Showman and hustler PT Barnum once said, “The noblest art is that of making others happy.” Thus, the simplest way to build a successful business is to follow Barnum’s dictum and continue towards it for the life of the company, making your customers and employers happy.
Happiness isn’t easy though, so some business owners seek to hedge that success, fake happiness, or even ignore the rules of a free market altogether and take advantage of the government. They call this cronyism. And, with the need to work on yet another National Defense Authorization Act (NDAA), the cronies are lining up for their handouts.
The United States spent almost $600 billion on Defense in FY2015 – just over 3 percent of our GDP, and close to the total defense budgets of the next 15 countries combined. We are spending more on defense than 100 percent of our GDP in 1960, and more than the current GDPs of Sweden, Nigeria, Poland, Argentina, Belgium, and Norway, just to name a few.
The other problem inherent to this system is that there’s no free market: Government officials spend taxpayer money in a byzantine procurement process that is essentially a monopoly. That’s not entirely bad – I’m glad that F22s are not available on the open market! – but it is a formula for cronyism.
To prove just how bad things have become one doesn’t have to look past the Chairman of the Armed Service Committee, Sen. John McCain.
Chairman McCain opened a recent hearing of the Armed Services Committee by expressing his concern about rocket engines. He didn’t focus on terrorism, ISIS, North Korea, or DoD spending on a military jet that can’t fly if it sits on a hot runway too long. Nope, the Chairman who oversees all of those issues attempted to get more money into his state in the form of more business. Sen. McCain has been talking with Elon Musk’s SpaceX team recently and it is starting to show. Before the hearing diatribe, Senator McCain was tweeting compliments and courting Musk to bring his brand of entertainment to the Grand Canyon State.
Musk, in addition to his brand as an innovative businessman, is a master at finding ways to use the government to his advantage. In Texas SpaceX built a launch site, but only after playing hardball and receiving about $20 million in economic development subsidies as well as other protections. SpaceX has also benefited from Export Import bank loans, both indirectly (by U.S. satellite manufacturers using them) and directly (by launching Israeli rockets).
To his credit, U.S. Secretary of Defense Ash Carter knew that testifying in front of the Armed Services Committee is like performing in the center ring of the McCain’s Crony Circus and he was ready to answer about prematurely abandoning the rocket that DoD, NASA, and other commercial interests use merely to help benefit the Chairman’s home state.
Musk’s companies aren’t wrong for seeking this money or support from the people that hold the purse-strings. In fact, they might have a fiduciary mandate to limit risk while finding the cheapest way to provide the highest return. That’s just business. But the government shouldn’t be picking winners and losers. Cronyism hurts innovation.
Cronies are disciples of P.T Barnum, but instead of the attempting “noblest art of making people happy,” they have taken to a more famous quote from Mr. Barnum: “There is a sucker born every minute.” And like the rest of the world, they know those suckers are concentrated in the U.S. Congress and state legislative houses. Before the NDAA is considered again, it should be read carefully to make sure that more cronyism isn’t included.
Or else innovation will become, much like the three-ring circus, a thing of the past.
Charles Sauer is the president of the Market Institute.
