More on Giving Back

In my last post I pointed out that honest, successful companies are not obligated to “give back” to society because society never gave them anything in the first place. Barry raised a good question, however, asking if companies that receive taxpayer bailouts should be giving back. Some have argued for government regulation of executive pay on the same basis. The short answer to Barry’s question is no, but it’s a little more complicated than that.

It’s difficult to argue for free markets today because most companies are either stuck dealing with burdensome government regulation or they function in an industry where governments buy a lot of what they produce. For example, banks and financial institutions really can’t be held completely accountable for their actions because so much of what they do is dictated by politicians, bureaucrats or the Fed. Carmakers must produce vehicles that meet numerous safety and environmental regulations, and it’s difficult to compete without leveraging some of the government subsidies such as cash for clunkers, green research credits, and electric vehicle consumer tax breaks. Companies that got bailouts received large sums of taxpayer money, so one could easily argue that they owe the public something down the road. I don’t agree, but I understand the argument.

The real problem is the cozy relationship between business and government–aka taxpayers–that creates a sense of obligation. If you accept the argument from Obama, Krugman, and others on the left that government has a responsibility to support some businesses and punish others in the “public interest,” then it naturally follows that companies receiving the support should give something back. This is ¬†ommonly called crony capitalism, although there’s nothing capitalistic about it. I prefer to call it crony socialism, or just cronyism for short.

Everyone knows cronyism exists, but few seem to clearly recognize where and how it has and continues to damage the economy. Cronyism rewards companies that play the government game, not those that find better ways to meet customer needs. It rewards car companies that produce vehicles bureaucrats think we need, not what we are willing to pay for. It rewards pro-Obama companies like GM and GE by awarding them taxpayer funds and less-than-competitive government contracts. It punishes coal producers by over-regulating their industry and subsidizing less efficient green energy producers. In the end, productive citizens pay for this inefficiency through taxes, higher prices, and limited product choices.

While the notion of “giving back” is flawed, the root of the problem is the mixed economy (i.e., capitalism and socialism) that has already emerged. We need to start untangling the unholy alliance among politicians, regulators, and many corporations. This is the real challenge, and it will take some time and a serious change in Washington.

2 thoughts on “More on Giving Back

  1. I think all companies that receive bailouts have an obligation to give back. If we invest in these companies, we should get a return on our investment. (I agree that the bailouts created the problem)

  2. Some companies use “giving back” as a marketing tool. Theoretically, the consumer or employee thinks better of the company if they “give back”. That’s how twisted this whole thing has become, which of course started with the cronyism you describe well in these last blog posts. Personally, it doesn’t work for me. They should use the money spent on “giving back” to pay employees more, so they in turn can give to the charitable causes of their own choosing, instead of being coerce into giving to whatever cause the company leadership deems most worthy.

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