Capitalist Chatter

Aussie Retailers Plan Surcharges for Credit Card Payments

As the U.S. looks at regulating interchange fees at the behest of some retail groups, this March 21, 2006 DigTrannews piece encourages policymakers and legislators to review a new study that shows “an increasing number of merchants in Australia -- which three years ago introduced regulation of the fees merchants pay acquirers on card payments -- are planning to levy surcharges on credit card transactions. Among the 500 largest companies surveyed, 19.4% said they planned to surcharge within the next six months, up from 16.5% that reported such plans six months ago. Meanwhile, 16.6% of mid-size businesses said they planned to assess a surcharge, up from 12.2%, and 14% of small-to-medium businesses said they’d surcharge, up from 11.9%. The study, which covered 2,200 companies, was released by East and Partners, a research firm. No figures were immediately available on the amount of surcharge merchants were contemplating.”

The article continues: “As reported today in various Australian press accounts, regulators had not expected merchants to follow through with consumer charges, thinking this would drive away business. But now, these reports say, an increasing number of merchants see the levies as a revenue opportunity. At the same time, the Australian Consumers Association has reacted to the latest survey results by saying the increase in the number of merchants intending to surcharge exposes a ‘potential weakness’ in regulators’ efforts to control card pricing, according to these press accounts.”

Oops -- that’s code for more regulation.

Here’s more, as we predicted, from the article: “The interchange regulation has already led to other consequences not necessarily foreseen three years ago, including increasing fees paid by cardholders to issuing banks. This additional levy had amounted to $139 million (U.S.) by late last summer (Digital Transactions News, Aug. 12, 2005).”

As a U.S. House member said at a recent House Commerce Committee hearing on the issue of Interchange fees: “Be careful what you wish for, you just may get it”…and more.

Karen Kerrigan

President & CEO

SBE Council

March 31, 2006

Business Elite Disfavors Extremist Presidency in Iran ..poor economic performance, bad domestic policies, aggressive foreign policy could spell Ahmadinejad’s demise

According to a prominent economist in Iran, the political and business elite of Iran might have faster success dealing with the extreme Presidency of Mahmoud Ahmadinejad if the West stops pumping him up.

According to a March 14 Washington Times piece, “Iran's clerical and business establishments, deeply concerned by what they see as reckless spending and needlessly aggressive foreign policies, are increasingly turning against” the President.

Mousa Ghaninejad, editor of Iran’s best-selling economics daily newspaper Dunya Al-Eqtisad, believes the small group of extremist at the top of government surrounding Mr. Ahmadinejad will benefit from the current squirmishes with the West because "that way they will be able once again to blame the West for all of their problems."

The preferred strategy in dealing with the President, according to Ghaninejad, is to: "Let the Iranians deal with him. If you leave him alone, he will become a bankrupt politician within a year. With greater pressure, only the extremists will benefit."

“Mr. Ghaninejad was one of 13 experts in economics who warned, in two petitions to the government just before Mr. Ahmadinejad was elected, that his populist, short-term policies would spell disaster for Iran in the long term,” according to the article. He says that clerical and business leaders feel the President “is isolating Iran internationally and putting its economy at risk.

The article continues: “The value of Tehran's stock market had fallen by $10 billion under Mr. Ahmadinejad as of February, the Los Angeles Times reported. Other recent Western news reports say that the nation's vibrant real-estate market has withered and that capital outflows are increasing.”

“Mr. Ahmadinejad's spending has pushed the inflation rate to an estimated 13.5 percent, and several estimates say it could go as high as 30 percent this year.”

“The clerical establishment has close ties with the capitalist class and is said to be appalled at the rapid slide of the economy since Mr. Ahmadinejad's inauguration. The clerics are also thought to be deeply apprehensive about the president's aggressive foreign policy.”

Karen Kerrigan

President & CEO

SBE Council

March 31, 2006

French small business owners back new labour law

With the unemployment rate in France at 22 percent for citizens in their late teens and early 20’s (and 10 percent overall), the French government decided to reform labor laws to allow for more flexibility in hiring and firing. In this March 30 BBC News piece, French small business owners point out why this law makes sense and how they will be incentivized to create more jobs if they have more control over employment practices.

“Because firing is so difficult, I think very hard about creating new positions,” says French entrepreneurs Sylvain Fievet.

The article also outlines how generous French rules will continue to remain under this new law with respect to protecting workers that may be laid off or fired.

The new law has just been ruled “constitutional,” and now it is up to Chirac to determine whether he will stay the course in helping small and mid-size firms stay competitive and productive, or back the rioting youths who, by the way, have physically damaged the property and revenue generation of many small firms during their protests.

Karen Kerrigan

President & CEO

SBE Council

March 31, 2006

Are True Spending Cuts Possible?

Is a serious shift in the federal spending environment under way? With Republicans controlling the White House and Congress, federal spending – both total outlays and non-national security spending – has skyrocketed over the past five fiscal years.

But do three recent developments on the spending front signal a real move towards spending restraint?

First, President Bush’s proposed fiscal year 2007 budget represents his first serious effort since taking office at reining in the growth of federal spending. For example, total outlays would increase by 2.3%, compared to an estimated 2.2% increase in inflation (as measured by the GDP price deflator). In addition, after factoring out defense and net interest payments, one gets to spending on non-defense programs, which would rise by a mere 2.2% under the Bush plan, or no increase in real terms. That’s a dramatic and welcome change from the previous big-spending Bush budgets.

Second, the Republican Study Committee in the U.S. House of Representatives, under the leadership of Rep. Mike Pence (R-IN), has put forth a budget plan featuring the elimination of more than 150 programs, real reductions in discretionary spending, cuts in foreign aid, earmark reform, a line-item veto, and a federal sunset commission. The focus on actually eliminating government programs is critical if anyone is truly serious about taming the spending monster.

Third, as The New York Times reported on March 13, a weekend gathering of Southern Republicans heard a common theme from potential Republican presidential candidates for 2008 – the need for spending restraint. Emphasis was placed on “cutting or slowing federal spending across the board and retooling bedrock entitlement programs.”

Of course, it’s easy to talk a good game on cutting or slowing the growth in federal spending. The proof comes in the budget that actually becomes law.

In addition, this cannot be a one-year effort. It has to be a consistent multi-year undertaking.

Does budget history offer taxpayers any hope? Looking over the past century, the answer is, not surprisingly, not much. Politicians have been pushing federal spending ever higher, with the exceptions being declines in spending after major wars. By the way, spending never returns to where it was before the war started.

But these are two periods worth noting. After World War I, federal outlays naturally declined. However, for several years, spending actually remained steady. Republican President Calvin Coolidge, who succeeded President Warren G. Harding (R) after Harding’s death in 1923, and a Republican-controlled Congress kept a tight lid on spending.

Though certainly not as notable as what occurred in the 1920s, two other budget years are worth noting. The federal government, of course, was the key player in pushing the U.S. into the depression of the 1930s, through foolish policies of trade protectionism, dramatically higher taxes, and a vast expansion of government.

However, the numbers indicate a brief moment of sanity, as federal spending actually declined two years in a row.

Of course, at the time, the Democrats held Congress, and a Democrat, Franklin Delano Roosevelt, was in the Oval Office.

Unfortunately, our free-spending politicians of the past century do not offer too many examples of being responsible with the taxpayer dime. But true spending restraint and even reductions – not some future imaginary cuts in projected increases – are possible. It was done on rare occasions in the past – by both Republicans and Democrats.

Raymond J. Keating

Chief Economist

Small Business & Entrepreneurship Council

March 14, 2006