Most economists admit that business serves socially valuable functions. When I express earnest appreciation for business, however, my peers usually respond by mocking Ayn Rand. The sarcasm sings: “Oh, those heroic entrepreneurs!” When people selflessly toil for below-market pay, most economists eagerly endorse approbation. If you don’t earn your marginal product in dollars, applause can nudge the world in the direction of optimality. But why on Earth should we supplement businesses’ pecuniary rewards with our smiles and applause?
Rather than reiterate my controversial case for business, let me share two arguments with broader appeal. Why should we fawn over businesspeople who already earn their marginal product? Because in the real world, they usually don’t earn their marginal product!
First, almost all businesses pay taxes.* At the margin, then, they produce more value than they earn. So why not mitigate this disincentive with some gratitude? Imagine a world where the government annually thanked its biggest corporate taxpayers at a gala dinner. Is it possible that this would attract more talent – and less materialistic talent – into the business world? In the long-run, moreover, it doesn’t matter if the taxes are marginal or fixed; marginal taxes discourage marginal production, while fixed taxes discourage entry.
Second, almost all businesses are imperfectly competitive: monopoly, oligopoly, monopolistic competition… take your pick. At the margin, these imperfectly competitive firms produce more value than they earn; tax wedges and monopoly wedges both yield deadweight costs. And once again, public approval for business helps mitigate this waste. The more a firm produces, the more we should cheer. And even if this doesn’t make individual firms produce more, it spurs entry.
Are my proposed elasticities big enough to worry about? I think so. I meet lots of talented people. Almost all of them care about more than money. Some consciously crave social approval. Others seek personal meaning; but this, too, partly depends on the life choices their society chooses to lionize. If no one respects business, business has to rely solely on the efforts of the rare humans who do not crave respect. As long as we have taxes and imperfect competition, then, we have pragmatic reasons to show business – and hence businesspeople – some love.
P.S. Did I mention that gratitude also feels good for the giver, making it an almost magically cheap way to reward others for their service?
* The leading exception is non-profits, which most of us hold in far higher regard than conventional profit-seeking business.
READER COMMENTS
Peter Raasch
Oct 2 2018 at 4:21pm
One example for this is the business model of Unity 3d and Unreal engine (game programming engines), which you could view as a tax system: The engines are the institutions that tax you once you make money off their product (~companies using countries as their opportunity to make money). They avoid the entry barrier: free for non-commercial (benign business) and below a certain revenue (small business). They then take fix % cuts (not progressive) from successful businesses. They do thank their business partners via promotion and contests.
The environment is comparable to the state providing infrastructure (~streets, work force education): Engine makers suffer substantial research & development cost (keeping up with 3d rendering tech etc.) and supply support for different programming languages and advertisement partnership & implementations.
Scott Sumner
Oct 2 2018 at 5:21pm
I’d like to see us show business less hate. But if we show them love, I worry that business will use this extra popularity to engage in rent seeking. People do have love for one type of business—farming. And farmers abuse this public support by engaging in lots of rent seeking. Doctors might be a second example.
TMC
Oct 4 2018 at 6:13pm
Good examples
Bradley K. Hobbs
Oct 5 2018 at 11:37am
I agree – farmers are an excellent example. Are non-profits also in that category? They still cover all expenses or go away last I checked.
BC
Oct 2 2018 at 9:29pm
“Imagine a world where the government annually thanked its biggest corporate taxpayers at a gala dinner.”
Charities typically thank their donors profusely, if only with a nice thank-you letter. Government, almost never. The reason is probably the same reason that businesses treat customers so much better than government treats constituents. Government collects taxes by force, and constituents also usually cannot choose alternative service providers. The involuntary nature of government seems to have a pervasive effect on its attitude towards both taxpayers and constituents.
If the President attends events for his largest campaign donors, the least he can do is invite the largest taxpayers to the White House for a visit.
Robert EV
Oct 4 2018 at 10:18am
I thanked the founder of the startup at which I’m working as a consultant as my second job for starting it.
It’s conceivable that I’d thank businesses I’d utilize (at online review places such as Yelp this theoretically happens all the time).
But why should anyone generically thank businesses?
What you’re saying isn’t going to ever happen (no one respecting business). And even if it did, there are enough people who crave autonomy that there will always be business founders.
Thaomas
Oct 4 2018 at 1:22pm
Concerning taxes, we should not be taxing business income at all. It is a very imperfect way of progressively taxing consumption.
I confess not to understand how the fact that some businesses operate in monopsony labor markets (and therefore do not produce at the welfare maximizing point) should make us grateful to them. I agree that it is silly to condemn them for maximizing profit, but the deserve no special gratitude.
Bradley K. Hobbs
Oct 5 2018 at 11:36am
I’ve always wondered why the non-profit tax designation confers some unquestionable honorableness. The “causes” are often good but so are my haircuts and iPhone.
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