Anthony Flaccavento, Abingdon, Virginia
September 20th, 2016
Three years ago, in a town just south of where I live, the local paper carried a small story about a start-up business owner who had won the Annual Entrepreneurship Competition. Her new business was awarded $5,000 and some technical assistance as it prepared to open its doors in the downtown district.
The very same issue of the paper carried a front page story about another award going to a different sort of business: over $50 million in subsidies to induce a Cabela’s to locate five miles from the downtown center. I’m quite sure that some of this community’s elected leaders and economic development staff supported both the local entrepreneurship competition and the Cabela’s deal. But surely they know that giving a big, out-of-state corporation ten thousand times more financial support to set up shop on the edge of town would lure people away from downtown stores, including the award-winning local entrepreneur . What gives?
This kind of ‘all of the above’ thinking, which is the norm not only among local officials, but right up to the federal level, does more to prop up the economic status quo than to support local businesses. That’s because it sustains the extraordinarily uneven playing field between the little guys and the big guys, between local businesses that are rooted in their communities and mobile transnational corporations with no stake in particular places.
Underlying such policies is the continued adherence to the doctrine of “trickle-down economics”. All across this country, as local, living economies struggle to emerge and take root, as innovative entrepreneurs and sustainable farms provide products and services that customers want and communities need, trickle-down thinking works against the emerging new economy. The abysmal failure of trickle-down is apparent to most people, except to those who are running the show.
For readers too young to remember Ronald Reagan’s presidency, a quick explanation of trickle-down: Economic growth and prosperity, so the theory goes, is largely dependent upon a small group of businesses and their investors, who together create jobs by expanding their already large companies, innovating new products and technologies and spreading their reach into global markets. This elite group of very big companies and very wealthy people are the economic engine for all of us. Therefore we must cut their taxes – personal, corporate, capital gains and estate taxes – and free them up from burdensome regulations, in order for them to invest, grow and create jobs and wealth that “trickles down” to the rest of us. Nearly 40 years after Reagan, this thinking continues as the foundation underlying most of our tax, trade, investment and economic development policy.
But trickle down doesn’t. It hasn’t. People talk about how the United States has among the highest corporate tax rates in the world, but in truth, the menu of loopholes and deductions ensure that many of the biggest corporations pay dramatically less than they should, so much so that by Stacy Mitchell’s estimates, small businesses pay an effective tax rate that is 6 – 8% higher than the big boys. Talk about an uneven playing field. And keep in mind that the theoretical corporate tax rate of 35% is already a third lower than it was in the ‘50s and ‘60s, when business was booming. Have the biggest companies taken advantage of this lower rate and all these loopholes to expand their plants and launch new businesses, as trickle-down predicts? A few. Mostly, they’ve been stashing their excess cash, which now exceeds a trillion dollars in reserves.
Tax rates on the rich – the ‘investors’ – have also fallen dramatically, from a high of 91% in 1950 to between 35% and 39%, where it’s been since mid-way through Reagan’s presidency. Not only that, but taxes on capital gains and dividends, both of which benefit primarily the wealthy, have also fallen sharply. Yet all of these breaks have not spurred massive private investment in job creating businesses and technologies, but rather helped fuel the phenomenal growth of speculative and un-productive “financial products” on Wall Street. Like the so-called derivatives that helped crash the economy in 2008. Donald Trump’s tax plan calls for additional, steep cuts in these taxes, as if somehow, finally, they’d deliver benefits they’ve failed to for thirty five years.
And then there’s our trade policy, which has served as an extension of trickle down by lessening regulations on transnational corporations, widening their patent protections, protecting wealthy investors and tilting the scales even more in the favor of the one percent. President Obama’s relentless push for the Trans Pacific Partnership is rooted not in a productive track record for earlier, very similar trade deals, but in a bewildering belief in corporate-driven trickle down prosperity.
Trickle down has failed to deliver higher growth rates, more private investment, increased innovation and most of all, widely shared prosperity. In fact, it’s been a disaster, sucking the life out of communities and transferring wealth up, not down. Millions upon millions of people know this, as the crowds and enthusiasm for Bernie Sanders demonstrated, as does the widespread anger about our grotesquely unequal economy.
The alternatives to trickle down are emerging, not just in theory but in practice, in rural regions, small towns and big cities. This “bottom up economy” as I call it, is the antithesis of trickle down. The focus is on building the health, wealth and resilience of communities, based upon very diverse, locally rooted businesses and economies. From the dizzying array of local food enterprises in Athens, Ohio, to the solar and clean energy economy of Bellingham and western Washington, State; from the resurgence of regional manufacturers in rural western Minnesota to the surge in Latino entrepreneurs in Arizona, the bottom up economy is proving to be far more productive and innovative, far better for people and their communities, than the collateral damage economy of trickle down. The only real question is, when will the folks in charge finally acknowledge this reality?
Anthony Flaccavento is an organic farmer in the Appalachian region of Virginia and author of Building a Healthy Economy from the Bottom Up: Harnessing Real World Experience for Transformative Change (University Press of Kentucky, 2016). His consulting business, SCALE, Inc, works with communities around the world to help build healthier, more sustainable economies.