Steve Case, head of AOL Time Warner, Inc., is an inspiration!
He is the founder of AOL, the man who shepherded the company through every stage of its development, the mastermind behind the merger of all mergers, and an entrepreneurial genius. He was the first to see the need to make net surfing accessible to regular people, to turn technology into a language the middle class could understand, to create interfaces that were friendly and focused on the consumer. He saw the need for the net to be as essential for daily life as the television or toaster. Case made the Web a mass medium.
But in the market economy, no victory is permanent. No king, not even the king of the dialup network, is permanent. Unlike a president, there are no defined terms in office, nor is there such a thing as a dictator for life. The heads of all "public" companies must please the owners of those companies, which is to say, the stockholders.
The stockholders wanted Case out. Why? Because the stock sank. Why? Because consumers have moved beyond AOL into broadband. Also, the merger with Time Warner has so far not worked. How do we know? Again, the price of shares tells us that. And what sets the price of shares? Again, investor and consumer demand. It is average people who make the decisions, people with a stake in the outcome of those decisions.
One might think that co-founding a company and taking over the world of middle-class Internet use would grant someone tenure. Not so. Case has resigned under pressure. "Perhaps it's a lesson learned," he says with a humility never seen in the world of politics, that "even though you think you may be right, if the environment is such and the facts are such, it requires you to take a more pragmatic way and perhaps a more selfless view. That is what you have to do. My case, it's about putting the company's interests first."
As admirable as these sentiments are, let's be clear that it is the market economy which gave him his marching orders. On the same day, Walter Isaacson resigned as head of CNN, citing plummeting ratings. Again, it was the stockholders, responding to the viewers, who gave the orders.
Let's not pass by this miracle too quickly without understanding its significance. Since ancient times, philosophers have attempted to find ways of organizing society that create order, fairness, and general well-being, guard against corruption, and generally promote the common good. Some have thought that despotism was the only way, but others saw the downside to violations of people's freedom.
Even now, we struggle with this problem. We instinctively understand that there is something wrong with a head of state who refuses to subject himself to a test concerning public sentiment. We believe that government ought to be by the people, for the people. But how does one create such a system? The American system relied on federalism, an idea drawn from Europe's decentralist past. It worked for a while, but then consolidation occurred. So federalism didn't ultimately work to keep power at bay.
But in the market economy, we find the answer. Here is a system rooted in ordinary concepts of property rights and the freedom of exchange. Protect those, and every manner of blessing flows. The opportunity to innovate presents itself. The freedom to choose one's associates is held at a premium. Every exchange is voluntary and mutually beneficial. Order is preserved through the immense forces of supply and demand, which are held in balance by a complex signaling process involving prices, wages, interest rates, profits, and losses.
What a beautiful system! It grants everyone equal rights. It requires no iron hand. It generates prosperity for everyone. It guards the common good.
But how does it handle the problem of despotism? The market economy subjects every player, even the richest and most powerful, to a market test of his worth. The tests are unrelenting. When a person fails that test, he can be pressured to leave. Or he can hang on for as long as possible, and risk driving his company into bankruptcy. Even in privately held companies, there is the check on power: once consumers say no, profits dry up and all is lost.
The market economy, then, acts to correct several grave flaws in human nature. We are reluctant to admit error. No one wants to admit that some decision he has taken is wrong. But in the market, huge social forces are constantly at work, and they can move at the speed of light, to say what's true, and require that people take responsibility for wrongdoing.
A related flaw in human nature is the tendency to abuse power. The market solves that problem by giving no one power over anyone else, but instead granting only authority on the basis of free exchange. No one may rest on his laurels. Nor is the decision to take away authority arbitrary, to be decided by one person or one committee. It is based instead on consensus, the judgment of people with the highest stake in the fate of an institution, who are the owners and purchasers of goods and services.
As beautiful as this system is, we continue to avert our eyes to its merits and instead look to politics for solutions. But in politics, the worst features of human nature are unleashed. No one admits error. Even worse, people get away with incredibly brazen lies, day after day, and the means to check power appears only at scheduled intervals, between which the powerful can have a field day. Unless local tradition demands it, hardly anyone resigns.
Case left when it became clear that he could not revive his company. But the Bush administration has been trying to revive the entire economy for two years, and the economy only gets worse. Where are the resignations? Where's the humility? Where is the admission of error? Instead, what we get is more arrogance and more attempts to distract us with scary stories of foreign threats.
But aren't public policies easily tested? This is one of the great lies government tells. The trouble with public policy is that one can never know with certainty what would have happened had the public policy not been implemented. This reality permits the planners and politicians to always claim success. On what grounds can they be disputed?
Might the Bush administration claim, for example, that the recession would be even deeper had it not imposed tariffs on steel, driven interest rates down, and ballooned the deficit? That may be nonsense, but who is to say? Through this one trick, flim-flam public policies like Keynesianism survive decade after decade without refutation or revision. If AOL Time Warner has been a failure, what does that make almost a century-and-a-half of government economic planning?
What we need is a world in which failure usually ends in resignation. We need a world in which the forces that led Steve Case to step down are present across the board. We need the model of the market economy to dominate over the unaccountable world of politics. But it is immediately clear why the politicians, who have so much power, have every reason to keep that world at bay.
January 15, 2003
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