Tuesday, October 4, 2011

The Business of Business

I heard a refreshingly honest interview on NPR 'Morning Edition' this morning with a guy by the name of Bill Freeza, who was identified as a venture capitalist and a fellow at the Competitive Enterprise Institute (it's name describes its purpose, I suspect).  I'm not sure I agree with his economic philosophy, but it is a very intriguing point that he made.

My immigrant great-grandfather on his farm in Pennsylvania.
He made a very straightforward case that the business of business is not to 'create jobs' but to 'make a profit for the owners' by 'satisfying customers'.  After all the blather that you hear on the media and in government about 'job creation', this made sense to me, although it is also disturbing, for reasons which will become clear.

If I, using my own savings (capital) or a loan from a bank, start a gas station/convenience store on the corner, my obvious purpose in starting this little business is to provide a living for my family (make money, profit, etc).  And the way I do this  is by providing a product or service that, first, someone needs or wants (in this case, gasoline or chewing gum or a Coke) and, second, can afford to buy.

The only way I can stay in business and accomplish my goals is to be fiscally responsible, by keeping my expenditures at or below my revenues, thus providing me with 'profit' that I use for my income.

It may well be that at first I will provide all the labor myself.  But probably I will hire someone else to also provide whatever necessary labor I need, in which case their wage becomes part of my 'expenditures' which have to be covered by my revenues.  If I do hire someone to help me in my business, it's not for the purpose of 'job creation', rather that becomes a consequence of a thriving business that I can't handle all by myself.

Multiple this scenario hundreds or thousands of times, and you have a typical local economy at work.  Add in farmers who basically labor for themselves for subsistence purposes, a little local government to provide law enforcement or record keeping, a small factory to tan hides for leather, a mine from which to extract coal, and you have the situation my ancestors who immigrated to this country from Sweden encountered over a hundred years ago.  They were farmers and carpenters and miners, who were ready to work in those fields to provide for themselves and their families.

Obviously they didn't expect Congress to create jobs for them to fill.  It simply was off their radar screen.

Now, in this scenario, at what point does a labor union becomes necessary and appropriate in order to protect the workers of a factory or industry?   And what does that do to the whole common sense understanding of basic business and economics that I began this post with?  And at what point does government begin to tax and spend the business owners and laborers already working, in order to provide jobs for people who are unemployed?

You see how intriguing this Bill Freeza's comments were?!

So what's wrong with this scenario, and how does this micro-picture distort our current national situation?

1 comment:

  1. I agree with Freeza's point but I also agree that no one in business got there all alone. They borrowed money from the bank where I put my savings, they traveled the roads that were built with my tax money, they enjoy the freedoms that my father and grandfathers fought for... Job creation comes about when people are successful but no one is a success alone as Elizabeth Warren has described in a (now famous) speech about fairness in taxation. The business of business is to make a profit but not on the backs of everyone else. Making a "fair" profit allows everyone to have a chance at a slice of the economic pie. When business employs lobbyists then it has become something other than a business. It has become a crime syndicate intent on maximizing profits at the expense of product and people.