Our free marketplace is not perfect and never will be. But it is the most spectacular wealth-generating machine in the history of the world.
No one likes what has happened to our economy recently, but we should never forget that wealth is created by individuals and businesses — not government. Our systems of economic freedom, innovation and entrepreneurship will continue to generate powerful, long-term growth — as long as we don’t mess it up.
Our nation was founded on principles of freedom that include limited government and maximum personal rights. We cherish our right to freely pursue any legal business opportunity with minimal government restriction.
More government regulation only means a higher cost to do business, which translates to consumers paying higher prices for goods and services. Attempting to regulate ourselves to perfection will only lead to paralysis.
Right now, we can still try any “wild and crazy” idea for a new product or service, as long as we don’t violate the various laws and regulations. Often it is these very wild and crazy ideas that lead to innovation and wealth creation.
Suppose you have an interesting idea about a new product. You borrow a little money, buy some raw materials, assemble your product and then sell it. Most ideas fail, but let’s say yours works. Next you rent a building, lease some equipment and hire an engineer, a few production folks, an accountant and a salesperson. You are creating a product for customers, employing a half-dozen people and generating wealth that you will likely reinvest in your growing start-up business.
As this scenario demonstrates, wealth is created by individuals and businesses, not government. But government can redistribute wealth. The more we borrow to redistribute (to be paid back by future taxes), the more we increase taxes and impose additional regulations, which in turn discourage our entrepreneurial spirit. The more the government takes and regulates, the less incentive individuals have to innovate and produce.
The unintended consequences of government oversight and regulation are often beyond comprehension. After the Enron scandals, Congress passed the Sarbanes-Oxley Act, which was supposed to prevent all sorts of monkey business. Yet after just a few years, we had the Bernie Madoff scandal and the big-banking meltdown. And on top of that, American business is now forced to spend billions annually in compliance costs, and that has made our country just a little bit less competitive in the global market. Government oversight inevitably slows and sometimes paralyzes the very businesses it is intending to help.
Our capitalist system makes big mistakes but also creates incredible wealth. The continual process of business failures and bankruptcies are key ingredients in the process because from the ruins capital is redeployed where it can be more productive. In addition, failures are learning tools that help inspire new ideas and new businesses.
The current march toward greater government regulation is also a march toward business mediocrity. The more complex the oversight, the slower our great wealth-generating machine operates. People come from everywhere to participate in our economy because they see greater opportunity here than in their own countries. Free people and free markets generate the ideas that have made our economy the envy of the world. Our politicians should be encouraging those free markets and minimizing business regulations and controls.
Our collective objective should be to support and encourage ethical and transparent business and industry. We do have the best economic system in the world, and no matter what has happened recently, we should never forget how we achieved such success in the first place.
Joe Scarlett is the retired chairman of Tractor Supply Co. and founder of the Scarlett Leadership Institute at Belmont University