Tuesday, June 25, 2013

Pro-Friedman

An important point I make to my students each semester is understanding that most business owners, executives, etc. are really not pro-capitalism.  Rather, they're pro-business, specifically their own business.  What's the difference? Well, a major difference is that competitive markets usually result in lower prices and higher quality for consumers.  But they're also a source of tremendous uncertainty and danger for individual firms.  Thus, consumers benefit from markets, but individual  firms would rather avoid them if they can.

As an easy thought experiment, imagine you own a local pizza resturant.  In terms of your inputs -- say food, for example -- you want those whom buy from to be subject to intense market pressures.  Why? Because that competition results in better food and lower prices for you when you purchase.  So on the cost side, you're a huge market supporter.  But what about when you sell your product? Now, you don't want a competitive market situation; ideally, you'd like to be the only restuarant in your area.  A sort of monopoly -- which is completely anathema and entirely not part of capitalism -- is your fantasy.  Thus, in effect, most business folk want markets for their competitors but not for themselves.  And that is not pro-capitalism.

So, with that background, here's a great Milton Friedman video on just this subject. Friedman uses the terms "pro-free enterprise" and "pro-business" and also brings the role of intellectuals into the discussion.  Needless to say, it's absolutely wonderful and completely worth the 5 minute investment.  Enjoy! (HT: Carpe Diem)