Unleash Capitalism

Capitalism today is in chains, allowed to perform many social functions, but held back from realizing its full potential. Any nation on Earth could get a lot richer than its rivals, if only it would unleash capitalism’s full power. You might think that nations limit capitalism to protect non-capitalists, like workers or children. But in fact, in many cases nations refuse to get rich to protect some capitalists from other capitalists.

For example, there are two key “5% rules” that mainly protect capitalists, though their advocates often try to insinuate otherwise.

The first rule is a “5% payout rule”. Private foundations in the U.S must spend at least 5% of their assets every year, to prevent them from accumulating assets over time. There are related rules in other nations, and for other kinds of orgs. And related rules for bequests limiting what they can fund. Without such rules, orgs might just reinvest all their assets and grow over time. Then as long as rates of return on investment remained higher than economic growth rates, such orgs would increase their ownership share of the economy.

Eventually such orgs would end up owning so much capital that they’d increase the total amount of capital in the world economy, and drive rates of return on capital down toward economic growth rates, which would be higher at least for a while. Effected nations, and the world, would get richer, with everyone able to buy valuable stuff for cheaper. Which is only bad for other capitalists; facing more competition for their capital, they’d make less money from it.

The second rule is a “5% disclosure rule”. When a “raider” buys 5% of the stock of a public firm, they must make a public declaration of this fact, allowing firm management to trigger “poison pills” that make it much harder for that raider to buy 50%+ of the stock, to take control of the firm. Typically this forces raiders to pay about twice as much to buy a firm. Discouraging those who see badly run firms from fixing them unless they think they could double firm value.

Although the firm managers who would lose their jobs in a takeover try to insinuate otherwise, on average raiders who buy firms don’t hurt employees, customers, suppliers, or partners. And over the long run such actions make affected nations richer. They just hurt previous managers, who I’d say count as “capitalists”.

Sure sometimes firms buying rival firms might be anti-competitive, and anti-trust authorities might want to limit that. But allowing that doesn’t at all require that we let firm managers artificially double firm prices. Authorities could instead review cases after a purchase, and require divestment in anti-competitive cases.

Making it easy to buy firms to improve them should be spectacularly powerful at increasing the efficiency of business and commerce. And allowing private foundations to reinvest all their assets could create a lot more capital. Both of which should make affected nations richer. And the only folks who’d be hurt, on average, are other capitalists. Do nation voters really want to protect their capitalists that badly?