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On Socialism

A friend who most often sees political issues differently than I recently sent me an excerpt from an article in Daily Finance with the subject line “not bad for a socialist.” The article said Fortune 500 companies’ profits increased 16.4% over last year and exceeded “the roaring economy” of 2006. (Interesting the left was not describing it such in that year’s midterm elections.)

I presume he saw the article as evidence that President Obama is not a socialist. To be clear, I believe it is a mistake to allege Obama is a socialist as it is counter productive. The last generation outputted from the state-controlled school system does not know the meaning of the word. Describing the President as an advocate of big, obtrusive government is descriptive with more impact.

Socialism is defined as an economic system in which the state has ownership or control over the means of production. Control can be acquired through regulation, taxation, public ridicule or other bullying tactics (think Boeing) without ownership (think GM). National Socialists (the real name rather than the acronym) found control more effective than ownership. Without outright ownership a scapegoat is available for politicians to lay blame for problems. Government ownership of BP, in which he was the top recipient of BP PAC and individual money over the past 20 years, would have hampered Obama’s ability to lay blame on the company for the oil spill.

Early in the last century businesses became successful by developing products consumers wanted and then making it efficiently. Later in the century marketing the product became as important as innovation and cost control. Today a large company ignores pandering to government at its own peril.

According to a study political activity typically results in a 20% increase in a company’s performance. Another look at firms doing intensive lobbying shows they have returns much in excess of the S&P. Think of Microsoft’s change after a hands-off-politicians policy precipitated an anti-trust investigation.

A superficial observer may say the evidence only suggests large corporations are buying government favors. True, they are, but at what expense and at what competitive disadvantage does that place the small business owner who can not curry sufficient favor? The favors and payoffs are mutual-think paying the piper.

Does Ma and Pa Heating and Cooling get to keep tax loss carry-forward after their creditors write off debt as General Motors was allowed? Does the small company receive the tax breaks of General Electric?

Large companies can spread government regulatory burdens over huge sale volumes and still keep overhead under control. Small companies can not. A fortune 500 company is more than happy to relinquish some control to the government in return for the government giving them a competitive advantage in addition to the protection of a bailout to recover from mismanagement. Hence small businesses are caught between large companies’ gained advantages in collusion with the government and a government that through huge deficits usurps more capital from entrepreneurs.

When Democrats seek a way to pay for reducing the interest on student loans, they don’t look to big corporations, their high paid executives, trust funds or highly paid entertainers and athletes, they go after small business via their common organizational structure, S-Corps. Many in the media are ever available to carry the left’s message such as the Tribune’s Lisa Mascaro whose disparaging use of the adjective “so-called” preceding S-Corps bears her tilt.

Given that 70% of new jobs come from small companies, government putting them at a competitive disadvantage does not grow the economy, but gives government more control over the economy, enhancing the growth of a big obtrusive government.

Have a fulfilling and profitable day,

W C (Bill) Augustine,

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