While TikTok will continue to be available in the U.S. due to a deal between ByteDance, Oracle, and Walmart, President Donald Trump has returned to his talking points about a payment from TikTok’s parent, ByteDance, to the U.S. Treasury. Most recently he said that ByteDance will “be making about a $5 billion contribution toward education.” While it is important to have a realistic policy towards China, forcing businesses to make special contributions in exchange for approving major deals would be harmful to our market system. Even more fundamentally, Trump’s demands reveal a mistaken understanding of who creates value in the economy.
Trump has compared ByteDance to a tenant and the United States to a landlord: “The tenant’s business needs a rent; it needs a lease. And so, what I said to them is, ‘Whatever the price is, a very big proportion of that price would have to go to the Treasury of the United States.’” These comments assert that, because ByteDance does business within U.S. borders, Trump can rightfully demand any payment he chooses for allowing the deal to proceed. In fact, he was shocked that no legal framework exists for such a payment. In this mindset, the government is entitled to the gains from the transaction, because it is the ultimate creator of value.
But Trump is not the only one who subscribes to these ideas. President Barack Obama famously said, “If you’ve got a business – you didn’t build that. Somebody else made that happen.” He emphasized infrastructure and how it enables entrepreneurs to run their businesses. The ultimate creator of value to Obama, as to Trump, is government services. In the same vein, Elizabeth Warren said on the campaign trail:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea — God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
Before we analyze these claims, we must first understand the idea of the social contract that Warren invokes. In a correct understanding of the social contract, individuals have natural rights that exist independently of the State. These rights are granted by God and not the government. The Founders leaned heavily on the philosopher John Locke and his description of the social contract when they drafted our founding documents. Individuals give up some of those rights in order to better protect their existing rights. Citizens enable the central government to act to protect rights, such as private property and the safety of individuals. Taxes exist so that the state has the resources to protect the rights of its citizens.
Misconstrual of this concept cuts across both parties. The social contract does not require additional payments outside of the regular scope of taxes in order to do business in the market. Trump, in the case of TikTok, focuses on large business deals while Warren critiques what she sees as extreme profits. By contrast, the social contract requires restraint on the part of the government. It must tax its citizens only to the extent necessary to secure their rights, and no further.
Entrepreneurs, not the government, are the engines of the economy. Within a system of consistent rules, they are able to use creativity to solve problems faced by consumers. Profit doesn’t flow from the government creating opportunities, but from entrepreneurs actively responding to the desires of the consumer. Thus, entrepreneurs are servants of the consumer. A proper understanding of value allows us to see how the government should act: not by extorting payments for every transaction, which leads to crony capitalism, nor by taking huge portions of businesses’ profits, which removes the incentive for entrepreneurs to solve problems.
(Photo credit: Gage Skidmore. CC BY-SA 2.0.)