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August 26, 2007
Ted Boettner
Book unleashes bad ideas
There has been a lot of discussion recently about a new book edited by West
Virginia University professor Russell Sobel titled “Unleashing Capitalism.” The
book argues that the best route toward economic growth in West Virginia is
through regressive tax cuts, abolishing unions and the minimum wage, tort reform
and limiting public investment. These arguments may appeal to the uninformed but
reflect a profound misunderstanding of reality.
When it comes to business taxes, there is very little evidence that tax rates
affect where businesses choose to invest and locate. These taxes are a very
small fraction of the cost of doing business (accounting for less than 2 percent
of business expenses for the average corporation). They pale in comparison to
the costs of labor, energy and transportation. Additionally, according to recent
surveys, West Virginia’s business climate already ranks better than Ohio,
Maryland and Pennsylvania and is in the top 10 with business costs 14 percent
below the U.S. average. Moreover, research shows that when tax cuts are paid for
by reducing public investments and services that businesses need, economic
activity and job creation suffer as a result.
During the post-World War II decades (1949-1973), wages and benefits grew
significantly for typical workers even though we had higher tax rates on
corporations and high-income earners during that time. We also had a stronger
minimum wage and more union members during this period. Meanwhile, during the
last 30 years, in the name of economic development, policymakers have tended to
follow the route prescribed by Sobel. As a result, unions have seen their
numbers decrease, the minimum wage has weakened considerably, and wages for
typical workers have fallen almost a dollar per hour since 2005. Although the
economy was growing well during this period, the income gap between the wealthy
and average workers widened significantly despite workers working longer hours
and receiving fewer benefits.
Sobel’s book also argues that the economy would benefit from tort reform,
despite the fact that tort insurance, litigation and damage claims are lower now
as a share of the economy than 20 years ago. In fact, no one has proven that the
West Virginia legal system hurts business; it has just become part of the
conventional wisdom in the business community. Rather than being negative, the
ability to make a tort claim actually delivers many important benefits —
including compensation for being injured, deterrence of wrongdoing, and greater
investments in product innovation and safety.
At a time when the safety of our workplaces and even our children’s toys have
been compromised by corporations that place profit ahead of responsibility, we
need to maintain reasonable government oversight and ensure that corporations
are held accountable for their actions. Undermining these important protections
for our workers and especially for our children in order to “Unleash Capitalism”
is both irresponsible and dangerous.
Finally, reducing public investments is another risky proposition. Public
investment is instrumental in creating strong, long-term economic growth through
areas such as research and development. Without government funding, many of the
products and services we depend on for our way of life would not exist,
including the Internet, computers, jet aircraft, many prescription drugs,
microwave ovens, storm windows and medical technology that saves lives.
Moreover, public investment in education doesn’t stifle economic growth when it
helps workers gain the skills they need to find good jobs and supply businesses
with a high-quality work force. In fact, nothing is more attractive to
businesses than an educated work force. The importance of investment in
infrastructure becomes painfully obvious when a bridge collapses and people are
killed.
The policies advocated in “Unleashing Capitalism” are ideologically tilted to
further enrich the wealthy at the expense of building and strengthening the
middle class. They are not based in the fundamental reality that the government
and market must work together to spur economic growth, expand economic and
personal security, and provide a broadly shared prosperity.
Boettner is a policy analyst for Mountain State Education & Research
Foundation in Charleston.
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