Content With the Lot

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It's easy to
assume that bureaucrats understanding what business is all about
could ameliorate a lot of counterproductive, or even insane, government
economic policy. This is a goal of economics, and is the reason
why government officials are often encouraged to read up on the
subject. Since acting on ignorance does cost, there's little wrong
with this advice.

When the bureaucrat
undertakes to understand business specifically, though, he or she
reaches a gap that is all-but-unfathomable because bureaucrats are
trained to be abstract thinkers. There have been a lot of characterizations
of bureaucrats as long as there have been bureaucracies, and it
should be unsurprising that most of them are unflattering. The nature
of the insults directed at bureaucrats tend to put them in a certain
place, and that place is alongside the scholar. Like the bureaucrat,
the scholar thinks abstractly too.

This lumping-together
shows up even in the writings of rogue scholars themselves. If a
scholar is a bureaucrat-basher by inclination, he or she is likely
to have an uncharitable view of the bulk of the professoriat. I
can't think of a better example than Ayn Rand, who switched rather
fluidly from "envious mediocrity" to "pretentious
mediocrity" when shifting from criticism of government to criticism
of the academy. She spotted a common element in the two walks of
life.

"Mediocrity"
means, a middlebrow thinker who considers him- or herself to be
highbrow. The reason why academic mediocrity is considered to be
disreputable is because it has a long association with academic
fraud, because the would-be highbrow who is shown up as a mere middlebrow
has an incentive to come up with "great thought" to protect
his or her image. The customary way to do so is to poke around for
a "secret source," adapt it, and place one's own name
on that adaptation. There is an analog to this image maintenance
found in the bureaucracy, even if the agent of Nemesis is often
not a critic, but the real world. If the would-be Great Planner
sees his or her plan melt away into Great Fantasy, he or she may
be tempted to…adjust the figures, or to fall into the mistake
made by stubborn people everywhere: proclaim that the relevant facts
have yet to catch up with the proffered abstractions. "If all
else fails, cry u2018too ahead of its time'."

This bad habit
is precisely what the bureaucratic type has long been kidded about,
but such a bad habit becomes a real danger to the taxpayer when
the underlying stubbornness is backed up by taxpayer funds. The
independent businessperson does not have that luxury even if he
or she turns into a real-life Captain Ahab, because he or she has
no legal claim upon the funds of others to finance such exploits
when his or her own money runs out. Nor does the independent scholar.
The government official, though, does. This fact does explain why
the goal of "running the government on a business basis"
is continually advanced as a way to save the taxpayers from having
more of their money confiscated. The advocates of it don't want
bureaucrats to be profit-maximizers, but they do want bureaucrats
to be tied in to the same limits on money-dispensing that ordinary
citizens face. The fact that a bureaucrat can seek a bailout (a
budget increase) almost as a right is one of the main sources of
citizen resentment of the bureaucracy.

I suspect that
quite a bit of the hostility towards bureaucrats from private citizens
would ease if this reform was put into place: every head of a government
department who wants a budget increase beyond the funds that were
originally allocated to it by the legislature should appear before
the legislature to explain why the money ran out, and to explicitly
ask for more after explaining. That's what all of us private citizens
have to do if we ask for other people's money to complete a project,
get it, and wind up needing to ask for more.

The trouble
with the bureaucrat, as well as with the scholar, is that both fields
are dominated by the meritocratic mindset. This limit is the source
of most of the misunderstandings of what business is like in both
fields.

The meritocrat
sees business in this way: To form a business, some sort of demand
analysis, whether formal or informal, is undertaken. Then, once
an opportunity has been found, a capital budget is drawn up. Since
the most parsimonious budget will maximize the return, ceteris
paribus, it is best to skimp if skimping is practicable: this
approach also cuts down on capital costs and also impresses the
would-be capital supplier, making capital easier to obtain. Once
the funds are in place, then the next step is to make sure the new
venture comes in under budget, as running out of funds is a real
embarrassment in the private sector.

At the point
which the business is set up to go, the meritocrat assumes that
the same parsimony should come into play when buying the raw materials
and hiring the services (including labor services) needed to make
the product or service to be sold. Find the cheapest source that
you can, and prepare a budget in advance, one that has to be stuck
to. Once all of these steps are completed, then the business has
been built, and the customers that the demand analysis has scoped
out will come.

Or will they?
What if they don't?

To the meritocratic
mind, the answer is easy: the customers don't know what's out there
for them. The marketing budget has to be increased….

Some businesses
do succeed in this way, but few new and small ones do. The meritocratic
mind, who gets that way through being acclimatized to this way of
thinking because it does work in school, finds it hard to
realize that the "big corporations" use this method successfully
because it overlays a large body of tacit knowledge which was picked
up as the business grew in its early days. What appears to be the
"rational" way of running a business is actually the cashing
in on the entrepreneurial genius of the founders and the early crew.
This is what is meant when a would-be businessperson of the meritocratic
sort hears that he or she is going to fail because he or she wants
to "start at the top." There's no way to succeed in business
other than to find what people will buy through trying to sell various
products first and then seeing what people will buy from
you through what they do buy from you. A year-long stint
as a seller of drop-shipped products on Ebay will teach you far
more about how to get a specific — your — business up and running
than an MBA and a CFA combined ever will (but the latter two do
make it much easier to raise money for a venture).

I know this
because I'm the meritocratic type (writer variety) myself, and as
a result have invested both money and time in projects that never
took off. Rather than cursing the supposed "irrationality"
of the marketplace, though, I instead spent some time wondering
why I didn't succeed. The above "failure analysis" is
the result of reflecting over my own lack of business success.

Business isn't
for everyone, of course. There are people who think that the life
of an entrepreneur isn't worth the psychological cost attached to
it; they prefer to pursue other forms of happiness. It is quite
possible for someone to correctly size up what it takes to really
succeed in the business world and then take a pass on the opportunity
to do so.

One of the
great mysteries to the middlebrow mind is why someone who chooses
a life outside of business would nevertheless be a supporter of
free enterprise. Isn't everyone supposed to sing for his or her
supper? Isn't that the way practical people are? Aren't people who
support a "business society" either businesspeople, would-be
businesspeople, or saps? What would a person who has no interest
in succeeding in business be doing standing up for the free market?
Why would anyone do so except for members of the business class?

There's one
answer which always seems to pass under the radar screen of the
sing-for-your-supper crowd: a person who has absolutely no interest
in grooming his or her "business chances" nevertheless
has an interest in supporting the free market because of his or
her interest in free markets as a customer. When businesspeople
are free to supply goods for which there is real (if not obvious)
demand, customer wants get satisfied to a greater degree than under
a more rigid system. Those who think that the meritocratic way of
business is the only rational way to run a firm should ask themselves
how they would fare as customers under such a system, universalized:

"Sorry,
no; we ran out of corduroys. We've sold all that we've allocated
for this quarter's production."

"Why would
you want Civil Service Weekly? Didn't you hear about the
exposé just published in Washington Grapevine? That's
what sells, sir, so that's what we got…Well, I suppose you could
ask a subscriber what's in there. They're loyal!"

"…but
we do have the car which has been featured in the magazines!"

Observe that
a smart entrepreneur can "cut in" at any of these points
and make a sale by selling the would-be customer what he or she
really wants to buy at that time. This is why small business will
always survive any prediction of its "natural" demise
if the marketplace remains free.

It should also
be apparent why rationalistic big business, run on meritocratic
lines, is far friendlier to regulation of the industry it's in than
the naïf would assume. What flannel-suited sophisticate likes
being shown up by a suppler "backward" competitor? It
isn't just economic rationality that inclines the big corporation
towards a regulation-guarded haven, it's also the status needs of
its employees, including the employee at the top of the hierarchy.
It's a rare, and envy-inducing, corporation that manages to combine
the flexibility of the entrepreneurial mind with the formalism of
the corporate mind. Such corporations, as Ayn Rand has observed,
tend to be "thanked" for their efforts by being clopped
on the head by a government club (see Capitalism:
The Unknown Ideal
) — usually, in the United States, by means
of the antitrust armory. (I should add that Miss Rand assumed that
the antitrust apparatus was eager to swing that club, which may
not be true. I myself don't know how passive the Department of Justice
is with respect to competitors' complaints.)

There is a
lot of evidence, both anecdotal and more abstract, which shows what
we lose, as customers, due to regulation of the business environment.
The ironic aspect to this evidence is the source of most of it:
the anti-corporate Left! If its members ever see how their own interest
as customers tie in to the unchaining of the marketplace, as well
as their (unseen) role as the corporate fascists' useful idiots,
then a major force pushing the entire First World towards plain
tyranny will finally vanish.

And we will
all breathe freer air as a result.

June
16, 2006

Daniel
M. Ryan [send him mail]
is a Canadian with a well-known habit of blundering into fields
for which he is inadequately prepared. He is currently working on
a book on Objectivism. Visit his
website
.

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