, 2018: Small towns, big government
Baroque Obama: Let them eat cities

Last week’s post reminded me about something I’ve been wanting to say about dying small towns. Every once in a while the argument comes up that if there are no jobs in your town, you should move to where there are jobs. And if your small town has no jobs, then it should die.

This is grossly hypocritical when it comes from modern pundits and politicians. It is a tacit acceptance of big, intrusive government. It is government regulations that mean fewer and fewer jobs in small towns. It is government mandates that make it deadly for businesses to hire people nearby even though businesses would by far prefer nearer workers to overseas workers. The reason small towns increasingly resemble inner cities is because the same problem affects both: an inability to overcome the barriers that Washington (and cities run by Democrats) put up against starting and running small businesses. Small towns were more resilient because they were further from the nutty regulations of Democrat-run cities, but the way federal regulations force small-town businesses to close is the same as how they forced inner-city businesses to close.

It is critical to realize that this affects all small businesses, not just small businesses in small towns and dangerous neighborhoods. The longer the problem goes on, the closer we get to the kind of science fiction dystopia of big-business arcologies and monolithic multinationals.

The more expensive and difficult we make it to start a business, the more this becomes only feasible in cities—and only for those with the resources to start big. The more expensive and difficult it is to start a business, the more customers you need to make it profitable, and the more bureaucracy navigators you need to literally keep yourself out of jail. Both customers and extraneous expertise are more common in cities than out of them.

People should not have to leave their home towns to start businesses that create jobs. But if they want to keep from breaking the complex laws that surround running a business, they need to hire tax experts, legal experts, human resource experts, and health coverage experts. And probably more experts I'm not even thinking of.

  1. In his defense, Jobs does later seem to realize that the reason it failed is that he “refused to hire any lobbyists”. See 47:30 in the video.

  2. Or Tip O’Neill’s or Howard Baker’s. Jobs’s account of the “Kids Can’t Wait” bill’s progress is mixed up. Jobs says Dole was Speaker of the House “during Carter’s lame duck session”, but the actual Speaker was Tip O’Neill. He says it “passed the House with the largest favorable majority of any tax bill in the history of this country”, but then says the Speaker “killed it; he would not bring it to the floor.” If it had passed the House, there was no need to bring it to a floor vote. Further, Dole was never Speaker. He may be talking about HR 5573, introduced in 1982 by Pete Stark in the House; and S. 2281, introduced in 1982 by John Danforth in the Senate. In 1982, Bob Dole was Finance committee chairman, to which the Senate referred S. 2281. You might be thinking, this system looks like it’s designed to encourage multiple donations, and the answer to that is, read Peter Schweizer. See 48:30 in the video.

  1. <- Phony Baloney Beltway