In the ongoing debate of modern society, “free enterprise” is among the most widely used terms—often in service of contradictory arguments. Coupled with its frequency of use is a disturbing shallowness of understanding.
Rush Limbaugh recently offered the public dialogue his own personal definition of free enterprise, stating that it “means you’ve gotta do it yourself. Free enterprise means it’s up to you. Free enterprise means you’re on your own.”
More than a few Americans share this vague definition of a concept that is supposedly among the founding pillars of our economic system.
To unpack the talk radio behemoth’s statement a bit, there seems to be a reference to the well-entrenched fantasy of the noble American entrepreneur, rising above humble origins through innovation and elbow grease. Whenever a talking head references “job creators,” they are attempting to evoke this sympathetic image in the viewers’ mind.
But, truthfully, bootstraps ain’t what they used to be.
For a prospective entrepreneur, the central issue is start-up capital. Permits, IT systems, insurance, rent, employees, and perhaps even vehicles. Some corners can be trimmed, though little can generally be done about the cost of insurance, permits, and licenses.
Compromises can sometimes be made on location, lowering the rent. And marketing costs can vary widely, depending on quality demands and availability of resources. However, any business in a high-traffic location with sophisticated marketing materials is a good deal more likely to succeed than one in a less-than-ideal location with budget marketing.
People today are also more tight-fisted with their cash than in years past, so it can be assumed that building a consistent clientele will take time. And since nobody starts as an expert from day one, a learning curve can be expected, and every mistake costs money. This requires fledgling captains of business to have savings sufficient to float themselves while building the company into a legitimate organization—disqualifying pretty much everybody you know.
The very wealthy in this country could unleash a torrent of start-ups, were they so inclined. But starting and operating a business can be hard, tedious work with unforgiving hours. The old way was for the investor to hire a capable manager to run the day-to-day operations of the company. Unfortunately, intense downward pressure on compensation has caused many qualified applicants to blink at the prospect of devoting their life energy to swelling the bank account of someone who often barely understands the business.
Circumstances are even less encouraging for the retail employee or restaurant server dreaming of someday gracing the cover of Fortune magazine. The same downward pressure that has eroded management compensation has absolutely demolished worker paychecks, making it virtually impossible to save the requisite start-up capital “on your own.”
The two options remaining for the humble entrepreneur are far from promising. A small business loan may be obtained, but banks are notoriously hesitant to slice their capital balances these days. Preference is given to established businesses seeking to expand operations and if the bank does consider someone for a new business loan, the asset and credit requirements exclude most working people.
The final option, short of knocking over a bank or three, is to connect with a private venture capitalist who has the wherewithal and desire to fund the start-up. This is beneficial for someone in need of capital who doesn’t meet the banks’ requirements, however caveats apply.
A venture capitalist generally doesn’t like to throw money away, and will seek a return on investment as ironclad as legally possible. Also, given the economic realities of the day, investment dollars are significantly scarcer and investors are that much more selective with their decisions.
All of this assumes, of course, the entrepreneur is able to avoid the dozens of scams and red herrings that exist to harvest money from the credulous and gullible—invention patent services advertised on late night cable, for instance.
In an economic system truly functioning under “free enterprise,” any company operating inefficiently should be challenged—and possibly replaced—by one with a better business model and product. All across this nation, there are intelligent and creative people who could build a better mousetrap, so to speak.
But without practical access to start-up capital, their ideas remain speculation, and companies are able to get by with shoddy business practices and substandard product quality because the obstacles to potential competition are so formidable.
And thanks to the miracle of modern campaign finance and political lobbying, shrewd companies can forgo costly improvements by investing in legislation that further protects their position in the marketplace.
Clear Channel, the company that signs Limbaugh’s paychecks, obtained market dominance with the Telecommunications Act Of 1996—which removed all limits on how many stations one company could own nationally. Acquiring as many radio stations, venues, and advertising outlets as possible, Clear Channel made effective use of their size and reach to squeeze existing competition out of the marketplace and prevent new competition from having a seat at the table.
This despite the fact that the consumers of radio broadcasting largely agreed that the product offered by Clear Channel was of far lesser quality.
In a system of actual “free enterprise,” Mr. Limbaugh’s employers would have found their rise to dominance much more challenging, if not downright impossible.