Can Government Make a Business Run "For The Good of Society" ?

The New York Post recently reported that a judge in Indiana has temporarily barred Starbucks from closing 77 Teavana stores that were failing because “the very profitable Starbucks could absorb the financial hit”. Industry experts said the ruling will send a chill down the spines of distressed retailers, and with good reason! The prospect of not being able to shut down an outlet that is bleeding the rest of the business may have countless unintended consequences that will affect not just owners but consumers in general. Firms are likely to take this as a signal to be more cautious about opening up new stores, and become reluctant to invest, take risks, and employ people in the first place. Customers stand to lose.

Amidst the debate upon the justice of the justice in question, I heard a voice clamour, “The question is not of profit, but whether a business should be run for society or society should be run for business!” and to be quite frank the claim struck me at first as vacuous; professing much while saying very little. Yet we must admit that throughout history many governments have believed they were “serving society” (rather than the business community) by forcing companies to fix prices, continue operations at a loss, or even subsidising or bailing them out with public funds. Many have believed this is in the interest of “the greater good.”

Could it be that government forcing Starbucks to maintain unprofitable stores – in some circumstances – would be good for society?

First we should examine the use of the word “society” itself. Rather than bring clarity, it obscures the issue, making it more difficult to apprehend the facts of the matter. Who exactly is society and how do we measure what is and isn’t good for it? Society is made of a whole bunch of different individuals and groups with different interests, and what is good for one might not necessarily be good for another.

It’s not that keeping a Teavana open despite the owner’s desire to close it won’t be good for anyone; clearly the proprietor of the shopping centres is willing to fight hard for what they stand to gain, and certainly regular patrons will be happy to be able to get their regular cup of chai before leaving a hard-days-shop. However, the point is the move privilege a few individuals who want to continue going to those outlets at the expense of everyone else in the area who has demonstrated that they would rather something else opens up in that space instead. Starbucks then will need to recuperate the loss somehow or other, perhaps by increasing prices slightly at all other locations. If the locality can only sustain the demand for three tea houses and the unprofitable Teavana happens to be the forth then they are also bleeding demand away from the other three, and so on. We can continue counting negative consequences to other parties.

If Starbucks are deprived of however many millions it costs to operate 77 unprofitable stores that is less money they have to invest in stores that are wanted by enough people to keep them afloat. It’s less cash for shareholders who will take it out to the shops to spend it or reinvest it in other businesses, it’s less for Starbucks customers who have to pay slightly more for a cup of coffee and therefore don’t have to spend on something else, it’s less for Starbucks employees who might have to forego a raise because there is less to go around..

Clearly the effect of this policy is not something that can be broken down into whether it ‘benefits society’ or not. All we can say is that it benefits some groups and harms others.

It seems ironic to me that most of those who will cheer on the judges ruling, forcing Starbucks to run 77 tea outlets – against their own interests – for the interests of others are probably the most likely to complain when a Teavana opens up that it will “drive out” locally owned tea houses (which are probably actually collapsing under the strain of the regulations they have to comply with, not being able to afford Starbucks team of expensive lawyers and accountants.) If anything you’d think this crowd would be cheering on the closures! As they carry with them a certain prejudice that whatever vexes big business is necessarily good for the rest of us, we can only conclude that supporting the ruling is less about what is good for society and more about what is bad for Starbucks.

Source: Seeing Not Seen – Can Government Make a Business Run "For The Good of Society" ?

Surplus Value

It’s still a very prevalent view that employers are somehow exploiting the people who work for them when they draw a profit from their business, despite the fact that a person’s employer is clearly doing more for that person’s finances than all of the people who are not employing them. I must add, perhaps somewhat facetiously, including those keyboard-warriors who claiming that entering someone into employment is exploiting them.

It is true that workers do get paid less than the total value of what they produce, but that is because what they produce is made with other resources which have to be bought, and in a factory or work place which has a price and requires overheads to operate. The capitalist is responsible for paying for marketing and advertising to link the product to potential buyers – and at the end of the day, if the product doesn’t sell, everyone else has already been paid but the capitalist walks away with the loss.

The capitalist lays out a vision of what he thinks will meet people’s needs better than they are being met at present. This requires a particular expertise which is in itself a labour contribution over and above that of the other employees which is unique to the entrepreneur. If his vision is clear, indeed he will make a profit. If it is faulty he will make a loss. This is not a necessary risk, absent the profit motive a rich person is more likely to buy a bigger house or go on a cruise. But the capitalist takes a risk now, and foregoes consumption, in hope that he will reap the benefit later. That is part of what he is being paid for.

Another part of what he is being paid for is the time between making the investment and getting paid for that investment. We would all rather have resources in the here-and-now than some time in the future, because the future is uncertain, that is why lenders can charge interest on money that they borrow. They are choosing to forgo a smaller amount of consumption now for a larger one in future. The workers get paid now, the capitalist gets paid later only after the product has sold, and only IF it is sold, after everyone else has been paid. Austrian Economist, Eugen von Böhm-Bawerk explained that far from exploiting labour, the capitalist removes the burden of waiting for income from the workers. If they wanted to produce the goods themselves they would also have to wait until they could find a buyer before gaining a stable wage, and first save or borrow in order to accumulate the resources to buy a factory or workshop without the help of the capitalist.

Finally, it’s worth mentioning that the capitalist is increasing the value of the workers labour! If a man decides to try out the same manoeuvres which might get them somewhere in a factory out in a field it will not produce much of value to anyone else. Clearly workers can earn more working for their employer than for themselves otherwise they would simply declare themselves self-employed and get on with making a higher income. Perhaps some of them can earn more working for themselves but do not want to take on the responsibilities entailed which are currently met by the firm which employs them. This too is evidence that capitalists are providing value.

Marxists hold that capitalists simply skim their profits off the top while providing no value of their own. That they are “extracting surplus value” from their workers. But if that was true, non-profit organisations would just swoop in and undercut profit-making firms by eliminating the “dead weight” costs of paying a capitalist. They do not because they cannot. Capitalists are clearly providing some competence or vision which benefits their workers. Each benefits from the mutual exchange, as evidence by the fact that if the worker could get a better deal s/he would take it, and if the employer could find a better worker s/he would hire them instead.

Ultimately, wages are not an arbitrary figure but a reflection of how much value an employee is able to provide to a customer. If a person wants to do away with an employer they can do so by learning skills, either on the job or on the side, which will allow them to work for themselves. Likewise, profits are not arbitrary but a reflection of how much value a company is providing on the marketplace. Provided – of course – that they are drawing their profits from serving the market place rather than lobbying or appealing to the state, but that is another article.

“In order to show that it is a half-truth, we must have recourse to long and dry dissertations.”
– Frederic Bastiat

Source: Seeing Not Seen – Surplus Value

Human Action for Beginners

The Austrian Economist Ludwig von Mises (1881-1973) authored his Magnum Opus Human Action (1949) in which he laid out his case for laissez-faire capitalism based on  a rational investigation of human decision-making. Mises, and the work by extension, is often maligned for “rejecting the scientific method” but this criticism is based on a lack of understanding of Mises’ arguments. Admittedly, while few of his critics have read the man himself, Human Action was not exactly written with a lay audience in mind and so the basis of his ideas cannot be easily grasped at a glance. In the interests of clarity, allow me to make his case for him in my own words.

Mises did indeed attest that  the empirical method (positivism, or the scientific method) is not the correct methodology for reaching reliable conclusions on matters of economics. However, he did not reject the scientific method. He merely pointed out that the empirical method is ideal for matters of the natural sciences because when it comes to inanimate objects results are predictable. This is because the natural world is deterministic. Copper always melts at 1,085 °C. That which does not melt at 1,085 °C is not copper. Human beings, however, have differing values, tastes and information all of which strongly influence their decision making. Will a person buy a hamburger at half price? Certainly many more will than at full price, but for example I will not because I am a vegetarian. Some people will buy twice as many. It all depends on their individual ideas, expectations and preferences.

When it comes to matters of economics there is no way to set up an experiment and control for all factors as we can in a laboratory. We cannot, say, increase the minimum wage in one region to measure the effects on overall employment and compare it to the effects in another region where it is not increased, firstly because the implementation (or lack of it) in one region will also affect the behaviour of individuals in the other (some may move to take advantage of higher wages, others may stay to take advantage of cheaper labour costs.) Secondly because an economy is complicated, and thousands of other factors would also be at play in both regions which cannot possibly be controlled for. We cannot say (for example) that just because employment rose in one region after a minimum wage increase that this change was due to the minimum wage increase, only that it happened. Because we have no counter-factual there is no way to tell if employment would have increased even more if the minimum wage increase had not been enacted.

Thus, Mises attested, a more suitable method of approaching economic questions would be necessary than the empirical one, based upon the foundation of certain axioms about human nature which could be reached by introspection (or thymology as Mises labelled it to distinguish from different uses of the term introspection) In the interest of brevity and simplicity we only need to consider three of these; and I will explain why each should be uncontroversial.

The first is that humans act. This claim is hard to argue against because the very act of doing so would be to make a performative contradiction. The second is that when people act, they do so in order to substitute a state of affairs which they consider preferable for one they consider less preferable according to their own values. Again, I see no argument against it; if one is completely satisfied with their situation as it is they do not but stop. Even the attempt at meditation or mindful acceptance of the present moment is based on the impulse to substitute a pleasant state of surrender to circumstances outside of ones control for a less pleasant state of resisting them. Finally, I add, that people respond to incentives. This axiomatically true because what people do not respond to can hardly be considered an incentive – by the very definition of the word.

(To anticipate a potential objection I draw an analogy; some people might scold a dog for poor behaviour in the hope of stopping that behaviour, without realising they are reinforcing the behaviour because the dog may enjoy negative attention better than no attention whatsoever. This does not mean that the master is failing to incentivise the dog; it just so happens that he is not incentivising the dog to do what he thinks he is.)

An acceptance of these three axioms (for which their is unlikely to be any disproof) reveals that it is incentives which guide economic decision making among individuals. This we all accept, if not in our conscious philosophy, than by our actions. To illustrate with our earlier example of the half-price hamburger, the business owner offers this deal in the hope of selling more burgers by creating knowledge of his product. (One might argue that not everyone will respond to incentives, illustrated by the fact that I will not buy the burger because I’m a vegetarian – but in fact in my case the incentive is simply not great enough to suit my values; were the price of the burger was -$10 I might well take the money and give the burger away to a homeless person.) Even our policy-makers are led by their unconscious acceptance of these axioms, for example, they may put a tax on alcohol do discourage its consumption, while placing a subsidy on a solar panel to encourage its use. These are not policies guided by the empirical method which is better suited to the natural science, but by the aprioristic understanding that humans act, and in their actions they respond to incentives. That is the method, named praxeology, which Ludwig von Mises advocated.

Source: Seeing Not Seen – Human Action for Beginners

Slavery did not advance Western Civilisation.

Every now and then someone will say something like “Despite the fact that slavery was immoral the modern world was build upon slavery and we owe the lifestyle we enjoy to the sacrifice of slaves…” Sounds compelling – except its not true. Slavery held back the advance of civilization because its pointless to innovate, invent or automate when you have (free) slave labour. Absent slavery the agricultural revolution may have begun decades earlier. Slavery was an abomination, and positive ends can never become of corrupt means.

Source: Seeing Not Seen – Slavery did not advance Western Civilisation.

NHS Performance Review

The National Health Service in the United Kingdom is a paragon of efficiency in the allocation of healthcare services…right?

By Antony Sammeroff


The NHS budget has doubled in real terms over the last 20 years but waiting lists are longer than ever! A shocking 4 million people languish for hospital treatment and at current trends this number is set to rise to 5 million in 2019 unless we do something to reverse them.

The truth is we do not have universal healthcare in the UK but rationing. In Britain more than one million people are waiting to be admitted to hospitals at any one time. 25% of British cardiac patients die waiting for treatment, delays in treatment for colon and lung cancer patients have been so long that 20% of the cases were incurable by the time they finally received care. The elderly simply are not given access to particular services – period. We also do not have equality of access among rich and poor as many people would like to think. The Guardian revealed that the more socially deprived an area the worse the quality and access to care on the NHS is likely to be.

Profligate waste and severe inefficiencies within the system which cost not only the tax-payer, but human lives. Data from the government shows that a stay in an NHS hospital costs around £400 per day, whereas a typical private hospital stay is almost a third cheaper at around £275 per night. In 2014 an NHS efficiency league table revealed that some hospitals that were spending eight times as much as others to buy the same items – sometimes at an expense of up to £600,000 a year. Correcting this could save £1 billion across a £14 billion budget. Continue reading “NHS Performance Review”

Three Psychological Stages of Political History

I have a wacky theory about the history of ideas (or history proper as Mises would consider it.) When a child is born as far as s/he is concerned the parents are God. They are the authority on what is correct and what is false, they are also morally absolute. Their defining attitude towards their parents is a big “yes.” Even if the parents are cruel or abusive, it must be me at fault not them – since they are the authority. At some point between 2 and 7, then later again in the teens, the youngster begins to assert their individuality by rebelling against the parent, the more the parent tries to apply authority and demand certain behaviours, the more the child will rebel against this authority with a resounding “no!” The child feels empowered by making the parents feel out of control emotionally, s/he asserts their dominance over them because the parents want compliance, and the child has the power to mete it out or not – causing the parents an easy time or grief. If the response to this “no!” is overly authoritarian or permissive and lacks engaging with reason and appropriate boundaries bad patterns can be set for life. The child can become compliant and later susceptible to peer pressure as he gets stuck in “Yes” or overly rebellious (even to his/her own detriment) and stuck in “No.” From this point on any instructions or even mere advice from others – sometimes even from oneself – result in the involuntary impulse to rebel, stick heels in, and refuse to comply even if the request is in the child-now-adult’s interests. This can create tremendous problems including a lack of self-discipline and relationship tumults. A wise parent manages to avoids unwittingly molding this kind of character by creating opportunities for his children to say no and rebel to safe and relatively trivial things. For example s/he does might not tell them not to smoke, know that if s/he does they will smoke. Perhaps they will be told not to climb that tree or to play in the muck instead, something relatively innocuous.
A mature person is able to say “yes” or “no”. Without the ability to say “no” a “yes” is utterly meaningless because it does not come from the person’s individuality. A “no” without consideration is also a counterfeit individuality, it makes one feel like they are having a say but actually they are purely governed by involuntary impulses as sure as those of the “yes man” or people-pleaser. The new man says “yes” to life; and in that he in many ways seems similar to the primordial man, but there is a critical difference – his yes to life is out of fully integrating all previous stages of development rather than an arrested development.
It’s my assertion that maybe we have seen a similar evolution in the political sphere. Classic Liberalism arose as a response to a form of conservatism that was very much a “yes” to authority; the authority of the state, aristocracy, church, powers that be. The authorities of the time were very puritanical and their morals and social norms severely restricted the freedoms of people in terms of whom they could marry (usually whom their parents decided) what they could do for a living (what their parents did) what they could own (most of it belonged to their lord, many could not own land) what they could put in their body (moralizations about alcohol) what they should learn and read (mostly the bible) how they could pray (no pagan gods, no Judaism, etc.) and so forth. Now the arrival of liberalism was a resounding “No!” to authority. In a Hegelian fashion it formed an antithesis to the prevailing mores of the time. It continued to develop into other rebellious schools of thought that claimed to rebel against the prevailing authorities: socialism, marxism, communist, progressivism, &c. and reached its hedonistic peak in the 60s with the free love movement and all the big government and welfare programs – but it went to far too fast for a first attempt and soon there was a reaction against it which turned the tide back for a while. After the 80s it came back swinging though and has reached its second crescendo today with the social justice warrior movement. This has become the new thesis and it required an antithesis to counteract it. Clearly I believe that is libertarianism. It is the new man who integrates all previous stages of development in his evolution. In many ways it seems to harken back to certain “conservative” concepts which liberalism reacted against, but in reality the context of the acceptance of certain aspects of authority and tradition is now based on reason (“they have been shown empirically to work better than all that libertinism”) rather than authority alone.
What do you think of my thesis? Are you the new wo/man?

Source: Seeing Not Seen – Three Psychological Stages of Political History

If you’re not growing you’re dying.

It takes a long time to make changes in public institutions. You have to get enough of the public interested to make it an issue, you might need to get into the media which itself is a hell of a job and even if you do rouse some attention the best most people can hope for is to vote, and they need to vote for one of the package deals on offer. Even if your reform is quite modest and sensible and its benefit is uncontroversial, it may be adopted by a party who have several other ideas on your mind that you disagree with. There is another path, and that is to get a small concentrated number of people who already have a lot of influence to get on board with your ideal and push it through as a bill but even then the matter is not settled; it needs to go through levels of bureaucrats, managers and administrators before the change enters into the system at large and even then many employees will resist the change because they resent being told what to do by central planners.

If we take the example of our education system there has been no small amount of evidence on how to improve it since the 60s when a wave of intellectual idealists from the flower power generation began discussing how “getting things right” when it came to government could change the world. Some of this data has been around for over fifty years, some of it is still coming out. Have these reforms not been adopted for a lack of political will? Yes to a degree but also because of the insurmountable obstacles to mustering the political will. The largest is the simple fact that most people are more comfortable doing what they have always done than doing something new. Doing things differently is anxiety-provoking and it is very irritating to be told or forced to do it by an authority figure, even one who has the evidence on their side, when you think, “Well I have been on the front lines doing it this way my whole life, this is how I was taught to do it in four years of university I think you’ll find I know how its done thank you very much you government busy body.”

One of the reasons why markets are so important, and why products adapt to user preferences far quicker is because only one person needs to be bothered enough to accept a new innovation in order to force all the other providers in their sector to step up and do a better job. They can do that by matching the innovation, by implementing one that is equally valuable, by providing an inferior service but at a lower price, or in numerous other ways – but the fact is they have to step up and serve customers or on average over time they will be out of business. This means people don’t even need to all be receiving the same service or a one-size-fits-all but it does mean that services that are way behind the times will fall out of favour. Public institutions are not under the same pressure to adapt to the times because people cannot divest from them easily since they are funded through the tax system rather than voluntary contributions that can be withdrawn if the service is poor, and also because they have a relative monopoly on the provision of services in their sector which means that people can’t compare their performance to those of competitors who are trying different approaches which may have their own advantages or drawbacks.

People need to have a choice when it comes to services if the quality of services is to increase and not stagnate or fall behind the times. This is not because “ruthless tooth n’ nail capitalist competition drives innovation” but simply without the petri-dish of trial and error which is a multitude of entrepreneurs with different information and ideas trying to sell them to a skeptical public there is really no way of discovering the best way of doing things. No one has all the answers, but many people have some of the answers, and by constantly turning over the soil society learns to combine the best ideas and discard the worst ones over time. The soil of government turns very very slowly and that’s why innovation in the private sector continues (despite various government restrictions on who can innovate) while public institutions stagnate and become more expensive each year while providing poorer standards to the people.

Source: Seeing Not Seen – If you’re not growing you’re dying.

6 Reasons Why Healthcare is so Expensive in the USA

– In many states if you want to open a hospital you are obliged to go before an official board and demonstrate that the community needs this hospital and that you are willing and able to fund it all by yourself. The people on the board are going to be the big hospital administrators from already existing institutions which the new hospital who want the competition like a hole in the head.

– Nineteen states are even limited to having only a single medical school! There are only 123 in the US despite thousands of perfectly capable students being turned away every day.

– Not everything a doctor does requires 7 years of training but the law requires everyone to have at least 7 years of training to do it. (In some cases a practitioner will have to do 4 years of undergrad, 4 years of medical school, then 3 years residency by the end of which many are so burned out and seriously debt laden before they even begin their career.) The natural prescription is to allow doctors surgeries, clinics and hospitals to train and certify their own assistants to take responsibilities off the hands of highly specialised staff so that fully fledged professional can focus their time and attention on what they alone are capable of doing. Healthcare costs would plummet.

– In December 2011, the Administrator for the Centres for Medicare & Medicaid Services, Dr. Donald Berwick asserted (as he was leaving his job) that 20-30% of health care spending in the US is going to waste. He listed the five major causes as over-treatment, failure to coordinate care, the administrative complexity of the system, burdensome rules, and outright fraud.

– One study found that per capita prescription drug spending in the United States exceeds that in all other countries, $858 compared with an average of $400 for 19 other industrialized nations, and the most important factor allowing manufacturers to set high drug prices was market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents.

– A Harvard Business Review analysis published in 2013 revealed that while the U.S. healthcare workforce grew by 75 percent between 1990 and 2012 a whopping 95% of the new employees were administrative staff rather than doctors or nurses meaning 9 administrative workers for every doctor. The Annals of Internal Medicine last year, observed 57 physicians found that 29 percent of total work time was spent talking with patients or other staff members and another 49 percent was spent on electronic record keeping and desk work.

I am writing a book called Why is Healthcare in America so Expensive if you want to get notified about it when it’s ready download my last book for free.

Source: Seeing Not Seen