Wednesday, August 6, 2014

Elizabeth Warren, Economic Patriotism and the War on Profit

Three things you should know if you want to start a business, currently own a business, or have been tasked with the job of regulating business:

1. Business does not operate the same way that the government operates. Business (any business, from the bakery at the corner, to the mortgage bank, to the Wall Street mega corporation), exists pretty much solely for the purpose of making money (profit). In order to make money, businesses must identify a need/desire/want, find a product to meet this need/desire/want and market said product to their target audience.  The more successfully the business does this, the more successfully they accomplish their goal of making money.

2.  Any business that tried to operate the way government agencies do would quickly find itself out of business.  Government agencies get their funding through tax revenues which they lobby to raise whenever budgets are tight.  Since government agencies get their revenues from the people to provide services that people often do not want (consider the IRS, for instance), these agencies do not have to consider whether they are providing good quality service or good quality products.  The government is a monopoly, so government agencies do not have to worry about competition (unless of course we count the Post Office, which has actually found itself rendered irrelevant by its own resistance to change an outdated business model.)  Businesses, on the other hand, have to constantly consider competition, alliances, relationships, service and myriad other things to stay competitive in a tough environment.  Even a business model that once thrived will die if the owners/board of directors do not pay attention to changing market trends, audience tastes and competition (consider the awful demise of Radio Shack.)

3. For-profit business and non-profit organizations have completely different models.  A non-profit organization faces some challenges of competing for limited funds and working to find and develop its audience.  But though a non-profit may generate a lot of money (which is often made possible by the considerable tax advantages offered to non-profit institutions) the goal of non-profit businesses is not to make profit.  They can be content with paying salaries and working toward their altruistic goals.  For-profit businesses strive to cover all the business expenses, pay all the salaries, pay its taxes, and then make a PROFIT.

I bring up these distinctions because the left-wing of our country has apparently completely lost sight of the goal of American business to earn profit.  Profit has become a dirty word in this country.  Businesses that want to make a profit are vilified as greedy and evil. 

This nonsensical view of profit is the basis for much of the yammering from the left demanding that President Obama use executive order to mandate "economic patriotism" by acting to stop U.S. companies from leaving the U.S., abandoning their corporate citizenship and merging with companies based in countries that offer greater tax advantages.

As taxes rise in the U.S., more and more companies are abandoning their citizenship (a process called inversion).  The newest example is the mega drugstore Walgreen which raised a lot of ire when word got out that it was considering merging with an overseas company and moving its corporate headquarters to secure a better tax structure.  The news this morning from the Wall Street Journal is that The Walgreen Company has backed off this proposal and is now considering a merger with British pharmaceutical company Alliance Boots but will not move its headquarters in the process or take advantage of the inversion.  The change of heart probably has something to do with the vitriol directed toward the company when word got out a month ago that the inversion was being considered.

Not surprisingly, business and profit hater Elizabeth Warren (current senator from Massachusetts and first interim director of the Consumer Financial Protection Bureau) is one of the key proponents of the demand that Obama use his executive "pen and phone" to write directives preventing U.S. businesses from repatriating to other, more tax-friendly countries.  Warren's argument is essentially the same message Obama has been selling for the past five years, "If you have a successful  business in this country, you didn't build it.  You took advantage of roads, and bridges and existing infrastructure, you hired workers educated at public schools; you worked on the Internet using technology developed by this country...etc. etc....  In other words, you as the business owner owe whatever success  you have to the collective.  Since the collective made your success possible, the collective is entitled to the rewards of that success--the profit--in the form of high taxes.  And if you choose to avoid those taxes you are not patriotic.  In fact, you are really nothing more than a 21st century Benedict Arnold--a traitor to your people and your country.

This entire leftist argument is completely asinine because it deliberately ignores the points I laid out at the beginning.  To buy what Warren is selling, you have to sincerely believe that businesses do not have a right to make a profit.  But without profit, there would be no returns for investors (many of whom are the "little" people that Warren pretends to want to protect.)  Profits generate more investment, which generate more business, more jobs, more money in the economy which in turn creates more consumer need, and yes, more business.  Warren's model of the world is the agency she helped to create--the CFPB--whose employees are among the highest paid in government.  The CFPB is housed in the Federal Reserve and sets its own budget with no Congressional oversight.  No competition, no selling products, no worrying about the economy.  If they run out of money, oh well--there's always more where that came from.

For bureaucrats who have never run a business, it is easy to look at corporations and declare them "evil" for wanting to make money, for needing to provide a return on investment to their investors, and for expecting to make a profit.  The simple truth is that if  you own a successful business you did build that.  All nations have roads and bridges. Not all have thriving economies.  The prosperity of America has been due in large part to a tax structure that rewarded growth, to a regulatory system that rewarded ideas and innovation and to a culture that rewarded a solid work ethic. 

Companies who are leaving the U.S. today (or considering leaving) are not doing so because  they have lost their patriotism.  They are doing so because the U.S. has the highest corporate tax rate in the world.  They are doing so because in a global economy, companies must compete globally and that means taking advantage of every opportunity to reduce taxes.  And they are doing so because in business, profit is not evil--profit is the end goal.

Rather than trying to bully U.S. companies to stay in this country "for the greater good" or because they "owe it to this country" the U.S. should be lowering taxes and regulations to incentivize them to stay. This whole nation should be doing what the state of Texas has been doing successfully for over a year--providing incentives for businesses to start here, to move here, to grow here.  This is not a question of right or wrong or good or evil--it is a question of profitable or not profitable.  And in business, profit is good.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

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