AT&T's Tax-Cut 'Bonus' Represents Crony Capitalism at Its Worst
No one wants to be the skunk at the garden party. Nevertheless, it must be said: The decision by large companies like AT&T, Boeing and Comcast to provide employee bonuses as a form of tribute in return for tax cuts and other government favors is an example of crony capitalism at its worst, not market capitalism at its best.
AT&T, facing a Department of Justice suit aimed at blocking its $84.5 billion purchase of Time Warner, greeted the corporate tax cut with an immediate promise to provide a $1,000 bonus to each of its 200,000 employees, and $1 billion in capital expenditures. For all intents and purposes, the DOJ case against AT&T has turned out to be a bill of attainder, aimed at one company. And the bill was paid in full as soon as corporate taxes were cut and the Administration needed to bolster its argument that companies would pass on the savings.
Comcast followed up with its own promise of employee bonuses and capital spending, and explicitly linked that decision not just to the corporate tax cut but also to the FCC decision to scrap net neutrality. Boeing, beneficiary of myriad government loans, Ex-Im Bank funding, and anti-dumping suits against its competitors, is also promising more money for employees and for charities.
Regardless of one’s opinion of corporate taxes, net neutrality, or dumping, one can only be alarmed at the sight of companies making short-term payoffs in pursuit of long-term government policies. Companies should concentrate on unlocking market value, not prying open government vaults.
Whatever it may be, companies showing obeisance to Washington is not smaller government. It is all-powerful government. It is the equivalent of Tony Soprano saying ‘nice little merger you’ve got there. It would be a shame if something were to happen to it.’ Or ‘We’ll get rid of net neutrality, but only if you give us a taste.’
What, one may ask, is wrong with companies passing on cash to employees even if it ordained by imperious fiat? What is wrong with it is that a market economy functions well – creating wealth and jobs over the long run – only if it is based on market-based decisions, not decisions aimed at currying favor with government and powerful people. The marketplace is the basis of capitalism. Getting favors from government in return for giving favors to government is the basis of crony capitalism.
A free market is one in which private companies deploy funds in a manner that will promote economic growth for their shareholders, not in a way that will please a supreme leader. When companies gear their spending to please a politician, politicians may as well be running the companies. If AT&T, Comcast and Boeing spend money in a way calculated to please a politician, is that really any different from a politician dictating how they spend it? Is interventionism any better if corporate CEOs bow to it? If anything, it’s worse, because it is less democratic. At least “progressive” interventionism is publicly debated. Cronyist interventionism is the result of backroom deals and autocratic pressure. No debate is possible.
There’s a difference between market-based decisions and pandering. When it is government that is being transparently pandered to, to grease the wheels for a corporate maneuver, that makes it even worse.
Consider this thought experiment: If a Democratic Executive and Congress legislatively imposed an employee bonus on companies, what would be the reaction of free marketers? They would be appalled, quite rightly. How is it any better when a president’s high-handed approach invites companies to curry favor? Autocratic government is no better than socialist government. Like socialism, it is centralized, characterized by top-down decision-making, and leading to government – or worse, one individual within the government – grabbing control of the commanding heights of the economy.
Potentially, the powers of government represent a powerful bludgeon. If it can be swung at AT&T, Comcast and Boeing, it can be swung at anyone. Democratic capitalism is the best system because it is based on freedom from governments, not subservience to them. It is based on limited government, not unlimited power. It is a path to freedom and prosperity, not – with apologies to F.A. Hayek – a road to corporate serfdom.