… is from page 388 of the 1975 HarperPerennial printing of the third (1950) edition of Joseph Schumpeter‘s brilliant (if strangely flawed in places) 1942 treatise, Capitalism, Socialism, and Democracy:
The businessman who is incessantly thrown out of his stride not only by having to face ever new institutional data but also by having to be “up before” this or that board, has no steam left for dealing with his technological and commercial problems. It is highly revelatory of the mechanistic attitude of economists and of their remoteness from “real life” that not one in ten will recognize this particular “human element” of what is after all a human organism…. Nor is this all. Success in conducting a business enterprise depends under present conditions much more on the ability to deal with labor leaders, politicians and public officials than it does on business ability in the proper sense of the term. Hence, except in the biggest concerns that can afford to employ specialists of all kinds, leading positions tend to be filled by “fixers” and “trouble shooters” rather than by “production men.”
Schumpeter here identifies one of the most important of the “not seen” costs of command-and-control regulation: the improved production and distribution techniques, the innovation, the business expansion that never occur not only because of the time and talent that are diverted away from business proper into dealing with government officials and their diktats, but also because of the structural change in businesses that takes place over time as they – both individually and when reckoned as groups – adjust both to government-created impositions and to government-created opportunities to gain special privileges at the expense of others. Business people dealing with government in attempts to protect their legitimate profit opportunities as well as to win from the state illegitimate opportunities to steal rents from others are business people not managing and innovating in the best interests of the general public.
