"Were we to be directed from Washington when to sow and when to reap, we should soon want bread."
"Every individual necessarily labours to render the annual revenue of society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is, in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention."
"The propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals."
In every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheapest.
What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished... but only left to find out the way in which it can be employed with the greatest advantage.
By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it. I have never known much good done by those affected to trade for the public good.
- Edmund Burke
"Man is a wicked animal.
His wickedness must be organised."
- Joseph Conrad
A spontaneous order
is a system which has developed not through the central direction or patronage
of one or a few individuals but through the unintended consequences of
the decisions of myriad individuals each pursuing their own interests through
voluntary exchange, cooperation, and trial and error.
This process of spontaneous
evolution is not restricted to explaining the growth of the economic order
but can also account for the development of language, money, culture, law,
social conventions and even morals and ethics. Although the spontaneous
order develops through individuals pursuing their own interest, the individuals
still behave by following commonly held rules rather than by acting in
a random fashion, and these rules are themselves the product of evolution.
- Friedrich Hayek
The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.
"Competition on the market aims at assigning to every individual that function in the social system in which he can render to all his fellow men the most valuable of the services he is able to perform."
"All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out."
"Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement, but conservatories of tradition and unvarying modes of thought."
"Manufacturing and commercial monopolies owe their origin not to a tendency imminent in a capitalist economy but to governmental interventionist policy directed against free trade and laissez faire."
When the price of gasoline,
or heating oil or natural gas or electricity, goes up, it is not evidence
of a "crisis" or proof that consumers are being "gouged" or a reason to
schedule congressional hearings or to fret that we are "running out of"
a natural resource. It is simply the market signaling producers that there
is money to be made by boosting supply. Invariably, the supply gets boosted
and prices retreat. So why must so many pundits and politicians act as
if a run-up in price is the first bitter taste of some looming catastrophe?
- Jeff Jacoby, Jewish World Review
Summoned to remove
a fish bone agonizingly stuck in a rich man's throat, British surgeon Joseph
Lister did so. When the grateful patient asked the charge for this service,
Lister replied: "Suppose we settle for half of what you would be willing
to give me if the bone were still lodged in your throat." The point is
that the price one will pay depends on the urgency of the purchase.
- George Will
The free market (like
democracy itself) can't function freely unless citizens have the facts
they need to make informed decisions.
- Jim Emerson
The only reason socialist
economies can function at all is because their bureaucratic managers carefully
monitor the pricing information available from free markets and then apply
this Information to set their own prices... The great paradox of socialism
is the fact that socialists need capitalism in order to survive.
- Ronald Nash, "Social Justice and the Christian Church"
The "Austrian" school of economics... especially emphasises the importance of the market as the best setting within which to grapple with the problems of imperfect knowledge. The market is seen as a search process, in sharp contrast to the idea of "perfect competition" which assumes for the purposes of theoretical elaboration that perfect knowledge is already available to all economic actors however lowly.
- Thomas Sowell, "The Mail Monopoly"
The "private sector" of the economy is, in fact, the voluntary sector; and the "public sector" is, in fact, the coercive sector.
- David Osterfeld
Characterising proponents of the free-market as extreme is very common. The left do it because it simultaneously diverts attention from the catastrophe of 20th century socialism whilst exploiting that fact that our concern for the less well off usually exceeds our grasp of history or economics.
- Paul MacDonnell, "Open Republic Institute of Ireland"
"It is, indeed, part of the liberal attitude to assume that, especially in the economic field, the self-regulating forces of the market will somehow bring about the required adjustments to new conditions, although no one can foretell how they will do this in a particular instance. There is perhaps no single factor contributing so much to people's frequent reluctance to let the market work as their inability to conceive how some necessary balance, between demand and supply, between exports and imports, or the like, will be brought about without deliberate control. The conservative feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is is charged with keeping the change 'orderly'."
- Fredric Bastiat
Suppressing a market is a bit like squeezing a balloon — the trade will usually pop up somewhere else.
- Steven Harford, "Slate Magazine"
One of the worst fallacies in the field of economics - propagated by Karl Marx and accepted by almost everyone today, including many businessmen - is the notion that the development of monopolies in an inescapable and intrinsic result of the operation of a free, unregulated economy. In fact, the exact opposite is true. It is a free market that makes monopolies impossible.
- Ronald Reagan
"Our alternative is either to stick to a moral tradition which we haven't invented, which most people cannot explain, and which economists can only retrospectively account for, in order to maintain the present four billion people living on this world, or to give up and allow a large part of this population to die of starvation. I very seriously believe that capitalism is not only a better form of organizing human activity than any deliberate design, any attempt to organize it to satisfy particular preferences, to aim at what people regard as beautiful or pleasant order, but it is also the indispensable condition for just keeping that population alive which exists already in the world. I regard the preservation of what is known as the capitalist system, of the system of free markets and the private ownership of the means of production, as an essential condition of the very survival of mankind."
We all know how it
is being a kid. You have a certain amount of money to spend and you want
to maximise your return on that money. In a sweetshop situation, the stupidest
of children suddenly become mathematical and strategic geniuses. They become
like little economists as they weight up various options in the light of
their limited resources. They prioritise some things over others and come
up with a mix that satisifies lots of conflicting needs. (A few less cola
bottles and I can have that Refresher). And they figure out the cost of
it all down to the last penny.
- Brendon O'Connor. on sweetshop economics, "The Irish Independent"
"And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department."
- Philippe Legrain
BIG BUSINESS & REGULATION
Regulation - which is based on force and fear - undermines the moral base of business dealings. It becomes cheaper to bribe a building inspector than to meet his standards of construction. A fly-by-night securities operator can quickly meet all the S.E.C. requirements, gain the inference of respectability, and proceed to fleece the public. In an unregulated economy, the operator would have had to spend a number of years in reputable dealings before he could earn a position of trust sufficient to induce a number of investors to place funds with him. Protection of the consumer by regulation is thus illusory.
- Francis Fukuyama, "The Great Disruption"
The minimum wage law very cleverly is misnamed. The real minimum wage is zero. That is what many inexperienced and low skilled people receive as a result of legislation that makes it illegal to pay them what they are currently worth to an employer.
- Thomas Sowell
Go into the London Stock Exchange - a more respectable place than many a court - and you will see the representatives of all nations gathered there for the service of mankind. There the Jew, the Mohammedan and the Christian deal with each other as if they were of the same religion, and give the name of infidel only to those who go bankrupt. There the Presbyterian trusts the Anabaptist and the Anglican accepts the Quaker's Promise.
- Voltaire
"There were in this country two very large monopolies. The larger of the two had the following record: the Vietnam War, Watergate, double- digit inflation, fuel and energy shortages, bankrupt airlines, and the 8-cent postcard. The second was responsible for such things as the transistor, the solar cell, lasers, synthetic crystals, high fidelity stereo recording, sound motion pictures, radio astronomy, negative feedback, magnetic tape, magnetic "bubbles", electronic switching systems, microwave radio and TV relay systems, information theory, the first electrical digital computer, and the first communications satellite. Guess which one got to tell the other how to run the telephone business?"
- Lord John Sainsbury
"We’re the most regulated
deregulated industry in the world."
- Anonymous Airline Executive
"If you're a small businessman, you have to get involved in government or government will wreck your business."
- Jack Faris, President, National Federation of Independent Business
Things that are bad for business are bad for people who work for business.
If in the criminal
law it is wrong to punish people unless they have been proven guitly of
a crime, why is it right that government regulations may impose enormous
economic burdens on people who have done nothing wrong? Isn't this a kind
of prior restraint that has no place in a free society?
If the 14th Amendment
prohibits the unequal application of the law, why are producers prohibited
from discriminating, while consumers can do so with total impunity? And
why can government regulate every profession but the press, arts, and clergy
- is this not a built-in inequality, a state-sponsored discrimination?
Almost all large companies
have call centres now. They are lean and efficient. They cut costs, boost
profits. They are also, according to the Future Foundation, the leading
cause of frustration in the British Isles, topping rush-hour traffic and
delayed trains as the UK’s most stressful experience... When I opened a
NatWest account, I would routinely ring the branch and talk to someone
who knew me, but that was before the advent of call centres, which enabled
banks to shave backroom costs by up to 30 per cent and boost profits to
their present record levels. The only thing rising faster than bank profits
(up 15 per cent in 2005) is complaints about bank service, up 50 per cent
in the same year, according to the Banking Code Standards Board. One gathers
that many of these complaints involve call centres, and that bank bosses
are concerned. In a better world, banks would simply improve their service,
but some have instead turned to ‘queueing theory’, a branch of mathematics
that enables you to calculate how much torture a customer can take.
- Rian Malan, "The Spectator"
Amid the mayhem on
world financial markets, it is becoming clear that capitalism's most dangerous
enemies are capitalists. No one can have watched the "subprime mortgage"
debacle without noticing the absurd contrast between the magnitude of the
failure and the lavish rewards heaped on those who presided over it. At
Merrill Lynch and Citigroup, large losses on subprime securities cost chief
executives their jobs -- and they left with multimillion-dollar pay packages.
Stanley O'Neal, the ex-head of Merrill, received an estimated $161 million.
Everyday Americans will conclude (rightly) that this brand of capitalism
is rigged in favor of the privileged few. It will be said in their defense
that these packages reflected years of service, often highly successful.
So? It's not as if these CEOs weren't compensated in all those years. If
you leave your company a shambles -- with losses to be absorbed by lower-level
employees, some of whom will be fired, and shareholders -- do you deserve
a gold-plated send-off? Still, the more serious problem transcends the
high pay itself and goes to the wider consequences for the economy. Wall
Street's pay practices perversely encourage extreme risk-taking that can
destabilize the economy. Subprime mortgage losses may simply be chapter
one.
- Robert J Samuelson, "The Washington Post" (Jan'08)
# ENTERPRISE
Competition is a by-product
of productive work, not its goal. A creative man is motivated by the desire
to achieve, not by the desire to beat others.
- Ayn Rand
There are no such things
as limits to growth, because there are no limits on the human capacity
for intelligence, imagination and wonder.
- Ronald Reagan, 1983
The current recession
has led me to ponder on the fate of small businesses — and to think of
how littl we praise or value the courage and enterprise of those who have
the creativity to start a business in the first place. To open and stock
a shop; to launch a restaurant; to create a business enterprise; or initiate
a service industry — these endeavours take faith, work, optimism and guts.
Yes, people hope to make money from their business ventures... But profits
have to be earned. You have to put in graft... In our culture we greatly
revere politicians and revolutionaries, judging, say, by the monuments
to O'Connell, Parnell and Wolfe Tone that abound... We like rabble-rousing
trade unionists such as James Larkin... and saints will always command
a place in the pantheon of Irish values... We honour poets, painters, playwrights,
musicians... We admire actors, and adore sportsmen and women. There has
been a conscious effort to increase the stock of scientists... By contrast,
there if a tradition of almost despising business people and hardly ever
honouring their achievements. Yeats said it all when he wrote of shopkeepers
"fumbling in a greasy till", adding "the half-pence to the pence", and
thinking them an ignoble destiny for Ireland... I don't disparage teachers
or civil servants or administrators in high places, but they are never
required to take the risks that entrepeneurs take to realise a successful
business — or to see a dream fail, either... Wish business luck through
this recession — on their survival depends so much of our civilisation.
- Mary Kenny, "The Irish Independent" (Oct'08)
At the end of the 1980s
two American academics, Jim Collins and Jerry Porras, began to research
what they termed “enduring great companies”, ones that had been successful
for decades — companies such as Disney, Sony, 3M (without whom no Post-it
note), Marriott and Hewlett-Packard. The authors’ aim was to identify the
characteristics that these companies all share and that distinguish them
from others. At the heart of the book is this assertion: visionary companies
are about “more than profits”. Profits are vital, but “they are not the
point of life”. Instead, companies adhere to core values and purpose, a
core ideology that gives the company its character and its reason to be.
Around the maintenance of these values, a fanatically disciplined, cult-like
organisation is built. Everything can change, everything must change, but
not the core ideology. However, Collins and Porras argue that the biggest
mistake you can make is to fail to distinguish between core ideology and
non-core practices. Take IBM. The “three basic beliefs”, as defined by
the founding fathers of that company, are “to give full consideration to
the individual employee, spend a lot of time making customers happy, and
go the last mile to do things right”. As the authors observe: “Nowhere
do we see anything about white shirts, blue suits, specific policies, specific
procedures, organisation hierarchies, mainframe computers — or computers
at all for that matter”. Or take the Disney Corporation. Part of its core
values and purpose was “to bring happiness to millions” and to promote
“wholesome American values”. It did not define itself as a film company
just for children. Good thing too, or we wouldn’t have had Touchstone Pictures.
Indeed, it didn’t define itself as a film company at all. Good thing too,
or we wouldn’t have had Disneyland.
- Daniel Finkelstein, "the Times"
For many business owners,
getting the most out of staff is a perennial problem. In the case of fruit
farmers, perhaps perennial is the wrong word: Workers show up for the summer
harvest only. In a couple of weeks, the pickers here in Great Britain will
be heading home, usually to a university somewhere in Eastern Europe. Tough
work for the fruit-pickers, the business is also a headache for the owner,
who must offer a pay scheme that both satisfies minimum-wage laws and motivates
workers in an industry in which slacking is an understandable temptation.
The owner of a large British fruit-farm business, "Farmer Smith," was pondering
the problem one Christmas when he discovered that the connection between
pay and performance was also an area where economists were scratching around
for solid evidence.
...
And so an unlikely
alliance was formed between Farmer Smith and economists Oriana Bandiera,
Iwan Barankay, and Imran Rasul. The owner had been paying a piece rate—a
rate per kilogram of fruit—but also needed to ensure that whether pickers
spent the day on a bountiful field or a sparse one, their wages didn't
fall below the legal hourly minimum.... Bandiera and her colleagues proposed
a different way of adjusting the piece rate: Managers would test-pick the
field to see how difficult it was and set the rate accordingly, thus preventing
the workers from engaging in a collective go-slow. The economists measured
the result. By the time the experiment was over, Farmer Smith's initial
skepticism had long evaporated: The new pay scheme increased productivity
(kilograms of fruit per worker per hour) by about 50 percent.
The next summer, the
researchers turned their attention to incentives for low-level managers,
who would also be temporary immigrant workers but who would be responsible
for on-the-spot decisions such as which workers were assigned to which
row. The researchers found that managers tended to do their friends favors
by assigning them the easiest rows. This made life comfortable for insiders
but was unproductive since the most efficient assignment for fruit picking
is for the best workers to get the best rows. The researchers responded
by linking managers' pay to the daily harvest. The result was that managers
started favoring the best workers rather than their own friends, and productivity
rose by another 20 percent.
Small wonder that
the economists were invited back for another summer. They proposed a "tournament"
scheme in which workers were allowed to sort themselves into teams. Initially,
friends tended to group themselves together, but as the economists began
to publish league tables and then hand out prizes to the most productive
teams, that changed. Again, workers prioritized money over social ties,
abandoning groups of friends to ally themselves with the most productive
co-workers who would accept them. In practice, that meant that the fastest
workers clustered together, and again, productivity soared—by yet another
20 percent.
The series of experiments
provided a fascinating confirmation that financial incentives can trump
social networks, with some precision and much detail about the mechanisms
involved. Bandiera and her colleagues have now stopped the experiments,
in the belief that there is nothing more to be gained from this particular
seam of inquiry. The owner does not seem to agree: He's hired a consultant
to keep on hatching new performance pay schemes.
- Tim Harford, "Slate
Magazine"
#