DANA POINT, Calif. — Crony capitalism was a central theme of the weekend gathering organized by billionaire free-market crusader Charles Koch.
Koch and other speakers at the conference argued that corporate welfare, protectionist regulations, bailouts and the like not only hurt the economy, but they also corrupt business and politics, and destroy the moral foundation of free enterprise.
The assembled crowd, wealthy conservative and libertarian donors, received the message well. They also reacted with disapproval when presidential candidates Marco Rubio and Scott Walker defended their own corporate welfare policies — sugar subsidies and a stadium deal, respectively.
Attacking sugar subsidies is easy, however, if you’re a manufacturer, and fighting to kill the Export-Import Bank is no sweat if you’re part of the 99 percent of small businesses that will never get an Ex-Im loan. But what is a businessman who believes in free enterprise supposed to do when offered a subsidy? Should he leave money on the table if it’s in the form of a special tax credit or a handout? Should he lobby against pointless regulation that would kill his competitors?
In other words, what’s a capitalist to do in a crony world?
I asked this of the businessmen at the conference, which I attended as both a speaker (the Koch-related Freedom Partners is covering my travel costs, but I took no honorarium) and a reporter.
Most of the conference was off the record, but some of the attendees agreed to speak on the record with me and other reporters. Others shared their thoughts for my column, but only anonymously.
Tim Busch, owner and boss of many businesses, including a hotel group, said the war on cronyism requires occasionally giving up profits. “We as businesspeople have to say that that’s immoral and unethical to take advantage of any cronyism that comes our way. I don’t think it’s the answer of ‘well, I gotta do what I gotta do to protect my business.’ No.”
But this isn’t the universal opinion in the world of free-market businessmen. Milton Friedman wrote a famous essay in 1970 that carried the provocative headline, “The Social Responsibility of Business Is to Increase Its Profits.”
Hedge-funder Paul Isaac, part of the Koch network, says politicians ought to abolish all special favors for businesses — he even says he’d support ending the preferential tax treatment for hedge fund managers, often called the “carried interest loophole.”
So, he thinks businessmen should advocate fair and free policies, even if they benefit from cronyist policies. But what if the handout is already there? What if a company he invested in turned down profit because it didn’t want a handout?
“If it’s in the law, I think people are obligated to take advantage of it,” Isaac said. That’s the Friedman line, and it’s common in free-market circles: Businesses — especially publicly traded ones — have not just a right, but a duty to take advantage of special-interest favors.
Bob Fettig, whose companies manufacture fuel tanks and hydraulic reservoirs, thinks there are prudential reasons to avoid getting involved with the government favor factory. He tells the story of his accountant pushing him to apply for a Small Business Administration loan. Fettig applied for the loan and says he regretted it (and was rejected in the end, anyway).
Fettig says in retrospect, he should have walked away from it. He argues that if the government subsidy is what makes a deal worth doing, then “in my opinion, that meant you shouldn’t be doing it.”
Busch has a similar story. “Years ago,” Busch told me, “we took a tax incentive to build a hotel in Garden Grove. And that’s a form of crony capitalism.” The local government also used eminent domain to drive the deal, which he now calls, “The worst deal I ever made.”
“The market didn’t drive the asset,” Busch says. “As a result, we ended up building something the market didn’t want.”
Other businessmen at the conference, however, agreed with hedge-funder Isaac that one ought to take favors as long as they’re there for the taking. They also agreed that one shouldn’t lobby for special favors.
Some added another precaution: Avoid those lines of business that get you too intertwined with subsidies and the like. Don’t jump into ethanol just because there’s a renewable fuel standard. Busch said he skipped a development project in downtown Dallas because the whole thing was being driven by government.
As Isaac put it: “I think you become a creature of government in a way that makes your business less effective.”
For some, like Busch, it’s even simpler. If you believe in free enterprise, “Stay away from crony capitalism, even when it works for your benefit.”
Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Tuesday and Thursday nights on washingtonexaminer.com.
