Investors Business Daily (6/15) has an item on proposed legislation which would force the reduction of the interchange/discount fees which are charged by credit card companies to retailers. The legislation would “let merchants collectively negotiate take-it-or-leave-it fees with issuers”–something that would surely be a violation of the antitrust laws if not specifically enabled by legislation.
The proposal would be harmful to banks which are MasterCard and Visa issuers, but would be particularly harmful to American Express because of the way in which its business is structured. (Disclosure: I’m both an Amex shareholder and an Amex bondholder, although these positions do not represent a very substantial portion of my overall portfolio.)
What this legislation will do, if passed, is to transfer wealth/income from the investors, executives, and employees of American Express to the investors, executives, and employees of retail companies. If passed, if would reinforce again the growing impression that the most important single factor in the success or failure of an American business lies in the strength of its relationship with the politicians.
By itself, the harm done by this particular piece of legislation would be limited–but the collective harm done by dozens and dozens of similar political interventions will be devastating to our culture of wealth creation.
In his book Imagining India, entrepreneur Nandan Nilekani writes about the founding of his company (Infosys) and explains why the information technology sector was more successful in India than were many other types of business:
Since the government did not recognize us as a “conventional” business for a long time, their regulations did not hamper us, and we worked outside the controls that stifled companies in manufacturing and agriculture. We did not need the raw material–iron or coal, for instance–that required Indian firms to interface with the state-run companies that controlled these resources. And we did not have to build relationships with bureaucrats or make periodic visits to Delhi, so were were not drawn into the charmed circle of Indian companies whose relationsips with governments both benefited and constrained them.
My fear is that the vision of control possessed by Obama/Reid/Pelosi is so all-encompassing that there will be less and less room outside the “charmed circle” for true entrepreneurs to operate. And it is all happening much, much faster than I could have imagined.
Admission to the charmed circle will, of course, be controlled by educational credentials and political affinities. It will have little to do with talent, creativity, and demonstrated accomplishment. This destruction of American’s wealth-creation culture will have a very malign effect on growth and productivity–at precisely the point in time when we most need these things to overcome our debt burden and to deal with the Social Security and Medicare entitlements.
Again I quote Benjamin Franklin:
There are two passions which have a powerful influence in the affairs of men. These are ambition and avarice–the love of power and the love of money. Separately, each of these has great force in prompting men to action; but, when united in view of the same object, they have, in many minds, the most violent effects.
Much of America’s success has been due to the fact that individuals could pursue financial success without being beholden to the government in doing so. That principle is now under serious attack.