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It is the private sector, not government, that has failed us

You’ve heard it over and over again: “If only government would get out of the way, and let the private sector operate as is should, all would be right with the American economy.” The recession could be ended; folks would be back to work; and our nation would once again prosper. A nice thought — but patently untrue! Indeed, it has been the private sector (not government) that has brought us to this fiscal malaise, if not crisis; and it is the private sector that is not helping us out of it, especially with job creation.

If you think this is going to be some left-wing rant from an anti-capitalist ideologue, you would be dead wrong. I have spent more than 50 years of my professional life as the owner of several businesses. I understand that capitalism, flawed as it might be, is the best system we have. I am entrepreneurial to the core. I have put my own money at risk numerous times to develop and build businesses. But it is my interest in seeing this economic system work that brings me to this conclusion. The private sector has brought down our economy, and it must be called out on this failure — especially if we are to make things better going forward.

Let’s start with the far right’s claims that it is government interference, and especially taxation, that is impeding our recovery. This just has no basis in fact. The truth is there is nothing — nothing at all — that is preventing, obstructing, retarding or impeding American business from creating jobs, except American business itself. Taxes have been low. Interest rates are low. Regulation is provably lax. Major American corporations are loaded with cash, but they have learned that they can scrape along with higher productivity by stressing their existing staff, rather than by adding jobs. Another possible use of their resources is to buy businesses (or buy back their stock) with their cash — a consolidation which does not add jobs, but more likely eliminates them.

What, then, about the claim that it is taxes that are job destroyers. American businesses actually have been operating under all the Bush administration tax cuts for 10 years now, and look where that action has taken us. Job creation is sparse, deficits have soared, and no new taxes have been imposed. The argument is disingenuous.

What about the effects of ‘uncertainty’?
Conservatives and the business community make the claim that “uncertainty” is harming job creation. Give me a break. If you think today’s environment is “uncertain,” you did not live in the Great Depression (or many others in our history). You missed World War II. You forgot about the times when mortgage rates got up to 20 percent. You skipped the turmoil and discontent of the Vietnam War. In fact, in the context of history, today’s times are more tranquil and predictable than most. “Uncertainty” is a cop out.

But what about all those onerous government regulations that impede business? This year alone we have had an egg recall that sickened hundreds. A horrible mine disaster. An oil spill that damaged an entire Gulf. A sparsely regulated health-are industry that brought us mediocre care with exorbitant prices. And the worst one of all that festered for decades, and came to the fore in the Bush years: a Wall Street collapse that brought our economy to its knees. Over regulation? Not only is there no evidence of this, more likely there has been lax regulation in recent years that has put our citizens, our environment, and our economy at risk. The real issue here is that the private sector has little incentive to self-regulate, and strong incentive for laissez faire.

Well, regulation aside, perhaps the government is just too intrusive and obstructive — a claim we hear constantly in this election year. There is an irony here that needs to be called out. Starting with the Wall Street meltdown, when it appeared that our nation’s economy was about to collapse, the Bush administration came to Congress and literally begged for federal help to bail them out. Thus came TARP. Government interference? No, government to the rescue! It is generally conceded it saved us from dropping into a severe depression.

When Katrina hit New Orleans, the common complaint was that the federal response was too slow — not that the government was intruding. Similarly, when BP poured oil into the Gulf, the very people who complained most loudly about government being “too big” could not get enough federal help fast enough to save their skins (and that of their citizens). Bobby Jindal, Louisiana’s governor, just a few months earlier in a response to a State of the Union speech had railed mightily against “big government”; now he wanted more federal government — and fast!

The greed factor
When you look at the reasons American capitalism is failing us, there are several to consider. First, the greed factor, which has resulted in a continuing mal-distribution of income, depriving the system of bottom-up demand. Second, American corporations have a skewed set of loyalties and priorities: first to their top executives, then to their shareholders, then to the nation, and finally to the taxpayers. Despite the Citizens’ United ruling, corporations are not individuals, and thus have a very limited social conscience. The result of this is they have no compunction against paying outrageous salaries to top management vis a vis their lowest paid workers (unlike capitalism in other industrialized nations); nor do they have any restraint on shipping American jobs overseas to enhance profits. None of this “adds jobs” to our economy, government actions notwithstanding. This is strictly the private sector’s MO.

The solutions of all these factors are complex, but soluble. But demonizing government, as conservatives (and especially the U.S. Chamber of Commerce) are now doing, is definitely not part of a solution. And, until or unless people of goodwill concede that there is a role for both government and the private sector in responsible and vibrant capitalism, and the best path for economic health is a cooperative partnership between both entities, then the amelioration of tensions that are damaging our economic recovery will not be forthcoming, and further decline appears inevitable.

Myles Spicer of Minnetonka has spent his business career as a professional writer and owned several successful ad agencies over the past 45 years.

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Comments (32)

  1. Submitted by Richard Schulze on 10/20/2010 - 06:56 am.

    Too bad that many in businesses don’t understand business either or otherwise the economy wouldn’t be in such bad shape.

  2. Submitted by Larry Copes on 10/20/2010 - 08:27 am.

    1. True: All pregnant people are women.
    2. False: All women are pregnant.

    3. True: All businesses that are making jobs have money.
    4. False: All businesses that have money are making jobs.

    The trickle-down philosophy of the last 30 years claims that statement 3 implies statement 4. But it doesn’t, any more than statement 1 logically implies statement 2.

  3. Submitted by Greg Kapphahn on 10/20/2010 - 08:31 am.

    I have always believed that the management abilities demonstrated by all George W. Bush’s cronies who were appointed to manage various segments of the Federal Government gave a pretty good indication of the management abilities of the average fabulously wealthy Chamber of Commerce-type business executives.

    DISMAL

    If these people actually had to work for a living and earn their daily bread, they’d starve to death.

    The sad thing is, our nation is dependent on these same individuals to manage their businesses in a ways that support the well being of the rest of us, when, in reality, they are managing their businesses in ways that only ensure their own maximum profit, the general public and the environment be damned.

    If we EVER give the Chamber of Commerce and our nation’s most fabulously wealthy citizens what they want, which they are now using their own private Propaganda Ministry, weasel news, and the license given them by the “Citizens United” decision to try to convince us to do by endlessly attacking any political candidate who hasn’t yet drunk their koolaide, they will then continue to strip the rest of us of our income, our assets, and any hope of a comfortable retirement we might have had.

    Then, like the plague of locusts they are, they’ll simply swarm off to other places in the world to work their “free market” magic on the unsuspecting public there, without giving the slightest thought to leaving the US in ruins.

  4. Submitted by Greg Kapphahn on 10/20/2010 - 08:36 am.

    And… Can we FINALLY drop the meme that a “better business climate” creates a better EMPLOYMENT climate or better lives for the average citizens of the state?!

    If the years of King Timmy’s reign have taught us anything at all, they SHOULD have taught us that the two are mutually exclusive – that having a “better business climate” means only that the fabulously wealthy get richer, the environment get’s dirtier and more dangerous and the rest of us get a lower and lower quality of life (by every measure that counts).

  5. Submitted by Rod Loper on 10/20/2010 - 09:28 am.

    Myles, another great post!

  6. Submitted by myles spicer on 10/20/2010 - 09:50 am.

    Probably the most disengenuous excuses made by American business is the claim by Wall St execs that they MUST pay compensation and bonuses in the hundreds of millions (no exaggeration) “to keep good people working here”. How absurd. And how obscene.

    Not only do these folks not need — or deserve — such outrageous pay, but they add little or nothing to our economic well being. They “produce” nothing, except to move vast amounts of money around. It is the best example of where the private sector could use restraint, rationality, and fairness in making Capitalism work better.

  7. Submitted by Thomas Swift on 10/20/2010 - 10:31 am.

    I have 6 words for you myles; Fannie, Freddie, CRA, Barney Frank and Porkulous.

    Case closed.

  8. Submitted by myles spicer on 10/20/2010 - 02:23 pm.

    Well Thomas, I too have 6 words for you to consider.

    In a recent debate in the California governor’s race, when Jerry Brown told of the things he would attempt to do to stimulate business, Meg Whitman, arch conservative and mega capitalist, with delicious irony sneeringly stated:

    Jerry, “government does not create jobs, businesses do!”

    Hmmm Thomas…perhaps we can agree on this. So, where are the jobs?

    Case closed.

  9. Submitted by Thomas Swift on 10/20/2010 - 02:50 pm.

    myles, I see enormous pent-up demand for the capital equipment I design and build.

    For the past year, our sales staff has brought in RFP (request for proposal)jobs; but we’ve seen few turn into projects.

    The RFP’s come with a cost to the customers; our engineering time is not free. The fact that they are willing to pay us to do a preliminary design tells me that these companies are not simply “kicking tires”, but something is holding them back; what could it be?

    IMO it is the uncertainty that the Democrat majority and the Obama administration has brought with it.

    The government cannot, and does not create jobs (please spare me any red herring regarding temporary infrastructure work), but it can stifle the willingness of the private sector to invest in human capital.

    Historic debt and deficit spending; the Federal Reserve printing currency without restraint; an inchoate health care “reform” program that the majority of the country does not support and for which there is no plan to pay for; promises of huge tax increases; a CIC that for all the world acts like nothing so much as a nine year old boy driving a Ferrari Enzo…none of this inspires confidence.

    It’s a mess, myles.

    It’s true that US corporations are sitting on piles of capital; it’s my opinion they will continue to sit until a more competent leader (Democrat or Republican) steps up to take the reins of power in DC.

  10. Submitted by dan buechler on 10/20/2010 - 02:50 pm.

    Yes Thomas the changes of the Community Reinvestment Act in 2005 weakened the regulation. Thank you George W. Bush and the GOP for promoting failure.

  11. Submitted by dan buechler on 10/20/2010 - 03:35 pm.

    Thomas, “Uncertainty” is mostly used as a red herring because it cannot be tested. There was uncertainty after 9 11, uncertainty before the initiation of the Gulf War, it goes on forever and ever. Also the CRA has been in existence since 1977 (the mid 80’s and mid 90’s were not too bad). Also most importantly the CRA only applied to regular banks. After 2002 (thanks again to W and the GOP) most of the loans were made by lenders not subject to the CRA.
    I know you follow a different narrative. I also do not hold Clinton and the democrats blameless.

  12. Submitted by myles spicer on 10/20/2010 - 03:52 pm.

    Well sorry about your issues Thomas. I too deal with RFPs, and my business is growing so fast it is scary. We are hiring! So, I cannot accept many of your contentions.

    Barney Frank has not affected me; nor health care reform. I have employees who have had trouble getting any health care insurance — now they will be able to. And, if I am fortunate enough to meet the tax requirements of high income earners, I will gladly pay the taxes (one can only hope).

    The biggest problem I see now for small businesses is lack of liquidity; THE BANKS ARE SIMPLY NOT LENDING TO FUEL GROWTH FOR QUALIFIED BUSINESSES. Lost of reasons for this, but to add to my argument, this too is a private sector issue. Banks, not the government, are the lenders needed to finance businesses. They have many reasons, but some are repairing the shoddy lending practices of the past; being in trouble themselves (part of the Wall St meltdown); and the ability to get cheap money, hang on to it, and simply investing in non-loan activities that have little or no risk.

    But to repeat, this is a private sector failing, and this does need a government correction. Until or unless private sector community banks start lending again, growth out of the “mess” as you call it, will be excrutiatingly slow.

  13. Submitted by Thomas Swift on 10/20/2010 - 04:16 pm.

    dan, if you wish to bash GWB, there are plenty of legitimate opportunities to do so. But since you appear unable to do so on your own, please allow me.

    In ’07 Ben Bernanke, W’s Chairman of the Council of Economic Advisers advised increasing Fannie and Freddie’s involvement with the CRA debacle by increasing their authorization to securitize CRA-related loans.

    With the implied faith and credit behind them, the mortgage industry went hog wild with marginally, and in some cases “un”, secured loans to people wholly incapable of making good on them…that worked out swell, didn’t it?

    CRA was a Democrat program run amok; a disaster waiting to happen, and George W. Bush hastened it’s arrival.

    Of course, Obama was so impressed with Bernanke, he appointed him Chairman of the Federal Reserve…that’s working out swell too, isn’t it?

    Also, CRA was created in 1977, but it had no enforcement mechanism until 1989 saw the arrival of FIRREA…let’s see; who was President that year?

  14. Submitted by Thomas Swift on 10/20/2010 - 04:23 pm.

    “I have employees who have had trouble getting any health care insurance — now they will be able to.”

    So, you’re growing like crazy; you don’t provide health care coverage for your employees; are happy the government is picking up that responsibility and you do not rely on bank loans for operating capital.

    What else doesn’t your business have in common with most others, myles?

  15. Submitted by dan buechler on 10/20/2010 - 06:21 pm.

    Would that be President George Bush I? A decent president although both you and I are old enough to remember the savings and loan bailout.

  16. Submitted by Steve Rose on 10/20/2010 - 07:34 pm.

    We’ve all heard claims of federal stimulus success. The federal government claims that they can create jobs. However, since the start of the $787 stimulus, 2.6 million jobs, including 2.5 million in the private sector, have been lost.

    While researching the success of federal government’s cash for clunkers program (C4C), I encountered a calculation credited to Council of Economic Advisers, which the federal government uses to determine how many jobs they have created. The CEA estimates that $92,000 of direct government spending creates one job-year. If you do the math, with the $3 billion spent on C4C, the quotient is about 31,000 jobs. The C4C report goes on to explain that they annualized the jobs over the third and fourth quarter of 2009, to double the number to 62,000 jobs. It seems, the faster you spend it, the more jobs you create. For every two incremental cars built and sold during C4C, one permanent job was created. Sadly, you can’t make this stuff up; you have to read it from a government report.

    I am left to wonder when the next trillion dollar stimulus will be announced. If it was the great success claimed, surely it will be repeated, and our economic woes will be cured shortly.

  17. Submitted by Tom Miller on 10/20/2010 - 08:04 pm.

    Mr. Swift: the Gramm-Leach-Bliley Act of 1999, the proximate cause of the financial meltdown nine years later, eliminated the requirement for banks and mortgage lenders to report CRA activity. This gave the lenders the opportunity to prey upon the poor in the dark, with the societal benefit of government oversite and the clear light of day. Because of the CRA, lenders knew the poor communities they were fleecing; in unreported darkness, they were able to commit their crimes with impunity. Now we are all suffering the losses.

    On a different topic… In the world of private enterprise, the richest and most powerful, whether individuals or corporations, do not need allegiance to a country to thrive. Their excess money will chase the lowest cost of labor and capital goods right to China, India and the like. This wealth is certainly not creating jobs in America. And much of it is being spent on political ads (and politicians) that encourage the abandonment of government of, by and for the people, and to encourage even lower taxes that will allow more wealth to shift to the wealthiest, and from there overseas.

  18. Submitted by Richard Schulze on 10/20/2010 - 08:05 pm.

    Tom, try to be more concise in your sarcasm. It doesn’t improve with greater length.

  19. Submitted by Richard Schulze on 10/20/2010 - 08:31 pm.

    With tens of millions of folks wiped out, and most of the rest recovering from a halving of their net worth, don’t hold your breath for a consumer spending boom. Frugality is here to stay. Business’s have also probably figured out that starving, bankrupt consumers don’t buy much. Perversely, this means that productivity will keep soaring, as will corporate profits, which is how the stock market was able to hold its own today, despite the dismal figures.

    Demand uncertainty is still the only “uncertainty” worth mentioning.

  20. Submitted by Hénock Gugsa on 10/20/2010 - 11:22 pm.

    I’m scratching my head ….

    Who’s always been promoting all the talk about “uncertainty,” a euphemism for FEAR?

    Who is more prone to greed and mendacity?

    Who is the hypocrite, the scoundrel that always takes refuge behind the flag, but hardly ever sacrificed anything?

    Who is more likely to say, “After me, let it flood [I don’t care.]” (Apres-moi le deluge!)

  21. Submitted by dan buechler on 10/21/2010 - 08:27 am.

    #17-20 I agree. #20 I’ve never heard that before is it from Zola?

  22. Submitted by myles spicer on 10/21/2010 - 08:37 am.

    To Steve Rose
    As Reagan so famously said: “there you go again”.

    although I totally disagree with your contention that the Stimulus did not work, let’s accept your argument.

    OK, the GOVERNMENT DID NOT CREATE JOBS…right? Well, then, as I point out, where the hell is the PRIVATE SECTOR in this equation. Aren’t THEY the ones we rely on to create the jobs??? Do not fault government, they are legitimately trying to stimulate the economy, but ultimatley we do rely on private enterprise and capitalism to make our economic system strong an vibrant. If it is lacking in growth, do not blame government, do not blame the stimulus, do not blame Obama — put the blame where is belongs. And tat would be the private sector as I point out in detail in my commentary.

  23. Submitted by myles spicer on 10/21/2010 - 08:47 am.

    # 14 Thomas

    Hey,I do not understand your critique of my previous comments — your interpretation is skewed and innacurate.

    But I will answer the question: “what else does my business not have in common with others”.

    1. If I succeed, I am NOT relying on the government for my success; and not claiming it is doing too much, nor too little. It is my efforts that matter.
    2. If I fail, I am not going to blame my failure on the government, and not going to claim it is doing too much, nor too little. It will be my failure.

    But, this I know. Demonizing government will not improve things one iota, nor does it have any useful ROI for American capitalism. It is a red herring for our solutions, and at this time merely a tangental political tool for the right.

  24. Submitted by Steve Rose on 10/21/2010 - 12:26 pm.

    Myles:

    Yes, there I go again. I am the same person, and I have not been swayed by your story. And there you go again too.

    You “totally disagree” that my contention that the stimulus did not work. Is that it? Not a word to back your total disagreement?

    Businesses, like consumers, have pulled into their shells like snails, concerned with the crushing burden of debt and deficit which they must bear. Oh, and health care too. That has a lot of businesses optimistic. You may have heard that McDonald’s is seeking exemption from a requirement of the bill, threatening to drop 30,000 employees from their healthcare.

    Not a lot of consumer confidence out there, and a lot of downward pressure on it too.

  25. Submitted by Steve Rose on 10/21/2010 - 03:51 pm.

    ABC News reported on Tuesday (Oct. 19) that its weekly index of U.S. consumer confidence fell one point in the latest week and remains
    deeply in negative territory. The ABC Consumer Comfort Index fell to -46 for the week that ended Oct. 17.

    Consumer confidence has great influence on the economy. The economy will become as good or bad as people believe it is. Reminding people of the great depression or Carter-era inflation won’t make them feel any better about the their lives in the present day.

  26. Submitted by Richard Schulze on 10/21/2010 - 04:41 pm.

    @25

    To be fair Steve, the economy as it is today did not begin in Jan, 2008. It reached critical mass then and we are now dealing with it’s aftermath.

  27. Submitted by Steve Rose on 10/21/2010 - 06:26 pm.

    Richard (#26):

    We are in complete agreement on that point.

    Myles:

    Piecing the story of the economy together, I see a mosaic short on tile and long on grout. Here are the elements.

    1) The economy was ruined by eight years of George Bush and his policies (federal government blame).
    2) Not to fear, hope and change pulled up and the Obama administration has the solutions to right the cart of the careening economy (federal government solution).
    3) Trillion dollar stimulus, during which 2.6 million jobs are lost.
    4) Unsupported claims of stimulus success/stimulus failure denial.
    5) Now the latest cracked tile: The Private Sector failed!

  28. Submitted by Richard Schulze on 10/21/2010 - 11:14 pm.

    “Too much hindsight always brings me down”

    With the benefit of hindsight just a couple of thoughts….

    I get TARP. Folks were fearful that the financial world as we knew it, was falling off a cliff. I suppose they figured better safe than sorry. I’ll give them a mulligan on that one. Although the government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg.

    But on the other hand who needs TARP with the relaxation of accounting rules? Which leads to my next do over…

    They should have used something similar to the Resolution Trust Corp. Charged with liquidating assets (primarily real estate-related assets, including mortgage loans) to kill the zombie banks.

    Keynesians wish us to spend more, drive up debt, and then inflate it away. This taxes debt and property holders at the expense of the over-borrowed. The alternative is to allow the over-borrowed to declare bankruptcy, and write off bad debts, at the expense of bank shareholders (or the government if you’re Ireland).

    The Keynesians argue that theirs is the better alternative because the greater liquidity generated will jump start the economy. In a purely macroeconomic sense, I’m sure that’s what the models say, but it continues the cycles of the last 30 years, where whenever the stock market plunges, shareholders are bailed out, whenever counter parties are threatened, banks are bailed out, etc. It is time to draw a line in the sand. If you borrow too much and you lose your gamble (whatever it may be), then you lose. The problem of one-sided bets extends well beyond financiers. We have to start allowing gamblers to lose when it is their time to lose, or there will only be more gamblers at the table whenever the next game starts.

    Then on the other hand, there are probably any number of arguments made by folks much more qualified than me which would oppose my side.

    Pot, kettle.

    Kettle, pot.

  29. Submitted by myles spicer on 10/22/2010 - 08:40 am.

    Re #27 Steve Rose

    Per your point #1, we agree that Bush damaged the economy; but it was not that government did too much or intervened in the economy. More likely it was that government opted out on paying for the wqars (taxation); and regulation. In short, government did too little to ameliorate the economic free fall.

    Re point #5 that the private failure is a crackpot idea, let’s consider the recent quote of Meg Whitman and other arch conservatives when discussing the stimulus and other government intervention (the quote I stated to
    Thomas). She said:

    “Jerry, government does not create jobs, BUSINESSES DO!” So…if that is the conservative position, and if we agree it is true…where are the jobs????

  30. Submitted by Steve Rose on 10/22/2010 - 09:24 am.

    Let’s not neglect the fact that the war was funded by Congress, led by Pelosi and Reid. They are still funding it, but now on a grander scale.

    Indeed, where are the jobs? The stimulus promoters projected 3.5 million jobs would be created. Instead, over 2.5 million were lost, that is a net of 6 million jobs. Yet, you still claim stimulus success? Show me the success.

    Under the crushing burden of debt and deficit, this economy is hard pressed to grow. Without consumer confidence, Americans trusting in the leadership and their direction, jobs will continue to slip away.

    What types of jobs are you creating? I hope that you are manufacturing, mining, or growing something. Our unsustainable service-based economy could use some more of those activities. And, some customers besides the federal government would help too.

  31. Submitted by Steve Rose on 10/22/2010 - 10:05 am.

    Contemplating the trillion dollar stimulus, the most salient achievements are the final nail in the coffin lid of bipartisanship and the birth of the Tea Party movement.

    If those are things you like, the stimulus was a success.

  32. Submitted by myles spicer on 10/22/2010 - 03:10 pm.

    Re the stimulus, we are back to a hypothetical argument that cannot be proven — only surmised. That is: “what would the job losses, and economy be like if we had NOT had the stimulus?”

    Differeing views, but no one can answer with certainty.

    Re the crushing debt, and deficity — both clearly negative and undesirable; but how they are affecting the private sector’s ability to grow and add jobs is unclear (most small businessmen donot look at the newspaper, see some abstract massive numbers of the nations’s decifit, and go to their businesses that day saying “gee, with that deficit, maybe I should not grow my buisness”.

    Consumer confidence IS a legitimate concern. Why is it there? In part by the right wing press bitching and moaning about Obama. Part is real, part is contrived and created.

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