Wednesday, March 11th, 2009
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.