Going into Fourth of July weekend, a friend who has helped raise capital for privately owned businesses – and a couple of public companies – offered his theory about why capital isn’t flowing into enterprises that could reignite our economy.
There’s “plenty of money” sitting in private equity funds and other investors’ stashes, this serial CXO and strategic thinker suggests. But people with the wherewithal to fund growth companies, mostly, aren’t taking the plunge right now.
The reason is the way investors feel about Washington, he opines. Not the place, but the US government’s massive extension of its legislative and regulatory reach. Government is seeking to govern so much more: new rules to prevent the next bubble or flash crash or oil spill, new agencies, health care mandates, too-big-to-fail bailouts, tougher penalties, stronger stimulus … public-sector stimulus.
And higher taxes to pay for it all. Bush-era tax rates will yield to higher rates. Revenue enhancement is in vogue. We’re even looking at the value-added tax.
But the worst part? “It’s the uncertainty” – not knowing what the rules of the game will be in one, two or three years. Washington is pressing its ongoing expansion of control in all areas of business – at a time when the economy is fragile.
So investing in a long-term way today means taking on risks of yet-unwritten mandates and so-far-incalculable costs from tomorrow’s “hope and change.”
Before long, this discussion begins to sound uniquely American: complaints from independent-minded business people against an overly ambitious government.
Which brings me around to one of my annual rituals: re-reading the Declaration of Independence around the Fourth of July. The words soar to rhetorical heights:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.
It’s a reminder of why we’re here – in America. And, apropos of my lunchtime conversation about the uncertainties of government on steroids, this time my eye catches on another line, one of the founders’ grievances against King George III:
He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.
No doubt some CEOs, CFOs and even investors feel a bit like that. We’re wondering how much this reform or that Act will eat out “our substance,” how ramped-up regulation will hinder access to credit and raise costs of capital, or what new taxes will come unbidden out of the Beltway.
Not suggesting a revolution – only that we need to give thought to capital formation, to investing and a climate that enhances confidence in the American system. We need investors to resume funding the small and mid-sized firms that, after all, must hire those unemployed workers and create real, sustainable growth.
The American way isn’t negotiated by politicians or codified in 2,000-page bills. It’s not put out for public comment in the Federal Register. Instead, it is thrashed out in the competitive, pressurized, sometimes Wild West openness of the market. The market-driven approach is what, once, put US business on top of the world.
Let’s keep in mind that the American way – still – is about freedom.
Have a great Fourth of July!