Charles Koch, chairman of the board and CEO of Wichita-based Koch Industries, contributes the following article on the importance of economic freedom and the harm of cronyism. Another article written by him on this topic is Charles Koch: Why Koch Industries is speaking out. Koch is also the author of the book The Science of Success: How Market-Based Management Built the World’s Largest Private Company. More about the importance of economic freedom may be found at www.economicfreedom.org, a project of the Charles Koch Institute, and also at Perspectives.
In 1990, the year before the collapse of the Soviet Union, I attended an economic conference in Moscow.
Like my father during his visits to the U.S.S.R. in the early 1930s, I was astonished and appalled by what I saw.
Simple necessities, such as toilet paper, were in short supply. In fact, there was none at all in the airport bathroom stalls for fear it would be stolen. Visitors using the facilities had to request a portion of tissue from an attendant beforehand.
When I walked into one of Moscow’s giant department stores, there was next to nothing on the shelves. For those shoppers who were lucky enough to find something they actually wanted to buy, the purchase process was maddening and time-consuming.
Although the government provided universal healthcare, I never met anyone who wanted to stay in a Soviet hospital. Medical services might have been “free,” but the quality of care was notoriously poor.
My experiences in the Soviet Union underscore why economic freedom is so important for all of us.
Nations with the greatest degree of economic freedom tend to have citizens who are much better off in every way.
No centralized government, no matter how big, how smart or how powerful, can effectively and efficiently control much of society in a beneficial way. On the contrary, big governments are inherently inefficient and harmful.
And yet, the tendency of our own government here in the U.S. has been to grow bigger and bigger, controlling more and more. This is why America keeps dropping in the annual ranking of economic freedom.
Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands. In the meantime, their initiative and self-respect are destroyed.
It was President Franklin Roosevelt who said: “Continued dependence on [government support] induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”
Businesses can become dependents, too. If your struggling car company wants a government bailout, you’ll probably have to build the government’s car — even if it’s a car very few people want to buy.
Repeatedly asking for government help undermines the foundations of society by destroying initiative and responsibility. It is also a fatal blow to efficiency and corrupts the political process.
When everyone gets something for nothing, soon no one will have anything, because no one will be producing anything.
Under the Soviet system, special traffic lanes were set aside for the sole use of officials in their limousines. This worsened driving conditions for everyone else, but those receiving favored treatment didn’t care.
Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.
Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.
After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.
Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us — customers and competitors alike — worse off.
One obvious example of this involves wind farms. Most cannot turn a profit without the costly subsidies the government provides. Meanwhile, consumers and taxpayers are forced to pay an average of five times more for wind-generated electricity.
We see far too many legislative proposals that would subsidize one form of energy over another, penalize certain emissions from one industry but not another, or place protective tariffs that hurt consumers.
Karl Marx famously said: “From each according to his abilities, to each according to his needs.”
The result of this approach is not equality, but rather a lowering of everyone’s standards to some minimal level.
Some people worry about the disparity of wealth in a system of economic freedom. What they don’t realize is that the same disparity exists in the least-free countries.
The difference is who is better off.
Under economic freedom, it is the people who do the best job of producing products and services that make people’s lives better.
On the other hand, in a system without economic freedom, the wealthiest are the tyrants who make people’s lives miserable.
As a result of this, the income of the poorest in the least-free countries is one-tenth of what it is in the freest.
Elected officials are often asked what they would like as their legacy. I’m never going to run for office, but I can tell you how I would answer that question.
I want my legacy to be greater freedom, greater prosperity and a better way of life for my family, our employees and all Americans. And I wish the same for every nation on earth.