Wednesday, March 11th, 2009

Why Progressives Should Be Pro-Business

A lot of people who are otherwise in favor of urban progress seem to be explicitly or implicitly hostile to business. Business is often portrayed as exploitative or otherwise socially harmful, there are many calls for new regulation, and of course businesses and people who make money from them are expected to pay lots of taxes and are often demonized.

I’ll be the first to say that lots of businesses engage in rent seeking or other not very nice behavior. And of course we do need regulation and taxes. But to really have urban progress, urban progressives need to support business and take a very pro-business and pro-wealth approach.

Who pays for all the fancy stuff people like me want? Obviously people and businesses with money. So in order to be able to finance that investment, you want to have a prosperous and growing economy and lots of businesses. If you put in place policies that discourage business, then you can’t afford to maintain much less invest, and also you end up in that vicious circle I talked about before, where you end up making your business environment even worse to try to compensate, leading to further declines and so on. However, if your business base – and thus your tax base – is growing, you can sometimes even spend more while reducing the per capita load at the same time. Growth is good. And of course prosperous businesses means good jobs for people who need them, and prosperous business leaders and owners who can be engaged in the community or otherwise give back.

A few important things jump out at me. First, taxes matter. Cost of doing business critical to success, and taxes are a serious business cost. So we want to have government that is lean and efficient. And when the government does make investments or start programs, it needs to make sure there is going to be the community ROI from them so that these programs don’t just end up as wasted spending that only adds to the tax burden without advancing the ball for the community. And you need a taxation regime that doesn’t disadvantage your city by implementing certain types of taxes that might hurt your business targets. For example, if you want to lure data centers, you probably don’t want to levy personal property taxes on computer equipment. Nor tax wholesale inventory if you want to be in the distribution business.

Secondly, regulations matter. I think the key here is minimizing compliance costs. I actually think there is room to set a higher bar in some respects, such as urban building standards. But the regulations should be transparent and objective, with efficiency and low overhead in compliance, and without endless quibbling. And of course the cost needs to be weighed against the benefit.

Thirdly, we do need to seek to limit rent seeking behavior, corruption, or other things that otherwise render a community-business relationship dysfunctional. If government isn’t viewed as honest, or is seen to be picking winners and losers, that creates a drag in the system.

Fourth, small and medium sized businesses need a level playing field. In fact, if anything, we need to reduce the burden on them, make it easy to start a business, comply with regs, etc. Large businesses sometimes even like lots of red tape because it acts as a barrier to entry. But it can kill a small business where management bandwidth is at a particular premium. It is really the indigenous small and medium sized businesses that are key to long term community success. And some of these will become tomorrow’s big businesses.

We also need to recognize the value in wealthy people and business owners and executives doing well for themselves. Look at the major sources of charitable giving in any community, and it was probably some rich person’s money as some point. Where do people think the assets of our community foundations came from? Most of them originated somewhere as business fortunes. I happen to think most communities could stand with a few more billionaires.

One example. I’ll cite again the Stowers family in Kansas City which donated $2 billion to endow a medical research institute in a city with no medical school to make sure it didn’t get left behind in the life sciences race. Without that, where would the investment have come from? Answer: probably either nowhere or taxpayers.

I know some like to excoriate the decadent lifestyles of the rich today. But that has always been the case. When I tour the Oldsfield estate at the Indianapolis Museum of Art, I can’t help but think that old Josiah K. Lilly sure lived it up. And didn’t he inherit his money, like much of the Lilly clan? Nevertheless, would Indianapolis be better off without the Lillys? Perhaps no factor enabled the city to become what it is more than the Eli Lilly company and the Lilly Endowment.

Successful cities are those where people come to make their fortune – figuratively and literally. Cities that generate wealth, that create new rich people and new great companies, are ones that are going to be more prosperous in the future. Because once you stop producing both, you are just spending down the inheritance of the past.

If we really want our cities to be able to enact progressive policies, we need to take a very pro-business and pro-wealth accumulation approach. Because when a community is economically prosperous and generating wealth, it can afford to buy all the things like nice streets, well maintained parks, well-supported cultural institutions, transit systems, etc. that we would like to have.

14 Comments
Topics: Economic Development, Public Policy

14 Responses to “Why Progressives Should Be Pro-Business”

  1. Anonymous says:

    There are at least two medical schools in metro KC – UMKC and KU.

  2. The Urbanophile says:

    Interesting – I had read somewhere that they didn’t. Thanks for the info. The overall point about the $2 billion stands I think though.

  3. JG says:

    Thanks for the post. I support many liberal ideas and causes, but find the anti-business rhetoric short-sighted (though possibly well intentioned.) Shouldn't the focus be pointed at the disparities in personal INCOME and TOTAL WEALTH that can develop over time in a capitalistic society? Though these gradations exist in ALL societies, the worry becomes when they get too big – creating an aristocratic class – a subjective matter but one worth debating.

    Rather than taxing wealth on the business end, should that be shifted more to taxing personal income and wealth more. My arguement is this would facilitate investment into business expansion, R&D, additional jobs, facility improvements, etc – and thus drive the local economy. Additionally there are still tax revenues there for government provided services. Any thoughts?

  4. Anonymous says:

    Yes, laissez faire capitalism sure worked out well didn’t it? I bet New York City is glad they gave Goldman Sachs all sorts of tax credits to stay in the city a while back…NOT!!

    Businesses currently point a gun to the head of the city in which they are based and threaten to relocate to get even less regulation and taxation- and Arenn is basically encouraging this type of behavior.

    Gut environmental laws because without those polluting businesses, we wouldn’t have any jobs!! Drain city coffers to give businesses big tax breaks while infrastructure, parks, and education suffer because we need the jobs!!

    Screw quality of life. Jobs, no matter how trivial, are king in Arenn’s view.

  5. adronbhall.com says:

    The reason New York is what it is, is because of laissez faire capitalism. It could NOT have become the transit friendly, massive, urban place that it did without.

    If the rules that exist now, where in place 150+ years ago, it would have never become what it is now.

    …but I digress, GREAT write up. Very good point and something I often find frustrating when speaking to Democrats (I prefer not to use the world liberal or Liberal because it is overloaded) that they’re so hateful toward businesses, even and often toward small business. It is rather disturbing.

    I do however agree with some of the ideals, etc, but the business viewpoints are often just as estranged and delusional as Republican ideals.

    So thx for the write up, enjoyed the read.

  6. Anonymous says:

    Anon 10:06

    Jobs are ‘king’. How else are infrastructure, parks and education financed?

    Perhaps a way to level the field is to completely eliminate taxes on business. In the end the taxes levied on these businesses are paid…by people.

    The regulatory environment is another story. The real problem with all that regulation is they create massive bureaucracies over time to ensure the regulations are being followed. It is that bureaucracy that causes the price tag on most projects (public or private) to double or triple (or more).

    Eliminate taxes on business and explore ways to dramatically reduce the bureaucracy and that state, city or even nation will thrive.

    That is the type of change that is needed now across the country.

  7. The Urbanophile says:

    Hi – I realize this is an emotional topic for many. So let’s please try not to let this become a heated argument. I also happen to think that it is not a partisan issue per se.

    anon 10:06 – I think few would support true laissez-faire capitalism. Of course we need regulation and taxes need to be paid. But you can’t kill the golden goose either. I do think it is certainly legitimate to consider whether or not a city should give money to a business that threatens to leave otherwise.

    I’ve heard the academic arguments in favor of eliminating business taxes. Most of these focus on corporate income taxes, not other taxes like property taxes. However, have we seen how this plays out in practice?

  8. thundermutt says:

    This is precisely why Indianapolis needs a “toll gate” at the county line (a commuter income tax).

    You’re not hitting the employers, you’re hitting the people who actually use government roads, government sewers, government public-safety services in the city.

    With such a tax in place, Indianapolis could afford to hold or lower property taxes on business locations in the city and compete fairly with the suburbs and their green-field developments.

  9. David says:

    It is important to understand that laissez faire capitalism has never been implemented in this country. There has always been an element of government interference in the economy. In my opinion the closer we are to capitalism the better we will be as a society. It is unfortunate that the trend in this country is further and further away from that, and I think it is to the detriment our cities and our businesses.

  10. Anonymous says:

    “Growth is good.”

    Forever?

  11. JG says:

    Interesting discussion. Just considering our region or metro area, what would happen if we completely eliminated coorporate taxes? In the immediate time thereafter, the local governments would see large deficits, but I suppose the arguements are that this would lead to growth and wealth down the line (and government surplus if you are optimistic.) I do think there are other factors – previously discussed by URBANO – that would have to accompany (or supercede) such a bold move.

    Thundermutt, I worry businesses would start to flee MARION county with a commuter tax, though I agree with the arguement that people living around the city ought to support the urban core at the civic level. I proposed a small METRO TAX on ALL persons within the 8 or 9 county area, dedicated toward maintaining MARION county infrastructure that truly benefits everyone in the region. Anyone with a another suggestion?

  12. Dave Reid says:

    This is precisely the discussion I’ve been having lately.. It seems to me that for our cities to grow we need to look at each piece of legislation and not support or oppose it simply by party but make a judgment. Far too often the parties just lineup before a specific issue is ever really discussed and lines are drawn.

  13. Anonymous says:

    Cut the business tax to zero and simultaneously take actions to review the regulatory environment with a target to cut 30%+ of the bureaucracy that 'manages' those regulations and government could indeed be in surplus mode.

    One example of bloated bureacracy is public schools. How many admins run the the Catholic school system in Indy vs the number of admins running the public schools then see how many students each system handles. Very easily could lop off 30% of that bureacracy and it will still be way overstaffed by comparsion.

    The list of bloated government agencies at the federal, state & local level is large. The bigger hit is a rise in the unemployment rate as those bureaucrats lose their jobs. A thriving private sector will provide new opportunities for those with any skills other than 'paper pushing'; the rest willneed to be retrained for real work

  14. The Urbanophile says:

    David Reid, I’m with you – we need to take specific looks at various proposals to see if they are good or bad.

    I think we also need to be cautious about thinking we can achieve some sort of free market nirvana. I’m a free market guy myself, but I think we have to avoid being dogmatic about it, realizing that we will never achieve perfect transparency, zero transaction costs, perfect competition and all the other assumptions that underlie most free market models.

    And I happen to think there is a lot the government can and should do. I just think that on the whole we need to favor wealth building through pro-business, pro-jobs policies, not treat companies like an ATM or some such.

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