Recently by Gary North: The Lunacy of Soviet Communist Central Planning
Adapt or die: this is a free market principle. It was expounded as a fundamental principle of society by Adam Smith and the eighteenth-century Scottish Enlightenment. This idea was picked up by Erasmus Darwin and extended by his grandson, Charles, who applied it — adapted it — to biology.
The Scottish Enlightenment announced “adapt or die” as the basis of social progress. “Adapt or die” is a principle of liberty, they argued. It is applied most productively and beneficially on a free market, they concluded.
The crucial legal foundation of the free market is the right of private property: ownership. This implies that at the heart of free market liberty is the right of making exchanges: the right of disownership.
The crucial means of extending the right of making exchanges is price competition. Prices in a free market society fall as a result of increased production, So, how do producers find buyers for this increased production? In most cases, through price competition. This extends the free market to the masses.
Price competition outrages many existing sellers, who have not found ways to meet the competition. They try to keep their customers coming back, and new customers coming through the door, but as information spreads about better deals at lower prices, customers depart.
Sellers want to think of the free market as their personal market. They displaced their predecessors through price competition, but they resent upstarts who are trying to do the same thing to them. Having climbed up the ladder of economic success through price competition, they want to pull up that ladder by making price competition illegal. This begins by identifying it as immoral: a form of theft.
AMAZON’S NEW APP
On Saturday, December 10, I sent out the following message as my free “Tip of the Week.”
One-day only, December 10: Amazon discounts of 5% per item, times 3, for a total of $15.
So, here’s the deal. Amazon is trying to get people to use its Price Check app. It lets you go into a retail store, take a picture of any item’s bar code with your cell phone, and check the price of that item on Amazon. Retailers are APPoplectic (irresistible).
To get you to download the app today and use it, Amazon is offering a one-day discount of 5% per order, times 3 orders, up to $15. That’s an incentive to get you to shop. Here are two more stories about this (1) (2).
The idea is to get greater penetration for the app by offering a deal. Also, it’s to get you to USE the app, not just download it.
I call this very smart smart-phone app marketing.
If you own a mobile phone, and if you plan to do some shopping today, download the app. You can get delivery of the items before Christmas.
This tip was time-sensitive. If I did not mail it to my list that day, the opportunity would be lost.
Later in the afternoon, I received this reply.
I think Amazon’s smartphone app is a terrible idea. Amazon is asking people to go to other stores (including small businesses), scan items they want, and buy from Amazon instead. Big box stores can absorb the impact, but it’s also robbing small businesses of valuable customers and will be harmful to the economy. I can’t believe you would promote such a thing that would merely save people a few dollars at the expense of small business. You always have great ideas, but this one is anything but.
Here is the cry of despair from a seller who is about to be displaced. He sees what is coming. He will not be able to compete. He identifies Amazon’s offer as “robbing small business of valuable customers.”
Excuse me? Robbing? This language implies that small businesses OWN their customers. Does he really mean that making them better offers is a form of theft? This is the implication of what he says…
The seller sees his customers as his birthright. For example, the seller of labor sees his job as his birthright. He can quit his job at any time, but he wants the state to prohibit his employer from firing him for any reason. Trade unions have always called on the state to prohibit employers from hiring replacements when the union goes on strike. What is the logic of this position? This: members of the union OWN these jobs. Replacements are STEALING these jobs. So, the unions call on the federal government to stop this theft. This is what the National Labor Relations Board was set up to do in the New Deal (1933-45). It has done this ever since.
Fortunately for the vast majority of American workers, who were always excluded from union membership, and who were paid lower wages as a direct result of unions’ restrictions on entry, trade unions never had more than 30% of the labor force. Today, they have under 10%, and most of these are members of unions that were set up by government employees.
What broke the back of the union movement in the United States? One thing: price competition. The main strategy was this: companies build new plants in southern states, which had “right to work” laws. (These should be called “right to bid” laws.) They also moved plants off-shore to nations in which trade unions are weak or non-existent. Then they exported these goods back into the United States at low prices, forcing out of business companies that were saddled with trade union contracts and the NLRB. Union members have howled for 40 years about unfair competition. This means any competition that exists on a free market for labor.
Employers compete against employers. Workers compete against workers. Union members insist that employers compete against workers. They claim that employers have an unfair advantage. “Employers steal from the workers.” But how could this be true? Employers hire workers. They need workers. They would go bankrupt without workers. So, what the unions really oppose is the existence of workers who offer employers a better deal. So, unions call for the government to defend unions, which restrict lower-priced workers, when 50% plus one of the existing employees vote for a union. The 49% are forced to join or quit. All non-union workers are forever shut out.
Then the employer goes bankrupt. He cannot compete with employers who hire non-union workers. The union members are forced into the non-union labor market. “O, woe! O, the unfairness of it!”
This is the universal cry of those workers in life, in any field, who discover that their customers are free agents who do not belong to them.
Freedom means free agency. It means the right to bid. It means the right to offer a better deal. It means that it is not theft to offer a better deal.
CELL PHONE COMPETITION
My critic thinks that Amazon is stealing from local sellers. But is Amazon stealing? Or is it simply making a good deal to shoppers?
I am in direct marketing. I have been for 35 years. There are two questions that a direct-market seller must overcome in his advertising copy:
Who says?So what?
Any direct market sales piece that does not overcome these two questions will fail.
I came out of academia in much the same way that Abram came out of Ur of the Chaldees. I found out early that the brighter students ask the same two questions.
So do brighter voters.
Let me apply this to local business. A local business has higher costs. The customer asks: “So what?” The business has to keep a showroom open. So what? It has to pay sellers on the showroom floor. So what? It has to pay sales taxes? So what?
The customer cares little or nothing about the costs of business. He cares about the price he has to pay for whatever he wants.
A local seller sees Amazon as competing unfairly. So what?
As a television viewer, I prefer to watch programs rather than advertisements. Yet I like ads more than most viewers do. I write ads, and I have studied ads for over 50 years. When I was 10 years old, I wanted to write ads when I grew up. Yes, I’m kind of weird. At age 10 or 11, I came up with a slogan for Stopette, the first spray-on liquid deodorant, a slogan that Gillette discovered a decade later. Nevertheless, I prefer shows without ads.
For me, the digital recorder is one of the great inventions of all time. I can set it to record a show. Then, when I watch it at my convenience, I fast forward through the ads.
Think of the billions of dollars of wasted ad expenses that are imposed by TiVo and its competitors. The captive audiences are no longer captive. They are free to choose. They are free to choose to fast forward through commercials.
The ad agencies and the TV networks do not bother to cry, “unfair!” They would look silly. Besides, there is nothing they can do about it.
There is not much that a local store can do about smart phones and shopping apps, either. Technology does advance.
The store can remove the UPC bar codes from its products. That might help a little. But then it will cost more to maintain inventory control. It will slow down sales time. The seller wants the advantage of computerized inventory, but he does not want the loss of sales due to smart phone apps that let customers know who is selling goods cheaper.
This reminds me of the bicycle companies that demand that tariffs be placed on bikes made abroad, but who fight steel tariffs that make manufacturing costs higher.
Established sellers want to milk the system. But they also want to restrict upstart new sellers’ access to the teats.
THE FLOW OF INFORMATION
The flow of information on the World Wide Web is beyond anything conceivable 20 years ago. It is changing the world in every area of life. It is undermining established governments, businesses, and guilds. This is to the benefit of those who pay the bills.
The biggest casualties are the world’s postal services. They are unionized. They are monopolies. They are the poster children of government-restricted services. They are going bust. Email is killing them.
They hike prices. They get less revenue. They reduce services. They get less revenue. They cannot find ways to stop the spread of digital mail. One by one, nation by nation, they are shrinking.
Another casualty: the Yellow Pages. Once upon a time, they had almost no competition. They did not offer price breaks. They did not offer the normal 15% discount to ad agencies. They did not innovate. Today, they are not in a position to impose prices on business owners. Their revenues are falling. Google lets us search for a product by zip code. It offers maps with those little tagged markers. We can read ratings on-line. Result:
Yellow Pages publishers worldwide are gaining traction with new digital products, slightly offsetting declines from the traditional print versions, according to the newly released sixth edition of BIA/Kelsey’s “Global Yellow Pages™” report. BIA/Kelsey expects revenues from print and online directories to decline globally from $23.4 billion in 2011 to $22.0 billion in 2015, representing a compound annual growth rate of –1.5 percent. . . .
By 2015, 53 percent of global Yellow Pages revenues will be digital, compared with 29 percent in 2011. Some of the world’s largest directory organizations, including Yell Group and Seat Pagine Gialle, are setting a much more aggressive course, projecting roughly an 80/20 balance of revenues favoring digital by 2015. Markets that are currently or will be majority digital by the end of 2011 include Denmark, Finland, France, Italy, Norway and Sweden.
In short, here is the rule of survival in a free market: “Adapt or die.” Innovate or die. Meet customer demand or die.
This flow of information has only just begun. As tablets and smart phones get cheaper, the number of users will increase. In a decade, the world will be different. In 40 or 50 years, it will be unrecognizable. Why? Because most of today’s establishments will be ancient history. The gatekeepers are standing at the gates, but the walls are crumbling. I call this the Jericho process.
Price competition is the heart of this process. Here are a few laws of the Jericho process:
1. Bandwidth will get cheaper.2. Core memory will get cheaper.3. Chip speeds will get faster.4. The number of users will increase.5. Price competition will get stiffer.
This leads to the central law of our civilization: information costs will decline exponentially. They have since the 1890 U.S. census. The key article on this is here.
At the heart of the free market social order is this principle: the right of exchange. This implies the right to bid. The right to bid produces a universal response: price competition. The free market extends its dominance by means of price competition. Price competition is at the heart of the extension of liberty.
So, use those smart phone aps. Use Google. Look for a better deal. As a shopper, you would be wise to learn the tools of information-gathering.
When you see what deals are out there, you will see that the flow of information is increasing. The offers are increasing. Price competition is increasing.
This should lead you to a conclusion as a producer, meaning a seller: either adapt or die. You do not own your customers, any more than you, as a customer, are owned. You are a free agent. So are they. You are looking for better deals. So are they.
You can stand on the edge of this revolution and wring your hands. You can cry out: “Unfair competition!” This will not save you from extinction. It will only slow you down.
December 14, 2011
Copyright © 2011 Gary North