by  via Mises

Ayn Rand’s novel Atlas Shrugged depicts a world where freedom and free markets are crushed by not-so-well-meaning politicians and bureaucrats. The story is a blueprint for the creation of a command economy where prices, wages, and production are dictated by bureaucratic apparatchiks. Like all regimes seeking autocratic power, the outcome, as she chillingly reveals, is cronyism, corruption, economic depression, and the rise of dictatorship.

The lesson of the book is that prosperity is driven by entrepreneurs and capital. And, you need freedom and free markets to achieve it. This system is called free market capitalism. Rand’s plot twist: what would happen if all the entrepreneurs, the drivers of a dynamic economy, went on strike. She takes the ideals of socialism, where business is dictated by government mandate “for the benefit of workers and the people”, to its logical, destructive end. The strike accelerates the collapse of society and the strikers re-emerge to rebuild society. It was a story that Rand knew well, being a Russian émigré fleeing Bolshevik terror.

Unfortunately, the book has become disturbingly prophetic.

One of the scenes in Rand’s book is the story of Twentieth Century Motors, a leading automobile manufacturer until the company was reorganized to be under control of the workers and operated for their benefit. Among other things, worker pay was not based on individual productivity but on “fairness” to accommodate workers’ needs. That “noble” idea drove the company into bankruptcy and failure. While this is fiction, history is awash with real world examples of this.

Enter Senator Elizabeth Warren and her proposed Accountable Capitalism Act . It is straight out of Atlas ShruggedShe proposes to regulate corporations with gross revenues of $1 billion or more, requiring them to obtain a federal corporate charter as a “United States corporation”. They would be regulated by a bureaucracy under the Office of United States Corporations. These corporations must be operated to “create a general public benefit” and must consider how its profit making activities affect not only their shareholders, but their employees, suppliers, “community and societal factors”, and the local and global environment. At least 40% of its board of directors must be elected by its workers. If they wish to support a political candidate, they must have approval of 75% of the board.

This is a proposed takeover of corporations by the government. It’s a power grab. It is the socialist path to hell. I say this based on the tenets, economics, and history of socialism.

You can imagine what the outcome would be. Vast new regulations would be drafted by the Office of United States Corporations defining in great detail what is the “public benefit.” The Office’s Director would be a “czar” with immense power over these corporations. Bureaucratic departments would be created to monitor corporate activity; an office of the Assistant Director for Public Benefit would inquire into and prohibit activities it deemed detrimental to “society”. These corporations would have to file annual compliance reports demonstrating their conformity to the regulations. A quasi-judicial hearing board would hear appeals from rulings by the Office. Lawyers specializing in the minutiae of Office canon would proliferate. Profit, the signal to companies that they are doing something right, would become less and less important as the “public benefit” would become the overriding concern. Unions, true to their nature, would demand more pay for their workers not based on worker productivity.

The economy would stagnate.

Senator Warren’s justifications for this law are based on economic fables that only Democratic Socialists and Progressives could naively and uncritically believe. She crafts a rationale that isn’t based on the historical record or current empirical data. But it does square with Progressive mythology.

Senator Warren has a fantasy of a corporate Golden Age where businesses were run not just for profit (a word always used in the pejorative by Progressives) but for the benefit of their workers and their communities and where income was distributed more fairly and not to just to line the pockets of their greedy executives and shareholders. That utopia never existed. Companies then and now operate to make a profit. The effect of profit then and now is that workers have good paying jobs and companies’ successes, payrolls, and taxes benefit their communities. We all benefit, just not in the ways Senator Warren wants.

There is another arc to the Atlas Shrugged plot that is about the cronyism and corruption surrounding the regime. In order to prop up failed economic policies, more and harsher regulations are imposed on businesses making it almost impossible to operate. The country sinks into economic depression. But, some regime-favored companies thrive because they bribed bureaucrats to get exemptions from regulations. Smoke-filled back-room deals are made to keep the regime and its cronies in power. It’s a who-ya-know kind of business. Rand describes the types of people on both sides of these transactions, people who could not normally succeed in life without the corrupt power to give and receive special favors.

The Trump Administration has imposed tariffs on steel and aluminum imports and also on certain goods imported from China . In both cases, the Administration announced a process whereby importers of these goods can obtain exemptions from these tariffs. And, anyone can file an objection to an application for an exemption.

The procedures for exemptions basically revolve around the issue of whether or not the same goods can be acquired from U.S. manufacturers, regardless of the cost. So, if your business’s financial structure is based on cheaper imported products, you must buy the more expensive American-made product even if you can’t afford it .

When the steel and aluminum tariffs were implemented, the Office of the U.S. Trade Representative which handles these exemption requests received 20,000 applications. So far they have granted only 42 exemptionsrequested by seven companies. American companies making more expensive products have vigorously opposed exemption requests to keep out cheaper foreign competition. For example, Bekaert, a manufacturer of steel wire, applied for an exemption. According to the New York Times ,

“Nucor, an American steel company that has supported the tariffs, argued against Bekaert’s request for an exclusion for wire rod that it uses to produce cord that goes in tires. Nucor said Bekaert had access to enough of the rod without requiring an exclusion.”

There was no consideration of what the cost to Bekaert would be, but obviously Nucor’s wire rod will be more expensive. What that means is that American tire manufacturers will have to pay more for wire cord thus increasing the cost of tires which in turn will be passed on to consumers. This will result in consumers having less money to spend on other things. Or, American tire manufacturers might lose business to cheaper imported tires resulting in layoffs. Or, Bekaert eats the tariffs, becoming less profitable resulting in layoffs. We all lose. Except Nucor, of course. There are 320 million of us and 25,000 of them. So much for “fairness”. It should be noted that John Ferriola, the president of Nucor , was sitting on President Trump’s right when the steel tariffs were announced. Perhaps he should have told the president about his plant in Mexico.

It seems that the Trump Administration has spawned the Wesley Mouches and Orren Boyles of Rand’s fabled novel. Whether it’s pull or pleading, the guys with the most clout with the Administration will win favors. And that is wrong.

The story Rand tells in Atlas Shrugged is not just fiction, it is played out every day in countries flirting withsocialism and it is being played out here. American history has always been a delicate balance between the simplistic appeal of socialist utopia and the individualism of free market capitalism. We came to a tipping point with Franklin Roosevelt’s New Deal, but pulled back from that brink, thanks mainly to Constitutional protections of private property. We seem to be testing that balance again. One would think we would learn from history and economics, but we don’t.

Originally published at An Independent Mind.


Jeffrey Harding is a real estate investor in Santa Barbara, California. He currently writes at An Independent Mind. His articles have beencited, republished, or linked to by popular investor sites such as Zero Hedge, Seeking Alpha, and Minyanville, as well as media sites such as Huffington Post, Real Clear Politics, Real Clear Markets, Wall Street Journal, MarketWatch, Business Insider, Yahoo! Finance, The Street, and Forbes.com. He has also appeared on Fox Business News and NPR’s Marketplace Money. He currently is an adjunct professor at Santa Barbara City College where he teaches real estate investment.

This article was originally published at the Mises Institute. Read the original article.

Reprinted under Creative Commons Attribution 4.0 International license.

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