Tuesday, November 6, 2007

Business vs Politicians – Guess Who Knows Better?

In order to remain competitive, entrepreneurs and other business owners and managers must constantly strive to predict future conditions in the market. They do so with a variety of means – surveys, statistics, industry forecasting, etc. Financial success depends on being able to allocate resources today so it matches future demand or supply. Let's assume that Walter runs "Block by Block," a road construction company. Walter has been keeping track of the price of the materials needed to make concrete and believes that it is going to go up soon. As a good businessman, he orders more. It turns out that he is correct; his decision has lowered his costs of operation. To the extent that he outsmarted his competitors, he has gained an advantage in terms of profit margins, allowing him to lower prices, give raises, invest more in equipment, or save. At any rate, his decision is correct. Had he erred, he would have incurred a relative loss against other players in the industry and would be at a disadvantage.

But the price of input factors is merely one of the many issues that must be considered. Conditions in the market vary according to customer preference. There are changes in fashion and technological advances, for instance, and successful entrepreneurs are those who can best keep up with the changes. Then there is the choice of where and when to start a business, who to hire, whether to partner with other businesses, and literally hundreds or thousands of other factors to balance and consider.

Today, the role of the capitalist is mostly ignored or undermined by the bureaucratic mindset found in politicians and court intellectuals. Capitalists, like all human actors, take risks when they put their own property at stake. They try to maximize their success rate and reduce their losses. Robert Kiyosaki said that "it's not your knowledge that makes you rich, it's your abilities." So even if politicians or "system managers" read up on all of the business and marketing gurus out there, they wouldn't still be able to bargain, sell, assess risk and perform the other abilities that a true entrepreneur develops. One summer running a lemonade stand as a kid will do more for your entrepreneurial skills than a lifetime as a politician or government bureaucratic manager.

Now on to prices. What about them? Prices are records of past exchanges which reflect both real scarcity and subjective valuation of goods. Prices can motivate and guide the entrepreneur in terms of better information. That said, their main task, the one that the state and socialist endeavors in general lack, is to allow us to make economic calculation. The kid running a lemonade stand will easily know that he is doing something valuable to others because he's turning a profit. That is, the price that people actually pay is high enough for the kid to obtain a profit. Thus, he knows that his time and other scarce resources have been invested efficiently. He has combined various resources (cups, lemon, ice, napkins, labor) and turned them into something more valuable to the customer than the sum of the parts. It is clear that when the purchase was made, the customer at that moment preferred the lemonade over another product and also to the individual products and resources that would be necessary for the customer to make the lemonade himself.* This is how the market works; it is simple and a win-win situation for both parties.

Politicians have no way to do even the simplest of things like the above. Nobody buys their services; they impose them. They learn very different abilities during their "careers," such as bootlicking, backstabbing, and pretending to be busy. They serve no consumer and indeed none can be found unless you count pundits, bureaucrats, leeches and lobbyists. As the ancient Chinese saying teaches us, "One cannot serve two masters at the same time." The politician has to spend more than half of his time making his "internal clients" happy while at the same time keeping others from looking better than him. What a terrible waste of time. That's an awful lot of R&D for new products, efficiency gains and product improvement that never took place. The larger the public sector, the smaller the space for true production for human well-being. In fact, because choice is taken away from the consumer – that is, from the rest of all of us – we are stuck in a win-loose situation with these parasites.

While companies spend billions in product development, the state resorts to taxing billions. And while it is true that the market is dynamic and businesses do fail, making room for a better allocation of resources, the same cannot be said for government production (redistribution really). Ask yourself why the FDA or CIA for FAA or any other agency – why they do not go away having failed over and over? On the contrary: they exist in perpetuity. Of course, when there's a constant supply of money, we just hear about "reform" or "putting the right people in office" or, even worse, calls for "better funding." The problem will remain the same so long as free entrepreneurs, not blind socialist mice, run the game.

Finally, it boggles the mind how ordinary people place so much trust into politicians. How is possible that a bunch of political parasites, who usually live far away, magically have the ability to know what is best for you? They are just guessing. Further, even if they were somehow able to know what is best for you in a certain aspect or two, why assume that they know everything about every imaginable subject? In fact, why assume that they know anything at all? If an official has a degree in law or engineering, for example, most of the time they debate and vote on issues that they have no idea about. Sure, they have panels, discussions, experts and all kinds of "debate" takes place. But so what? They still impose the decision at gun point and they make the taxpayer pay for it. Horrendous!

Businessmen have one master: the consumer. Politicians aim to serve all of society yet they end up destroying it, usually under the motto of "for your own good." We wonder why we let them manage or design precisely the things we consider most critical to our lives such as education, health care, food and personal interactions. We'd rather have the state run the lemonade stands, and let the kids (especially the most ambitious ones) take over the roads, schools and hospitals, so they turn a profit and we know something good is actually going on.

*This is the reason why one cannot really run the government as a business. We often hear, especially at the municipal level, how the local politician plans to run the city or town as business. What is meant here is that they will attempt to cut waste and to run it efficiently. Yet this is economic ignorance. The government cannot do anything efficiently so long as it continues to tax, legislate and monopolize services. The mere fact that the government taxes, legislates and monopolizes shows that people would prefer something else instead. If a politician disagrees with this statement, that is, if they do not believe that people would prefer something else instead of what they are being "offered," they would have to support the abolition of as much of the state as possible and see where people would freely spend their money.

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