January 30, 2009 5:52PM

Big Business and the Stimulus

I was asked by a radio host more than once this week what I thought of the fact that some big business leaders were standing by President Obama in his pursuit of the gargantuan “stimulus” package. There is an unfortunate public perception that supporters of free markets are knee‐​jerk supporters of anything that could be perceived as benefiting “big business.” As the thinking apparently goes, because free marketers favor business, and members of the business community favor the stimulus, shouldn’t free marketers therefore favor the stimulus?

Hardly. In his book, The Myth of the Robber Barons, historian Burton Folsom differentiates between market entrepreneurs and political entrepreneurs:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

This afternoon I was forwarded an article regarding IBM chairman and CEO Sam Palmisano’s public endorsement of the “stimulus” package alongside President Obama. According to Palmisano, “We need to reignite growth in our country. We need to undertake projects that actually will create jobs.” 

But as the reporter noted:

Since November, Palmisano has been making a pitch to Obama’s transition team that investing $30 billion in expanding rural broadband access, computerizing health‐​care records and improving the electrical grid could create 949,000 U.S. jobs. [ The stimulus package] could also create billions in revenue for Big Blue, which specializes in the technology and services used for health‐​care IT and smart‐​grid infrastructure, not to mention its recent $9.6 million contract to provide broadband service in rural America.

What we see here is IBM as the political entrepreneur. 

While IBM would stand to make a killing on the “stimulus,” those companies unlucky enough to be left off the government gravy train, the market entrepreneurs, will get stuck partially financing the profligacy. According to Chris Edwards, “The U.S. statutory [corporate income tax] rate is the second highest of the 30 nations in the Organization for Economic Cooperation and Development, and by one estimate, the effective rate is the highest.” Of course, corporate taxes mean bad news for consumers, employees, and investors — not just the corporate owners, as many forget (or ignore).