We should welcome big earners because they are competitive and efficient

Roberto H. Cachanosky

Member of the Academic Council of Libertad y Progreso. Degree in Economics from Universidad Católica Argentina. He is an economic consultant and author of the books "Economía para todos" (Themes, 2002) and "El SindromeArgentino" (Ediciones B, 2006). He serves as a columnist in the newspaper La Nación. Previously, he worked the same task for the newspapers La Prensa (1985-1992), El Cronista Comercial (1992-2001) and La Nueva Provincia de Bahía Blanca (1992-1998). He's the host of the cable TV show "The Economic Report." Lecturer in Applied Economics of the Master of Economics and Administration of ESEADE, senior lecturer in Macroeconomic Theory of the Master of Economics and Administration of CEYCE. President of the Center for Economic and Institutional Studies. He was Economic Adviser to the Argentine Chamber of Commerce (1983-2002) and to the Argentine Chamber of Importers (1992-1993).

In Argentina we intend to “punish” companies with very good balances through advance payments of taxes and increased tax pressure.

NOTICIAR: A few days ago, at an event in Lomas de Zamora, President Alberto Fernández stated that there were companies that earned “a lot” and that their earning had to be “fair. Then, the Secretary of Commerce, Matías Tombolini, stated: “In relation to the wages they pay, companies are earning a lot.”

Affirming that someone earns a lot, talking about a fair profit and relating profits to what is paid in wages is typical of barricade speeches without any scientific basis to define a rate of return on investment.

First, there are two types of returns that companies can earn. They can lobby for the State to grant certain entrepreneurs or business sectors tariff protection to restrict competition, subsidies, market reserves and all kinds of restrictions on the entry of new competitors so that this sector obtains income that it could not obtain in conditions of free competition.

In general, the type of statements mentioned above do not refer to this type of return, which are returns between “government partners and pseudo business partners”. On the contrary, it is common for political leaders to defend these protectionist measures and restrictions on skills, alleging that they defend jobs, when strictly speaking what they are doing is keeping consumers captive of pseudo-entrepreneurs who do not obtain their returns because they are efficient but because the are good lobbyists who get the favor of the official on duty.

The other way to obtain profits is to produce something that people need, at the price and quality that they demand. In other words, returns arise when an entrepreneur develops his capacity for innovation by looking for what unsatisfied needs consumers have. You take the business risk of investing resources and capital and take the risk of winning or losing.

If an investment is successful, the profit has been obtained by satisfying the needs of consumers. In this case both parties win. The consumer because he can access goods and services that he did not have access to before, and the entrepreneur because he obtains his income voluntarily and not resorting to lobbying a public official to grant him some privilege so as not to compete. He does not win at the expense of the consumer, but rather by favoring the consumer.

Could it be that, without restrictions on competition, an entrepreneur obtains more profitability than other sectors? Obviously, and we should welcome that higher rate of return because it indicates the way for other entrepreneurs, that is, investing in that activity and increasing supply. Eventually, the price drops and the rate of return tends to match other sectors.

The great benefit of free market is precisely why, without restrictions on the entry of new competitors, is that there will always be entrepreneurs who seek to obtain extraordinary income, that is, to invent businesses in which rates of return are higher than on average for the market. This lead to the discovery of unsatisfied needs, attracting new competitors to the market. These extraordinary incomes, obtained by competition and not by lobbying, are what allow efficient allocation of scarce productive resources by meeting the needs of consumers rather than by the corrupt pen of the official on duty.

There could be no efficient allocation of resources without the extraordinary rents the government characterizes as unfair. The extraordinary rents arising from competition create jobs, increase productivity and improve the standard of living of the population.

The discourse surrounding speculators, price markers, the war and the pandemic is nothing more than a discourse that seeks to prevent the government from assuming responsibility for the monetary destruction.

Populism always needs to invent an enemy to blame for all ills, and populist politicians present themselves as the defenders of Argentines who come to fight against businessmen who want to earn “a lot” and do not have “fair” earnings.

Seeing how inflation has been evolving in Argentina and in neighboring countries is enough for the official argument of the role of price gougers and unfair profits to collapse.

In July, as in previous months, inflation in Argentina far exceeded the inflation of our neighbors. While here inflation was 7.4% it was substantially lower in our neighbouring countries.

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