In my December 27th, 2005, column for the Pittsburgh Tribune-Review I emphasized the reality that to endorse free markets is emphatically not to be “pro-business.” (Of course, nor is it to be anti-business.) You can read the column below the fold.
(For some reason, all but two of my Trib columns from late December 2005 through early April 2006 are unavailable on-line. They appeared only in print. I thank the editors of the Trib for sending to me the texts of these columns.)
Pro-free trade, not pro-business
Like most people who publicly endorse free markets, I’m often accused of apologizing for “business interests” — or worse, of prostituting my opinions by selling them to corporate America.
If the opinions I express in the Trib, in my blog (www.cafehayek.com) and elsewhere generally supported business interests, then it would be my word against my accusers’ word that my opinions aren’t motivated by a desire to endear myself to corporations. Fortunately for my reputation (if not for my wallet), I routinely express opinions that run counter to business interests.
If corporations were paying me to beat my drum for them, they would sue me repeatedly for breach of contract.
For example, if you show me a tariff, I’ll show you corporations that support this protectionism. By shielding domestic firms from competition, tariffs raise the profits of protected firms at the expense of consumers. Yet despite the great benefit that many businesses enjoy from protectionism, free-market advocates — including me — outspokenly and unconditionally oppose such protection. (The Virginia license plates on my car read FRE TRDE.)
The reason is simple: We understand that protectionism harms consumers and undermines widespread prosperity.
What about other issues such as minimum wages and “price gouging”? Like many economists, I oppose minimum-wage legislation. But this opposition has nothing to do with concern for businesses welfare. Instead, I worry exclusively about the low-skilled workers who are unable to find jobs because minimum-wage legislation prices them out of the labor market. I’ve spoken and written on this issue probably 2,000 times in my career without once having uttered any concern that legislated minimum wages reduce firms’ profits.
Likewise with “price-gouging” regulations. I — along with people far smarter than me, such as Milton Friedman and Walter Williams — do oppose such regulations. But we oppose them because they prevent consumers most in need of essential goods and services from being able to get them. We oppose such regulations because they give people with political and social connections — that is, mostly rich people — an unjustified advantage over ordinary folks at securing goods and services in short supply.
We oppose such regulations because they reduce the incentives of suppliers to work their tails off in difficult circumstances to rush critically needed goods and services to regions devastated by natural disasters. This opposition to ”price-gouging” regulations has absolutely nothing to do with any affection for businesses.
Many people suppose that to advocate free markets is to be “pro-business” and ”anti-consumer” and “anti-worker.” This supposition rests on the naive assumption that businesses profit only by harming consumers and workers.
In fact, firms producing shoddy products lose market share to firms producing products that consumers want. Firms charging excessively high prices lose customers to competitors charging lower prices. Firms mistreating their workers lose employees to firms treating their workers fairly.
Because free markets rest squarely on private property, no one in a market is forced to buy, to sell, or to work. Therefore, all parties to exchanges in markets generally are made better off by these exchanges. The only way GE can lawfully increase its profits is to find better ways to please consumers.
Of course, if GE succeeds on this front its rivals have a tougher time. Some may even go bankrupt. That’s what competition is about. Note, though, that firms don’t compete against consumers and workers; they compete against each other — a fact that renders silly the claim that those of us who endorse free markets are champions of businesses and enemies of consumers and workers.
Yes, yes, there are a few fraudulent business people just as there are fraudulent politicians. And these bad actors do indeed hurt consumers and workers (and, by the way, shareholders). But firms that defraud, cheat and steal violate the rules of private property and contract. Such firms should be penalized.
It’s one of the great benefits of markets that such antisocial behavior is typically exposed and punished quickly. As my Nobel Prize-winning colleague Vernon Smith points out, Enron’s fraud was uncovered not by regulators but by private investors. These investors immediately punished Enron by driving it into bankruptcy.
Of course, as with most criminal behavior, much damage done by the bad guys cannot be undone. But just as the latest damaging political scandal is no argument for dismantling government, no business scandal is an argument for turning against the market. Don’t forget that for every Enron and WorldCom, there are tens of thousands of legitimate, productive private firms — firms that prosper only by pleasing consumers and workers.