What George McGovern Learned from Running His Own Business

In 1988, George McGovern opened the Stratford Inn in Connecticut. The experience changed the way he viewed market regulation.

In the 1960s and 1970s, Senator George McGovern was successful in passing many onerous regulations on businesses. After he left office in 1981, Mr. McGovern began making money in the lecture circuit, where employees were minimal and income came based on political capital. Mr. McGovern then tried his hand at a business that required serving customers and dealing with many employees.

One Size Does Not Fit All

In 1988, George McGovern opened the Stratford Inn in Connecticut. As the owner of this hotel, Mr. McGovern had to deal with the regulations, taxes, mandates, and legal costs of frivolous lawsuits that he passed or supported. In about four years, the Stratford Inn went bankrupt.

In a famous 1992 letter to the Wall Street Journal entitled “A Politician's Dream Is a Businessman's Nightmare,” McGovern stated:

While I never doubted the worthiness of any of these goals, the concept that most often eludes legislators is: ‘Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.’ It is a simple concern that is nonetheless often ignored by legislators.

Presidential Politics

Fast forward to 2019 and we see little has changed.

On the Democratic presidential debate stage, many candidates talked about corporations, millionaires, billionaires, businesses, and Wall Street paying more in taxes to fund Medicare for All, the Green New Deal, and other new programs. These politicians should read what Mr. McGovern wrote about where this money comes from: “Can we make consumers pay the higher prices...” If possible, businesses pass these expenses on to consumers.

The only place taxes can ever come from is the transaction being taxed, and the role of prices always forces both sides of the transactions to pay the tax. Businesses cannot raise their prices willy-nilly if they want to stay operating, which is evident through the roughly half-million businesses shutting down each year. These candidates should never forget that the biggest cost to a tax or regulation is the avoided business.Mr. McGovern also stated, “In short, 'one-size-fits-all' rules for business ignore the reality of the market place.”

In the “Businessman's Nightmare” letter, Mr. McGovern also stated, “In short, 'one-size-fits-all' rules for business ignore the reality of the market place.” This is becoming truer with the growing gig economy. Trying to fit all employment law under one business model has many shortcomings. A campaign, for example, is a very unusual employer relating to employment and labor law because of the short-term nature of campaigns.

Senator Bernie Sanders recently learned how the regulations he is proposing are hard to live with in his own campaign. The Sanders presidential campaign hires field staff and is coming under pressure to live up to the “Fight for $15” laws he is offering for the country. Senator Sanders did not necessarily have a problem with the $15 per hour. His problem, as demonstrated by his solution, arose with the minimum increasing by 50 percent after 40 hours a week. Sanders’s campaign eliminated most overtime for field staff, dropping hours from roughly 60 to 43 per week.

Employers Reacting to Changing Labor Law

The 20 or so presidential candidates should be informed by one of Virginia’s largest employers. In 2013, Virginia workers' part-time hours were capped at 29 due to the federal Affordable Care Act. The ACA included many labor laws and regulations. Governor Bob McDonnell stated clearly that Virginia could not afford to provide health insurance to the 37,000 wage employees. The ACA mandates that employees working more than 30 hours a week receive employer-paid health insurance.

Is an employee that budgeted for the income from 36 hours a week and now limited to 29 hours better off with 20 percent less income and still no health insurance? The one additional hour per week would cost the employer $15,000 per year, or $300 per 30th hour. Economics is the study of changes in behavior with changing circumstances. An additional $15,000 expense per part-time employee was a significant change in circumstances and yielded a substantial modification in employment terms. The politicians tried to provide thousands of people with health insurance with a mandate, and with this massive employer generated none.

Candidates would be wise to talk to many employers, employees, ex-employers, and those out of the labor market to learn the lessons of their experiences.

Perhaps Senator Sanders and the other presidential candidates could also learn from liberal billionaire Jeff Bezos. Amazon has come under scrutiny for paying low wages. In raising worker salaries to $15 per hour, Amazon gave the world a great example of money being fungible, meaning moving money within the compensation package. The full compensation package did not change much because bonuses and stock benefits ended when the wages went up.

In conclusion, after seeing firsthand as an employer the problems of dealing with the regulations he proposes, Senator Sanders and other candidates would be wise to talk to many employers, employees, ex-employers, and those out of the labor market to learn the lessons of their experiences. As Senator McGovern wrote:

I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.

Further Reading

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