Horizontal vs. Top-down Control

When I was growing up I got really into the "grand" global conspiracy. I went to see David Icke speak with my brother in a relatively small room in Stoke on Trent around 2002. There were only maybe a couple hundred people in the audience.

Later on, around 2007, I got really into economics and libertarianism. I began to think a less about the "global" conspiracy. Suddenly most of what I saw going on in society could be explained by economic incentives. 

For one thing, people like free stuff, of course they are going to vote it for themselves whenever they can. They don't typically see this as looting the commonweal, living at the expense of their neighbour, but "fair" in light of the challenges they face in life. Society has never told public sector workers, for example, that this is shameful, all is fair under democracy. A vote is a vote and a policy is a policy.

As a corollary, those individuals that make up government want power - even if it is power to "do good" according to their own values. One way the government can get power, while garnering the support of the populace, is to bribe people with handouts. People who receive benefits are from the state are likely to be supporters of the state. All the public servants, school teachers, university professors, campaign contributors, not to mention the politicians themselves, are basically bought off with public funds to be tacit allies of government. In addition to this, they keep an underclass on welfare, who can always be relied upon to support the institution of government out of fear of starvation. 

When our societies were not very affluent, only a small percentage of people's income could be appropriated in taxes because, say, a "0% reduction in the average person's living standards would have  been huge. As we have grown richer, the total tax many people pay is far in excess of half of their income. This allows the government to have a far greater number of people than ever before on its payrolls to protest tax increases, however, it does not cause the tax-payer themselves to starve. In addition to this, they believe they are at least in receipt of some services that have come to be seen as impossible to provide without government by the great majority of people, including roads, hospitals and schools. By this final act, the support of even the net tax-contributors are won over to the idea of government, and all of this is explainable merely by the incentives of the system itself. This is what you could more or less expect to happen in an affluent democracy. 

It's power being solidified, it's not difficult for the corporations, who deal with huge sums of money, to buy the government. In fact they are incentivised to do so. As soon as a corporation gains a greater return on their investment by lobbying the government than they do from serving their customer, that is what they are going to do. This completes the circle. 

Organisations like WHO, IMF, World Bank and CDC work in the interests of the corporations, but people think they are "government" agencies; which they take to mean working in the public interest.  

Now, this doesn't mean I don't believe individual conspiracies take place. For example, murder of Jeffrey Epstein. Other conspiracies such as The Lavon Affair or Operation Gladio are even freely admitted to have occurred. It just means that I don't necessarily think these need to be centrally orchestrated in smoky rooms by the same cabal of powermongers. 

The term conspiracy theory, itself, is simply used to dismiss claims out of hand and relieve people of the need for further investigation. The term "conspiracy theorist" is synonymous with "nut," and it is popular to psychologize people who believe in conspiracies as having some strange motive to find patterns where there are none. However, someone can have psychological tendencies which drive them towards a position - and that position can still be true! One of the appeals of the "conspiracy theorists" in the pre-YouTube world was exactly that they would bring context to a media landscape devoid of it, where the media would portray complex events as a snapshot in time. For example, propagandizing the populace with the claim that, "Saddam Hussein gassed the Kurds," without showing either of the videos of Donald Rumsfeld, then the defense secretary, meeting with Hussein in the 80s to sell him weapons.

Like many, recent events regarding the Global Pandemic (or "Globalist Plandemic" to conspiracy theorists), like many, have really made me think again of the global conspiracy again.

A global conspiracy, of course, could exist, and by its very nature of being secret and covert we would not even know about it.

My question though, remains, what is actually the scarier thought?

If there are just a handful of evil men who are orchestrating world event, up to no good, then it is relatively easy to depose them.

If it is not a centrally planned conspiracy then the world becomes far harder to fix. You have a nice neighbour, but he doesn't believe you should be able to operate a hair salon without a licence. Your drinking buddies want to take your guns. Your churchmates don't think gays should be allowed to get married. Another friend says Soviet Russia wasn't real communism and real communism has never been tried. All the people at your local theatre group support you being taxed to pay for allopathic medical treatments that you disagree with, taking money from you to pay big pharma. Atheists want Christians to pay for abortions. Meat eaters want vegans to pay for subsidies to dairy farmers. 

In other words - control is not exerted upon you vertically, from above, but horizontally, by the very people around you, whom you love.

 

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.

Occupational Licensing

In 2015 Obama sent his council of economic advisers out on a fact finding missions to discover why job creation was so hard for the administration and this council - made up of a bunch of Democrats, right - not ideological free marketeers - concluded that demands for mandatory occupational licensing were creating terrible cartels, excluding workers and getting in the way of regular people wanting to start up businesses.

There are over 800 occupations that might require a licence in some states in America including a tour guide, manicurist, dog walker, librarian, locksmith, dry cleaner, auctioneer, fruit ripener, plumber, private investigator, Christmas tree vendor, florist, interior designer, funeral director, cab driver, shampoo specialist, glass installer, cat groomer, tree groomer, hunting guide, kick boxer, real estate agent, tattoo artist, nutritionist, acupuncturist, music therapist, yoga instructor and mortician.

On the back of people's justified fears of disastrous bridges being built by unqualified tradesmen and hapless patients being sliced open by quacks, government - with the help of protected industries - have managed to sell the myth that mandatory occupational licensing increases the safety and quality of services. People assume that if the government says its fixed its fixed. The reality is that mandatory occupational licensing far reduces the number of practitioners operating in any sector, and when consumers have less choice they have to take whatever they can get at whatever price they have to pay. As a result the quality of services can actually go down and prices up.

This is borne out by the empirical data:

After compiling a meta-analysis entitled, "Rule of Experts," S. David Young concluded “…most of the evidence suggests that licensing has, at best, a neutral effect on quality and may even cause harm to the consumers... The higher entry standards imposed by licensing laws reduce the supply of professional services…. The poor are net losers because the availability of low-cost service has been reduced.”

Stanley Gross of Indiana State University, had to concur, “…mainly the research refutes the claim that licensing protects the public.”

More recently economics PhD. Morris Kleiner released two publications (2006, 2013) for the Upjohn Institute for Employment Research demonstrating that licensing occupations does more to restrict competition that to ensure quality.

On a free market, the poor may have to sometimes settle for inferior services - but often that is better than no service at all which might be what they otherwise receive. Even so, the price of most services will come down over time if a multiplicity of firms are offering similar services: if not in price then in real terms as wages rise. There are more risks though. When people can’t buy services they might try to do their own work, their own electrical work, plumbing or dental work, this has often happened in the past, and sometimes the consequences can even be fatal.

Still, most people find it difficult to imagine how society might be protected from quacks without government-mandated occupational licences, so lets have a quick review of some of the market can account for this:

Market Competition. Consumers provide a large degree of regulation over markets by not repeatedly buying poor services and advising other customers of what to buy and what not to buy.
Consumer Watchdogs. Customers want to know which services offer the best value for money and are quick to consult experts in magazines or online for good information before they choose a provider.
Employer Discretion. Employers do not want to take on a poorly qualified civil engineer or plastic surgeon.
Registration. Third parties or groups of experienced practitioners can create registries of bonafide service providers. If a complaint is lodged against someone on the registry the administrators can investigate the case and strike them off if they are guilty or give them a warning.
Private Certification. In the absence of mandatory government licensing consumers will often want assurance from credible sources that the services they are going to pay for are of high quality - and more importantly - safe. Third parties can offer to certify practitioners that meet their standards.
Litigation. Customers already have protection under the law against faulty products or false advertising even in the absence of mandatory occupational licensing. The threat of being sued for causing damages is enough to deter most companies from releasing harmful products, if the threat of killing off their customers is not enough already.
Contracts. Customers can make explicit contacts with service providers to ensure they have recourse if they don't get what they think they are getting. If a company says the customer is getting x but gives them y the contract clearly delineates who is in the right and who is in the wrong.
Bonding. Individuals can engage in agreements in advance that involve third parties to ensure that payment is transferred when it is supposed to be.
Insurance. Customers can insure themselves against receiving faulty goods or receiving harm from services. In some cases the insurer will be able to bring litigation against the service providers for damages incurred offering a deterrent against providing poor services.
Jail. If the fact that it is not profitable in the long-term to kill of your customers is not enough to deter greedy capitalists from selling products that are physically harmful, the prospect of a jail term just might be.

Occupational Licensing simply come down to the government abolishing someone's right to provide services to someone else who is willing to buy those services, and then selling it back to that person at a fee. This is usually at the cost of several years in some educational institution where education in the necessary skills is dragged out over several years and supplemented with a whole bunch of written work that is superfluous to the exercising of those skills. The sum result of these policies are to drive otherwise capable people out of their passion because they are not academic, can't afford the education or the time off work, or can't look at another educational institution after the horrors of school. Willing students are saddled with debts and loss of work experience while they study and expect to recoup expenses from customers. All of this drives up the cost of products, reducing living standards for average people.

We see a real problem with this with the FDA when they allow highly dangerous foods - and people presume "the government has taken care of it, if it was dangerous it would be off the market" - when the opposite is the case. They have also held (and continue in some cases to hold) life-saving drugs off the market for decades at the expense of countless lives. They also have the monopoly on this service so it's impossible to compare their performance with any other agencies that might have had a much better record of making good judgements of food and drugs. With a multiplicity of firms acting in the sector you could compare their history for a sense of which might be the most reliable when it comes to what.

The Excesses of Capitalism

The government - we are told - is necessary to protect us from the excesses of capitalism, and whatever gripes the average person might have about their elected officials, almost all of them can agree upon this.

But there's a problem with thinking the government can ever enter the economy as a fair referee rather than merely playing into the hands of whatever factions are most rich, powerful, and influential; because as soon as a corporations can make more money by angling for government favours than they can by serving customers that is exactly what they are going to do. Not necessarily because they are evil - but because it becomes the rational thing to do.

On an open market where only voluntary exchanges are permitted a business can only turn a profit by  providing something that the general buying public wants. No matter how greedy the corporate fat-cats may be, if they fail to 'cough up the goods' (and services) that people want they will go to the wall. [all puns intended] In this way the market forces otherwise self-interested people to apply their self-interest to social ends.

Critics may still complain about "tooth and nail" competition, but at least on a free market firms are competing to serve you better and win your disposable income. As soon as the government intervenes in the economy one thing is for sure: companies will compete for control over legislative bodies and the strings of the public purse. This is where the real "tooth and nail" begins.

According to The Sunlight Foundation for each of the 5.8 billion dollars spent by America's 200 most politically active corporations between 2007 and 2012 on federal lobbying and campaign contributions by they got $741 in return in kickbacks and benefits.

To pay for these kickbacks tax-payers were left $4.3 trillion dollars poorer - but that's not all.  $5.8 billion was spent in political gaming instead of invested in jobs and product development. These incentives drive companies to misallocate resources by making products that the general public doesn't want profitable, and products that they do unprofitable. In other words, the government has become the client of these corporations rather than their customers.

Firms might lobby or contribute to political campaigns to earn the exclusive right to provide government with their products. This will give them a huge advantage over competitors even if they are producing inferior or more expensive services. They can lobby for subsidies on their own goods or tariffs on cheaper or superior competitors.They can get the government to pass laws about who can and cannot operate in their sector.

Mandatory licenses, fees, reviews, huge stacks of forms, inspections, make it expensive for small start up businesses to enter the market and compete on an equal playing field. Companies spend millions of dollars on accountants, lawyers, actuaries and bureaucrats - not to mention tens of thousands of hours - to make sure they comply with the entangling webs of red tape, and make no mistake this harms the public. The costs are reflected in the price of products, and those are millions of dollars and tens of thousands of hours that are not being spent on more productive work that would benefit others. The rounds of "regulation" inflate corporate profits more and more, by cutting small firms out the market and directing sales to bigger firms who can afford specialists or whole departments to play the game.

By changing the incentive structure of the economy to favour profit through political influence over serving customers the government corrupts the market rather than moderating its excesses.

Government "investing in small businesses" is a crock.

A recent press announcement reported that Scottish Enterprise, the main economic development agency funded by the Scottish Government, has  £15.2 million investment in Aquamarine, a wave energy company that went bankrupt last year, following a £16.3 million investment in Pelamis, another wave energy company, which was biggest write-off in the agency’s 25 year history.

One thing you can guarantee is that if the government has to fund it, it's not worth funding.

To most people the idea of Government giving grants to small businesses is relatively benign. I mean, why not give the little guy a leg up to compete with the big boys?

Well because this attitude belies a basic lack of understanding of market forces and the role of the investor on a free market.

The purpose of an investor is to try to predict - from all of the potential projects and producers they can possibly choose from - which ideas are most likely to be successful. Consumers have to make choices over what to buy with their limited resources out of literally every product that is available to them, so what they buy is a pretty good indication of what they value. Managing to guess correctly what people are going to want in the future is no easy feat, and doing it well really is providing an invaluable service by limiting waste through overproduction of things people don't want, and the allocation of resources to promote advancements which people decide, of their free volition, improve their lives.

If an investor chooses wisely then they will receive a more generous a return on their investment, if they choose poorly they forfeit their outlay. This means that people who make good decisions with financial resources become more wealthy and have more resources to invest in projects, while those who make bad decisions will soon find themselves out of pocket with less capital to squander on wasteful investments. In this way the market has a natural mechanism for allocating resources to good custodians of those resources: people who excel at spotting a good idea.

It's a beautiful system because the only way investors can grow their wealth is by making it available to the community. If they decide to spend it instead it goes to someone else, if they hide it under a mattress their wealth will stagnate, and if they save it in a bank someone else will lend it out on their behalf.

Government simply does not have "skin in the game" and therefore is likely to allocate money along political lines rather than those which serve the preferences of average individuals.

There remains a prevalent belief that the enlightened self-interest of investors who stand to gain from investing will be insufficient to inspire the rich to part with their money, and so there is a necessary role for Government to step in as an investor. This, in fact, was one of the central doctrines of John Maynard Keynes who believed that markets, left to their own devices, were likely to suffer from a chronic lack of investment as-such because they were inherently unstable, and so there was really no rational basis for making investments in long term projects. I would contend that if entrepreneurs who do have "skin in the game" are unwilling to risk their hard-earned pennies on a potential failure then the government certainly has no place playing poker with the hard-earned pounds of the tax payer. More could be said, but a further discussion of Keynes (and his errors) will have to wait as it goes without the remit of this article.

Fundamentally, the idea that small business will always be at the mercy of large conglomerates is largely a leftie myth. Yes, in several ways big business has the advantage - they can buy inputs in bulk for cheaper giving them economies of scale, they can avail themselves of large advertising campaigns, they can (regrettably) lobby the government for special privileges, contracts and unearned advantages, and may have other privileges, but they are at a disadvantage in at least one important respect. The larger a company is the more difficult it is for any one individual or group of individuals to keep a handle on all the relevant information necessary for making good decisions in the interests of the entire body. Large organisations tend to chunk down into smaller bodies of up to 150 people, and then these bodies have to be coordinated from the top down. Because of this, some areas of the body are likely to be running more inefficiently than others, and changing the protocols of production over a mass scale may be slow, and slower still the larger scale the production is. Picture the relative difficult in changing the course of an oil tanker as opposed to a number of smaller, more agile crafts. Small agile businesses - which may not be able to compete with Goliath competitors as a whole - can still chip away at sections of their markets by being more in touch with consumer preferences on the ground. They can cater to niche preferences with personalised services and superior, custom-made products, while Goliaths produce standardised products for mass consumption. A good selection of Davids and Goliaths will give consumers the best choice. A large company may be in many markets, while a David only needs to monitor a few, and can monitor them with precise clarity owing to the small scale of their operations. A number of Davids can chip away at a Goliath from all angles and even bring him down if he gets too complacent.

Sometimes people worry that large corporations will just buy out successful small businesses to prevent this from ever happening, but even those worries are misplaced. If David has a great product, and Goliath has a large infrastructure and access to larger markets, absorbing David's product into his company can only help a far greater number of people get access to whatever advancement might otherwise remain a niche product.

All this is not to say that there is nothing government can do to even the playing-field for start-ups. There are many ways the Government can help small businesses compete with large established conglomerates, and in doing so help increase the number and quality of option available to consumers, but these do not involve handing out tax payer money to pet projects. Making it easy for small businesses to hire people without too much (or any) form filling and bureaucracy will save them time and money consulting experts, simplifying the tax code will stop them having to employ expensive accountants, and stripping back the regulatory structure so that rules are intuitive and easy to comply with will save a heap on lawyers. Big businesses can afford to have these employees on staff, small businesses often cannot.

When anyone can start selling and hiring the moment they have an idea for an innovative new business we will soon see a renaissance of people "pulling themselves up by the bootstraps."