Monday, March 3, 2014
Perverting Self Interest
NOTE: I am reproducing a few articles which I either found cited in the recent articles I reposted, but which I was surprised to find had not yet been reproduced here, or which I came across while looking for such articles and decided was worth reprinting.
I was reading one of my old essays ("Anti-Business Businesses"), when I ran across a point I think may need a little clarification, especially given our current economic environment with its pandering business bailouts and frequent financial scandals. The reason I mention such things is that often, seeing businesses buying the favor of politicians, even conservatives come to adopt an anti-business attitude, or come to see "greed" as a bad thing ("Greed Versus Evil", "Greed","Greed Part 2", "Those Greedy Bankers") and begin to talk about the need for "sensible regulations" or "responsible businessmen" -- sometimes even worse ("Et Tu, Town Hall?", "When Did We Become Liberals?", "Authoritarian Oil Talk", "A Little More On CEO Salaries", "O Tempora! O Mores!, or, The High Cost of Supposed Freedom", "Self-Serving Cynicism and Our Cultural Immaturity") -- and, once they have done that, they have basically conceded every point of the liberal platform and set the stage for their own defeat. ("Beware Populist Deception", "How Conservatives Defeat Themselves", "The Single Greatest Weakness", "What We Deserve", "Who Is To Blame?", "Don't Blame the Politicians", "You Lose When You Think You Win", "Tyranny Without Tyrants", "Envy And Analogy", "Good News and Bad News") It is a perfectly understandable position, as all we see around us are businesses striving to take advantage of government favors, attempting to buy their way our of bad situations and otherwise use money and influence to manipulate politicians to their benefit. However, this perspective ignores one crucial fact.
Let me change our focus for a moment from business to something completely different. Let us imagine a police state, one where constant secret police investigation keeps individuals on edge, where informers exist everywhere, and where little resistance is possible due to the prevalence of informers. Now, let us imagine an average family man. Last week his neighbor was approached by someone claiming to be a member of the opposition, who asked him to hide a few books for him. The neighbor refused, but failed to report the man. As the supposed rebel was actually an informer, this brought the neighbor to the attention of the police, and before long, not only the neighbor, but his wife and teenage child had been arrested, and his two younger children were in a state orphanage.
Now, let us suppose a man approaches out imaginary family man and asks if he will hide a few pamphlets for a few days. Even if our family man is completely opposed to the government, is it not likely that he will end up turning the man in to the police? If not for himself, so as to avoid bringing hardship to his wife and children. And, if he did so, would we blame him? Or would we not recognize that the police state so perverts personal interactions that behaviors which would be reprehensible in a free society are completely understandable in a totalitarian state? After all, we tend not to blame am abused dog if snaps at its owner. Nor do we blame battered children or wives who lash out at abusers. And we even recognize that some truly repellent acts can be explained by unusual circumstances, such as the ones I described. We would not likely praise the behavior, but we certainly would not blame anyone, knowing as we do what could happen to everyone close to the man if he behaved in any other way.
And that is, in a quite exaggerated form, my argument about business. As I have described endlessly ("Third Best Economy", "The Other 99%", "Planning For Imperfection", "Greed Versus Evil", "Exploited Labor", "Capital Investment", "Fairness and the Free Market","The Harm of Closed Shops and Collective Bargaining", "Pro-Labor Cannibalism, A Look At The Union Food Chain", "Why Do They Earn So Much For Playing a Game?"), under a free market, or even a mostly free market, even the many base instincts are turned to the benefit of society. Provided the law prevents one from using force or fraud without consequence, then to satisfy one's greed, one must in turn satisfy the most strongly felt wants of the greatest number. That means, the more one wants to pursue his own satisfaction, he must also satisfy others. Similarly, as costs tend to erode one's wealth, that greed also inspires him to be a good steward of those resources, to use the fewest resources he can, and when possible to use resources no one else wants, so as to keep costs low. In short, the free market harnesses one's most primal desires and forces them to be used to the benefit of others, and all without the slightest bit of coercion. (Excepting that required to protect the rights of others, if one sees that as a coercive act.)
Nor is that all. I won't go into every detail, as I have covered so many of these topics elsewhere, but the desire to produce the most wealth possible also makes businessmen interested in the well being of their workers. Perhaps not the degree OSHA would wish, but it still does enforce some amount of concern, as sick time causes losses, and hiring new staff is a net loss as well. ("Who Is Safer?", "Worker Safety", "Fairness and the Free Market", "Child Labor and the Industrial Revolution", "Mistaken Perceptions of the Industrial Age") Similarly it forces firms to pay salaries commensurate with the productivity of workers, as to do otherwise would cost one money. It even discourages one from pursuing discriminatory policies, at least when there is no economic foundation for such, as baseless discrimination is costly as well. ("Private Versus Public Racism", "The Threat of Perfection", "Utopianism and Disaster", "In Defense of Discrimination", "A Statute of Limitations for Race", "How to Handle Idiots", "Back Again", "Best of the Web gets It Very, Very Wrong") The free market also provides avenues of advancement for those with ability, usually more than can be found in our regulated age ("A Great Quote", "The Irrationality of Government Redistribution", "The End of Private Action", "Volunteer Fireman, Barn Raisings and Government", "Collective Action and Government", ""...Then Who Would Do it?""), and also tends to increase wealth overall, bringing benefit to society at every level. (Though not promising the radical leveling that egalitarians seem to favor.) In case after case (with the exception of "income equality"), the free market achieves effortlessly, though admittedly over a longer period of time, what the government so often promises and fails to deliver.
But when I write these words, and when I have written them in the past, there are often explicit complaints, asking how I can explain the many financial scandals, the grasping and favor buying of modern business, if the free market is so beneficial. And even when I don't receive such comments, I know some who have read my writing have thought the same.
But such objections ignore one fact. We are not living under a free market. Or, if we are, we are living under a terribly crippled free market. Our market is regulated, manipulated, controlled and arbitrary. The regulators and politicians have been given the ability to enact arbitrary rules without the slightest predictability, and without any controls on their actions. That is a recipe for corruption. ("Transparency, Corruption and Reform", "The Other 99%") And when the government creates a corrupt environment, it is natural for businesses to act to protect themselves from that environment, and even to take advantage of it. As I said, the free market does not require perfect people, bu denying the opportunity to buy favor, it doesn't matter if you are honest or not, you have no temptations, so you can't engage in "How the Government Corrupts Relationships", "In Praise of Contracts") and so those who are prone to corruption and favor buying will do so, and, worse, because such actions are usually beneficial, they tend to drive those opposed to corruption out of the market. And that is why there is no comparison between the scandals of today and what would exist under a free market.
Perhaps I can make this more clear. Many see the business scandals of today and imagine businessmen are pone to corrupt acts. Thinking thus, they imagine that under a free market they would be inclined to do the same, and things would only be worse. I argue that under a true free market, without a government capable of granting such favors, and with force and fraud strictly controlled, the only avenue to wealth would be through honest competition, and so it does not matter whether or not they are prone to fraud, as such opportunities would simply not exist. Just as our fictional informer would have no one to whom he could inform in a free state, corrupt businessmen would have no one selling favors in a free market, and so the issue would never arise.
And that is why I can say that the bailouts, the scandals, and all the rest are irrelevant. They are a symptom of our current environment, and nothing more. They say nothing about what a truly free market would bring.
There is one caveat. If we partially deregulate, as we foolishly did with the S&Ls (removing restrictions, while maintaining the FSLIC safety net -- cf "How To Blame the Free Market", "Our Financial Problems", "How Protection Makes Us Less Safe") or as Maryland did with its electrical utilities ("How Did The Press Miss This?"), keeping low subsidized rates, preventing any true competition in the market, then these problems will not disappear. The benefits of a free market require substantial changes and not the many superficial of halfway changes we have often made in the past. Those changes may have been beneficial, but they also allowed some forms of corruption to remain. So please do not point to them as examples of corruption coexisting with free markets.
UPDATE (2008/12/29): I found two essays which demonstrate the ways in which businesses are forced by government to do things which not only are destructive, but also against self-interest. These do not exactly fit in with this topic, but it does help demonstrate how this pillorying of businessmen can be quite unfair. ("I Think I Finally Got It, and... Eh", "And you got rich?") In addition, my many posts on both speculators and the price of oil helps to show how many criticize business while failing to understand how it actually operates. ( "Authoritarian Oil Talk", "Those Darn Speculators", "Fear of the "Big"", "In Defense of Speculators", "Stop Big Porcelain Now!", "Absurdities on Oil", "Greed and the Price of Oil", "Misunderstanding the Market")
Originally posted in Random Notes on 2011/12/29.