Content With the Lot

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