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The Wrong Kind of Entrepreneurs Flourish in America

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Crony capitalists seek to generate profits without producing anything of value.

By Noah Smith

June 21, 2017, 7:00 AM CDT

"When most people use the word “rent,” they mean the price paid to live in a house or apartment. But when economists say “rent,” they mean money that one person extracts from another without producing anything of value. When the government taxes people to give subsidies to companies, those subsidies are a form of rent. A monopoly generates rents from being able to jack up prices without being threatened by competition. Sometimes the government allows companies to get a certain amount of rent -- for example, the royalties from patents, which we protect in an attempt to encourage innovation.

Because it’s just a transfer from one person to another, rent doesn’t necessarily make an economy less efficient -- it’s just often unfair. But Robert Litan and Ian Hathaway, writing in Harvard Business Review, have a more dire hypothesis. They surmised that many American entrepreneurs are no longer looking for ways to produce more useful stuff, and are instead looking for new techniques for extracting money from each other and from the government. In other words, crony capitalism may be slowly cannibalizing productive capitalism.

Litan and Hathaway draw on an argument by the late economist William Baumol, who warned of the possibility that entrepreneurs could turn their energies toward useless rent-seeking. As examples, Baumol cited historical cases of businesspeople who found novel ways to sue their competitors out of existence. Litan and Hathaway, noting a slowdown in U.S. entrepreneurship, fear that something similar might be happening today. If big companies are using new and creative ways to crush the competition, it’s bad news for economic dynamism -- it means fewer new products will be brought to market, and fewer hidebound old industries will be disrupted.

It could also mean that U.S. industries have been getting more concentrated across the board:..."


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My wife and I have built a couple of business interests and it has been 90% perspiration, ad 10% inspiration. In one business we lost money for 10 straight years before it became profitable, and poured in over 600k as we had disaster after disaster strike us. No government help, only petty government interference making it almost impossible to profit with imposition of regulations which served no purpose and gave government teat suckers a check.

We finally in our 13th year in that particular business are showing 20% growth per year over the last three years. Our other business interests we are slowly retiring, but I get so tired of hearing how Republicans are looking out for main street small business. They used to look out for them, but they are mostly responsible for the closing of small businesses across America. I laugh when I hear people talk about taxes hurting small business. You can tell when somebody is a teat sucker or never worked day of their life. Hell, you have to make a profit to pay taxes, and most small business(90%) fails in five years. Whatever so called profit is just small wages for the owners, and nothing for the business. That is how America was built, yet Republicans are bought and paid for to help the ultra rich who may have had a great grand parent who actually ran a small business, and sure as hell they do not know the first thing about how difficult it is to run a small business in America. If it was not for our other business interests and my wife's teaching salary, our business would have failed, but now it is a growing success and government or tax policy had not one damn thing to do with it.

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Floridatexan wrote:

It could also mean that U.S. industries have been getting more concentrated across the board:...

That's the whole modus operandi of unregulated capitalism. Grow or die and when you can no longer gain market share by innovation and effort, you either buy up or destroy the competition.

Republicans squeal about the benefits of competition all the time, but their corporate overlords know the trick is too eliminate your competitors until you're the last guy standing.

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