While most people accept that business are in the business of pursuing profits, this pursuit nevertheless prompts many complaints. In two previous posts, I have outlined thirty objections to the profit motive, and I tried to counter each in turn. In this post, I offer ten more complaints that allegedly result from the pursuit of profits.
See what you think of this next and final set, and let me know your thoughts in the comments!
31- Play on consumer emotions
See my response to item 20. Also, consider politicians’ constant play on voter emotions (“Do it for the children!,” “Hope and Change!,” “Make America great again!”).
32- Slow progress on new technologies and refusal to embrace change
A thicket of government regulations slows progress on new technologies. As economist Michael Mandel wrote:
33- Bribery of public officials
Who is more to blame, a businessman who offers a bribe to a public official or the public official who accepts it? As government power grows and regulations reach into every aspect of life, the incentive to bribe—or otherwise influence—public officials grows.
34- Inadequate public disclosure
The government dictates the degree to which companies are required to disclose information to the public.
35- Externalization of detrimental costs
Companies can do this only with the government’s active participation. Perhaps the most egregious example was that of slavery:
- Federal troops were used to suppress potential and actual slave revolts.
- While some slave patrols were financed by slave owners, others were funded by county or state governments through general taxes.
- The Fugitive Slave Acts of 1793 and 1850 required citizens—whether in the North or the South—to aid in the capture of runaway slaves.
- From 1836 to 1844 Southern representatives were able to maintain a “gag rule” against the reading of anti-slavery petitions in the U.S. House of Representatives.
- From 1828 to the outbreak of the Civil War in 1861, U.S. postmasters prevented the delivery of “incendiary publications” (i.e., anti-slavery pamphlets) through the mail.
- Local government officials often stood by while pro-slavery Southerners violently suppressed anti-slavery voices. Newspaper offices and presses were smashed, homes were burned, people were tarred and feathered and ridden out of town on rails, and some were murdered.
- Southern states passed laws prohibiting teaching slaves to read. Literate slaves could read anti-slavery pamphlets, forge passes, and coordinate revolts.
- Government at all levels provided legal support for slavery by passing and enforcing laws that protected slaveholders and the institution of slavery, punished runaways, and criminalized efforts to abolish slavery.
36- Accrual of political power
Companies have no political power that government has not ceded to them.
37- Uncertainty in economic markets
Uncertainty, like risk, is a fact of life. As Benjamin Franklin once quipped, nothing is certain but death and taxes. That said, boom-and-bust cycles are usually driven by the government’s monetary policies. Expansion of the money supply leads to booms, which turn into busts when the flow of new money stops.
38- Exploitation of developing countries
The United States is routinely condemned for “exploiting” poor countries through trade and impoverishing other countries (e.g., Venezuela and Cuba) by refusing to trade with them. That said, trading with a dictatorship can help prop up the dictator but so does foreign aid from governments and NGOs.
39- Risk of corporate failure
Corporate failure is a good thing, not a bad one. If a company is turning scarce resources that have alternative uses into goods that are less valuable than the resources, then we want that company to fail. By contrast, failed government programs (e.g., corn-based ethanol subsidies, sugar quotas and tariffs, steel tariffs, the Jones Act, the federal government’s student loan programs, the U.S. Post Office) live on. As Kevin D. Williamson quipped, when government does stupid, it does immortally stupid.
40- Failure to accept responsibility
Whether a company accepts responsibility for its failures or not, if left unaddressed failure ultimately leads to bankruptcy. Failure of a government policy too often serves as “proof” that more resources are needed. In addition, politicians and government officials, rather than taking responsibility for their failures, routinely blame industry for problems that they themselves have created.
Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource
READER COMMENTS
steve
Apr 25 2023 at 11:51am
A lot of this sounds like whataboutism. If capitalism/markets have issues then decide to address them or not based upon the merits rather than try to claim government is just as bad or worse. As a businessperson I cant refuse to address the issues of my corporation just because I know other people are having problems.
32- You also have instances where practices should be taken up but they cost money so no company/institution will do it unless everyone else is also required to do so. This is pretty common in medicine. A good example was the central line protocol. It clearly saved lives, morbidity was lower and it cut costs. However, it cost money and time on the part of the people who would actually have to do the procedure so acceptance was very slow until it became required by regulation.
33- Both. Illegal bribery is far outweighed by legal bribery. Hiring spouses, jobs for kids, family, friends, large donations so kids get into a good school, cushy real estate deals.
34- What stops corporations from having disclosure? They have agency.
35- Remember corporations are people too? In the case of slavery the govt was doing what people wanted.
36- Isn’t this redundant or something? Political power always involves govt. Anyway, ever live in a small town? The one or two big companies that dominate a town get what they want, whether its through politics or not. On a larger scale the big corporations hire lobbyists to make sure that the laws and regulations written are the ones they want.
39- Agree on some of this but some of the your examples are, IMO, wrong. For example, the Post Office is doing what it is supposed to be doing. It was not intended to make a profit.
40- Obviously not true for banks and other financial institutions. Car companies and others also. You think that govt should be blamed when they write policy and regs that the companies want that then lead to trouble. I think in those cases both govt and the private companies should bear responsibility.
Steve
Richard W Fulmer
Apr 25 2023 at 10:08pm
One of the first questions an economist asks is, “What are the alternatives?” Free markets will never be perfect because people will never be perfect. The same is true of government.
But individuals, flawed as they are, have a lot of localized knowledge that is unavailable to regulators. A good way to make an imperfect world far worse is to take decisions out of the hands of individuals who understand local conditions, who can quickly respond to feedback, and who will pay a price if they choose poorly and place them in the hands of central planners who have limited knowledge and imperfect feedback mechanisms, and who pay no price for being wrong.
Many “market failures” are, at root, government failures. They’re the result of individuals and companies doing their best in the face of contradictory government policies and regulations and the perverse incentives that they create.
Government is essential to free markets. It establishes and enforces the rule of law, protects private property, enforces contracts, and establishes uniform weights and measures. But it does not have the knowledge to do the things that you demand of government regulators. That knowledge is too dispersed and ephemeral to be gathered, analyzed, and acted upon by central planners.
Which is why we are a constitutional democratic republic and not a pure democracy. The Bill of Rights places many things beyond the voting booth. I can’t vote away your right to religion, free speech, or a trial by jury. After the Civil War, no one could vote anyone into slavery. After the Civil Rights Acts, no one could vote away anyone’s equal rights under the law.
The Constitution restricts the power of the federal government. The Bill of Rights not only restricts the power of the federal government but of state and local governments and of the people themselves.
The source of America’s worst disgraces – slavery, the mistreatment of Native Americans, Jim Crow, eugenics – was not difference of opinion, race, sex, class, talent, wealth, or religion. Rather, it was that people divided along such lines were able to subvert government’s coercive power to advance their own ideas and interests.
Progressives’ conceit is that they have the knowledge and the wisdom to choose the factions that should be granted the use of government coercion.
Your solution is to increase the government’s regulatory power and give big corporations even more incentive to hire even more lobbyists. My solution is to restrict the government to those tasks explicitly assigned to it by the Constitution and get it out of the micromanagement business. I want companies to be able to make more profit by inventing and developing new goods and services that make people’s lives better than by purchasing congressmen and senators and ghost-writing regulations that help them or hurt their competitors.
The Post Office uses more resources than its private competitors to do a worse job.
Only because the government insists on bailing them out. Like the Southern plantation owners prior to the Civil War, they’ve learned that they can pocket their profits and use government to socialize their costs.
steve
Apr 26 2023 at 9:34pm
You remain wrong about slavery. Slavery existed in the US well before it was sanctioned by government. After it was eliminated via government action it was continued informally before it was codified into Jim Crow laws. Absent any govt intervention we would have still had slavery and Jim Crow segregation. Many of the slavery laws were actually instituted because they were property and were n attempt to protect property rights.
36- I have actually avoided suggesting my solutions. I am pointing out that there are problems with capitalism even if it is the best system we have found. It would be nice if libertarians had ways to address these other than markets will eventually figure it out and too bad for everyone until they do.
39- The Post Office does work the private companies do not. Let’s cut rural delivery and small towns. Let the Post Office run itself rather than be micromanaged by Congress which has been deliberately trying to make it fail.
40- Because the wealthy always get their way. We could stop pretending this wont happen or acknowledge it will. But note that there was just as much or more complaining about regular people getting bailed out. So whenever we loosen regs on banks they take too many risks (See S &L crisis, or really just the history of banking) the bankers end up OK and lots of regular people get screwed. Your, apparent, answer is to do away with regulations and let banks crash thinking that maybe both the bankers and regular people will get hurt. In reality the bankers will have already gotten their money and still be OK but everyone else gets hurt.
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” Lord Acton
[N.B. Excessive blank vertical spacing removed from the end of this comment. Please try to not paste dozens of unnecessary sequential hard returns into the WP comment entry field, particularly at the end of a comment! That excessive blank vertical spacing sometimes happens when copying/pasting into WordPress a comment written in another word processor which is then pasted wholesale into WordPress.–Econlib Ed.]
Richard W Fulmer
Apr 27 2023 at 12:35am
Before there was a United States government, slavery was sanctioned by the British government and was protected with the help of British troops. The British also protected slavery as an institution against attempts by colonial governments to weaken or end it. In 1769, for example, the Virginia House of Burgesses passed a heavy duty on the importation of slaves as a first step to abolishing the slave trade. The Board of Trade in London – a government institution that regulated England’s overseas trade – rejected the law and instructed the Virginia’s royal governor to “assent to no laws by which the importation of slaves should be in any respect prohibited or obstructed.”
In 1771, the Massachusetts legislature voted to prohibit the importation of slaves to the colony, but Royal Governor, Thomas Hutchinson, vetoed the proposed law.
The following year, Virginia’s House of Burgesses again attempted to increase the tariff on slave imports. The Virginia Assembly also submitted a petition to King George III stating that “The importation of slaves into the colonies from the coast of Africa has long been considered as a trade of great inhumanity, and under its present encouragement, we have too much reason to fear [it] will endanger the very existence of your majesty’s American dominions.”
The Board of Trade again rejected the tariff, recognizing it as an attempt “to operate as an entire prohibition to the importation of slaves into Virginia.”
In 1773, Pennsylvania doubled its tariff on imported African slaves even though no slaves had been imported into the colony from Africa or the Caribbean since 1767. The London Board of Trade rejected the change. A British trade official observed that the increase was “manifestly inconsistent with the [Board’s] policy. . . of encouraging the African trade.”
Even if the British government hadn’t materially supported slavery, my point is still valid. American slave owners were able to coopt U.S. government force to help protect and maintain their “peculiar institution.”
Yes, slavery was eliminated as the result (though not the original intent) of government action – action opposed by another government: The Confederate States of America.
The Jim Crow laws were, well, laws. Ask yourself why laws had to be passed to make racists act like racists. It’s because free enterprise makes discrimination costly. For example, southern bus companies pushed back against Jim Crow laws that required blacks to sit in the back of their vehicles. Angering customers is bad for business as is having to leave seats unfilled when there are too few customers of the “right” color.
Historically, the biggest problem with American banks were state laws that prohibited branch banking – laws that weren’t eliminated until the 1990s. The result of such laws was thousands of small, weak banks that rose and fell along with their local economies. During the Great Depression, about 11,000 of such weak, undiversified banks failed. By contrast, Canada, which had never outlawed branch banking, suffered no bank failures during the Depression.
John hare
Apr 25 2023 at 12:35pm
33. Or when an official makes it difficult to impossible to do a job unless paid off. Happens in construction, personally witnessed, caused a lot of problems.
David Seltzer
Apr 26 2023 at 3:56pm
John, in real estate as well. I completed a condominium conversion in NJ. The inspection for a certificate of occupancy took weeks. I learned the inspector’s son was a matriculating college freshman in the fall. I asked him what the first semester tuition was. He told me and I subsequently left an envelope on a fireplace mantel in the unit he was inspecting. A day later I had the C of O. My decision was a purely rational cost benefit trade-off. The cost of carry and payoff was more than offset by a renter waiting to move in.
john hare
Apr 26 2023 at 6:11pm
Part of my problem is that the majority of the work I do is local with a pretty good inspection bunch. When I go out of town is when problems crop up more often. Even If I was willing to pay up, I can’t tell which inspectors are looking for extra and which are just being tough by their own standards. Compounded by the incompetent and self righteous ones that are a problem unto themselves.
BS
Apr 25 2023 at 2:08pm
33. Bribery is simply the way some people earn part of their income – and are approximately expected to do so – in some places. To a business, it’s just a cost. A labyrinthine system of permissions and fees which provides legitimate income for officials is really just standardization and approval.
john hare
Apr 25 2023 at 5:51pm
Bribery as extortion is not just a cost except to companies that build it in and pass it on to the customer. Those trying to work honestly suffer for it.
BS
Apr 27 2023 at 1:03pm
In the places I have in mind there aren’t really any people expected to get by on an honest paycheque. Bribery occupies approximately the same space as tipping. What is it when someone tips the headwaiter to receive prompt seating in a restaurant?
Richard W Fulmer
Apr 27 2023 at 12:59am
In his 1854 book, Sociology for the South, or the Failure of Free Society, George Fitzhugh, a prominent slavery advocate, anticipated Karl Marx in his attacks on free markets:
…
…
Free enterprise was slavery’s – and Fitzhugh’s – greatest enemy:
Thomas Hutcheson
Apr 29 2023 at 10:35am
35. Externalities can exist without government regulation to protect them, the emission of CO2 into the atmosphere being the most obvious example. I agree this is not specifically a criticism private profits as public bodies, Socialist governments, State capitalist regimes all emit CO2 without regard for the harm it does.
Richard W Fulmer
Apr 29 2023 at 3:49pm
A charge that can be justly leveled against capitalist countries is that they tend to emit more carbon dioxide per capita than do centrally planned nations. This is largely because people in capitalist countries are significantly wealthier. Energy use is directly proportional to material wealth.
The Left used to claim that socialism would deliver the goods, leaving capitalism far behind. When socialism’s failure became too obvious for even socialists to hide, they turned that failure into a virtue. Capitalist consumer economies, they claimed, were despoiling the planet – even though free market nations are far environmentally cleaner than those that are centrally controlled.
Moreover, government regulations have all but killed nuclear energy – the cleanest, safest, least polluting, most reliable power source we have.
Finally, even as the environmentalist left is eliminating nuclear, coal, hydroelectric, and natural gas power plants throughout the West, they are (predictably) complaining that capitalism is failing to keep the lights on.
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