David R. Henderson  

Oops. My Mistake

I Love Capitalism, Again... Influential Books...

Commenters on my post last night pointed out something I had not been aware of: the special treatment local governments give Bass Pro Shops to set up. It turns out that the store I went to in Manteca last night is no exception. A little snooping around the web turned up the following. It does appear that the store in Manteca gets special tax treatment. Now, a tax rebate is not the same as a subsidy--although it has very similar economic effects--but, still, it's dangerous for local government to have the power to say that some firms don't get a rebate and some do. It essentially makes local government planners into central planners. They already are, I know, but this makes it more so.

In response to one of the comments, I do mean by "capitalism" a system of free markets with respect for private property, contract, etc. What I saw in Manteca was not capitalism, at least not the kind I advocate.

I'm aware of my friend Sheldon Richman's attempt to get us to replace the word "capitalism" with "free market." Like co-blogger Bryan, though, I'm not sure that this is a battle worth joining.

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COMMENTS (13 to date)
Ted Craig writes:

While that's true, the position of some commenters that this is an evil plan by fat cat politicians and businessmen to screw over the common man remains somewhat off-base.

Joey Donuts writes:

You must think that your and your readers' time has little value. I'm sure you would find value in using terms that have clarity. Perhaps you would find enough value to make joining the battle worth your while.

Tom West writes:

it's dangerous for local government to have the power to say that some firms don't get a rebate and some do.

While I quite agree with the sentiment (the practice is easily corrupted), isn't this tactic usually exercised in the same manner as the standard commercial tactic of price discrimination? i.e. you only subsidize the businesses that you would not get at the standard price.

Andrew writes:

I'm a pretty hardcore Libertarian, but actually don't have too much of a problem with a community giving incentives for some businesses and disincentives for others.

For example, I love strip clubs, but don't want them a block from my house. :)

On the incentive side, it would make sense to give a subsidy to the businesses you as a community feel will add value to your homes. Maybe you think that if Microsoft set up a branch near where you live, that would increase the value of your homes and create better jobs. If it did, who better to subsidize than the local community?

And I do understand the potential moral hazard of giving that power to government officials, even local ones, but it may just be one of those necessary evils that makes your local town / city more competitive and more valuable in the global market.

Ted Craig writes:

The tax structure already creates this type of planning. Most municipalities would rather have a Bass Pro Shop than other types of business because they'll get more money back from the state. You just see the subsidies.

Sheldon Richman writes:

There's no battle to join, because it's already over. I'm just acknowledging that fact. Most people do not use "capitalism" to mean strictly free markets. They use it to mean de jure private ownership with some degree of government intervention.

Jim writes:

The selective tax rebates you cite are a relatively minor issue. They do distort economic incentives but don't create the kind of injustice as do direct wealth transfers such as tax funded development financing (which was used to develop the Manteca site) or eminent domain (which businesses such as Pro Bass Shop routinely benefit from).

What you saw in Manteca may not be the capitalism that you advocate, but it is the capitalism that is widely practiced in the real world and how the term "capitalism" is commonly understood. The common usage association of the term "capitalism" with collusion between big business and big government to exploit everyone else is well documented by survey evidence.

So when you write, "I love capitalism.", you should expect that most people will understand this to be an endorsement of big business and government getting togetheter to rip-off taxpayers, consumers, workers, and small-time investors. It's all the more problematic that this is exactly what is occuring in the example used in the original post.

I applaud you for retracting your endorsement.

Ted Craig writes:

Wait a minute. I personally don't agree with tax subsidies of this type, but to make these blanket class warfare statements is absurd. Taxpayers benefit because of the increase in sales tax revenue for their community, workers benefit because they get jobs and consumers benefit with low prices and high selection. The may not benefit as much as the business owners, but to claim exploitation is an exaggeration. And these are relatively small governments making these decisions, not big governments. Manteca only has a population of about 66,000.

Carl The EconGuy writes:

David recently had a post about bargaining, and endorsed it heartily. So, if Bass can bargain a better deal from local govts because of the amenities they offer the community, what's to complain about? It's called price discrimination, right? These doesn't seem to be anything secret about the Bass deals, so there's nothing corrupt about it.

Bob Layson writes:

Might have more luck replacing 'capitalism' with 'free enterprise' but I'm afraid the socialist baby will cry if it can't cling to its familiar rattle. Ah, diddums.

Jim writes:

Of course some people benefit from these arrangements, at the expense of others. Redistibution of wealth and income always has beneficiaries. Here, the beneficiaries are Bass Pro Shop and those who transact business with them. The victims are all the taxpayers who have been forced to subsidize the development of the site and the sales tax exemption for the store.

It's self-contradictory to claim 1) that the Bass Pro Shop in Manteca is a shining example of capitalism and also 2) that capitalism does not involve the systematic redistribution of wealth and income by government from an exploited victim class to a favored beneficiary class.

David avoids this contradiction by denying 1). The common usage meaning of the term "capitalism", denies 2).

Ted Craig writes:

Bass has a tax sharing agreement with the city, but not for 100% of sales taxes. Plus, it's an anchor for a retail development. Again, it's all about generating sales tax for these cities.

Again, let's stick to facts rather than political rhetoric. Let's try to avoid the word "victims," and have a realistic debate.

Ted Craig writes:

From the Manteca city manager's blog:

Instead we are seeing continuing drops in sales tax and property tax collections in most cities--Manteca is the exception to the rule due to Bass Pro, Costco, and a fairly robust single family construction market

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