Entrepreneurial Capitalism vs Crony Capitalism

by Laura Ehrenberg-Chesler on March 9, 2017

in capitalism

From our favorite economist Ed Yardeni:
My experience as the owner of a small business is that entrepreneurs are actually driven by insecurity, not selfishness. Our number one worry is that we won’t satisfy our customers so they will go elsewhere, putting us out of business. That’s why we strive so hard to grow our business because that confirms that we are doing right by our customers in the competitive market. To do so, we have to put our customers first, not ourselves. Our business model has always been based on going viral: “If you like our products and services, tell your friends about us.”

Smith famously wrote: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.” This statement is totally wrong, with all due respect to the professor. The butcher, the brewer, and the baker get up early in the morning and work all day long trying to give their customers the best meat, ale, and bread at the lowest possible prices. If they don’t, their competitors will, and put them out of business. Entrepreneurial capitalism is therefore the most moral, honest, altruist economic system of them all. Among its mottos are: “The customer is always right,” “Everyday low prices,” and “Satisfaction guaranteed or your money back.”

The problems start when the butchers, brewers, and bakers form trade associations to stifle competition. The associations hire lobbyists to pay off politicians to regulate their industry, requiring government inspection and licensing. In other words, capitalism starts to morph into corruption when “special interest groups” try to rig the market with political influence. These groups are totally selfish in promoting the interests of their members rather than their members’ customers. At least Smith got that concept right when he famously wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

The best way to make America great is to allow small businesses to grow in a competitive market. That means lower taxes and fewer regulations on these businesses.”

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