Republicans need to say no to big business
(Fortune Magazine) -- For years, voters have assumed that the Republican Party was in bed with corporate America. Perhaps that is because for years they were. That torrid love affair was fueled in part by the GOP's belief that supporting the world's largest corporations was the same as championing free enterprise. But conservatives learned too late that what is good for Wall Street is not always good for capitalism.
As P.J. O'Rourke noted in his recent book about Adam Smith, what happened on Wall Street over the past decade had less to do with free markets than with high profits. It was, after all, the father of capitalism who warned that rampant speculation in markets could lead to the kind of "overtrading" that gripped the U.S. financial sector for the past quarter-century.
In 1772, Smith concluded, "When the profits of trade happen to be greater than the ordinary, overtrading becomes a general error ... and the rate of profit is always highest in the countries that are going fastest to ruin." Perhaps Mr. Smith was describing a run on Scottish banks that destroyed 90% of those financial institutions while he was writing The Wealth of Nations. But his warnings could have applied just as well to Lehman Brothers' collapse last year.
Instead of heeding Adam Smith's advice, Republicans followed the lead of Bush administration officials, who allowed Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) to create a housing bubble. At that same time, Mr. Bush's SEC was promoting 40-to-1 leverage ratios on Wall Street. Taken together, these policies proved Smith's 1772 prediction correct that those profiting the most from bubbles will also be the ones who go most quickly to ruin.
Perhaps Republicans should go quickly to their nearest library and take a second look at The Wealth of Nations. My party simply cannot afford to confuse excessive profits with free markets any longer. And while conservatives are correct to wage battles against burdensome regulations aimed at small businesses, we must restore confidence in American markets by supporting regulations that will once again bring order and stability to our financial system.
There is nothing conservative about defending a regulatory approach that led to Black Monday in 1987, the 1997 Asian crisis, the 1998 Long-Term Capital Management meltdown, the 2000 Internet bubble, the 2001 Enron scandal, and the current subprime crisis. Now is the time for Republicans to stand up to corporations that were once thought to be too big to fail and put them on notice that conservatives will once again be more interested in promoting free markets than big business.
I would have left Congress a rich man if I had been paid every time a lobbyist came into my office claiming the cause of capitalism, when instead he was looking for a competitive break for his corporation. "Congressman," the plea would begin, "all the good people of my company are looking for is a level playing field." But that was rarely the case. Lobbyists instead fought for special breaks in the tax code, socialized subsidies for their products, and small changes to regulations that would mean big money for their business.
There is nothing wrong with a corporation taking every opportunity it is given to gain an advantage over competitors. But there is something wrong with a political party that preaches capitalism to single mothers while practicing socialism toward corporations. Now is the time for Republicans to start being consistent, to think anew, and begin saying no.