Chapter 5: The Evil Corporation

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The Evil Corporation

Many of us who live in relatively free countries take our standards of living for granted. We don’t give much thought to how food constantly appears on store shelves, always available for us as we “run by” in our automobiles to pick something up on the way to our warm, safe, and lighted homes. It’s easy for us to pay several days’ salary to fly in an airplane across the Atlantic, while sipping wine, watching movies, and selecting among various meals, to visit countries that would have been impossible for the average person to reach just over a hundred years ago. We accept almost as given the ability to walk down the street speaking with friends or family 3,000 miles away using little boxes in our hands that cost only several hours’ worth of work to buy.

These luxuries that have never before been obtainable in the history of the world were brought to us by capitalism — the economic system whereby people are left free to produce and exchange as they choose, so long as they bring no physical harm to others or their property. A salient feature of modern capitalism is the large corporation,¹⁵⁰ which often has a presence in every state and country and is the dominant firm in its industry. Such successful corporations are seen to wield great economic and political power unfairly.

This chapter addresses the accusations commonly leveled against big corporations and the myths as well as the realities that lie behind these accusations. My purpose in this chapter is to show that in markets genuinely free of government interference, successful companies, no matter how large or powerful, cannot defraud, exploit, oppress, or in any way harm consumers or employees. I will show why we should not only embrace large companies (or any company for that matter), but should even campaign to protect companies from government requirements and restrictions on production and from government protections and privileges granted to some companies at the expense of others.

Capitalism’s Good Deeds

Ancient Greece marked the most culturally and economically advanced and developed state of Western civilization since the first modern humans of approximately 200,000 years ago. Yet in this glorious state, homes had no heat, and most had no running water; people regularly relieved themselves in public streets. Their homes had no chimneys, so fireplaces and oil lamps filled their rooms with smoke and soot.

Life in Europe during the Middle Ages was not much more comfortable. Dwellings, generally built of wood, mud, grass, and leaves, usually consisted of one room with no formal ceiling or floor, and often housed not only entire families but their animals as well. There was no running water or sanitation. Bread and drink consisted primarily of rye and oats. Livelihoods were precarious and consisted of alternating periods of plenty and starvation. Droughts, famines, crime, and violence were common, as were scurvy, leprosy, typhoid diseases, wars, pestilences and plagues. Famine persisted until the last two hundred years in the now capitalist societies; in non-capitalist societies famine continues. Famines, traditionally prominent, feared, and dreaded, have killed tens of millions of people throughout history. One writer compiled a detailed summary of 22 famines on the British Isles in the 13th century alone. Tens of thousands of people in London died during large famines, and they often resorted to eating horseflesh, bark from trees, and grass.¹⁵¹ As recently as the 19th century, deaths from lack of food occurred en masse: 800,000 died in India in 1838; 1,000,000 died in Bengal and western India in 1866; 1,500,000 in India in 1869; 5,000,000 died in India between 1876 and 1878; 9,500,000 died in China between 1877 and 1878; 1,000,000 died in India in 1897. Today, however, in a world in which more people live than the total number who have ever previously existed, the preponderance of people (except those in countries without any semblance of free markets) have plenty of food and nutrition.

There are also more modern countries in the twentieth century that have suffered starvation, but these are primarily in the category of communist (i.e., non-capitalistic) countries, which became “modern” only through previous periods of relative capitalism (e.g., China and Russia). It was the economic policies implemented by the communist leaders that led to the lack of food. For example, more than 20 million people died in the Soviet Union in the 1920s and 1930s, shortly after the Bolshevik revolution; more than 20 million also died in Maoist China; it’s estimated that 600,000 died in North Korea in the mid to late 1990s.

Capitalism has prevented starvation, eradicated diseases, led to the development of sanitation systems and products, made us stronger, healthier, and longer-living, built cities with all the modern conveniences and luxuries we enjoy, and continues to do so to this day. Nevertheless, many people have the audacity to call this system immoral and unworkable. They say it has negative, rather than positive results. They say that those entities that bring to us all the things that make our lives better — businesses — are evil. Instead of acknowledging the many ways that they and the rest of society benefit from these companies, these people maintain that the primary production generated by businesses is wealth for their rich owners and managers, and further, that their gain comes at the expense of the rest of society — especially of the poor.

It would be fine if this type of ignorance were restricted to the pretentious group of academics and politicians from whence it originates, but these “experts” convince the rest of society to believe their lies, which then become common public perception. With the public believing it’s in their interest for government to protect them with taxes and regulations on business, they begin supporting policies that not only actually fail to protect them, but harm them.

As an example, oil production disruptions in the United States following a hurricane in fall 2008 left many gas stations in southern states without gas for over a week, resulting in cars idling in hour-long lines, and many running out of gas on the road. Meanwhile, neighboring states had plenty of gas, much of which could have been diverted to those states that needed more. Had prices in states that needed gas been allowed to rise to a higher level than in non-needy states, it would have been profitable to truck gasoline the extra 300 or 500 miles and sell to the needy stations that were offering to pay premium prices. But state legislatures in the needy states had implemented anti-price gouging laws (to protect consumers and show that they were “doing something”), which prevented gas stations from raising prices above normal market prices for fear of being fined the stated $10,000 to $25,000 penalties. Thus, the “benefits” of this regulation were reduced business incomes for small business owners (the gas stations) and a shortage of gas for consumers. The price gouging law could not help consumers under any circumstance because there is no such thing as price gouging in competitive markets. With competition between gas stations causing each one to try and undercut the other’s price to increase their sales, prices can never rise very far above costs.

Companies cannot hurt us if they have competition, which, as we saw, sometimes consists only of the threat of competition. But regulation usually allows companies to take advantage of us by preventing competition.

Do Businesses Gain At Our Expense?

In a free market, companies can survive only by pleasing their customers. If enough customers like what a business is selling, they will buy enough of it at a high enough price to bring a profit. If they don’t, the company will suffer a loss and fail. Its resources will then be transferred to another company to use in its more profitable operations. The imperative of pleasing customers applies as well to goods that we “must have.” If a provider of bandages has better-sticking, better-feeling, better-priced bandages, this provider will gain more market share. Many gas stations have gone out of business during recent times despite being able to charge high prices for an important good that we all “must have” simply because they did not, for example, offer auto-pay credit card machines or aesthetically pleasing and modern gas pumps and convenience stores.

Capitalism is the ultimate democratic force because consumers, by voting with their dollars, decide what and how much gets produced. If people begin spending more on SUVs, carmakers rush to make more of them in all kinds of shapes and sizes. If consumer trends turn to “green” cars, manufacturers rush to produce automobiles that run on fuel cells, batteries, biodiesel, natural gas, and the like. If consumers spend more on, say, pet food, prices rise in that industry, bringing about high profits, causing other entrepreneurs to chase those profits and increase the supply of pet food. The result is in line with consumers’ desires, as communicated through their spending patterns. If they want more pet food available, they get it! Further, the bigger the business, the more it is the masses who are being served. As the great economist Ludwig von Mises put it: “Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public for whose favor the businesspeople canvass. They are the customers who are ‘always right.’”¹⁵²

The price system — the prices of everything in an economy as determined by consumer choices — directs the production of consumer goods to keep them in line with consumer desires. The production of capital goods, the goods that produce consumer goods, is in turn directed by the spending of the companies producing consumer goods. After all, every single capital good produced in this world — concrete, factories, hammers, generators, tankers, commercial aircraft, etc.— is made ultimately to produce things for consumers; these are the goods that create the goods that we buy. Every consumer on Main Street, simply by choosing to buy particular goods or services, directs the production processes of the entire world economy. This is what free market economists call “consumer sovereignty.” This equilibrating production process, as directed by prices and profits, are what Adam Smith referred to as the “invisible hand” of the market.

Are Profits Bad?

Since profits are awarded only to those who please consumers, then it must follow that profits are good, not bad. Profits result from companies having created something that is valuable enough that customers would rather have it than the money they exchange for it. If they thought they would be better off with their money than the product, they would have instead kept the money.

Profits also mean that a particular amount of physical resources (which are combined and assembled to make products) sell for more than the cost of the amount of resources that went into making them.¹⁵³Profits mean we add to the stock of real wealth in our economy Conversely, losses, or negative profits, mean that value of the resources consumed in making the product is greater than the value of the product itself. Losses thus result in a destruction of real wealth.

Yet many consumers despise profitable companies while they pity unprofitable ones. The government, with our tax money, subsidizes those companies destroying wealth (those with losses) while it imposes higher taxes on companies that create wealth (those with profits). We the public, therefore, suffer, because anything we tax, we get less of. During the 2008 presidential debates, vice-presidential nominee Sarah Palin, who claimed to support free markets, was proud that she had imposed “windfall profits” taxes on oil companies in Alaska (for their evil big profits). But by taxing them, she reduced the companies’ output and hurt consumers. Yet these actions are somehow seen as good and right by most people in society. Conversely, unprofitable companies such as Delta and other airlines received a $15 billion government bailout in 2001. They now once again need a new bailout. Both pragmatism and logic dictate that we should allow unprofitable businesses to go under so that their people, tools, and machinery can be used more profitably somewhere else where they are creating wealth and pleasing consumers.

Simply to survive, and especially to gain wealth, companies must find ways to satisfy the public with new products or lower costs. But as soon as they do, competition arrives to steal the profits. Companies can never sit back and relax with their profits; they must constantly innovate, or at least adapt others’ innovations, or they will cease to exist from lack of profits (or, they can convince Congress to give them special favors in the form of regulation which harms competitors).

Profits Benefit Buyers and Regulate Companies

As this discussion and the detailed explanation of profits in Chapter 1, as well as the discussion on monopolies in Chapter 4 make clear, profits in any industry can never remain large (percentage-wise) for very long. Higher profits bring more competition and lower selling prices. To ward off competition, companies keep selling prices as low as possible, and try to achieve even lower prices by becoming more efficient. The opposite occurs with wages: competition forces companies to pay the highest wages they can. The same concept applies to quality and safety of products: low quality and unsafe products will result in a loss of revenues and profits. Competition and basic laws regulate companies; additional thousands of pages of government regulations do the opposite.

Clearly, consumers benefit from companies seeking profits, which is precisely why every industry should be for-profit. Many people say that the healthcare industry, for example, should not be for-profit as it leads to healthcare providers focusing on making money rather than taking care of people. But the truth is quite the opposite. In free markets, providers can make good money only if they provide high-quality services at low prices in order to please customers so much that they will choose them over their competitors. In today’s regulated markets, providers have all the clients they can possibly handle; they don’t have to compete for them or try to please any given customer.

Haven’t you noticed how your doctor rushes you in and out, after having made you wait hours? Compare that experience to one in a relatively free industry: in taking your automobile to be repaired, at a dealer or private mechanic, they usually receive your car the day you call, have it finished that afternoon, and often offer you transportation to and from their shop. They also spend plenty of time showing and explaining the problems, and usually charging less to repair $40,000 automobiles than your doctor charges to fix you — all while making normal (low) profit margins. Additionally, inefficiency from lack of competition and regulatory burdens raises costs.

Should Profits Be Shared?

It has been argued that companies don’t share their profits with local economies, or with anyone else at all. Likewise, it has been said that greedy company executives live like fat cats from the large profits their companies bring in. But these arguments fail to consider what profits actually are and how they work. It should be understood that profits are not pocketed by executives but instead are distributed to shareholders or invested in the company’s future production, production which helps all communities through the supply of more goods at lower costs.

Profits belong to the owners of the company, the shareholders, who consist of thousands or even millions of people, in the case of large corporations. For example, we hear constantly that ExxonMobil made a whopping $40 billion in profits in 2007. But this, on its own, means nothing; it has to be put in perspective. The $40 billion represented a 10 percent profit¹⁵⁴ (up from only 4.3 percent in 1999¹⁵⁵) — an average rate of profit in other industries¹⁵⁶ — and much smaller than in many, such as those for financial services firms.¹⁵⁷ And profits don’t come cheaply: the company did have to fork out $334 billion in order to achieve sales revenues of $404 billion, and they had to pay $29 billion in taxes. The remaining $40 billion profit is then spread over the company’s thousands of shareholders, some of whom own many millions of shares and some of whom own two or three shares. Either way, the profit each shareholder made still equaled a rate of profit of 10 percent on their wealth. But whatever amount of money shareholders made represents new wealth. With that new wealth, they can spend in ways that make their lives better, or put the wealth in the bank where it will be used as capital to make everyone’s lives better. Depending on the scenario (i.e., whether the new wealth is spent or reinvested), either some or all of society is better off, and no one has lost out in the process.

Instead of complaining that ExxonMobil’s profits were as high as $40 billion, we should all be complaining that they are not as high as $400 billion! If they had been, that would mean ExxonMobil had produced about ten times the amount of oil (and paid out approximately ten times the amount of wages). In that case, we would all have more oil available at lower prices. And of course, had ExxonMobil not had to pay $29 billion in taxes, they would have produced that much more oil for consumers, or they would have that much more funding available with which to discover new oil, including the payment of additional wages. The same concept applies to every company in every industry. But instead of having more and higher wages and more, lower-priced goods by not having companies pay high taxes, most voters instead choose to have companies pay the high taxes, a situation that results in those very people ending up with lower incomes and fewer goods at higher prices!

Second, most profits are not usually paid out to shareholders, but instead are reinvested in the company’s operations. The reinvested profits are used to pay for the costs the company has to incur in making next year’s products. The more that is reinvested, the more salaries that can be paid and the more output the company can produce.

Third, what observers should be concerned with are not profits, but costs/expenditures. Profits are only a small part of any financial statement. If a company has a 10 percent profit, they have spent 90 percent of the amount of their sales revenues in paying salaries and paying for capital goods. Both of these expenditures benefit society. The salaries are obviously income for workers. The capital goods help workers produce more and thus get paid more, and they produce the company’s product, which consumers will then have available. In other words, it is society, not executives (and not even the rich and the capitalists themselves), who benefit most from a company’s capital.

True, executives may be paid dramatically more than workers, but they bring in dramatically more revenues to the company than do the workers (and dramatically more wealth to consumers in the form of more goods and services), as we have already learned. They are also paid, ultimately, for making sure that all of a company’s employees have continued employment at the company — good decisions mean continued jobs, bad decisions mean everyone is out of work. Executives should be compensated the going market wage for the work they do, and should not be compensated well, if at all, for incurring losses. But, their compensation should be decided amongst the shareholders (and their board of directors), since they own the company. Neither the government nor we citizens (unless we are direct shareholders) should have any input; this should be negotiated between the two private parties. It’s neither our company nor our money (until we steal it from shareholders and executives through taxes); it’s theirs!

There are cases in which the largest shareholders are also the executives running the company. This situation might well result in executives paying themselves too much while running an inefficient company that does not make profits.¹⁵⁸ But even in these cases, minority shareholders can choose not to own the company shares (for publicly traded companies, they can sell them any minute of the day, literally within three seconds, on stock exchanges) and workers can choose not to work there. But the compensation and management decisions should be made between the private parties involved; government and society should have nothing to do with it.

More Capitalism Means Lower Profits

We have explained that large profits exist where there are new and innovative products or new methods of production, both of which bring about improvements in quality or cost for things consumers are buying. Yet some might still emotionally describe these temporarily large profits as obscene. But these detractors fail to grasp that it is the prospect of large profits that brings about the new or improved products and services. They enjoy their iPods, stylish shoes, and beverages, but deride the incentive — profits — that brought these products into existence to begin with. In countries or regions where there is no prospect of profiting from developing these products, they are simply not developed. They are not created at all if the creators cannot reap the benefits of their hard work, risk, and opportunity costs. Additionally, for each person who becomes rich from seeking large profits, there are about five who lose a lot of money (often their life’s savings) because they failed to succeed. And many of those who become rich later become poor due to subsequent risks not paying off. Socialists do not consider the years of hard work, dedication, risk of failure, risk of career, risk of smaller fortunes that it takes to bring about large profits. They close their eyes to these things and pretend that without any effort at all, these evil businesspeople become instant millionaires overnight. Of course, should a homeless person win the lottery — becoming an instant millionaire overnight — socialists would likely celebrate this event (as would I), even though the homeless person truly put no effort into earning his millions.

Further, if socialists deride large profits as obscene, they should also deride the incomes of artists, self-employed writers, independent fishermen, and psychologists. This is because these people make a much higher percentage of profits than do even corporations with new products making temporarily large profits. For as we have seen, they are not paid wages — wages arise only with the existence of capitalists who pay workers before the product is produced. Without capitalists, the only form of income is profits, not wages.¹⁵⁹ The profits this group earns has few costs in the form of materials and supplies subtracted from the revenues they earn. Suppose a farmer produces his own tools and pays only for seeds. If he sells his produce in the market for $30,000, his deduction from the revenues that go towards paying for the seeds might be $2,000. This leaves a 93 percent profit. If the farmer buys new and improved tools from others, he might have to deduct $5,000 (in addition to the $2,000) from the $30,000 in revenues, leaving a 76 percent profit¹⁶⁰. Both of these theoretical profits are larger than the average 10 percent or so profits corporations make. Profits, therefore, don’t necessarily mean a lot.

It is larger companies, primarily, who pay wages. Larger companies pay much more of their profits to the so-called factors of production (labor and machines) — if the average corporation makes a 10 percent profit, then 90 percent of their revenues are spent on the factors of production. Even a company with a new product that is making large profits of 50 percent still has smaller profits than our farmer, artist, or small fisherman, who usually has to deduct much less than 40 percent of revenues for supplies. A psychologist would have to deduct nothing but the cost of their note pads and pens, and their office and furniture (the latter, due to accounting guidelines, has its costs spread across many years).¹⁶¹

It should be clear from this example that large companies have much smaller profits because they have much greater expenditures on the means of production. We have fewer people remaining as sole proprietors in our society today because greater efficiencies can be had in most industries by having fewer producers in an industry making and producing a greater volume than could be produced with more numerous producers. Thus, most people work for a business that has devised means of producing more efficiently because workers can earn more in this way than producing on their own (their wages are more than the dollar amount of the high percentage profits they could earn on their own). The business owner spends most of the company’s revenues to purchase machines and labor. The greater our level of capitalism — in this case, the paying for machines and labor — the greater our productivity (and real incomes). More capitalism means more would-be profits are instead used to pay labor and machines. Thus, if socialists want companies to earn lower profits, they should support capitalism.

Still, a good socialist would argue that though the small farmer or psychologist might be earning a higher rate of profit, the absolute dollar amount of their profit is much smaller and much less obscene. The argument is valid, but it does not mean the large profits are bad. It means that the small producers are not able to offer as much of a supply of goods to society. That is, unless, you add them all together. In that case, if we add the millions of sole proprietors together and come up with profits in the billions, how is that better than if we grouped all the sole proprietors in each industry into a company where, with economies of scale, they could produce more in total, and where they would have higher incomes from doing so?

Imagine that you bought a bracelet at an arts and crafts street fair that you really liked. Suppose the producer and seller of that bracelet sold 30 of the bracelets that year. Had the artist instead sold 3,000 bracelets, consider how many people would be as happy as you, how many people thought the bracelet was preferable to the money they gave up in exchange. But if the small-time artist was in fact so successful at selling bracelets that the street fair table grew in size and became a large company — with the help of employees who would have new jobs — selling thousands of the same bracelets at the same rate of profit, that artist would then be derided as an evil profiteer.

Do Some Gain at the Expense of Others?

But if someone is making a profit, does that mean someone else is incurring a loss? Yes and no, mainly no. Other companies might incur a loss if they are not competitive enough. In that case, capital (i.e., production capabilities) is transferred from those who cannot please consumers and create wealth to those who can; capital moves into the hands of the most capable. But business profits do not come at the expense of workers, consumers, or society as a whole. Profits, we learned, are compensation to capitalists for providing companies with the capital used in producing products and for going without the money that is instead used to produce goods and services. As part of the production of goods and services, capital pays for the tools used in the production process and for the labor. Thus, capital — money owned and unconsumed by individuals — pays our wages and creates the things we need. Capital also funds the creation of new companies. Everyone gains in this process, even those business owners who were not previously competitive enough to maintain their capital and profits, since they will instead have new alternative opportunities for employment as well as lower retail prices on which to spend their new wages. Workers gain by being paid wages with which they can purchase the very goods they produce, while committing nothing but time and energy to the process. Consumers gain by having more goods available at lower prices. Further, both the exchange of labor for wages paid by companies (in the case of workers), and the exchange of money for goods produced by companies (in the case of consumers) are done voluntarily, without coercion or force of any kind.

The more wealth the rich capitalists acquire and transfer into production processes, the more companies produce and the lower are prices (in real terms, excluding inflation). Further, the more capital employed per worker, the more each worker can produce, and the more their real wages rise.

Are Businesspeople Evil?

Again, yes and no. On a personal level, there are many decent and honest businesspeople, and there are also those who are just bad people. The business world can indeed be political and cut-throat, but mainly internally, not towards consumers. Many employees do get screwed over and treated badly, but usually by co-workers or their immediate managers, not by top executives (except for those working directly under top executives). The ones treating others badly are just as often women as men. These are everyday people you talk to at parties, or your best friends. Humans are humans. Though there are negative aspects to business operations, the overall outcome is usually pretty favorable for most workers. And I doubt very much that workers get significantly screwed over more than several times in their entire careers. In reality, it happens to all of us workers to some degree, periodically, but in the long run we usually all benefit — just as in life itself.

Additionally, businesspeople care very little, if at all, about workers under (or above) them. But because the marketplace is competitive, they have an incentive to take care of workers as best they can and make sure they are happy. Otherwise, their own performance and paychecks will suffer. This is why there are regular perks, parties, recognition and awards, spot bonuses, and even such benefits as health club memberships, transportation services, and company-paid off-site meetings in vacation destinations — all are deductions from profits.

But on a business level, executives are out to make profits, make higher salaries, and further their careers. Most do this legally, but as in the rest of society, there are unfortunately those who cheat (for which they should be held accountable — by those harmed, not by the government). There is no doubt that most businesspeople would like to exploit both workers and consumers alike. They would, if possible, underpay workers and overcharge consumers. But as we have learned and will continue to learn, competition prevents this from happening. Governments, however, by giving special privileges to companies, can and do allow workers and consumers to be harmed.

Surprisingly, about half of the businesspeople in the United States are politically left-leaning, in part because, ironically, they believe regulation and government force are needed to protect society (these are their views apart from their lives as businesspeople). They also believe that wealth redistribution will help the poor. Most of the other half, though not officially left-leaning, still believe we need some level of government control. Businesspeople often know very little about economics; if they do, it’s likely not free-market (real) economics. For the most part, they don’t need to know economics to run a business.

But the lack of economic knowledge is what causes businesspeople as individual members of society to believe as naively as do non-businesspeople that things such as taxing, regulating, redistribution, and price controls can somehow help society, and especially the poor. One CEO of a medium-sized company who told me that he thought that the government programs of the Great Depression that paid people to dig ditches or canals that would never be used actually benefited the economy. In fact, they were simply destroying wealth. That same CEO told me that the 1997 Florida Marlins cheated in winning the World Series because they “bought” the best players. But that’s exactly how businesses prosper — by paying for the best people (and it’s what the CEO tries to do as a manager). An intelligent business consultant who advises Fortune 500 companies, when told that the housing boom was a bubble sure to end in falling prices, hotly argued to the contrary, saying that falling house prices were in fact impossible, because the housing boom was based on population growth. Another experienced business consultant once asked me rhetorically, “But don’t we have free markets?” And part of her job deals precisely with addressing regulatory issues businesses face! Finally, the most shocking example of businesspeople knowing nothing about economics comes from a discussion with a co-worker who once managed investment funds for a large multinational company (who therefore should understand the financial system), and who actually taught college economics courses. When I mentioned the process by which our central bank prints money, he adamantly and emotionally assured me that it was not true that government creates money.¹⁶² But, in fact, the money creation process is described not only in virtually every macroeconomic 101 textbook used in any university, but also on the website of the Federal Reserve Bank of New York itself, where every step of the process by which they create money from thin air is outlined in detail.¹⁶³ Had he understood what the money-creation process really is, he would have understood that that’s the only way the investments that he used to manage increased in value.

Naiveté about economics generates the proposals and actions of left-leaning successful businesspeople such as Bill Gates, Warren Buffett, and Michael Bloomberg, who all propose that the rich should give their money away in one form or another. Bloomberg actually redistributes wealth and regulates in his role as mayor. Bill Gates gives his money to the needy in Africa and elsewhere. Warren Buffet (along with former Treasury secretary and Citigroup executive Robert Rubin) believes that society as a whole should receive the inheritance of wealthy parents who die, instead of their own children. The problem with these notions, besides the moral implications, is that if the wealth is given away, it is consumed. If it is kept with the rich owners or their children as savings, most of it will be invested in one way or another to support the production of more goods and services, which are self-funding and repeatable. If it were not true that the rich keep most of their wealth instead of spend it, we would not have millionaires and billionaires actually holding millions and billions. We would also not have capital and machines, because very little of those things are purchased with the combined small savings of the average person — most are purchased for our benefit (and their profits) by the rich.

Society would be helped by Buffet’s money much more if it were given in the form of factories and equipment than if it were just all handed out once in cash to the poor to be spent a single time on consumer goods, in which case it is then gone forever. Gates’s scenario is a little different: If his money, instead of being handed out to citizens of various African countries, were used to protest dictatorships, to support capitalistic, or at least anti-socialist uprisings, or to bribe leaders to allow their citizens to 1) have freedom to own their own property; 2) keep their earnings; 3) trade freely with others; and 4) borrow capital from abroad (maybe Gates’s own money), some of the oppressed poor in those African countries might then be able to accumulate wealth and create prosperity perpetually. A one-time handout to fight diseases will save lives that one time. Having the production capability to continuously increase cleanliness, healthiness, and availability of food resulting from material well-being will not only save lives, but keep them saved year after year.

Big Businesses Start Small

A small business can become big only by pleasing a tremendous number of people. Most big companies started out as family businesses. So many people wanted what the family businesses had to offer that the businesses grew rapidly over the years, eventually becoming corporations. Just because small businesses are eventually bought out by larger ones or go public on their own (sell ownership in the business to the public) does not mean they suddenly become evil and terrible with the intention of ripping off customers. Even if they try, they cannot — assuming that they are operating in a free market.

Socialists praise small, independent companies and disdain large ones. One would have to wonder what their threshold for “large” is. What if a mom and pop store opens another location across town? What if they open several more? What if they expand across a larger 5- or 25-state region? What if they sell partial ownership to outsiders in order to raise cash? What if they sell the entire company to a larger company? What if the larger company is a multinational corporation owned primarily by one family? In which of these cases is a company big and evil vs. small and innocent?

Recently, I was talking to a manager at a local Asian restaurant who denounced a rival chain, PF Chang’s, as a “corporate operation.” Yet his own firm is owned not only by two partners who founded the firm, but also by two other outside equity partners (tantamount to shareholders), and it also has five locations in three states. Though it is owned by four individuals instead of a thousand, it still gets capital invested for its operations via these shareholders, and probably also via loans from banks, which would be equivalent to bond holders. Is this restaurant a corporate entity? Perhaps not in the legal sense, but it has shareholders and it is a chain. Has it become evil yet? Only socialists can judge.

Just because a business is large does not mean that it is somehow more harmful. One might object by saying that it does harm because wealthy corporations can “buy” their way into what they want and then defraud or otherwise harm others, but given free markets, corporations can do no such thing as they would not be intertwined with the government — government would not have the power to help them. In the manipulated markets we have today, large corporations are more likely to engage in lobbying, taking tax breaks, and buying what they need through “contributions” because they are more relentlessly targeted by society, government, unions, and socialists of all colors. Thus, they use the political means available in order to reduce the weight of government on their back. This argument in no way condones these underhanded actions, but simply acknowledges the current reality. Large companies in today’s markets are, however, 100 percent guilty of using their size to keep out small competitors by asking government to impose costly regulations that their smaller competitors cannot afford to take on. By definition, free markets would dictate that corporations have no engagement whatsoever with government and vice versa. It is because government intervenes in the free market, imposing itself on companies, that companies have to “work” with and “negotiate” with government.

Large corporations simply serve society on a larger scale than smaller companies. They obtain increased efficiencies by achieving economies of scale and can therefore produce a greater quantity of goods for us at lower prices (and hire more workers) than could 10 different firms one-tenth their size. Remember that their large size or lack of actual competitors does not allow them to take advantage of us.

Corporate Social Responsibility: A Sham

Corporate Social Responsibility (CSR) is defined in Wikipedia as follows:

a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.¹⁶⁴

This definition tells us that companies are not only to obey the law, but that they are supposed to make decisions, at least in part, based on everyone and everything outside of their business. In other words, business is expected to exist to benefit society. Separate from the fact that businesses already benefit society in every way, the idea of CSR is utter nonsense and is simply an attempt by socialists to gain some control over supposedly evil and greedy corporations that harm them and the “community.” An entire book could be written on this topic alone. But since there’s not the space for such material here, let’s take a broad view of the sham called corporate social responsibility.

As we have learned, absent regulation, companies cannot harm us citizens, except by breaking the established laws and the rules governing capitalism (engaging in physical harm, theft, or fraud). Unless these rules are broken, corporations cannot steal, defraud, or physically harm members of their community. Corporations provide goods to society, jobs to employees, and an increased standard of living to all, while taking nothing in return by force, but only through voluntary exchange.

Companies have a responsibility to their owners (shareholders) only — not to any so-called stakeholders, such as suppliers, customers, and the “community.” It might well be, and likely is, in a company’s interest to treat these groups well, but such good treatment should be done only for the sake of making profits. It should already be seen that in the effort to make profits, the well-being of all of these groups will naturally be in the best interest of businesses.

But CSR advocates want companies to go beyond what they would do on their own, and intentionally benefit society more than they already do; their end goal is to simply have companies hand out money. For example, CSR advocates cite Shell Oil’s involvement in South Africa’s Flower Valley, a “botanical treasure...[that influences]... bio-diversity and community empowerment... by promoting ways in which fynbos [which means natural shrubland] resources can be sustainably utilized,”¹⁶⁵ where learning centers are set up for children. A common CSR approach, they state, is to give aid to impoverished communities in developing countries. So what this really means is that since these countries have failed to support property rights, free markets, and capitalism — which would have resulted in the eradication of poverty and which would have provided the needed education and training — shareholders of multinational corporations are instead supposed to subsidize and support the starving people of the world. It is not, CSR advocates implicitly argue, individual citizens of the developed world who should sacrifice with their own money for these failed nations. It is other people and their money that is invested in companies who are supposed to.

Were corporations forced to carry out CSR on the scale proposed by its socialist advocates, the result would be lower profits. Lower profits would mean the laying off of workers and the reduction of output. And since the rate of return (profit) would be lower, companies would lose investor capital and thus decline. The minimum damage would be fewer workers, fewer goods produced for society at higher prices, and even less money available to give away to others. The maximum damage would be that the company would go out of business, and all its employees would be left without work. Either way, real wealth is destroyed.

One might naively retort that there are “proven” business cases stating that CSR is profitable to businesses. If there truly are, it is only in the context mentioned above — that businesses contribute to society to the extent that it helps their profits. But the point being made above is that if businesses are pushed to “invest” in society more than is profitable, not only is it unprofitable, but it is destructive to them (and society). It is in a company’s public interest to do something such as to support a charity or sponsor a marathon run against a disease. But with the public’s being suckered into CSR propaganda, companies are being prodded to spend more and more of their profits in CSR-type marketing and sponsorships because, if they don’t, they will lose customers, who mistakenly believe CSR schemes will have a net benefit on society and that corporations are only non-evil if they give money away. These consumers don’t realize that the long-term result of either morally or socially imposed CSR is not only a decreased standard of living for themselves, but also for those they are intending to help.

Businesses, in seeking profits, help the so-called community in multiple ways. Any further “community” help that particular members of society desire and promote under the guise of CSR should instead be funded from their own pockets. If we as consumers are all concerned about cause X or Y, then we have the freedom to dig into our own pockets and give to the cause. Instead, those who advocate CSR spend relatively little of their own money and instead pressure others to pay for their causes. CSR is no less than a wealth redistribution scheme that impoverishes society as a whole.

Businesses are the Hands That Feed Us

In case you have not realized it, it is businesses that have given us every physical thing we have. Look around you right now. You probably see a computer, a desk, a chair, carpet, windows, a house or an office, pens, papers, calculators, a television, a copy machine, lights, air conditioning, clothes, pictures, radios, food, or many other possible goods that make your life more enjoyable or less challenging. All of these were made by people seeking to obtain some type of profit; most of these things were made by businesses of some type, and most were probably made by large corporations. Likewise, most of us work for businesses seeking profits. Or we sell the goods we produce to people who have money paid to them as wages by a business. Or we work for a non-profit or state agency that is wholly funded and supported by for-profit corporations either directly or indirectly. Nearly all of the wealth we citizens have came about from businesses seeking profits.

Instead of biting this hand that feeds us, we would all be better off feeding it and doing everything we can to get out of its way. For the more we tax it, regulate it, penalize it, restrict its output, force it to lose money by paying too-high wages or by selling products for too low a price, or otherwise suppress it in any of the myriad ways we currently suppress our businesses, the more we reduce our own economic (and social) well-being.

Walmart: The Quintessential Evil Corporation

Since Walmart is the poster child for the evil corporation, let’s address some of the complaints against Walmart specifically, in light of arguments set forth thus far about businesses. At the outset it should be understood that the negative campaigns against Walmart are mostly led by two groups. The first are the extreme left-wing socialists. Their lack of knowledge of economics leads them to rail against anything capitalistic and to fear economic freedom. As socialists, they are moved by emotional impressions about what helps or hurts society, and they are unaware of how capital, profits, and businesspeople help workers, consumers, and all of society.

The second group that is a primary driver of anti-Walmart propaganda is labor unions, primarily the United Food and Commercial Workers Union (UFCW). Since unions have learned that they haven’t historically gotten very far with the use of strikes, fear and intimidation tactics, destruction of company property, and physically assaulting non-union workers, they often opt for what is called “corporate campaigns” in the labor union literature.¹⁶⁶ These propaganda tactics have the goal of coaxing Walmart’s non-union workers into forming or joining a union. They come at it from the angle of trying to convince the public that Walmart is evil and harmful, so that Walmart will give in and sign a union contract. With such a gullible, economically illiterate public, their tactics are making progress.

Unions do what they can to sink Walmart into their union abyss because their livelihood is at stake. Unions raise costs in the companies they infiltrate, causing them to pay higher wages and benefits, and preventing the companies from advancing technologically (because they have the mistaken belief that technology causes unemployment), thereby lowering their levels of productivity. The result is inefficient, high cost, low-quality and bad-service companies that can’t compete with non-union companies. With the increasing threat that efficient non-union companies will take away market share, and therefore jobs, from the unions’ own crippled firms, unions try to even the playing field with the business equivalent of beating nonunion companies in the knee with a bat (whereas they historically physically beat people with bats).

Destroying the “Mom and Pops”

An old charge against Walmart is that it puts “mom and pop” stores out of business. This might be true, but change is inevitable, and new businesses often cause the demise of old ones, as Joseph Schumpeter explained in his theory of Creative Destruction.¹⁶⁷ Computer manufacturers put typewriter makers out of business; airlines put passenger trains out of business; grocery stores put street markets out of business. Though some workers are unfortunately displaced in the short-run, this is how societies progress.

The fact that Walmart took business away from other stores (including K-Mart, JC Penney, Sears, Woolworth’s, TG&Y, Ben Franklin, etc.) means that consumers preferred Walmart’s offerings to those of the other stores. Sam Walton’s first small family-owned store was successful because he marked-up items less than competitors (he benefitted consumers). Had the mom and pops innovated and expanded so as to give consumers a larger variety of products at lower prices, they could still be in business as well (and some are). A primary way in which Walmart was able to offer large variety at low prices was that it gained economies of scale as it grew. Had the mom and pops grown their business — offering customers larger variety at lower prices — as Walmart did (which began as a mom and pop store), or formed consortiums with others in order to achieve bulk discounts or other efficiencies, they could have more easily competed. In my home town, one of the most popular grocery stores is a mom and pop that joined the IGA consortium, and has thrived for over a half century, unchanged for the last four decades, while larger chains have come and gone.

But, one might argue, adopting and growing too large might change the character and quaintness of mom and pop stores. This is likely true. But consumers (i.e., society at large) have voted with their wallets and shown that they prefer large selection and low prices to charm and cuteness, in most cases. In other cases, small and charming stores still exist and thrive. So blame your neighbors for change, not the local Walmart.

The lower prices Walmart offers mean an absolute lower cost of living for all consumers who shop at the store, thereby delivering to them a higher standard of living. Any temporary hardship that mom and pops face from losing their stores and jobs is more than offset by lower prices for everyone else (those who think in terms of “the greater good” should appreciate this fact). The temporary hardships mom and pop owners might face from losing their businesses can also be more easily dealt with by them, given both Walmart’s lower prices as well overall lower prices throughout the economy (arising from increased supply from Walmart) for the goods they need.

Walmart’s Receiving of Government Subsidies

Anti-Walmart activists complain that the company partially lives off taxpayers because Walmart sometimes receives tax breaks, free or low-cost land, low-cost financing, and outright grants by state and local governments. These accusations partly consist of truth, and partly of the twisting of the truth, hypocrisy, and the unfortunate consequences of a lack of free markets. So let’s look carefully and clearly at this murky issue.

In true free markets, there would be no corporatism. No companies would receive any special favor from government. But we don’t have free markets. Our current markets, which are hampered by constant government intervention in the marketplace, result in various groups (companies, industries, unions, environmentalists, exporters, retired persons/AARP, etc.) competing with each other by soliciting special privileges from the government. Companies and industries in particular seek special privileges in part¹⁶⁸ to loosen the shackles already imposed on them by government, a situation that denies them the freedom to operate and compete as they wish. Unfortunately, Walmart has become involved in this so-called “rent-seeking.” The company used to mind its own business and compete fairly, but now it does not. However, as has been pointed out,¹⁶⁹ it is highly possible that Walmart was caught in a situation wherein if they did not engage in lobbying and government favor-seeking, their competition certainly would, which would leave Walmart at a disadvantage.

Though Walmart is wrong to seek special government privileges such as subsidies, it must be pointed out that in isolation, or, considering that this is how a government-regulated economy currently works, there is nothing wrong with Walmart’s taking advantage of tax incentives to invest in particular locations. After all subsidies and loopholes, Walmart still paid 33.6 percent of its income to the government in taxes in 2007.¹⁷⁰ Thus, they are still by far a net tax payer, not receiver. Walmart, like the rest of us tax payers, is coerced by the government to hand over part of its income, most of which is transferred directly to other people or groups (and mostly to the socioeconomic class to which most of Walmart’s “poor” employees and customers belong — thus, they are supporting this class in multiple ways). Therefore, they should take advantage of any opportunity that would allow them to have some of their tax money returned to them (i.e., “government subsidy”); they do no physical or monetary harm to anyone in the process.¹⁷¹ The same concept applies to any of us net tax payers (as opposed to net tax recipients — those who pay no tax and instead receive money from us taxpayers). Did you complain that you were receiving a subsidy when you took advantage of your so-called tax rebate in 2008?

On that point, what is most disturbing about those who complain about Walmart’s subsidies is that they are not against subsidies in general, only if it is specifically Walmart or another perceived evil capitalistic company receiving them (regardless of the amount of money these companies pay in total). These people would have no problem with a mom and pop bookstore, coffee shop, or movie theater, or a union-destroyed automobile company receiving subsidies. Nor would they protest Walmart’s being assessed additional taxes for no reason. They also likely don’t oppose “innocent” homeowners getting government subsidies to stay in the homes they bought but could not afford. And they strongly promote subsidies to farmers and to supposed green businesses, subsidies that constitute a net destruction of wealth and net loss of jobs and lower wages throughout society. These critics think subsidies are ill-advised or unfair if they do not benefit the critics’ own favored interest groups, but thoroughly justified if they do. If, instead of pursuing these arbitrary intrusive policies of favoring some industries and not others, we kept government out of the marketplace altogether, nobody would get hurt — and we would all benefit.

Walmart Anti-Unionism

The discussion about unions in Chapter 1 should largely serve as a defense of Walmart’s anti-union stance. Because unions are so destructive, because unions feed like leeches, sucking money out of companies, and because unions weaken and often destroy businesses, Walmart’s union position should be celebrated, not attacked. For Walmart workers to desire unionization means for them to want to steal from Walmart by reneging on their previous agreement to work for a particular wage, and instead demand a higher wage (which, with government supported force — current laws regarding unions — they would obtain).

Low Wages

It is often asserted that Walmart pays lows wages. This accusation implies that Walmart arbitrarily just picks a low wage it wants to pay and that’s that. If this is in fact the case, why wouldn’t it pick wage rates that are half of what it is currently paying? Or a quarter? Why would they pay anything at all? In reality, Walmart has to pay wages that are market rates for the level of experience and the quality of the workers it hires. If it doesn’t pay the market rate, it will not obtain the workers it needs, as other firms will outbid it. And the more Walmart expands, and the more it thus requires workers, the higher the wages it will have to offer in order to compete for the limited amount of qualified workers. Companies are not caretakers of their employees; they are purchasers of the labor services employees are offering.

Walmart employees work at Walmart because they have not found a better opportunity, or else they would instead have taken it. They feel that the wage is beneficial for them, or they would not exchange their time and labor for that amount of pay. And they do this voluntarily — they are free to leave at any time. Walmart needs mostly low-skilled laborers for the operations it performs. This means that it is a large employer of low-skilled labor force that would have a hard time finding work other places; Walmart prevents these workers from having no job, or lower-paying ones. If the workers wish to become skilled laborers, they can spend their free time in the public libraries on the weekend gaining knowledge (one could obtain the equivalent knowledge of an M.B.A from one’s local library). They could also take free government money to go to a college or a university and obtain a degree. These types of accomplishments would earn workers higher wages. Naturally, many Walmart employees learn on the job and move up the ladder as time passes.

And it seems that there are plenty who think the market wage Walmart offers is a pretty good deal. There was overwhelming demand for employment at the new Walmart which recently opened near this author’s home. The Atlanta Journal Constitution reported that “In just two days, and with virtually no advertising or even any signs, a staggering 7,500 people filled out applications for one of the 350 to 400 available jobs.” According to ChicagoBusiness.com, the turnout was much higher for a store there. It reports that “The new Walmart Stores Inc. location opening Friday in suburban Evergreen Park received a record 25,000 applications for 325 positions, the highest for any one location in the retailer’s history.”¹⁷² As free-market commentator Sean Corrigan pointed out, “thousands demand to be exploited.” Walmart’s wages are on par with Target and other “big-box” retailers, and are higher than most mom and pop wages. Yet few complain about Walmart’s competitors (although Target is beginning to hit the socialist radar screen).

Paul Krugman claims that Walmart puts people out of work because the companies it drives out of business have to lay off employees. Besides the fact that Walmart simply moves most of the jobs from their previous employer to Walmart, this view assumes that what is important is jobs per se. But what brings an improvement in our standard of living is not having jobs, but increased productivity in our various jobs, which results in fewer workers needed to produce the same amount. One result of this productivity is that over time most of us have to move to another job. But with more wealth having been created from the same process that causes us to have to switch jobs, average real wages across all jobs become higher. Walmart, with its vast technology, does an outstanding job of increasing productivity. And its ability to progressively produce the same amount with fewer workers ultimately means that more stores can be created which will require additional workers (unless unions and leftists get their way).

An area in which Walmart should legitimately be blamed for doing the wrong thing is that of the minimum wage. Beginning in 2005, Walmart actively supported an increase in the minimum wage. It was praised in the media for having such a good social conscience. But its intentions were not good. Walmart paid between $8.23 and $9.68 per hour (Walmart claimed a higher rate of over $10.00) versus the then–minimum wage of $5.15. If the minimum wage increased (which it did), most of Walmart’s competitors, being less efficient, would be put at a disadvantage, since they could not as easily afford to pay higher wages and remain as profitable. This was a great way for Walmart to weaken those who threatened it. Companies learned long ago that they could use government power to prevent competition. As Lew Rockwell states:

This is how child labor legislation, mandated pensions, labor union impositions, health and safety regulations, and the entire panoply of business regimentation came about. It was pushed by big businesses that had already absorbed the costs of these practices into their profit margins so as to burden smaller businesses that did not have these practices. Regulation is thus a violent method of competition.¹⁷³

Absent this regulation, there would be more free market competition, resulting in more jobs and more output that would bring about lower prices and thus higher real wages.

Executive Pay far Exceeds Worker Pay

Though this issue has been addressed in various places already, several new points must be made. Walmart CEO Lee Scott (2000-2009) earned millions of dollars, and he deserved it. He brought in billions to Walmart owners, who were thus glad to pay him “only” millions. They would like to have paid him less, but CEOs have market prices just like us workers. Scott was the son of a gas station owner in Kansas. He joined Walmart after proving his talents at a small trucking company after college. He worked his way up in the company — all other co-workers had the same opportunity. His arrival in the CEO position means Walmart believed he was the best candidate to steer the company. His success or failure meant Walmart’s progress or its demise. If he continued to succeed, the result was the enrichment of shareholders, workers, and all of Walmart’s customers. This is why he was paid so much more than a check-out clerk.

Society is under the very dangerous impression that companies operate in order to pay wages as charity to employees. Instead, the company exists to produce the service of providing products to millions of people at low prices. It is not a charity. If socialist commentators believe Walmart (and other companies) should pay wages mostly to support the poor, why don’t they start their own corporations that do just that? The reason they don’t is that they cannot think of a product or service they would produce that 1) will enable their business to grow from a small one to a large one so that millions can be hired, and 2) will be profitable, enabling them to stay in business. If they could, and they did start a business, they could not pay higher-than-market wages very long or they would go out of business.¹⁷⁴ I would argue that since socialists abhor profits and do not care if a company incurs losses, they should tolerate their socialist company incurring losses in the name of the poor — they themselves should incur financial losses so that others — the workers — will incur financial gain. But they will not do this. Why? Because they are not willing to lose their own wealth in order to pay higher wages — they instead want others (businesses’ shareholders) to lose theirs.

Walmart Sells Cheap Products from Red China

And what of the accusation that Walmart sells cheap things from a communist country? It should first be understood that low-cost does not necessarily mean cheap. Walmart offers most of the same things as do many other stores that don’t elicit the same negative attention, but they do so by offering lower prices than other stores can achieve.

I once heard an anti-Walmart accusation that Walmart chose, indiscriminately, not to do business with a particular jeans company, thus causing it to go out of business. Upon researching the matter, I learned the real story. This particular company’s jeans were indeed rejected by Walmart because their costs resulted in a price point that was too expensive for Walmart’s customers. The jeans company did not, however, go out of business. They went back and found ways to reduce their operating costs in order to lower the cost of manufacturing the jeans, after which Walmart indeed took them on as a supplier. The jeans company CEO later stated that the high quality and low-price threshold Walmart demands has made his company more efficient and competitive, and that he was thankful for that.

As for the fact that many goods come from China, so what? Many of our goods in this country come from China, whether purchased from Walmart or from other stores. There is nothing wrong with this. Trade is a positive thing and benefits every country involved in it (as long as trade is not manipulated by governments with restrictions, tariffs, subsidies, etc., so as to make its costs greater than its benefits). It is to our advantage to buy from China.

The fact that China is officially communist means nothing, because they act more capitalistic than communistic. Similarly, the west is supposed to be capitalistic, but we are in reality far from it, and we inch down the spectrum towards the other end where communism lies with every year that passes. We will soon meet China in the middle of that spectrum, and they will likely pass us to become more capitalistic than we are. Actually, since China is clearly advancing economically, since they are creating more capital than is being destroyed or deteriorated, and we are not, they must in fact already be more capitalistic than we are. Engaging in trade with China helps it realize the benefits from trade and from capitalism, and helps slide them up that spectrum towards freedom. From the trade that results, we both become wealthier.

Walmart’s Lacking Healthcare Coverage

It is no secret that Walmart does not provide as extensive a healthcare program as do many other companies. For example, Wake-upwalmart.com, an anti-Walmart site, states that Walmart’s insurance covers only 43 percent of its employees, while the average large company (over 200 people) covers 66 percent of employees. Essentially, from every angle, Walmart’s healthcare is lacking.

Once again, the primary mistake is the assumption that Walmart exists in order to take care of its employees. It does not; and if it tried to, it would be out of business and the employees would be on the street. For various reasons, companies have many government incentives to provide healthcare (covering on average 76 percent of healthcare costs) for their employees. Many firms take advantage of the incentives to different degrees. One employer might offer a particular pay and benefits package; another might offer a different one. For whatever reason, Walmart has determined that it can be more competitive by offering less in the area of healthcare (which allows them to hire more workers, among other things). This is their right. It is not a right of employees — of any company — to have others pay their expenses.

More importantly, the complaints against Walmart’s not handing out more healthcare money miss the bigger healthcare point. That is that healthcare is such a burden on our lives to begin with, not because of companies, but because of socialized markets, as we saw in Chapter 4. If we had a free market in healthcare, we would not need to make companies and the richer taxpayers pay our bills; healthcare costs would be just another service we would pay reasonable prices for out of our paychecks. We need to place blame at the root of the problem, not at the various ways people or companies react to the problems caused by our politicians.

Walmart Is Too Big and Powerful

Walmart’s critics are obsessed with the idea of “corporate greed,” and they have made Walmart their poster child. When they look at the amount of combined wealth that a large business has in comparison to individuals, they shudder. They believe that Walmart uses this wealth immorally to benefit itself at the expense of the rest of society. They do not realize that Walmart’s wealth, or any company’s wealth, is either in its operations, through which it is supplying goods and services to consumers and paying wages to employees, or that the wealth has been partially returned to its owners (having been paid out in dividends), most of whom are normal individuals like you and me, and who are spending the money in their communities.

As supposedly big and powerful as Walmart is, it could be broken tomorrow should we Walmart customers learn that there is a better alternative. Kmart started the very same year as Walmart, but has been less successful in providing a quality product at good prices. It therefore shrank, closed stores, went bankrupt, and was eventually acquired by Sears. Woolworth’s, one of the largest department stores in the world for most of the last century, failed to compete effectively and went out of business in the U.S.¹⁷⁵ The very same thing can happen to Walmart if it doesn’t continue staying ahead of the value curve. Walmart’s competitors are trying daily to overtake it; one day they probably will. Even if Walmart were the only discount store, we would have nothing to fear as long as competitors were not prevented by governments from entering the industry. If Walmart’s prices rose or if its quality diminished, other firms or private entrepreneurs would enter the industry to take away its revenues. It is competition that keeps Walmart both successful and benign. Regardless of its size, the company has no way of harming us; instead, it is we consumers who could harm it (given relatively free markets in the retail industry).

In other countries, the most successful and popular firms in their industries are often criticized just as Walmart is here. In Greece, for example, a successful retail store called Hondos Center is hated by some for the fact that it drives out competitors and pays low wages. People everywhere mistake the pleasing of consumers and the employment of workers for the manipulation of consumers, sabotaging of competitors, and the exploitation of workers — often intentionally.

What’s surprising about the “big and powerful” argument is that those who fear Walmart do not instead fear the government. While Walmart has many competitors, the government is a monopoly, and one that has the power to prevent others from competing with it. While Walmart has no ability to use physical force over employees or customers, the government does, and it actively takes advantage of this ability. Walmart can only charge at or below market prices, while the government charges virtually whatever prices it wants to (taxes, fees, inflation, etc.). It physically forces us to pay for what we did not choose to buy (if we fail to pay, police will show up at our door with guns and handcuffs). The government literally steals from us and forces us to do what it wants. The government arbitrarily sets the rules of the game. Yet most in society want the government to “protect” us against companies that cannot harm us in any way, and that have competition biting at their heels, restraining them from charging us too much or paying workers too little. Society chooses monopolies and coercion over competitive markets and freedom.

Survival of the Fittest or Unfittest?

The companies that operate most efficiently and provide the greatest value to their customers are the ones most hated by the leftists (and many rightists, too). They are hated precisely because of the fact that they have grown large — and supposedly powerful — by being successful in bringing to society the highest quality products at the lowest prices. They are hated because a majority of people like what these companies offer them. What is to be hated about this? Nothing! But the socialist critics — including left-wing economists — can’t stand to see that capitalism is successful because they simply feel on some emotional level that socialism is somehow the morally right choice.

What the critics of capitalism fail to understand are the true relations of economic cause and effect in free markets and how they result in helping every single group in society, especially the poor. Economic science is complicated and poorly understood by most people. Therefore, when propagandists use (fallacious) economics as a tool to give them the cloak of credibility, most everyday people fall for the propaganda.

As Paul Kirklin writes:¹⁷⁶

The... critics’ understanding of economics isn’t much better than could be expected of a small child. They are incapable of seeing anything except the most direct effects of an action or policy in the short-term. If a child sees something he wants, he takes it, and so do... critics. Never mind if this causes destruction and decline in the long-term for the economic system as a whole and unemployment and impoverishment for those they are allegedly trying to help.

This also leaves wealth-creating executives faced not only with the tough job of running a large company in a very competitive marketplace, but also simultaneously having to fight rear-guard actions against armies of saboteurs and their naïve followers.

The result of the saboteurs’ efforts is precisely to bring about the very conditions they are supposedly trying to prevent. The policies they promote to fight unemployment actually cause unemployment. The ways they seek to prevent the wage earner from being impoverished lowers wages instead of raising them. The tactics they use to prevent companies from harming society are instead what allow them to do just that.

In sum, only by acting with a correct understanding of what conditions facilitate profitable relations among companies, workers, and society — i.e., by limiting, and preferably eliminating, government intrusions into markets — can we avoid economic stagnation and decline that currently menace us in every sector of the economy. We must understand that corporations are not evil, but instead are the true benefactors of the general public, even if their actions are only self-serving. Their innovation, commitment, and investment in capital and time, have brought us — all of us — the myriad conveniences and pleasures of modern life, and will continue to do so to an even greater extent in the future if we let them. But government regulations and other ill-conceived intrusions into the marketplace have diminished, and risk disabling irreversibly, this marvelous engine of progress.