Later On

A blog written for those whose interests more or less match mine.

Giving the devil his due

with 3 comments

Brad De Long has an extensive piece by Milton Friedman on his blog, and I read it with interest. I think that Friedman fails to recognize that what he calls “economic freedom” can lead to a considerable loss of personal freedom. The problem lies not in the system as he presents it (small merchants and individual dealers buying and selling at a personal level) but rather in the accumulation of economic power as businesses grow, gradually buying or wiping out smaller competitors, and their impact on the freedoms of daily life. Some counterbalance in power is required—more than the individual employee or consumer can command. To me this is evident, but free marketeers generally tout the power of the individual to choose not to buy or not to work. Leaving a job is, for these proponents, a small matter, but for most of us, having families to support and mortgages to pay, leaving a job is very big deal indeed, especially if the employer is pretty much the only game in town. It may be that the employee hasn’t the money to move elsewhere and look to start over in some other career. Here I’m thinking of the power coal companies have on coal towns and how happy those companies would be to reduce costs by eliminating safety procedures—and how they often do that, illegal or not. But there are also airline companies, eager to avoid inspections and maintenance, food companies happy to package foods made with harmful chemicals, toy manufacturers eager to cut costs no matter what the risks to children, and so on.

Written by Leisureguy

3 August 2008 at 9:44 am

3 Responses

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  1. I think a great deal is lost in both understanding and chance of solving the problems we face when we believe there are these faceless “companies” who are “eager” to harm their own customers. I’m always fascinated by the demonization that happens between Left and Right. To the conservative, the problem is welfare moms bilking the system by having bastard after bastard, all the while complaining that “the man” is keeping her down. To the liberal, the problem is the executive, cush in his private jet, chuckling over the pennies he will squeeze out of the hardworking poor as he feeds them cheap poison and counts his lucre.

    Both are quite nonsense, but then both sides also defend their hero/heroine, suggesting that everyone on welfare is doing all they can to find work but is forced by outside forces into her dire plight, or that every executive is deeply concerned with his customers’ well being but is forced by outside forces into his best-he-can-do choices. That’s nonsense too. There are definitely people out there who are light on morals, and I’ve seen them rich and poor.

    Its time to let go of our stereotypes, our assumptions of motives most foul or sublime, and look at the actual incentives, motives, and real reactions of the parties.

    Airline companies are not eager to avoid inspections and maintenance. They hate having their extremely expensive airplanes fall out of the sky, together with the truly horrific PR that accompanies it. Left completely unregulated, I assure you that airlines would still perform inspections and maintenance. How do I know? Because Aeroflot does inspections and maintenance, and if anyone wouldn’t, it would be Aeroflot. And still, even at their worst (and wow was it bad for a time there), Aeroflot airplanes were not falling out of the sky.

    Airlines would absolutely inspect even if there were no FAA telling them to. But they would likely inspect to a much lower level. Airplanes wouldn’t fall out of the sky, but there probably would be more accidents, just as there are many, many (many!) more automobile accidents. Yet we do not heavily regulate drivers the way we do pilots, nor car maintenance as we do airplane maintenance. We could. We don’t. Is it because we distrust airlines more than we distrust private drivers? It shouldn’t be; we see how often private drivers crash. But we find it more palatable to regulate “them” rather than “us.”

    What about food? Typically when we have these outbreaks, I haven’t noticed the root cause being some Snidely Whiplash in the back room telling the handlers to look the other way as he dumped contaminated produce he got on the cheap into the line. Instead, it seems to usually be some small goof in a really huge system that gets multiplied because of the hugeness of the system. There has always been contaminated food, even when food was provided by a small, local farmer who really, deeply cared for all his customers who he knew personally. In fact, I strongly suspect you’d find that there was far *more* contamination incidents under that model. The difference is that an “incident” under that model impacts a few dozen people in one neighborhood, and wasn’t global news. Now, an “incident” is nationwide. But… wait… it still only usually impacts a few dozen people. In the country. Out of 300 million people. The difference is news coverage, not safety. The safety has actually gotten much better under big companies. There’s more accountability when you’re a big target for lawsuits and government regulators, not less. Small-time operators who can move from place to place are exactly where you get your Snidely Whiplash characters; not in boardrooms with people who can’t disappear when the lawyers and police show up. But if you heavily regulate everyone, big and small, you entrench the big guys because the small guys can’t afford to break in. Funny the trap you get with regulation, no?

    I’m not letting big companies off the hook here. They should be regulated. They do have an unfair balance of power that requires government intervention to correct. But they should be correctly regulated. We should be constantly looking for the least possible regulation that addresses the problems, not the most possible regulation that doesn’t put them out of business. And we should focus regulation on removing externalities to require businesses to balance the full cost against the full profit, rather than stepping in with so many “do exactly X, Y, Z, a, b, c, d,…..” That high regulation approach actually takes the companies too much *off* the hook. They get so say “we followed all the regulations, not our fault.” That’s the wrong model.

    Trust that most people are people, and people are both self-interested and yet generally not evil in their nature. Look for where the system is really failing, or where the incentives are really out of whack, and apply fixes there. But really, the system is kind of working. This is the messy middle that is the hallmark of a good system. Look to the turn of the 20th Century for a demonstration of when it wasn’t working; then compare. We’ve made a lot of progress in 100 years.



    4 August 2008 at 7:48 am

  2. Well stated and persuasively argued. And yet we do find airline companies that have avoided legally required maintenance and fight against mandatory safety modifications. We find tobacco companies fighting tooth and nail against the idea that cigarettes are harmful, even creating fake institutes to muddy the findings. We find automobile companies fighting against making automobiles safer, to the extent that safety glass had to forced into cars by legislation, window by window. I recall the president of General Motors testifying to a Congressional committee that a collapsible steering wheel that would work for both a 300-lb linebacker and a 90-lb grandmother was impossible and could not be made, and yet when collapsible steering wheels were required, had them within a couple of years. Right now the beef industry is fighting tooth and nail against a company that wants to test all its cattle for mad-cow disease (in order to sell to Japan). Coal companies routinely have fought against demands for safety procedures and, when they can, have ignored safety procedures. The current head of the Consumer Product Safety Commission actually fought against the agency being given more money to better check toys (made in China) for lead content. You will recall the pets that died because their food, made in China, was adulterated with toxins—deliberately. The contaminated meats (mostly hamburger, it seems) seem to be traced back to companies not following regulations and proper procedures. The toxic dumps companies have created are generally to save money and frequently violate laws regarding disposal. And when companies are asked to clean up the toxic wastes, they fight it tooth and nail. Companies will lock fire exits, regardless of regulations.

    If companies are rewarded by profits, as they are, then the officers of those companies will spend considerable thought and effort at doing whatever they can to increase those profits, at whatever cost to employees, customers, and (indeed) stockholders. They will cook the books, as we’ve seen time after time—deliberately and in violation of the law. (Enron, anyone?) They will create false scarcities so that they can charge more. (Enron, anyone?) They will fight anything that increases costs—paying overtime, for example, or following safety procedures that cut into production efficiency, or using ingredients/components that cost anything more than the absolute minimum,

    With a little Googling, you can find examples of all of the above. I don’t deny that small companies also violate ethical practices: the neighborhood butcher with his thumb on the scale is a well-known stereotype. But big companies affect many more.

    I totally agree, of course, that regulation should be sensible and address the actual problem, not a stereotyped lengthy series of steps to be mindlessly followed.



    4 August 2008 at 8:18 am

  3. Let me rephrase that. 🙂 I replied instantly because, truthfully, I do have some issues with large companies and their practices. I want to print out your thoughtful response and provide a more thoughtful answer. I do stand by what I wrote above, but much of it was an eruption and not really in response to what you wrote—as you could probably tell. So later I’ll post a more temperate response.



    4 August 2008 at 8:48 am

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