Rent Seeking and Corporate Growth

These two thoughts are not necessarily related and we will see if I manage to do so.

The 1st article that stimulated this impulse to write was David Brooks column on how we have in National Politics a clash between the Democrats wanting to protect the social safety net (rent transfers to those in need) and the Republicans wanting to protect the tax cuts (maintenance of rent by those who have the income) in a time of constrained resource growth.  He goes on to point out that many of those of wealth want to protect the rent transfers that have been granted to them by the tax code and somehow counts 4,428 tweaks to the tax code over the last ten years.

Mr. Brooks goes on to point out that the Democrats need to find a way to frame this debate in a manner that gives voters a reason to believe in government.  Right now they are playing into the doubters of government by allowing the Republicans to create a dysfunctional government.

"Life is unfair. Republican venality unintentionally reinforces the conservative argument that government is corrupt. Democratic venality undermines the Democratic argument that Washington can be trusted to do good."


David B. goes on to write that President Obama needs to embrace policies that fix the government while improving its efficiency at delivering on its core purpose of safety (defense, judicial, regulation, infrastructure, social policy) and raising the revenue to pay for it in a fair efficient manner.  That sounds to me like Simpson-Bowles which I continue to advocate the President embrace and run with.


Separately, the American Banker wrote today about how banks need to worry less about growth and more about rewarding shareholders through efficient management of capital.  In other words, capital can be attracted to steady equity like returns paid out through dividends rather than trying to focus on redeploying capital to support growth and reward capital with higher EPS and a higher multiple.


Historically, companies have believed "grow or become irrelevant".  Well you do not want to be a buggy whip company or a Kodak, so you have to be ever vigilant about your product's continued viability and your ability to generate products that someone will want to buy.  But that does not mean you should try to grow for the sake of growth alone.  Growth needs a solid base that does not create risks that are overlooked or cannot be managed.  Since the developed world is going to be growing slowly for the foreseeable future, companies need to be balanced in what they do.  Spend on RnD, invest in things that will generate growth or at least maintain market share, but do not seek growth that creates a inordinate risk that ROE will not be able to be maintained.


Individuals and corporations need to live within their means.  Government's can borrow up to a point but need to be aware of where that point is and be sure the expenditures are maintained within fair levels of tax rates and fair structures of tax incentives.  The political process can only discuss that if the President makes the case to frame the issue.  You can have guns and butter only if you pay for them both.  Bush II did not pay for the guns, and President Obama could not as the housing bubble burst demanded Keynesian Economic Policy.  Since then, the President has not framed the issue correctly as Simpson-Bowles did so well.