Why Run Ourselves out of Business? L.E. Read

LEONARD E. READ THE STEEL INDUSTRY, the textile, glass, and oil companies, the mak ers of watches, bicycles, electric lamps, and a host of other prod ucts are beset by foreign com petition. Now, in any industry, every marginal, high-cost producer faces the prospect of failure. But, on occasion, the sharpness of for eign competition may squeeze many domestic producers to the wall unless they can obtain relief. So, they draw together in search of a remedy. What remedial measures first come to mind? Doing away with the real causes of the trouble? Rarely! Mostly, such trade-de stroying devices as tariffs, quotas, embargoes are proposed, these be ing political interventions to compensate for uneconomic practices already in effect. Thus, one mis take leads to others that may build into a whole chain of bad practices. What, really, is happening here? We know, of course, that capital and tools improve a worker's ef ficiency. And some industries more readily lend themselves to mech anization than do others. In in dustrialized countries we find types of production that require large amounts of capital per worker while others still depend mostly on raw manpower. And in the highly mechanized, highly capitalized U.S.A. we might expect efficient production in the mecha nized industries, whereas foreign producers with comparatively less capital might hold a comparative 451 452 THE FREEMAN August advantage over us in the labor intensive occupations.!

But toda.y we find even our highly capitalized industries buck ling under - foreign competition. This -doesn't make sense. Never before have we had so many tools and so much capital per worker as today. And most -- foreign pro ducers have not come close to us in that regard. So, why are they giving us such rough competition? Self-Hobbled-We've No One to Blame but Ourselves The explanation lies not in what foreigners are doing to us but, rather, in what "we" are doing to "ourselves." Some of our pro ducers are being priced out of the world market. And this is being done by an accumulation of costs and by methods of pricing that are demonstrably wrong. Further, most of us are quite agreed that they are wrong, that is, if we test_ our opinions by how we act individually and on our own re sponsibility. This is the way to discover how each of us believes "deep inside." Take the example of paying farmers not to grow peanuts.

Hardly anyone seems concerned about the costs or the desirability 1 "Labor-intensive" is a part of the economists' nomenclature. Examples: Babysitting, picking and culling coffee beans, activities that do not lend them selves -to mechanization. of this program when the forcible transfer of funds from taxpayers to farmers is done by government. But one would look in vain for a farmer who would personally use force on other citizens to provide himself a living in exchange for doing nothing. And it would be difficult to find anyone who would condone such an act on the part ' of a farmer. Who among-us would ever think of approaching a farm er in this manner? "Here, John, is $25 for those peanuts you didn't grow for me this year." "John" doubtless would refuse the $25 if anyone offered it that way. Noone but an out-and-out thiefreaUy believes in feathering his own nest at -_the expense of others.

We have in this single, rela tively minor example an irrational ity - a contradiction between be lief and action - that costs mil lions of dollars annually. This cost finds __ its way into increased taxes and becomes a cost of doing business - the steel business or whatever. Multiply this by thou sands of similarl.y irrational costs, running into tens of billions, and we can see why American _pro ducers are more and more plagued by foreign competition. They are burdened by increasing costs over which they have no control. It seems unbelievable that we could be running ourselves out of 1967 WHY RUN OURSELVES OUT OF BUSINESS? 453 business by practicing what all of us·really believe to be wrong! All· I wish to examine here is the irrational· aspect of our com petitive problem. Why this dou ble standard of morality, believ ing one way and acting other wise? Unless we know where the answer is to be found, American producers will continue to seek solution in trade-destructive "rem edies" such as tariffs, quotas, em bargoes.

1 repeat, our producers are faced with costs over which they have no control, costs· arising from ac tions that are believed to be wrong. But they are also con fronted with methods of' pricing that further weaken their com petitive position, methods that no one, "deep inside," believes to be right. If we will examine one of these widely practiced pricing schemes tha tno one believes in, we can at least identify where the competitive trouble begins. Coercive Pricing But first, what is this irra tional pricing method? Broadly speaking, there are two methods of pricing. One is free pricing, arrived at in the give and take of willing exchange. The other is a~hitl'ary pricing, founded on the coercive practice of unwilling ex change. In the first method, the price for a good or service is whatever amount you or others will exchange freely and 'willingly. In ,the· second method, the price fora good or service is whatever amount can be taxed or forcibly extorted from you or others. One rests on your choice as to how you use your property. The other rests on someone else's decision as to how to use your income and property.

Coercive pricing is demonstrably wrong. A classic example, the one among ever so many which I wish to use to make my point, is the strike. While .widely used, no one believes it to be right. Strikes have played an impor tant role in pricing American products out of the market. Yet, all too many· persons will stoutly defend the strike while believing it to be dead wrong. The strike is strictly a pricing device, a means of raising some 'wages above the market rate. There is no other reason to use it. 2 Of some 17,000,000 members of labor unions in the United States, about a tenth of them participate in one or more "work stoppages" each year - an appli cation of this coercive pricing 2 Strikes never accomplish more than to raise some wages at the expense of others; they do not and cannot raise the general wage level. See Why Wages Rise by Dr. F. A. Harper (Irvington, N.Y.: The Foundation for Economic Education, Inc., 1957), 124 pp.

454 THE FREEMAN August measure. 3 The coercion is applied in forcibly preventing others from working at jobs the strikers have vacated and at wages they have rejected. Work stoppage is pro duction stoppage - costly! This device is viewed with alarm by employers, employees, and con sumers alike. Yet, it is difficult to find a person, even among em ployers, who will not concede "the right to strike." This is an overt concession to coercion as an ap propriate method of pricing. Doing What No One Approves But how many really believe in this Inethod of pricing? Not even the strikers themselves! For if they believed coercive pricing to be sound in principle, they would never try to satisfy their own wants at lowest possible prices. Instead, they would patronize mo nopolists only, always shopping for goods that are coercively priced above the market. Anyone who believes the strike or nlonopoly method of pricing to 3 Ten per cent of union membership is only 2 per cent of the total work force and thus some may ask, "What harm can be done to the economy by these few?" Merely bear in mind that when a small fraction of these 2 per cent strike General Motors, for instance, millions of workers in related indus tries, even those not unionized, are put out of work. Also, the threat of coer cion is often quite as potent as the ultimate action would have been.

be just and valid would try to find sellers who employ that method. For instance, they would seek a doctor who demands a high fee and insists: "You accede to my demand or I shall no longer attend your ills. Further, I shall use force if necessary to keep any other doctor from attending you." Do any of us, even strikers, look for such sellers?4 Indeed, not! Instead, all of us, including Mr. Union Leader, shop around for the best quality and the lowest price obtainable. Try to find the person who will pay $100 for the identi cal suit of clothes that can be bought next door for $50. While we rarely think of it in these terms, all of us try to buy each other's labor as cheaply, not as dearly, as possible. Every penny of the price we pay for any good goes to individuals for wages, rent, interest, trans portation, storage, or some other productive service. Parentheti cally, a low-priced good more often than not returns a higher wage than a high-priced good. But this does not alter the fact that, when buying, we seek services at lower, not higher, prices.

Nor need we be led astray by 4 Some will claim that the union boy cott of nonunion goods answers this question affirmatively. Gross inattention to the boycott is compelling evidence that union members do not believe in their own method of pricing.

1967 WHY RUN OURSELVES OUT OF BUSINESS? 455 the fact that all of us try to sell for as much as we can and buy for as little as possible. This is at once a natural and commend able trait when confined to the peaceful give-and-take of the free market. But we do not approve, at least in principle, gratifying these inclinations by brute force, either in selling or buying. Were we to approve coercive pricing, we would witness the grocer forcing the customer to pay a dollar for his can of beans and the customer forcing the grocer to sell his beans for a nickel. Utter nonsense!5 So here we are pricing ourselves out of world markets by adding costs we don't really believe in, and over which the producers have no control, and by pricing schemes that are demonstrably un sound. And, judging by our ac tions as buyers, we seem to be unanimously agreed that such pricing is wrong and unsound. Why this distinction between what we really believe and what we daily practice, and more or less condone? One would think that such a serious waste of resources, when agreed to as unsound, would be easy to eliminate. Why do we persist in these practices? Some5 Arbitration, which in the final anal ysis is but a variation of coercive pric ing, would price the beans somewhere between 5¢ and $1.00. Noone, if properly tested, believes in this kind of pricing.

thing is amiss; there is, as we say, "a slip 'twixt the cup and the lip." We must conclude that foreign producers are out-competing American producers because we are practicing what "deep inside" we know to be wrong. If·I may coin a phrase, we are suffering from a psychic short circuit. We are failing miserably to reason from our own moral premises to practical conclusions! The Teaching Problem Put yourself in the role of teacher, charged with thinking this through and giving corrective instructions. You have finally dis covered where the trouble is. But what is the remedy? Would you hammer away at the bad econom ics of coercive pricing? This would be just as futile as explain ing the bad economics of stealing, that is, of some feathering their nests at the expense of others. Everybody already agrees that coercive pricing and stealing are bad economics. We must continue to teach sound economics, to be sure. But when it comes to these particular troubles we find that the remedies lie beyond the scope of economics.

Other disciplines - moral philoso phy, psychology, logic, psychiatry, sociology - must be brought into play.

456 THE FREEMAN August What is it the effective teacher must first learn, and then learn how to explain, if foreign com peti tors are not to run American industrialists out of business? The answer, I feel certain, lies deeper than we think. Crowd Behavior Most individuals when acting personally and in their own name - when acting in you-and-me sit uations - are above reproach. They can be trusted; their word is as good as their bond. The promises men live by are far more honored than breached in man-to-man deal ings. We would like to think that this personal. recti tude, seen on every hand,· is a rationally structured conduct, that it has its origin in the reasoning mind. Has not pure logic commended to these people that fairness, honesty, justice, re spect, freedom are essential in gredients for mutual upgrading and peaceful living together? A forbidding suspicion: This in dividual rectitude, practiced so widely, these moral directives "deep inside," may, in most cases, be more from habit than reason.

No rational and logical mind would abruptly fail to function the mo ment numbers are introduced. No thinking person would condone or support a collective action that would be repulsive to him as a personal action. Reason and logic possess probing qualities and have no such boundaries; practical con clusions are logical extensions of moral premises. Merely observe that millions of individuals who would not steal or coerci vely price when acting in their own name and on their own responsibility will do so when they act in the name of a collective: the union, a church, a chamber of commerce,society, the majority, and so on. If these people cannot reason from the singular to the plural, how can we assume that their personal recti tude is the result of reasoning and logic? It must be only instinctive or imita tive. Is the effective teacher con fronted with the utterly baffling problem of getting people to rea son, to think things through for themselves? Even those individ uals potentially able to do so cannot make the grade short of a self-generated motivation,a hard to-come-by initiative. How can ini tiative be taught? I gather that initiative is more inborn or "caught" than taught, that it is occasionally picked up by persons when in the presence of exemplars, initiative having a contagious quality of sorts.

Individuals who have the capac ity to think things through for themselves and who, at· the same 1967 WHY RUN OURSELVES OUT OF BUSINESS? 457 time, have the gumption, the get up-and-go, the enterprise to do so, appear to be the only ones who can qualify as exemplars and, thus, as effective teachers. A Strictly Personal Problem What is it they must under stand· and learn how to explain? First, that which lies "deep in side" - conscience, if you will-is exclusively a trait of the individ ual, never of any organization, in stitution, collective. Further, its mandates are as close to rightness, soundness, righteousness as is pos sible for any person. Even more: every step in human progress, in sofar as man has had a hand in it, is a manifestation of that which lies "deep inside." Progress can never be ascribed to any corrup tion of conscience !6 Second, the responsibility for one's actions cannot be shifted, cer tainly not to anything impersonal and incapable of bearing responsi bility. Unions, churches, chambers of commerce, and the like are of this abstract nature, mere names 6 "I suggest that we postulate that the intangibles of truth and beauty, , human freedom, courage, honor, honesty are the core of the truly basic realities; and that the supposed realities which we see and touch and feel are really only shadows cast by these truly basic dynamic. forms in their many embodi ments." From The Symphony of Life by Donald Hatch Andrews (Lee's Summit, Mo.: Unity Books, 1967), pp. 257-258.

we give to groups of persons. These abstractions can no more bear responsibility than they can bear children, or speak, or think. Third, any action an individual supports or condones is his action. If it be contrary to what lies "deep inside," it is wrong accord ing to his own standards. And to hang the name plate of the wrong action on the union or some other collective is only to hide behind the cloak of anonymity -like an ostrich with his head in the sand. The individual's· responsibility· for what he supports or condones is inalienable, as inseparably linked to him as is his psyche, his soul, his mentality. If American producers are to cope with foreign competition, the way, I suspect, will not be found in trade-destructive expedients. It lies in finding and removing the causes of their present plight. The only reason that causal identifica tion appears so deep is that ... it's new territory, an area rarelyex plored.

The Will to Improve Actually, the remedy is not that difficult. It simply calls for (1) do int what one believes to be right, th~t·· is, obedience to what lies ud~ep inside," (2) avoiding the sn~re that something other than self can be responsible for what one supports and condones, (3) 458 THE FREEMAN August logically reasoning from what's "deep inside" to practical conclu sions, and (4) the will and the gumption to reason, that is, to think things through. The fact that few can carry out even these prerequisites to a healthy commerce is no occasion for discouragement. There are plenty who can - if they will! If they will! The deterrent is the plaguing thought that if I practice what I believe to be right while others do not, I'll go down while they survive. As if every step toward progress had to be taken simultaneously and unani mously - like a regiment does the goose step. It never has been thus, nor will it ever be! Were this the rule, man would still be at the primitive stage. Every advance in human history began with a single step by some lone individual toward what he believed to be right and just and sound.

Admittedly, it seems risky, even dangerous, to follow the dictates of one's conscience when others do not. But is it, really? Hearsay reports about what has happened to others often are erroneous and misleading. For the right answer, carefully examine personal experi ences; only in these is the truth revealed. Aside from an occasional "boner" in presenting and stand ing for what's "deep inside," in tegrity to conscience "pays off." Nor is the reason difficult to find. Fainter hearts, longing for the "courage" they lack, admire and support those who honestly stand by their convictions. Longing to do right, but too timid to try it, they think of the right-acting per son as their alter ego. Over and over again we hear the refrain, "I'm so glad you said it; that's what I was thinking." Such integrity requires no un usual courage; only the knowledge that it's not dangerous to be hon est. "To thine own self be true."

Anyone aware of the dividends of such action demonstrates, not bravery, but wisdom and down-to earth practicality. Further, he has the key to making what's "deep inside" go on outside, the key to not running ourselves out of busi ness. + Freedom to Improve ... but the only unfailing and permanent source of improvement is liberty, since by it there are as many possible independent centers of improvement as there are individuals. JOHN STUART MILL MANY a logical and practical man seems to go haywire in his expec tations of government. He will sail right over the philosophy that would limit government to the pro tection of life, liberty, and prop erty. When he sees human needs, he deems it practical to call for government action to relieve pov erty and provide social security, medicare, school lunches, educa tion, foreign aid, and other "chari ties." He finds it inconceivable that business could function without such government services as the post office, highways, monetary controls, weather reports - and subsidized electric power, if he comes from the region of the Ten nessee Valley Authority. He also expects "police protection" against economic adversity, unemployment, Mr. Sparks is an executive of an Ohio manu facturing company and a frequent contributor to THE FREEMAN.