According to popular mythology, such liberal policies as minimum wages and environmental regulation stick it to the greedy and exploitative big businesses, and people who oppose such policies probably just have sizable bank accounts. However, popular belief and truth don’t always go hand in hand, especially when it comes to economic matters.
If that popular belief were true, how would it explain the fact that last week Lee Scott, the CEO of Wal-Mart, called for an increase in the minimum wage in order to “help working families?” Has one of the biggest businessmen in the country suddenly experienced a change of heart—does he now think compassion is more important than the bottom line? Not likely—the primary responsibility of a CEO is to help the company obtain the highest profits possible after all.
So what’s going on here? He could simply be bluffing, like some liberals allege. But I think Scott is being sincere. It is actually in Wal-Mart’s financial interests to get the government to increase the minimum wage. A cursory glance at the facts shows the truth of that: Wal-Mart pays its employees between $8.23 and $9.68 per hour on average. That means that the current $5.15 minimum wage could be increased significantly without causing any serious problems for Wal-Mart.
Meanwhile, some of Wal-Mart’s major competitors, like K-Mart and Target, pay their employees a good deal less on average. It is likely that many of its smaller, local competitors also pay their employees less. Clearly, an increase in the minimum wage would impose greater costs on Wal-Mart’s competitors than on Wal-Mart itself. Some of those competitors would be forced to go out of business or reduce production, meaning more profits and a larger market share for Wal-Mart.
I have to hand it to Scott: his strategy is genius. Wal-Mart has been the left’s favorite target for years, on the grounds that it treats its workers poorly and drives out local competitors. But here Wal-Mart can do exactly what its liberal critics want and rake in the profits at the same time. And when it drives out even more local competitors after the minimum wage is increased, the left won’t even be aware of how it helped Wal-Mart accomplish that.
That leads me to the general point of this column, which is that the big government championed by liberals tends to work to the advantage of big businesses like Wal-Mart. They think that if only government had more power (directed by liberals of course), it could curb the interests of big businesses and help out the little guy. That sure does sound noble and it definitely wins liberal Democrats some votes. But unfortunately, that’s just not the way it works.
The history of big business and big government is quite intertwined. Leftist historian Gabriel Kolko documented in “Triumph of Conservatism” how big business was the driving force behind the introduction of “progressive” legislation in the early 20th century. That may be surprising to liberals, but it makes perfect economic sense. As competition intensified during that time period, big businesses felt increasingly threatened. They looked to the government to impose regulations that would be more costly to their smaller competitors, driving them out of business—and the government was only too happy to help.
Now I’m not opposed to big businesses per se. They have historically been vital to the rise of living standards in America, by virtue of offering a greater variety of goods at lower prices. But what I am against is any effort by big businesses to use government coercion to their advantage. That is exactly what they started doing in the early 20th century, and they are still doing it now. We have a name for it: corporatism.
Corporatism appears in three major forms: subsidies (“corporate welfare”), tariffs and other forms of protectionism and excessive regulation. All three of these serve to insulate big business from competition and increase their profits. According to the Cato Institute, the federal government spends about $90 billion per year of our money on the first kind, corporate welfare. Our average tariff rate, as of 2002, is about 2.6 percent (that’s not too bad, but there’s still no good reason for it). Excessive regulation, though, is perhaps the worst of the three. According to a study by the Office of Advocacy of the U.S. Small Business Administration, the yearly cost of federal regulation to our economy is about $1.1 trillion. That cost falls disproportionately on small businesses, no doubt putting many of them out of business and discouraging others from even starting up in the first place.
Some of the left side of the spectrum, like Ralph Nader, would have you believe that they are against this corporatism. But how can that be when they would have the federal government impose even more regulations, driving out small businesses and helping the very corporations they claim to oppose?
Corporatism can only be combated in this country by limiting and decentralizing government power. Incidentally, the only party that consistently advocates doing that is the Libertarian Party.
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