Honolulu Advertiser Second Opinion column by Cliff Slater

Tuesday, October 3, 2000






(1) Letter to the Advertiser 8/26/2000

Corporate world is noted for greed, power

Second Opinion columnist Cliff Slater needs to do a bit more research regarding the facts of life in the corporate world. It does not have a very good track record for being "human" nor possessing a real concern for the environment.

I spent about 45 years working in the corporate world, and the social education received from that experience was not a very pretty one. The outstanding values of most business organizations appear to be:

  • Greed.
  • Power.

The next thing I expect to hear from Cliff is that the Bishop Estate was a positive focus in my life and United Airlines really cares.

Ray Jeffs

(2) http://www.lava.net/cslater/Educationmyth.htm

(3) Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations. Volume I. Liberty Fund. 1981. p. 456. & Adam Smith. The Theory of Moral Sentiments. Liberty Fund. 1984. p. 184.

Keeping free market honest

The genius of it is that it forces suppliers
 to behave the way consumers want
rather than the way suppliers want.

I would like to thank Ray Jeffs for his letter (8/26) (1) which, without intending it, illustrates perfectly the point I was making in “Teaching Hawai’i mythology” (8/21) (2). Mr. Jeffs simply misunderstands the working of the market place—as do most people who have not been taught in school about the “invisible hand.”

Scottish philosopher and economist Adam Smith noted as long ago as 1776, that businesspeople “in spite of their natural selfishness and rapacity” and seeking “the gratification of their own vain and insatiable desires” nevertheless are led as if by “an invisible hand to promote an end which was no part of their intention” and thus, to “advance the interest of the society.” (3)

Fundamentally, Mr. Jeffs’ error is to confuse intentions with outcomes. What Adam Smith recognized was that in responding to constant customer feedback, free market operators are forced to respond to customers’ real wishes regardless of the operators’ intentions.

If the consumer wants honesty, the businessperson will behave honestly—whether they are naturally inclined to be so or not (of all the transactions you make, when was the last time you were cheated?). Should the consumer want lower quality/lower priced products, or vice versa, that is what they will get. Thus, the genius of the free-market is that it forces suppliers to behave the way that consumers want—rather than the way suppliers want. This is why in business, dishonest people have no advantage over honest people. If they did, the free market would not work.

Smith understood that a free market, even one consisting only of suppliers with bad intentions, will always serve the consumer better than a command economy run by well-intentioned people.

Adam Smith was commenting on the free market—not regulated monopolies, nor government sanctioned cartels, nor companies heavily dependent on government largesse. These must compete for the government’s favor (which means toeing the line) rather than competing for the consumers’ favor. Smith was commenting only on the outcomes of free markets; think, for example, of clothing, food and cellular phones.

Mr. Jeffs specifically mentions his disgust with Bishop Estate and United Airlines. These are two very different situations. First, Bishop Estate was a politically operated institution having no relationship to the voluntary exchanges of free markets.

And United Airlines “really cares,” but only about getting Mr. Jeffs’ custom and keeping it. If Mr. Jeffs is like virtually everyone booking a flight these days, he cares only about the price of the ticket. Any other consideration is quite secondary. So in order to get his business, United must reduce prices as low as they can. For example, they will push seats so close together as to be barely tolerable—but more tolerable to most consumers than paying another, say, $100 for a ticket. And if he is complaining about airport delays, then let him blame the government, they run the airports, not the airlines.

Finally, to clarify for Mr. Jeffs, while I have a slightly less jaundiced view of business people than Smith, I was not defending business itself, but rather the free market system. As Adam Smith himself might have said, some free market operators may be greedy, rapacious and insatiable—but so what.

Cliff Slater is a regular columnist whose footnoted columns are at: www.lava.net/cslater