By Michael Kleen ~ Published June 12, 2012 at the Rock River Times
Recently, China’s new premier, Li Keqiang, signaled a major policy shift when he announced that his communist government will reduce state intervention in the marketplace and give competition among private businesses a larger role in the economy.
“The market is the creator of social wealth and the wellspring of self-sustaining economic development,” Li said. He argued that reducing government’s role in the economy would unleash his country’s creative energies after a period of slowing economic growth.
It is an encouraging sign that a new generation of Chinese leadership is embracing private enterprise and entrepreneurship as engines of economic growth and prosperity. According to the 2013 Index of Economic Freedom, government spending in China currently accounts for 23.6 percent of their Gross Domestic Product (GDP), as opposed to 41.7 percent in the United States.
China began its current economic reforms shortly after England returned control of Hong Kong in 1997. The ruling class in China could see the robust economy and standard of living enjoyed by the residents of that city under capitalism. In 1998, China began to sell, merge, or close many of its state-owned enterprises.
Here in Rockford, as at the national level, we seem to be headed in the opposite direction. Our local leadership has responded to decades of economic stagnation with increased governmental control and intervention in the economy. The result has been growing poverty and dependably high unemployment. According to US Census data, there are four times more people living in poverty in Rockford today than there were ten years ago.
Rather than focus on making Rockford more attractive to private investment by lowering taxes and fees and removing hurdles to business growth, our local political leaders have proposed higher taxes and fees, more regulations, and more public projects. Raising the hotel tax and turning the former Ingersoll factory building into another publicly owned indoor sports complex is just the latest example.
If Premier Li Keqiang is correct, and private investment is the key to increasing wealth and self-sustaining economic development, how will another publicly-owned and operated entity help revitalize Rockford’s economy? The short answer is, it will not.
In a free market economy, large businesses (like sports complexes) are created when individuals get together and combine resources because they hope to profit off a need or demand. They may even form a corporation and sell stock, or borrow money from a bank to raise money for their project. If the business succeeds, everyone makes a profit. If it fails, the money they invested will be lost.
Because of this individual risk, great care is taken to make sure there is a demand for their service or product, that they have the right location, experienced management, etc. Even with a dozen different factors taken into consideration, there is a high probability of failure. The businesses that succeed will do so as a result of careful planning, a lot of hard work, and a little bit of luck.
When government creates a business, it levies taxes from the public to fund the project, or redirects public funds already devoted to other governmental operations. Because a government can simply raise taxes to cover its losses, it is not as concerned about losing money as a result of incompetent management, poor planning, or insufficient public demand. The BMO Harris Bank Center (formerly known as the MetroCenter), for example, loses money nearly every year and would have gone out of business a long time ago if the City of Rockford weren’t spending tax dollars to keep it afloat. For this reason, it is very difficult for a privately owned business to compete with a publicly owned business.
So as public ownership of business expands, private ownership shrinks. This would be the case if the businesses in question were grocery stores, restaurants, theaters, event venues, or anything else. Why would a businessman open a new sports venue in the Rockford region, when he or she would be competing with what will amount to a governmental monopoly on sports venues? Rather than acting as a competitor and making it more difficult for potential businesses, our local government should be rushing to get out of their way.
The irony should not be lost on us that while the People’s Republic of China is moving closer to a free market system, we are moving further away. It took courage for Premier Li Keqiang to recognize that entrepreneurship and free enterprise—not government—is the source of economic growth and development. When will our local public officials do the same?