Tuesday, March 29, 2016

Here's a radical idea...........................

..............................for fixing our "free enterprise" system.  Let's encourage more competition.

The Economist takes aim at what ails America's economy in this essay.  For my money the three most important paragraphs are as follows:

     Getting bigger is not the only way to squish competitors.  As the mesh of regulation has got denser since the 2007-08 financial crisis, the task of navigating bureaucratic waters has become more central to a firm's success.  Lobbying spending has risen by a third in the past decade, to $3 billion.  A mastery of patent rules has become essential in health care and technology, America's two most profitable industries.  And new regulations do not just fence big banks in:  they keep rivals out.
      Having limited working capital and fewer resources, small companies struggle with all the forms, lobbying, and red tape.  This is one reason why the rate of small-company creation in American has been running at its lowest levels since the 1970s.  The ability of large firms to enter new markets and take on lazy incumbents has been muted by an orthodoxy among institutional investors that companies should focus on one activity and keep margins high.  Warren Buffett, an investor, says he likes companies with "moats" that protect them from competition.  America Inc has dug a giant defensive ditch around itself.
      Most of the remedies dangled by politicians to solve America's economic woes would make things worse.  Higher taxes would deter investment.  Jumps in minimum wages would discourage hiring.  Protectionism would give yet more shelter to dominant firms.  Better to unleash a wave of competition.

If you are unhappy with our current economy, don't blame capitalism or free enterprise.  Without much fanfare, we seemed to have morphed into "crony capitalism," a very different, and not generally friendly, animal.  As The Economist essay says, "Two-thirds of Americans believe the economy is rigged in favour of vested interests."   Can we hope for change?

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