Monday, 28 November 2016

Will Trump be absolutely fantastic for Entrepreneurs?

How much can one contextualize into a short slogan? Recent US Presidential campaigns suggest that a lot. "Yes We Can!" or "Let’s Make America Great Again!" definitely galvanized the masses. The new President-elected loudly promised countless times that absolutely fantastic, awesome, extraordinary, terrific, and wonderful changes are coming. The political campaign more closely resembled the useless small talk on a barber shop rather than the informed and comprehensive policy debate the nation really needed.

In the weeks after the election the media has bombarded us with pros and cons of several (potential) nominations by the Trump transition team. Out of all the noise, my wannabe-unbiased mind has mostly identified concepts like white supremacy, anti-gay, anti-abortion, conflict of personal business interests, and nepotism.  I suspect that for over 64 million US voters something does not feel right.  One is left wondering about the extent of media bias that President-elect Trump so much shouted about. If you turn on MSNBC or FOX news I guarantee you sporadic cynical laughs (more frequent while watching the latter), given the extent of partisanship bias. You turn on CNN and there is a clear effort to appear unbiased but their reputation has been hurting for while, being the Clinton’s CNN aphorism just a recent example.  PBS plays the role of “saint” among the media, attempting to alert the commoners for the need of an altruistic analysis of daily events. Audience shares for each of these media outlets provide useful insights about the society we currently live in. PBS is one of those rare instances that you may want thank God for taxes on behalf of the common good.

One of the reasons for the electoral results is that Mr. Trump is a business man, not a career politician. Entrepreneurs are wannabe business people and expect the creation of more favorable conditions from their self-proclaimed “Master of the Apprentices”.  However, no policy draft has yet been announced to specifically benefit small business entrepreneurs. Notwithstanding, the promise of tax cuts and big public investments in infrastructure may have some positive impact on small businesses. Unfortunately, such externalities will likely be incipient because most of government contracts are historically allocated to big businesses, which then may hopefully outsource specific tasks from small businesses. The rise of oligopolies across most US industries diminish any potential trickle-down economics.

More, the President-elect has promised to lower taxes for corporations to bring back their money stashed overseas and to grant tax credits for private investments in public infrastructures – both fiscal policies will disproportionally benefit big businesses rather than small ones. In addition, these private investments in public infrastructure will likely increase the costs for consumers. Look for example at the European experiment with highways. Many have been privatized and the tolls skyrocketed to such levels that have become as expensive as the amount of gas used for the trip (e.g. Portugal). Hence, the expected impact of better highway infrastructures on a nation’s competitiveness has been drastically buffered by the hike in tolls. More, the national public roads became overloaded with slow traffic avoiding highway tolls. Hopefully, the President-elect will not apply a similar recipe to the renewal of US infrastructures.

One outcome is apparently obvious if the President-elect fulfills his promises. The national debt will likely increase in the short run due to the big infrastructure expenditures and the concurrent lower taxes, thus augmenting our dependency on foreign US-debt holders and potentially damaging our sovereignty (e.g. policies imposed by lenders on borrowing nations).

Entrepreneurs need from the President-elect a clear plan to foster small businesses. The nation needs the creation of value, not protectionism for import-competing industries nor merely a partial redistribution of existing wealth. Thus, a national plan for entrepreneurialism must comprise incentives for small businesses, both traditional and innovative ones. The former redistribute existing wealth, the latter create new wealth. Given the rise of economic inequality in the post-1970 period, some redistribution will create better conditions for competitive markets, sustainable economic growth, and avoidance of social unrest. A potential policy could be the allocation of financial incentives to the unemployed to create their own businesses (e.g. Germany), such as subsidies, a grace period for taxes, and loans with below market interest rates. Concurrently, bigger incentives of similar nature should be given to the creation of innovative businesses, the ones that the US actually needs to preserve its economic leadership.

The US will remain the main world economic power only if its industrial policy focuses on innovation. If instead, it turns to aggravate protectionism (e.g. the 1930 Smoot-Hawley Tariff Act worsened the Great Depression), then sooner rather than later it will lose its economic leadership, as clearly implied by the science of economics and modern world history. Competitive (strong) nations want free markets, (weak) nations unable to compete want protectionism. More, protectionism regularly leads to beggar-thy-neighbor policies which further suppress trade. Only through technological leadership can the US (population of about 320 million) compete with large nations such as China (about 1.35 billion) or India (1.25 billion).

“(…) The supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number - for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs - jobs that will mean more goods and services to consume. Another fallacy seldom contradicted is that exports are good and imports are bad. The truth is very different. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. (…) ‘Protection’ really means exploiting the consumer.”  - in Milton Friedman’s “Free to Choose: A Personal Statement” (1990), p 40-41.

We all agree upon the desire to Make America Great Again! However, we may disagree on how the fulfillment of that promise can be achieved. Nonetheless, entrepreneurialism needs to remain a key US competitive advantage.

The article Will Trump be absolutely fantastic for Entrepreneurs? is republished from LS Blog

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