Honolulu Advertiser

SECOND OPINION  by Cliff Slater

May 17, 2004

Let’s understand the free market

Unless we want our Hawaii economy to continue to depend solely on tourism, we need to spend a little less time bashing the free market and a little more time understanding it. When we do, policy makers may find themselves passing legislation that will bring businesses here.

Every time I write about the virtues of the free market I get blitzed by detractors. They essentially say, “Business people do not have good intentions. They are greedy and just after a profit. If it was up to them they wouldn’t even pay us the minimum wage. In fact, if it wasn’t for government regulation to hold them in check, they would rip us off completely.”

First, it does not matter whether Hawaii’s business people have good intentions or not. For them to get your money they have to offer you goods and services that are worth more to you than your money. Otherwise you are not going to buy anything, right?

Businesspeople can cheat you, of course, but you won’t go back and neither will your friends. So how can someone stay in business cheating people? They cannot; a good business reputation is everything.

Or, to put it another way: Think of how many transactions you have made in the last year. Add up the checks you have written, tally all the credit card transactions, and add in those cash purchases. In the last five years you will typically have made many thousands of these transactions. And out of those thousands of transactions, ask yourself, how many times do you believe you were cheated?

Second, “profit” and “greed” are interesting words. If, as individuals, we spend less than we earn, then we have savings, which is “virtuous.” If businesspeople spend less than they take in, then that is a profit, which to some is a “vice.” If a business makes a profit, that is “greed.” On the other hand, when a union dockside lineman with $180,000 annual compensation goes on strike for a raise, he is justifiably doing it for “working families.”[1]

Third, I know that people mean well by legislating minimum wages. However, if we set a floor on wages it means that anyone whose work is worth less than this amount is going to be unemployed or the business will have to raise its prices. Either prices will be raised or they will be replaced by the next least expensive option, be that outsourcing or labor-saving machinery. Since minimum wage people are typically employed in businesses that sell to the less affluent, this hurts the very people it was intended to help — inexperienced teenagers, the uneducated, and the non-English speaking for the most part — those who need to get on that first rung of the ladder up.[2]

Consumer protection by government is an illusion. Think hard: What does our government do to prevent aloha shirt manufacturers from producing shoddy, high-priced shirts? Nothing — only your merciless shopping does that. What government edicts prevent supermarkets from charging too much for inferior vegetables? Nothing — it’s just you shopping. What keeps the plumber from ripping you off? I could go on. [3]

What keeps the free market under control is competition among vendors trying to satisfy ruthless shoppers with the levels of price, quality and service that shoppers demand. And that is it.

As Thoreau said, “Government never of itself furthered any enterprise, but by the alacrity with which it got out of its way.”[4]

Once we understand the market perhaps we will be able to understand what Citibank’s Walter Wriston has told us, “Both intellectual and financial capital goes where it is wanted and stays where it is well treated. It will flee from manipulation or onerous regulation of its value or use, and no government power can restrain it for long.” And, as Wriston adds, “Much to the annoyance of governments.”[5]

Once we really understand how the market operates, we will know what to do to get businesses to come here and stay here.

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


[3] And another issue, if monopolies are so bad how come governments mandate them? Think of the electric company, cable television, the phone company. This is to protect us?

[4] "Yet this government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. It does not keep the country free. It does not settle the West. It does not educate. The character inherent in the American people has done all that has been accomplished; and it would have done somewhat more, if the government had not sometimes got in its way. For government is an expedient by which men would fain succeed in letting one another alone; and, as has been said, when it is most expedient, the governed are most let alone by it. Trade and commerce, if they were not made of India rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way; and, if one were to judge these men wholly by the effects of their actions, and not partly by their intentions, they would deserve to be classed and punished with those mischievous persons who put obstructions on the railroads." Henry David Thoreau. Civil Disobedience.

[5] Wriston, Walter, B. The Twilight of Sovereignty: How the Information Revolution is Transforming Our World. First Replica Books Edition. October 1997. Originally published by Scribner in 1992. pp. 61-2.