November 30, 2012

Inventions, Employees, Consumers, Business Creation and Expansion: Lesson from Business History

And applied correctly with “You cannot dip in the same river twice!”

The importance of competition and new business formation:
Today's worker, homegrown and immigrant, is tomorrow's maker; and Work income is Competitive and New Vista Capital-in-formation.

I just had a chance to watch The History Channel program: “The Men Who Made America”. It was about business tycoons that played in the turf called America and, in the process, made it what it became – the most thriving and exciting economy in the World. These businessmen: the JP Morgans, the Rockefellers, the Carnegies and the Fords worked intently even as their companies faced antitrust suits and sometimes got broken up, even under what would be called today as confiscatory taxation, and the like. What drove them even in such an environment?

As one can see through the program, the business success of these men was built on new discoveries and Inventions occurring in America: Electricity, Automobiles, Electric Lamps, and so on. The employees they hired to produce their business item became consumers of someone else’s product. In the process, Americans became recruits into the working middle class. These tycoons expanded through times when they could hoist their chosen men into political office and when they could not, when they had a Gov that caressed them and when it checked the power of their companies, when there was no Income Tax and yet when there was, and very high at that.

Firstly, why they accepted high taxes? Perhaps they understood that society needs to glue together to some point for them to have a nation and market in which to sell and be important and powerful.

Not to deny the motivational aspect of a low tax system, but the most important thing that drives investment and business expansion or creation is a desire to be important and wealthy in the economy and the excitement of creating new customers for one’s product.

But the above have come full circle now. The population of American consumers is not expanding as much, most are already out of poverty and businesses have run out of ideas for new products. Other economies now provide that opportunity that America provided before – of finding new recruits and customers, and win new territory.

America is no longer the place for existing businesses to do more of the past because “you cannot dip in the same river twice”. Cutting Corporate or investor taxes is hardly likely to help the matter, and if anything, even creation of future customers would be doomed when the younger generation and children do not get the nourishment that they need.

But there is also opportunity in “You cannot dip in the same river twice” in the light of its antiparticle: the history of business expansion in America. I see two dimensions that are important:

Increasing Population with natural Purchasing Power

The foremost lesson of history is that a business expands to conquer new customers that have the purchasing power to buy its products, or to produce and distribute products at lower price point and, again, conquer new customers that were not acquired before. So if the businesses run out of new conquests within an economy, they will go outside.
An important thing is that the purchasing power that they are trying to tap be natural. If it is largely welfare payments, the game loses its charm for the businessman. Stagnating America with restrictive policies wrt high income immigration is cross purpose to the imperative of increasing population with natural purchasing power, not to speak of losing out on innovations by ambitious immigrants.

New Business Formation

For a New business the entire market is fresh customers! Yet the contemporary American thought is sold out to existing businesses as job creators that are, in fact, domestically saturated wrt customers that can buy their stuff. Starting a new business, even running an existing one, can drown a person in compliance paperwork and navigating regulations that nobody can interpret with certainty. It produces rent for legal and financial instrument middlemen, and is a drag on the company and true entrepreneurs. Simplification of the legal steps to business launch is in order. There is much more hope from new businesses creating the next wave of real employment (not make believe clerical work created to placate the Gov for providing the entry barriers I just mentioned and the unending Corporate and Executive tax cuts and loopholes) than with existing businesses. And it is imperative to realize that today’s worker, in his head, is not a worker forever – he is looking at making a business tomorrow, especially if with his income he is able to save for it. It is neither a good idea to create entry barriers in business with legal complexities nor making work income the only source for Gov to raise the revenue that it needs for keeping the nation-market together and invest in the future working-consuming population. Also in order is freeing up the medium and high income, documented, immigrant from the clutch of the Visa sponsoring employer. Expedited Permanent Residence Scheme based on length of work done and taxes paid in the United States, and without employer sponsorship of the application, would be in order - like applying driver's license at the DMV.

There is fire in the belly of young workers, homegrown and immigrant, to go into business and be job creators. Make business launch and run simple, reduce work income taxes by merging all tax categories together; and make permanent residence-seek independent of employer sponsorship, to enable the young immigrant to launch businesses before he loses the fire forever awaiting the elusive green card tethered to the sponsoring employer.


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