Free Market or Economic Freedom

Capitalism has become a dirty word.  Those greedy capitalists only want to get rich off your hard work, or by taking your money.  So, political strategists have recommended candidates avoid the terms capitalism or free market.  The new term is "economic freedom."  

I like the term, but think that the free market or capitalism refers to much more than just the economy.  As I have written before, our entire form of federal government was intended to encourage a free market among states.  The federal government is supposed to have extremely limited powers.  Policy is supposed to be determined on the state level.  For instance, if you want  a high tax rate, but a government that also takes care of your health care, retirement benefits, and tightly regulates other aspects of your life, you could choose to live in Massachusetts or California.  If you want little government regulation, low taxes, and few state provided benefits, you could choose to live in Texas or Montana.  The idea of the founders was to allow each individual state to choose the level of service and the rate of taxation for their state.  American citizens would choose where to live, based in part on state policies.  The system works when left alone.  The problem is that it is just human nature to interfere.  People in Massachusetts think those poor fools in Idaho aren't being treated fairly.  They have to pay for their own health care.  So they make it their mission to get the federal government involved in Idaho's affairs.  Soon, we have 50 (or 57, depending on your sources) states with the same policies and no freedom of choice.

Rand Paul, Republican nominee from Kentucky, has been criticized recently for his comments about 1960's civil rights legislation.  His statement was that he does not want it repealed, and if a senator at the time, he would have voted for it.  But, as a Libertarian (minimal government), he thinks the market would more effectively and permanently solve the problem of discrimination.


An excellent example of his theory is in, if you know me yet you should have guessed by now....... SPORTS!  One of the heroes of the civil rights movement is Jackie Robinson.  I would say that everyone knows the Jackie Robinson story by now, but I have very little faith left in the way history, or even what history, is being taught.  So, I'll just say that Robinson was the first black athlete in any of the major professional sports in America.  If you don't know his story, or just want a little more of his biography, click here.   So, what legislation was passed to force baseball to allow Jackie Robinson his chance to become a professional baseball player?  Would you believe none?  

That's right, no one forced Branch Rickey of the  Dodgers to give Robinson a chance.  Rickey saw a great talent in Robinson, and a great pool of talent that was only being utilized in the Negro League.  Not only would he get a great player and be the first to tap into a large number of talented players, his Dodgers would be the team of choice for a huge market of baseball fans - the black baseball fan.  While Branch Rickey may have been a civil rights proponent, his job was to sell tickets and win baseball games.  By signing Jackie Robinson, he did both.  The following year, Larry Doby was signed by the Cleveland Indians, becoming the first black player in the American League.  Soon black and Latino players were common in professional baseball.  As I said in yesterday's post, sports is a copycat business.  So it wasn't long before other professional sports followed baseball's lead.

The NFL did not enjoy the popularity of baseball and was not considered a major professional sport until the 1960's.  So the first black player in the NFL is hardly recognized.  Charles Follis played professional football for the Shelby Athletic Club in 1906, or possibly earlier.  Black players came and went from football rosters throughout the first half of the 20th century.  By the 1960's black players dominated the league.  In 1951, the NBA drafted three black players, the most famous being Nat "Sweetwater" Clifton.  Again, NBA rosters today are dominated by black players.  

So, why did the three major sports in America choose to employ black players years before civil rights legislation would have forced them to do so?  They were the most qualified candidates for the position.  They helped their employer make money - sell tickets, and be more productive - win games.  When the free market system is allowed to work unimpeded, it works as illustrated in sports.  People in business, as in sports, are interested in success.  They will do whatever is necessary to succeed.  Very few successful businessmen will allow a personal prejudice to influence their business decisions.  And if they do, the market will eventually eliminate them.  Without influence from government regulations.  

It's all about the Benjamins (money for the less with it crowd)

The first rule in management is "Don't mess with your people's money."  A mistake on a paycheck will be remembered forever, no matter how quickly it might be corrected.  For all the debate about the Constitution, states' rights, federal funding of abortion, government takeover of health care, and death panels, the thing that will kill the bill quicker than anything is the cost.

And maybe that's the way it should be.  In a capitalist system, the market decides.  That's one of the basic principles of our country.  Why did cars become more fuel-efficient in the mid-70's?  Because gas prices went up.  Cars with better gas mileage sold, so car companies made an effort to improve all models' fuel-efficiency.  When gas prices moderated, or the public got accustomed to the higher costs, size became more important.  Chrysler's comeback under Lee Iacocca was led by the minivan.  When gas threatened to climb $4 a gallon or higher, there was a waiting list for hybrids.  

We all complain about American jobs going overseas.  When I worked for Stride Rite in the late 1980's and 1990's, almost all their shoes were made in factories in Massachusetts and Missouri.  Nike set the standard for the industry by going overseas to China and reducing their costs and increasing profits for their shareholders, which is their number one responsibility.  Stride Rite followed their lead, sending hundreds, if not more than a thousand jobs overseas.  By doing so, they were able to avoid the cost increases associated with doing business in the U.S.  Costs consisted mainly of environmental requirements (we all want clean air, right?), employee wages and benefits (we all want high wages and great benefits, right?).  Those production cost increases, to use Obama's phrase, necessarily led to skyrocketing retail prices.

At my store in Arizona, I saw the perfect example of Americans voting with their pocketbook.  We sold the Sperry Topsider boat shoe for $49.  A customer looked at it, tried it on, liked it, then saw that it was now made in China.  He told me that he refused to buy shoes made in China and these used to be made in the U.S.  He REFUSED to support any business that sent jobs to China.  I told him that the Dexter store was only a couple of doors down from my store and they had similar shoes, still made in the U.S.  He was back within fifteen minutes, buying the made in China Sperry Topsiders.  The Dexters, Proudly Made in America, cost an extra $20.  

In the early 1980's, WalMart was Hometown Proud.  They advertised carrying made in America merchandise.  They were also going under.  By 1988, you no longer heard the made in America claim.  Their new catchphrase was Always the Lowest Prices.  Google for stories about the Lowest Prices and their affect on American jobs particularly Zenith televisions and Rubbermaid.  It is impossible to pay the highest labor and environment related costs and sell for the lowest prices.  And it speaks volumes about those costs when you realize that it is cheaper for businesses to ship raw materials overseas, mainly to China, pay to have the products manufactured, and then ship the finished product to the United States than it is to have it manufactured in America.  Unions put the blame on the businesses when American jobs become Chinese jobs.  Blame Americans.  We are the ones that put more value on low retail prices than on American jobs.  When unions or the government start setting wage and benefit requirements, you only have to look to General Motors to see the results.  When over $1000 of the cost of every car goes to benefits for retired workers, a company can't compete.  That leads to higher retail prices and/or lower quality standards, fewer sales, and in this case a government run company.  And when the government gets involved in business, the results are predictably disastrous for the taxpayer, the shareholder, and the customer.  Unions seem to come out of the mess all right though.  They expect a payback for their campaign contributions.

Get the government involved through minimum wage standards.  At my company, we employed an average of 23 year-round full time employees.  Our starting wage was just under $1 over minimum wage.  The government felt that the minimum wage needed to be raised.  Within two years, our starting wage was now below the minimum, which forced the company to give all employees with under a year of service a raise to minimum,about 6%.  Well, the company has a responsibility to its shareholders to make a profit.  At my store, we were budgeted to use 14% of our gross sales on hourly payroll.  That did not change.  The company's options were to raise prices to increase gross sales, or reduce the number of employees.  Customers put a higher premium on price than service, so instead of 23 year-round employees, we now had to get by with 21.  Another interesting side-effect was that longtime employees were now dissatisfied with their pay.  While starting wage went up over 6%, annual salary increases stayed at the standard 3%, so new and short-term associates were making close to the pay of 3 to 5 year associates.  And customer service scores went down because the lower number of employees not only could not do the job as well, but they were not as happy with their job.  As usual when the government gets involved, everyone loses.

So now health care is the focus of the government takeover.  Like anything else, we want the best product at the lowest price.  We don't want to pay the cost of the world's best medical care, we only want to receive the world's best medical care.  In this case, we can't send the jobs to China for lower costs.  So, as in the case of General Motors, the government is stepping in.  And as usual, only the unions (unions, not to be confused with dues paying union members) will be happy with the results.