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Big Business’s Hypocritical Lurch To The Left Causes Them To Lose Trust, The One Loss They Can’t Afford.

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Business credibility is in the tank. Results of a recent Pew Research survey depict a society-wide erosion of trust — especially for business leaders and elected officials. Only 46% of adults categorized as “medium trusters” (respondents were divided into low, medium, and high “trusters”) had “a great deal” or “fair amount of confidence” that business leaders would “act in the best interests of the public.” For a group that wants to sell to everyone, these poll numbers are a disaster.

By contrast, over 80% of “medium trusters” trust scientists, the military, police officers, and public school principals. Out of all the leadership groups studied, respondents expressed the second-lowest confidence in business leaders; only elected officials scored lower (they had the confidence of 39% of “medium trusters”). Even with the rise of “fake news,” journalists beat out business leaders by double-digits.

It didn’t start this way. All things being equal, no one, not even a business leader, wants to be mistrusted by others. Instead, like many ill-fated, well-intentioned movements, corporate America actually started out trying to boost their credibility with consumers. How did it all go wrong?

About 10 years ago, something called “Corporate Social Responsibility,” or CSR, became all the rage in the business community. Opinion surveys and contemporary wisdom inspired commentary like, “Consumers Overwhelmingly Want CSR.”

Corporate social responsibility is when a business acts like a good neighbor instead of an Ebenezer Scrooge. For instance, last October a Waffle House food truck offered free meals to victims of Hurricane Michael in the Florida Panhandle. Other good examples would include cutting pollution, raising local property values, and paying employees well. Consumers like that stuff.

Here’s what not to do: force explicit, obnoxious, and controversial political messages into areas that are not inherently political. If you sell kids’ clothing like Gap, a full court press to applaud homosexuality or transgenderism only serves to alienate a portion of your customers. If you make kids’ movies like Disney, pressuring states to not adopt anti-abortion laws is actively trying to kill off your own target demographic. If you sell coffee, pizza, or burgers, then getting in customers’ faces about your support for pride month is really unnecessary and will only serve to alienate rather than unify.

It’s no accident that business leaders took a nose-dive in credibility just when their marketing took a lurch to the left.

Instead of true social responsibility, big corporations have turned to virtue signaling. The other piece of “wisdom” these profit-motivated institutions learned 10 years ago: “It’s all about marketing.”

In exploiting today’s dominant rhetoric on contentious social issues, it’s almost as if big businesses are like actors playing a part, poorly hiding their true profit motive behind a mask. That, by the way, is the origin of the word “hypocrite.”

Perhaps the most egregious hypocrite is Netflix. Last month, the company threatened to boycott the state of Georgia, a new hotbed of film production, over a law that would protect unborn babies with a detectable heartbeat. Apparently, companies thought this bluff would be interpreted as righteous anger. Meanwhile, Netflix has been cowering to the regime’s censorship as it worms its way into the vast market of China. The company appears to be unmoved by the authoritarian regime’s vast concentration camps, organ harvesting of political prisoners, or religious persecution. But Georgia is somehow much worse, in their eyes.

At the same time, Netflix lost 126,000 domestic subscribers from March to June, instead of a predicted gain of 352,000. Even though this is its first quarterly U.S. subscriber loss since 2011, Netflix seems oblivious. It has blamed the loss on everything but its tone-deaf political activism.

Big business has failed spectacularly in its gambit to boost its credibility through taking far-left policy stances. Another nationwide opinion poll by Gallup shows public confidence in big business in 2019 (as opposed to all business leaders measured in the Pew poll) is at 23% — about where it was in 2003.

Why hasn’t their tactic worked? Because people can smell a phony. Big business isn’t winning any friends with their rampant hypocrisy.

They’ve just alienated social conservatives by swallowing the rhetoric of the abortion and LGBT lobbies hook, line, and sinker.

Today’s economy functions according to the same principles it did 10 years ago. Absent a radical reimagining of our economy, that’s not going to change. It’s these principles of free-market exchange that ensure that businesses’ only moral compass will always point toward maximum profit. That’s called survival. That’s also why it so unbelievable when big business claims to suddenly discover an enlightened, radically progressive moral compass.

Big business should stop the charade. If they want to exercise real social responsibility, that’s fine, but their political virtue signaling is see-through, hypocritical, and roundly condemned by all sides.

Joshua Arnold is the media coordinator at the Family Research Council.

Now Georgia Is Pursuing a “Netflix Tax” to Cash in on Digital Streaming. Is It Time to Worry?

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As always, the government is seeking to penalize innovation by taxing it rather than celebrating

When the private sector needs to generate more revenue, entrepreneurs innovate and create in order to draw in consumers and raise profits. When the government needs to generate additional revenue, they are left with only one option: Extort through fees and taxation. And after it has taxed everything feasibly within its grasp, it has to get creative.

California lawmakers have sunk so low, there is now a tax on fruit purchased from vending machines. It should be noted that regular fruit purchased at a store is not subject to this tax, only those purchased from a vending machine. Following this line of absurdity, Indiana has an instituted a candy tax on marshmallows. Maine has a fruit tax specifically on blueberries. Unfortunately, Georgia may be the next state to fall victim to absurd government attempts to generate revenue by taxing digital streaming services like Netflix and Hulu.

At the end of last year, California tried to pull a fast one on its residents when local policymakers attempted to levy a 4 percent tax on text messaging. Just weeks prior, Chicago became a target for criticism after PlayStation’s decision to begin enforcing the city’s new 9 percent amusement tax was brought to the public’s attention. While most were aghast at the lengths these states were willing to go to in order to create new taxes, local governments were taking notes.

This week, the Georgia legislature will reconvene for the 2019 legislative season, during which state legislators will discuss the merits of passing and instituting a new 4 percent tax on Netflix and other streaming services. The proposal comes just after Georgia residents saw a cut to their income tax rate. But instead of letting Georgians celebrate keeping more of their hard-earned money, the state has found a new way to use taxpayers to fund new initiatives.

The “digital goods and services” tax, as it is called, is being proposed by the state House’s Rural Development Council. In order to soften the blow to taxpayers, the state has plans to lower its current communications service tax, which levies a tax on cell phone usage as well as cable television services, down to 4 percent. However, between this tax and the new proposed tax on streaming services, this still results in an additional 8 percent tax for residents. And this is only in this one narrow “communications” sphere.

To make matters worse, the proposed tax will apply to a wide range of streaming platforms. It is likely that both video and music streaming services will fall under the new digital goods and services tax, though PlayStation appears to be safe—at least for now. Services like Amazon’s video and music streaming platforms, Spotify, Pandora, and Apple, however, will be included in the new tax.

Unfortunately, Georgia is not the only state to consider instituting a tax on digital services. Florida, North Carolina, Pennsylvania, and Washington have each imposed their own form of streaming tax on digital media, as well. Chicago’s aforementioned amusement tax is currently being fought by Apple on the grounds that it violates the Internet Tax Freedom Act, but it is unclear if the lawsuit will go anywhere.

Since many states, Georgia included, have seen slashes to their income tax rates recently, politicians have been looking for creative ways to make up for the loss in revenue. And since the world is becoming increasingly more digital, it has become pointless for policymakers to attempt to tax physical purchases from brick and mortar establishments. No longer can the government profit from consumers renting movies, for example, since physical movie rental stores are not as plentiful as they used to be. Instead, governments have begun seeking to institute new forms of sales tax—like taxing digital rentals from Amazon or iTunes. And it’s easy to see why they are going after digital streaming.

A CNBC All-American Economic Survey found that 57 percent of the public uses some form of streaming platform, making this a very lucrative area to tax. The same report noted that the increase in streaming helped propel the value of Netflix to $124 billion, up from $63 billion just a year earlier. The surge in valuation occurred even though Amazon emerged to challenge Netflix. Reports suggest that now Walmart is looking to move into the digital streaming space.

The concept of taxing digital platforms might be a brilliant idea, really, if it wasn’t so slimy in nature. A tax on digital streaming is a tax on innovation itself.

Georgia is still largely a fiscally conservative state, so it is unknown as to whether this legislation will pass. However, it does appear to have the backing of House leadership. Senate Finance Committee Chair Chuck Hufstetler (R) told Bloomberg Tax:

It is controversial, but the world is changing. I don’t want that loss of sales tax that we’re seeing to mean a greater income tax. We’ll have to look at the details.

Hufstetler and others assert that instituting this tax would actually allow the state to make further cuts to the income tax rate. But this doesn’t seem to make a whole lot of sense since residents are unlikely to save any money if what they save in income taxes is made up with a higher sales tax. In 2018, the legislature approved cuts that lowered the income tax rates from 6 percent to 5.75 percent. The plan is for the income tax rate to be slashed even further, to 5.5 percent, by 2020.

Last year, a similar digital streaming tax was proposed and ultimately rejected by the state legislature, but that obviously doesn’t mean they haven’t kept trying. House Ways and Means Committee Chair Jay Powell (R) defended the state’s new tax push by saying that it isn’t new at all but rather a reframing of previously instituted taxes:

I think there’s an increasing awareness that we’re really not talking about new taxes. We’re talking about a market that has converted tangible personal property that historically has been subject to sales tax into a digital format.

As always, the government is seeking to penalize innovation by taxing it rather than celebrating it.

Sure, the state of Georgia might think its quest to raise revenue worthy since the money is supposedly going towards rural development, but the road to hell is paved with good intentions.

Each time a new tax is proposed, it is justified as going towards helping the “greater good” in one way or another. In California, the text messaging tax, which has since been abandoned due to the FCC’s influence, was supposed to go into a fund that is used to help lower-income earners pay for public utilities. In Seattle, a proposed “tax on jobs” sought to levy a tax on each worker employed by companies like Amazon. The revenue generated from this tax was supposed to go toward fighting homelessness.

Both of these taxes have respectable ends, but taxing anything that moves is not the answer to funding any project or initiative lawmakers might dream up. In Georgia, the push to tax streaming services has been justified through the promise of rural development. Legislators have already said that rural development is to be a focal point of this year’s legislative session, so it is possible that this bill might pass due to the popularity of the issue.

However, before Georgia goes approving any new taxes, legislators should take a closer look at what has happened with other tax increases with noble ends.

In 2015, Atlanta voters agreed to a tax increase of $250 million with the explicit purpose of using that money to fix outdated or broken infrastructure. Since that time, additional taxes have been levied for the same purpose, costing the taxpayers a total of $630 million. However, the government is now saying there is no money to complete the project. Even though taxpayers already paid greatly, the project is still more than 25 percent underfunded, leading many to wonder if the money was mismanaged.

No matter how admirable their many proposed projects and initiatives may be, it does not justify the imposition of new taxes. This is especially true for a state that has already proven itself incapable of managing taxpayer dollars.

The “Netflix Effect” and the Wonders of Creative Destruction

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As a child, renting a movie was something I looked forward to every Friday night. After spending five long days trapped in a classroom, my siblings and I were rewarded for our time served with the gift of being able to select any movie our hearts desired. As children, we loved browsing each aisle thoroughly, making sure we considered all our options before committing to one selection. It would be another week until we were back, so we had to choose wisely.

But the excitement didn’t end there; once we reached the checkout counter we were also permitted to pick out one sugary treat to eat while we watched our selections. This was pure bliss for a child and I looked forward to this routine every single weekend.

Now, video rental stores are a relic of the past as modern technology has replaced the need consumers once had for these establishments. Streaming platforms of all varieties have given consumers the ability to browse thousands of movies without ever leaving the comfort of their couches. And with only a click of a button, you have pretty much any film or series you could ever want. So, even though my childhood memories of visits to Blockbuster Video are precious to me, I most certainly do not mourn the closing of these businesses. Instead, I celebrate the innovation that has made these stores obsolete.

Creative Destruction

Economist Joseph Schumpeter first coined the term “creative destruction“ in the 1940s and explained it as:

“The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new structure. This process of creative destruction is the essential fact about capitalism.”

An excellent example of this phenomenon can be found when taking a closer look at why companies like Blockbuster and Hollywood Video no longer exist.

Our world is becoming increasingly more digital. And video media is hardly the only sphere impacted by this innovation. With the rare exception of vinyl enthusiasts who have created a steady demand for physical records, music is now mostly purchased and listened to on digital platforms like Spotify and iTunes. The same can be said for physical books as well. Many consumers prefer to read their content on e-readers. By switching to digital books, consumers can now carry hundreds of books around them at all times on a relatively small device. The new will always replace the old, and this is truly miraculous and absolutely something to be celebrated.

As new technology emerges, there is always less of a need, and thus less consumer demand, for older and outdated models. The carriage was replaced by the car, manual labor was replaced by industrial machinery, the typewriter was replaced by the computer, and Blockbuster Video was replaced by Netflix. The key thing to remember is that with each of these innovative changes, the consumer won by gaining access to better goods and services.

The Netflix Effect

Thomas Sowell once said:

“The very thing that makes a modern industrial society so efficient and so effective in raising living standards–the constant quest for newer and better ways of getting work done and more goods produced–makes it impossible to keep on having the workers doing the same jobs in the same way.”

And that is exactly what Netflix has done. In fact, the disruptive impact it has had on the market has even been dubbed, “The Netflix Effect” by economists. This is because, in addition to replacing the need for rental stores, Netflix has also changed the way we consume other forms of media as well.

As Mark Perry from AEI says:

“After challenging Blockbuster, which filed for bankruptcy in 2010 and was subsequently acquired by Dish Network at auction in 2011, Netflix (along with other online viewing platforms like Hulu, Amazon and Apple TV) is now challenging cable networks, traditional network TV channels, and pay-TV services.”

Many people, and especially millennials, are opting to use streaming platforms instead of purchasing cable television. And while in the earlier days of Netflix streaming this meant waiting until a season of a show had ended before being able to watch it on the site or having to wait until a movie had been out for awhile, now other companies are competing with live television.

Hulu, for example, now offers a live streaming service that is only further incentivizing consumers to ditch their cable providers. And to make things even more enticing, the prices for streaming platform subscriptions are far less than what consumers pay for cable packages.

But Netflix, along with Hulu and Amazon, are also changing the way media is produced. Since each of these platforms now offers a plethora of original content, they are now directly competing with major Hollywood production companies. And, even more interesting, have even encroached on these production companies’ turfs by resurrecting canceled projects. When Fox canceled the Mindy Project, for example, Hulu picked it up and carried the series for several additional seasons. Likewise, Netflix has become known for resurrecting older classics, like Full House.

But while cable providers and production companies aren’t doing much to innovate and compete with streaming platforms, Blockbuster deserves a nod for at least putting up one last fight before shutting its doors.

Blockbuster’s Last Stand

Before digital media became as popular as it is today, Netflix began as a mail DVD rental service. Still more modern than video rental stores, which still offered VHS well after DVDs became the norm, Netflix appealed to consumers who were too busy or didn’t want to have to leave their homes to rent a movie. For a monthly fee, you were given a certain amount of rentals per week. Selecting which films you wanted to see in order of importance, Netflix would go down the list and send you a few selections at a time. Once you returned those selections by placing them in the mailbox, you would be sent your next selections.

This was truly revolutionary for its time and even back in the early 2000s when Netflix started rising in popularity, rental stores knew they were in trouble. Hollywood Video kept their model the same, relying on their “hip” brand to save them. Blockbuster, on the other hand, put up a fight. 

Blockbuster saw the direction the market was taking and began offering a similar service, mailing DVDs to consumers in addition to having physical locations. This may have ultimately been what allowed the company to stay afloat for a few more years.

By 2010, the company that had acquired Hollywood Video in 2005 had filed for bankruptcy, signaling the final nail in the rental store’s coffin. Blockbuster would survive until 2013 when it finally decided to close its remaining stores.

Our world is ever-changing, but as the old way of doing things is replaced by the new, we should consider how lucky we are as consumers to be benefiting from creative destruction. And while kids today may not understand the wonders of visiting a video rental store, they will also never have to deal with the struggle of waiting for a video to rewind before having to return it to the store, and that is a worthwhile tradeoff. 

Write for CFI