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Taking a long view on growth

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What is the best way to help an economy grow? Is it to help entrepreneurs and businesses, or is it to help workers?

Congress broke for its holiday vacation last year without agreeing to a stimulus package for the economy. The fundamental disagreement came over whether to help business by reducing taxes or to help workers with extended unemployment benefits and other benefits.

I was recently in Argentina where the government is caught in the same debate. Argentina has been borrowing externally and helping its poor and workers with government programs. Their president resigned after Argentina was unable to pay its debts, and riots erupted over the current economic conditions.

Several years ago, the Symbionese Liberation Army (SLA) kidnaped Patty Hearst, the daughter of a wealthy businessman, to fight what they considered to be oppression of workers by business. As part of the ransom, they insisted that Patty's father give $2 million to buy food for the poor in Los Angeles.

I have often wondered what would have happened if instead the SLA had insisted that her father give the $2 million as a gift to businesses in return for building a new electronics plant in the poor area of Los Angeles, then hiring and training workers from that area to staff it. I believe that this alternative would have had greater impact on the lives of the poor than the food. The food eased their plight for a few days. The jobs could have taken care of them for a lifetime.

Of course, this alternative would be unthinkable to the SLA, which felt that business people were evil, greedy, capitalist pigs. Why would you want to help the enemy?

The problem with this logic is that for an economy to function in the long run, it must have capitalists to create the businesses that create the jobs that employ people. Government can create jobs, but history has shown that businesses run by governments do not innovate, become inefficient over time and eventually lose money.

The huge privatizations we've seen in recent years result from governments realizing that they can't afford to subsidize inefficient businesses.

Argentina improved the lives of its people in the short run with poverty programs. But the problem with debt is that it must be paid back. To do so, you must invest in assets that will generate cash in the future. This means assisting businesses that will invest in the plants and equipment that make the products and jobs that generate the cash.

One of the great ironies of economics is that governments that protect workers end up hurting them in the long run. I have seen the same story in many of the countries I have visited.

Governments establish laws preventing businesses from laying off or firing workers, forcing businesses to pay extensive worker benefits and creating better working environments. They also establish large bureaucracies to enforce these laws. These bureaucracies mandate extensive red tape and licensing procedures before entrepreneurs can start operations.

As a result, entrepreneurs simply do not start businesses, or they go elsewhere to places without so much bureaucracy. Unemployment rises and workers who have jobs need them so desperately that they are afraid to complain about working conditions. Employers have even greater power to exploit workers. The laws may provide short-term protection but actually hurt workers in the long-term.

Are entrepreneurs "evil, greedy, capitalist pigs" who exploit workers to get rich? Or are they heroes who create businesses that generate jobs that provide long-term economic benefits and improve standards of living? Your answer determines how you vote; how you vote determines the short- and long-term growth of the economy.


Hal Heaton is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.