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Chicago Store Owner Spent $300,000 To Reopen Destroyed Business After Riots, Only For It To Be Struck Again By Vandals

A Chicago shop owner thought he had a second chance after his store was destroyed during the riots and violence following George Floyd’s death in May, the Associated Press reported.

But that second chance was fleeting. After Walid Mouhammad, the owner of African Food & Liquor, spent $300,000 to reopen his store in Chicago when it was vandalized in May, surveillance video showed Monday the inside of his shop being robbed and ransacked for the second time, according to the Associated Press.

Mouhammad has worked at the West Side Chicago convenience store for 33 years, with 20 years as its owner. His store was vandalized in late May, when riots and protests broke out across the country following the death May 25 of George Floyd, who died after a Minneapolis police officer knelt on his neck for several minutes.

Mouhammad is unsure if he’ll be able to reopen again after his store was destroyed and emptied the second time. Police were blocks away when his landlord and several workers called 911 to report that people were trying to break into his store.

Mayor Lori Lightfoot warned vandals that the city would hold them accountable for their actions, but Chicago has continued to spiral into violence and crime.

Over 100 people were arrested and 13 officers were injured amid looting and violence Sunday in Chicago. The violence was  reportedly prompted by an officer-related shooting. High-end shops were broken into and looted, and even a Ronald McDonald House was vandalized while sick children and their parents slept inside.

Chicago is also experiencing a surge in crime.

The Chicago Police Department counted 105 murders in July alone, a 139% increase over July 2019, which saw 44 murders. Police counted 406 shooting incidents, a 75% rise compared to July 2019’s total of 232.

The city’s murders are up 50% when comparing the January-July periods from 2020 and 2019, and shootings have jumped 47% for the same period.

COLUMN BY

MARLO SAFI

Culture reporter.

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EDITORS NOTE: This Daily Caller column is republished with permission. ©All rights reserved.

Why We Need to Make Mistakes: Innovation Is Better than Efficiency by Sandy Ikeda

“I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all,” Milton Friedman told economist Randall E. Parker for Parker’s 2002 book, Reflections on the Great Depression.

But I think innovation, not efficiency, is capitalism’s greatest strength. I’m not saying that the free market can’t be both efficient and innovative, but it does offer people a strong incentive to abandon the pursuit of efficiency in favor of innovation.

What Is Efficiency?

In its simplest form, economic efficiency is about given ends and given means. Economic efficiency requires that you know what end, among all possible ends, is the most worthwhile for you to pursue and what means to use, among all available means, to attain that end. You’re being efficient when you’re getting the highest possible benefit from an activity at the lowest possible cost. That’s a pretty heavy requirement.

Being inefficient, then, implies that for a given end, the benefit you get from that end is less than the cost of the means you use to achieve it. Or, as my great professor, Israel Kirzner, puts it, If you want to go uptown, don’t take the downtown train.

What Is Innovation?

Innovation means doing something significantly novel. It could be doing an existing process in a brand new way, such as being the first to use a GPS tracking system in your fleet of taxis. Or, innovation could mean doing something that no one has ever done before, such as using smartphone technology to match car owners with spare time to carless people who need to get somewhere in a hurry, à la Uber.

Innovation, unlike efficiency, entails discovering novel means to achieve a given end, or discovering an entirely new end. And unlike efficiency, in which you already know about all possible ends and means, innovation takes place onlywhen you lack knowledge of all means, all ends, or both.

Sometimes we mistakenly say someone is efficient when she discovers a new way to get from home to work. But that’s not efficiency; that’s innovation. And a person who copies her in order to reduce his commute time is not an innovator — but he is being efficient. The difference hinges on whether you’re creating new knowledge.

Where’s the Conflict?

Starting a business that hasn’t been tried before involves a lot of trial and error. Most of the time the trials, no matter how well thought out, turn out to contain errors. The errors may lie in the means you use or in the particular end you’re pursuing.

In most cases, it takes quite a few trials and many, many errors before you hit on an outcome that has a high enough value and low enough costs to make the enterprise profitable.) Is that process of trial and error, of experimentation, an example of economic efficiency? It is not.

If you begin with an accurate idea both of the value of an end and of all the possible ways of achieving that end, then you don’t need to experiment. Spending resources on trial and error would be wasteful. It’s then a matter of execution, which isn’t easy, but the real heavy lifting in the market process, both from the suppliers’ and the consumers’ sides, is done by trying out new things — and often failing.

Experimentation is messy and apparently wasteful, whether in science or in business. You do it precisely because you’re not sure how to answer a particular question, or because you’re not even sure what the right question is. There are so many failures. But in a world where our knowledge is imperfect, which is the world we actually live in, most of what we have to do in everyday life is to innovate — to discover things we didn’t know we didn’t know — rather than trying to be efficient. Being willing to suffer failure is the only way to make discoveries and to introduce innovations into the world.

Strictly speaking, then, if you want to innovate, being messy is unavoidable, and messiness is not efficient. Yet, if you want to increase efficiency, you can’t be messy. Innovation and efficiency usually trade off for each other because if you’re focused on doing the same thing better and better, you’re taking time and energy away from trying to do something new.

Dynamic Efficiency?

Some have tried to describe this process of innovation as “dynamic efficiency.” It may be quibbling over words, but I think trying to salvage the concept of efficiency in this way confuses more than it clarifies. To combine efficiency and innovation is to misunderstand the essential meanings of those words.

What would it mean to innovate efficiently? I suppose it would mean something like “innovating at least cost.” But how is it possible to know, before you’ve actually created a successful innovation, whether you’ve done it at least cost? You might look back and say, “Gee, I wouldn’t have run experiments A, B, and C if only I’d known that D would give me the answer!” But the only way to know that D is the right answer is to first discover, through experimentation and failure, that A, B, and C are the wrong answers.

Both efficiency and innovation best take place in a free market. But the greatest rewards to buyers and sellers come not from efficiency, but from innovation.

Sandy IkedaSandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He is a member of the FEE Faculty Network.

Yes, Students Are Customers, but the Customer Isn’t Always Right by Kevin Currie-Knight & Steven Horwitz

“College students are not customers. That analogy needs to die. It needs to be drowned in the world’s largest bathtub. It needs a George R.R. Martin–esque bloodbath of a demise.”

These are the strong words of education writer Rebecca Schuman in response to Iowa’s recent attempt to pass a law tying professors’ job security to their teaching evaluations. Such laws, Schuman and others think, are based on the misguided idea that students are akin to customers.

OK, So College Isn’t Like a Restaurant

To an extent, we agree with Schuman, but we think she vastly oversimplifies. In one way, it is hard to deny that students are customers. They (or someone acting on their behalf) pay for a service and, like customers in any other market, students can take their tuition money elsewhere if they aren’t satisfied.

Whether the educational experience was to the student’s “liking” may not be a good measure of the quality of the university’s educational services. 

On the other hand, as Schuman points out, college education looks quite different from many other businesses. Unlike restaurant patrons, for example, students are buying a service (education) that isn’t geared toward customer enjoyment. A good college education may even push students in ways they don’t enjoy.

Whether the tilapia was prepared to the patron’s liking is a good measure of the restaurant’s food. Whether the educational experience was to the student’s “liking” may not be a good measure of the quality of the university’s educational services.

Rather than this distinction being evidence for Schuman’s claim, however, it actually points out one of its flaws. She overlooks the fact that not all customers have the same sort of relationship with a business as we see in the restaurant industry, which serves as the only basis of her customer analogy.

Yes, colleges certainly have a different relationship with students than restaurants have with patrons. Patrons are there to get what tastes good and satisfies them for that specific visit. Students are (presumably) there to receive a good education, which may not instantly please them and may sometimes have to “taste bad” to be effective. (Most people who go to the dentist don’t find it immediately pleasurable, either, but, in the long run, they are certainly glad they went.)

No Pain, No Gain

We can think of three alternative business analogies for the university-student relationship.

First is personal training or physical therapy. Like university education, they involve services that aren’t geared toward immediate consumer happiness. To help a client achieve good results, a trainer often has to make the workout difficult when the client might have wanted to go easier. And good physical therapy often involves putting the client through painful motions the client would rather not undergo.

Yet, these businesses see their clients as customers and probably take customer feedback quite seriously. Trainers need to push customers past where they want to go, but this doesn’t mean trainers dismiss negative feedback.

Credible Credentials

Second are certification services, firms that provide quality assurance for other firms. Such providers may find themselves at odds with their customers when they withhold certification, but if the firm asking for certification really wants an assurance of quality for its customers, that firm will understand why its unhappiness at being denied isn’t a reason for the certifying organization to just cave to whatever its customers want.

Schuman suggests that if students are customers, the university must be a profit-grubbing business.

For example, a manufacturer of commercial refrigerators might seek certification from Underwriters Laboratories to prove to restaurant owners that its appliances have been independently tested and proven to hold food at safe temperatures that won’t sicken customers. If tests reveal that the fridges aren’t getting cooler than 50 degrees — far above food safety guidelines — the fridges won’t get certified.

Any certifying bodies that give in to pressure to certify all paying customers will end up being punished by the market when someone (a competitor? a journalist?) reveals that the company’s certification doesn’t really certify anything. Protecting the quality of the certification process is in everyone’s interest, even if it makes some of a certifier’s customers unhappy with particular outcomes.

College students may well be like the firms seeking a certification of quality, with employers and graduate schools being the analogue of their customers, who will only hire or admit “certified” students.

The Cheapest Product at the Highest Price?

A third analogy is the nonprofit organization. Schuman suggests that if students are customers, the university must be a profit-grubbing business, and since a “business’s only goal is to succeed,” a customer-focused university will “purvey… the cheapest product it can at the highest price customers will pay.”

But does viewing the people one serves as customers necessarily turn one into a business whose concern is to sell poor products at a high price rather than to provide a good service? Credit unions, art museums, area transportation services, and, yes, private K–12 schools are often organizations that don’t operate for profit and yet provide services directly to paying customers.

Nonprofit museums charge admissions and nonprofit ride services charge for rides; therefore, they serve paying customers. But this does not mean they aim to make the maximum profit possible, or in fact any sort of profit, by providing the lowest quality at the highest price. (Of course, we would take issue with Schuman’s characterization of even more traditional profit-seeking firms as aiming to sell junk at high prices, but we can leave that to the side for our purposes here.)

Schuman is wrong to think that if universities see students as customers, this must turn them into profit-driven businesses in this narrow sense.

Is the Customer Always Right?

For all that, we sympathize with some of the basics of Schuman’s argument. As college professors, we understand her concern over putting too much stock in student evaluations of teacher performance. Even if students are customers, they surely aren’t customers in the same way the restaurant patron is a customer. And a restaurant will not automatically treat every customer comment card as equally influential in changing how it does business. Some restaurant customers have unrealistic expectations or don’t understand the food service business, and restaurants often have to decipher what feedback to take seriously and what to disregard.

We suspect that Schuman’s confusion may result from universities and professors thinking that they are selling something different from what students may think they are buying. Students generally want the degrees that come from education, with education being the process to get the degree. Universities (and professors) sell knowledge and skills, and the degree is simply the acknowledgement that students have obtained that knowledge.

Professors may think that they are selling something different from what students think they are buying.

Good learning may be difficult and, in the short run, unpleasant. But for students aiming for a degree, it would be better to go through classes that are agreeable and aren’t too difficult. If this is right, you can see why there’d be a mismatch between how students think their education is going and how it may actually be going, and why the former may not be the best gauge of the latter.

With a restaurant, the customer and the seller both agree on what the product is: a good meal (and good restaurateurs will generally defer to what the customer wants). With personal training, it may be that the trainer’s job involves pushing customers past where they’d go on their own, but the trainer and customer do still generally agree on the service: the trainer helps customers achieve their goal of fitness.

We appreciate and share Schuman’s concern that universities not over-rely on student evaluations and the degree to which students find their educations pleasurable in a narrow sense. But the issue isn’t as simple as saying that, because professors’ job security shouldn’t come down entirely to student evaluations, students aren’t customers.

Yes, there is a danger in treating students the way restaurateurs treat patrons. But there is also danger in the other extreme: if we stop viewing students as customers in some sense of the term, then instead of treating them with the respect we generally see in the personal training and certification industries and among nonprofits, we risk turning universities into something more like the DMV.

Kevin Currie-KnightKevin Currie-Knight

Kevin Currie-Knight teaches in East Carolina University’s Department of Special Education, Foundations, and Research. His website is KevinCK.net. He is a member of the FEE Faculty Network.

 

Steven HorwitzSteven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

RELATED ARTICLE: This State Offered Free College Education. Here’s What Happened.

Fake Passports Being Used by Muslim Migrants

That’s what the Wall Street Journal is reporting, thanks to Jeff for sending the story.

The ‘stars’ of the WSJ piece landed in the UK, but I wonder how many are landing at an airport near you as we speak?

ISTANBUL—Somewhere over Europe, Kassem went to the airplane’s bathroom and flushed his fake Italian passport down the toilet.

When he landed in London’s Heathrow Airport a few hours later, Kassem presented his Syrian ID to U.K. immigration officials and requested asylum. The trip wouldn’t have been possible using his actual, Syrian passport—the country’s four-year civil war has turned it into a burden for anyone fleeing the conflict.

When asked where his passport was, Kassem told the officials: “It’s in the toilet.”

While hundreds of thousands of Syrian refugees make the dangerous sea voyage to Europe followed by arduous treks across the continent, some of their countrymen have used fraudulent Western passports to board planes to countries where they can request asylum. Winter’s approach, turning seas colder, stormier and more dangerous, is expected to increase the practice.

Continue reading here.

This chart shows how many successful asylum cases were processed in 2013 in the U.S.  Source: Migration Policy Institute. (I would love to know what countries are represented in that 7,776 (30%) from “other countries,” wouldn’t you?)

asylum US

For new readers the difference between refugees and asylum seekers is that we fly the refugees in after the UN selects them for us and asylum seekers get in on their own steam—either illegally across a border or come legally on another type of visa—then ask for asylum, claiming they will be persecuted if returned to their homeland. Once granted asylum however, the asylum seekers get all of the same welfare goodies that refugees receive.

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Denmark: Sex education for wannabe refugee rapists

Blurring the Lines between Products and Services: What matters is producing value by SANDY IKEDA

Angst over the alleged shrinking of the so-called industrial sector has been a staple of business journalism and fodder for political bloviating since at least the 1970s.

Is the United States losing manufacturing jobs to other countries? Or are manufacturing jobs coming back to the United States? Is the hamburger flipper pushing out the drill-press operator?

I won’t try to explain why or even whether all this has been happening. I’ll leave that to those better informed on the issue, like my friend, economist Don Boudreaux. Instead, I’d like to focus on the distinction people tend to make between manufacturing jobs and service-sector jobs, because that distinction is not as clear as many believe.

Does manufacturing matter?

One view is that, desirable or not, there’s no point in hoping for a return of manufacturing to the United States:

More than 70 percent of the wealth created in the U.S. today comes from providing services, a 33 percent increase since 1950. The shift from goods to services is likely to continue. In other words, our future prosperity is not going to come from buying more stuff, but from doing more for each other.

So accept harsh reality, strap on our aprons, and keep flipping those burgers. But that attitude simply hides a deeper confusion.

In a recent column, Steve Horwitz made the important point that:

[T]he purchase of a service is no less able to improve our lives, and thereby be a source of economic growth, than are the production and purchase of material goods. In fact, what we really care about when we purchase a material good is not the thing itself, but the stream of services it can provide us.

Looking beyond superficial differences, what matters from our individual perspectives is whether those services provide meaningful improvement in our lives, not whether driving a car is somehow “better” than eating a hamburger. I’d like to pick up on Steve’s theme and take it in a slightly different direction.

Producing versus selling

My great teacher Israel Kirzner has pointed out that all production costs are really selling costs.

No single penny of the outlay — even those usually considered as strictly production, rather than selling, costs — can be perceived as anything but costs incurred in order to sell.

That might sound a little confusing at first, because most of us see producing something as a very different activity from selling something. Production involves combining labor and capital, in often complex ways, over time; sales involves marketing and advertising what has been produced. Right? But look a little deeper.

What is production but the attempt to make inputs — labor, know-how, machines, raw materials, organization — more attractive and more salable to the final consumer? What clothing companies such as Gap actually do is increase consumers’ demand for cloth, thread, sewing machinery, electricity, and skill by putting these inputs together in a more marketable way. Gap might be able to sell a bag of inputs to a person and hope she buys it, but it’s probably had greater success by making the package a little more attractive. That’s what production does; it makes inputs more marketable to buyers.

The false division between production and advertising

Seeing production as essentially a selling activity erases the distinction between production and advertising. If the seller and customer aren’t aware of each other, it doesn’t matter a bit if a seller makes a shirt that a customer is willing and able to buy at a price that would more than cover the shirt’s opportunity cost.

Without that awareness, it’s as if the shirt had not been produced. So more than simply providing information about the shirt’s qualities, advertising serves to bring the shirt’s very existence to a customer’s attention. In that way, advertising completes the selling process that began at the earlier stages.

The false division between manufacturing and service

Seeing the production process as a selling process also erases the distinction between manufacturing and service.

A person who operates a drill press is using her knowledge to maximize the machine’s effectiveness. She is providing a service to the buyer in the next stage of production, no less than the Apple worker at the Genius Bar is servicing the computers that buyers use for their individual purposes. All labor is, in this sense, a service.

Such service, if appropriate, represents value added to the selling process. Labor services can enhance the value of capital, just as capital can enhance the value of labor. When successful, labor and capital complement each other, increasing their respective value productivities, because they make the final product more valuable, more salable, to the final customer. What we conventionally call a “service job” is merely the final stage of delivering a product, whose inputs have been serviced and sold, stage by stage, all the way down the supply chain.

Viewed this way, it’s easy to see that some services along the production process (even in the “manufacturing sector”) add little value, just as there are services (in the traditional “service” sector) that add much more value in the eyes of the final consumer. That’s fine, because people differ in how much they are willing to sacrifice for high-paying jobs, and each worker chooses the job that she thinks comes closest to having the best trade-off between labor and leisure.

Thus, the issue is not service jobs versus manufacturing jobs, but low-value-added services versus high-value-added services. There’s no need to bemoan the loss of “manufacturing jobs” or celebrate their return. No need to flip out over flipping burgers. All jobs are services.

Matching, not flipping, is the problem

So services include not only labor applied at the final stage of production — the final point of sale — but also knowledge and skills that can be and often are highly valuable. Those services include the traditional practices of medicine and legal and financial consulting, as well as newer sectors in computational and Internet technology — the so-called knowledge economy — and a host of others.

Looking at all jobs as services brings into focus what may be of greater concern: whether jobs on the whole are becoming more or less value productive. The problem, if it is a problem, should not be framed in terms of working in manufacturing or in service. The question is whether people who want to work and earn more have the skills that match the requirements for such jobs. If the answer is no, then that may be a problem.

And the solution may then be to reexamine the role and effectiveness of formal education and training. These are big, complex issues. But at least now we’re asking the right questions.

Sandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

Reich Is Wrong on the Minimum Wage by DONALD BOUDREAUX

Watching Robert Reich’s new video in which he endorses raising the minimum wage by $7.75 per hour – to $15 per hour – is painful. It hurts to encounter such rapid-fire economic ignorance, even if the barrage lasts for only two minutes.

Perhaps the most remarkable flaw in this video is Reich’s manner of addressing the bedrock economic objection to the minimum wage – namely, that minimum wage prices some low-skilled workers out of jobs.

Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers.

Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.

Ignore (as Reich does) that any additional amounts paid in total to workers mean lower profits for firms or higher prices paid by consumers – and, thus, less spending elsewhere in the economy by people other than the higher-paid workers.

Ignore (as Reich does) the extraordinarily low probability that workers who are paid a higher minimum wage will spend all of their additional earnings on goods and services produced by minimum-wage workers.

Ignore (as Reich does) the impossibility of making people richer simply by having them circulate amongst themselves a larger quantity of money.

(If Reich is correct that raising the minimum wage by $7.75 per hour will do nothing but enrich all low-wage workers to the tune of $7.75 per hour because workers will spend all of their additional earnings in ways that make it profitable for their employers to pay them an additional $7.75 per hour, then it can legitimately be asked: Why not raise the minimum wage to $150 per hour? If higher minimum wages are fully returned to employers in the form of higher spending by workers as Reich theorizes, then there is no obvious limit to the amount by which government can hike the minimum wage before risking an increase in unemployment.)

Focus instead on Reich’s apparent complete ignorance of the important concept of the elasticity of demand for labor.  This concept refers to the responsiveness of employers to changes in wage rates. It’s true that if employers’ demand for unskilled workers is “inelastic,” then a higher minimum wage would indeed put more money into the pockets of unskilled workers as a group. The increased pay of workers who keep their jobs more than offsets the lower pay of worker who lose their jobs. Workers as a group could then spend more in total.

But if employers’ demand for unskilled workers is “elastic,” then raising the minimum wage reduces, rather than increases, the amount of money in the pockets of unskilled workers as a group. When the demand for labor is elastic, the higher pay of those workers fortunate enough to keep their jobs is more than offset by the lower pay of workers who lose their jobs. So total spending by minimum-wage workers would likely fall, not rise.

By completely ignoring elasticity, Reich assumes his conclusion. That is, he simply assumes that raising the minimum wage raises the total pay of unskilled workers (and, thereby, raises the total spending of such workers).

Yet whether or not raising the minimum wage has this effect is among the core issues in the debate over the merits of minimum-wage legislation. Even if (contrary to fact) increased spending by unskilled workers were sufficient to bootstrap up the employment of such workers, raising the minimum wage might well reduce the total amount of money paid to unskilled workers and, thus, lower their spending.

So is employers’ demand for unskilled workers more likely to be elastic or inelastic? The answer depends on how much the minimum wage is raised. If it were raised by, say, only five percent, it might be inelastic, causing only a relatively few worker to lose their jobs and, thus, the total take-home pay of unskilled workers as a group to rise.

But Reich calls for an increase in the minimum wage of 107 percent! It’s impossible to believe that more than doubling the minimum wage would not cause a huge negative response by employers.

Such an assumption – if it described reality – would mean that unskilled workers are today so underpaid (relative to their productivity) that their employers are reaping gigantic windfall profits off of such workers.

But the fact that we see increasing automation of low-skilled tasks, as well as continuing high rates of unemployment of teenagers and other unskilled workers, is solid evidence that the typical low-wage worker is not such a bountiful source of profit for his or her employer.

Reich’s video is infected, from start to finish, with too many other errors to count.  I hope that other sensible people will take the time to expose them all.

Donald Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

EDITORS NOTE: Here’s how Reich cherry-picked his data to claim that the minimum wage is “historically low” right now; here’s why Reich is wrong about wages “decoupling” from productivity; here’s why Reich is wrong about welfare “subsidizing” low-wage employers; here’s why Reich is wrong that Walmart raising wages proves that the minimum wage “works”; Reich is wrong (again) about who makes minimum wage; and here’s a collection of recent news about the damage minimum wage hikes have caused.

This post first appeared at Cato.org, while Cafe Hayek was down for repairs. 

Profits Are the Only Business of Business by D.W. MACKENZIE

Forty-three years ago today Milton Friedman published his article “The Social Responsibility of Business Is to Increase its Profits.” It is to Friedman’s credit that most of this short article rings as true today as it did on September 13, 1970. It is at the same time disappointing that this piece remains timely precisely because too few Americans have understood and accepted Friedman’s arguments against corporate executives promoting social welfare over private profit.

How do the specifics of Friedman’s article look today? Does an executive who spends profits to promote “social ends,” to fund education, or to “fix the environment” impose what amounts to a tax? Yes, Friedman is correct.

Is the imposition of such a de-facto tax undemocratic? Perhaps it is. Friedman admits that the shareholders could fire a CEO for imposing a de-facto “social responsibility tax”- so the shareholders can vote against their CEO. Legally, the CEO is an agent of the stockholder, their employee. However, proposals to spend part of corporate profits on socially responsible ends aim at overriding the interests of shareholders; it undermines the democratic element of corporations.

Do arguments for redirecting corporate policies toward social responsibility erode personal liberty, aim at conformity, and promote socialism and collectivism? Yes. Stockholders invest in a corporation for profit, for personal gain. If the CEO starts aiming at social ends at the expense of private shareholder interests, then the corporations is effectively being run as if it were owned by society. This is, in effect, socialism. As Friedman put it, the social justice doctrine “would extend the scope of the political mechanism to every human activity.” The idea of aiming at social responsibility actually means directing corporate funds toward one person’s particular opinion about the interests of “society.” Social welfare and social justice are, at very best, vague concepts. As Ludwig von Mises put it in his 1949 treatise, “under socialism one will dominates.”

Friedman also claims that taxation by the state is the legitimate mechanism for collecting funds to promote socially responsible ends. We have constitutional, legislative, and judicial mechanisms to collect and spend legal tax dollars. Is this claim true? Are legal tax mechanisms better at promoting social responsibility than the illicit use of corporate funds for these purposes? Friedman notes, quite correctly, that people who push for socially responsible corporate policies are those who have failed to convince their fellow citizens to support their personal version of social responsibility. Having failed in an attempt to use the political mechanism, they resort to trying to politicize the market mechanism. Friedman is right, but this brings us back to my assessment of Friedman’s article: Friedman has himself failed to convince his fellow citizens that his view of profit is correct.

I agree that democracy can only work if public discourse works. The best ideas will rise to the top of an open and free debate among rational, reasonable people. I agree that people who press for corporate social responsibility are usually collectivists who press for conformity and disdain opposite points of view. However, the fact that political debate involves a high degree of intransigence and emotion means that the democratic process does not function very well.

Consequently, I must disagree with Friedman’s assertion that the public sector can work effectively to promote social responsibility. The fact that so many people continue to press for social responsibility and economic justice against Friedman’s advice shows that his support of government taxation for social responsibility is unfounded. Friedman is correct in noting that the great merit of private enterprise is that it makes people responsible for all their actions, either selfish or unselfish. However, lack of personal responsibility in the public sector does not promote responsibility in thinking about how to best use tax dollars in a socially responsible manner.

The main elements of Friedman’s article are correct. The sum of these elements is highly questionable when it comes to his confidence in political mechanisms. Profits are the only business of business. Social responsibility should be the business of government, but it is time to recognize that the modern tax and regulatory state has failed in this endeavor.

ABOUT D.W. MACKENZIE

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.

Hillary: ‘Don’t Let Anybody Tell You’ that ‘Businesses Create Jobs’ [+video]

There is only one thing that creates a job – profit. If a business, sole proprietor or large corporation, does not make a profit they will not add to their payrolls. The only thing that creates a government job is taxes, paid by businesses and those who work for businesses.

It appears Hillary Clinton does not understand that. Restoring Liberty’s Joe Miller reports:

Appearing at a Boston rally for Democrat gubernatorial candidate Martha Coakley on Friday, Hillary Clinton told the crowd gathered at the Park Plaza Hotel not to listen to anybody who says that “businesses create jobs.”

“Don’t let anybody tell you it’s corporations and businesses create jobs,” Clinton said.

Hillary has not had a private sector job since the days just after she left college. She may be confusing the work she has done for the government as a job but perhaps misunderstands who paid her salary? Perhaps she should have run her remarks by those businesses that contribute to her campaign? Perhaps this is just a new way of saying “You didn’t build that” refurbished for the 2016 presidential race?

Of Battlefields and Boardrooms by Matthew McCaffrey

Are the Art of War and the Art of Enterprise two edges of the same sword?

Sun Tzu’s The Art of War is justly known as one of the great works in strategic thinking. But although the text nominally concerns warfare, through the centuries it’s often been used as a business handbook more than as a military manual. Just like good economic writing, it brilliantly expresses complex ideas simply and concisely, and its dramatic prose makes for compelling lessons about conflict.

However, while analogies between the boardroom and the battlefield might seem appealing, they are erroneous. Economists like Mises have emphasized that market competition and military competition could not be less alike; one is productive and increases human welfare, while the other is destructive of human life and economy.

But The Art of War remains popular in business because it isn’t really about armed conflict. It’s about finding ways to advantageously avoid or resolve confrontation of any kind. It’s this sort of idea that opens the door to insights about enterprise.

One of Sun Tzu’s major attractions for the business world is his emphasis on entrepreneurial thinking. For him, strategic excellence is about creating opportunities and taking risks, the same abilities necessary for success in the market, where uncertainty constantly challenges the good judgment of would-be entrepreneurs.

Good decision-making also means one must be “formless,” so as to instantly take advantage of fleeting opportunities and adapt seamlessly to changing (market) conditions. The classical strategists realized that competitive success depends on one’s ability to control and manipulate the internal and external conditions of conflict. This means knowing one’s own abilities and weaknesses as well as those of the competition, as summed up in The Art of War’s most famous aphorism: “One who knows the enemy and knows himself will not be endangered in a hundred engagements.”

The qualities that these classical strategists recommend in great generals are actually the traits of successful market entrepreneurs. For example, entrepreneurs are decisive and willing to bear the uncertainty of the market—unafraid of committing resources to projects that might fail. And they must be willing to endure hardship on the road to success, while never taking it for granted by becoming complacent or arrogant—traits that consumers often punish severely.

Comparing strategic and economic ideas raises an important question, though: If the analogies to the business world are so obvious, and the ancient texts really do have something in common with economic thinking, why didn’t the classical strategists realize their ideas were applicable to peaceful exchange? A simple response is that the market economy as we know it didn’t exist in ancient China (specifically, during the Spring and Autumn and Warring States periods). A more complete answer is that it couldn’t have existed. That is, ancient China lacked much of the institutional framework necessary for entrepreneurship and commerce to flourish—strong property rights, individualism, and the social acknowledgment of the importance of profit.

As William Baumol argues, a society’s institutions influence the course its entrepreneurial energy takes. Many of the great minds of the Renaissance—for instance, the inventors and innovators perfectly suited to improving welfare through the market—were military entrepreneurs in service to competing city-states. Political institutions offered patronage and the possibility of advancement, while opportunities to commercialize ideas were scarce, if not actively frowned upon. That is to say, the ancient Chinese states, along with countless others throughout history, lacked the “bourgeois virtues” that Deirdre McClosky argues provided the foundation for the industrial revolution.

This then is one explanation for the military turn of The Art of War and the other Chinese strategic classics. Having little explicit acknowledgment of the virtues of commerce, analysis of market competition presumably offered slight appeal. Without the institutional and cultural basis for market entrepreneurship, classical thought turned to analyzing destructive forms of competition that offered better “profit” opportunities—specifically, the chance to wield influence within the State bureaucracy. Spreading ideas usually meant finding a place in court and becoming a trusted advisor to the powerful. This much the classical strategists had in common with Renaissance intellectuals like Machiavelli—who, perhaps not coincidentally, also wrote a book titled The Art of War.

The lesson is that all societies face the problem of developing and keeping the institutions that allow enterprise to thrive—those institutions that direct the best of human creative energy to improving the lives of others, not to the service of the military State. Ideology plays a vital role in this social process and paves the way for peace and commercial prosperity. Instead of a guide to violent competition then, texts like The Art of War can help us develop a strategy for the battle of ideas. Ideas ultimately shape both society and our roles in it, so it falls to us to embrace and spread those that lead us away from the destruction of war making and toward the “creative destruction” of enterprise.

ABOUT MATTHEW MCCAFFREY

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

EDITORS NOTE: The featured image from FEE and Shutterstock

Gov. Romney Is Correct Cultural Differences Explain Israeli Economic Success

The Zionist Organization of America (ZOA) has stated that Governor Mitt Romney was correct to note, as he did during a fundraiser dinner in Jerusalem, that Israeli culture plays a large part in Israel’s superior economic performance over the Palestinians.

Governor Romney said “Culture makes all the difference … And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things … As you come here and you see the G.D.P. per capita, for instance, in Israel, which is about $21,000, and compare that with the G.D.P. per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.”

Palestinian Authority (PA) official Saeb Erekat has denounced Governor Romney’s statement as “racist.” Erekat said, “It is a racist statement and this man doesn’t realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation … It seems to me this man lacks information, knowledge, vision and understanding of this region and its people” Ashley Parker & Richard A. Oppel, ‘Romney Trip Raises Sparks at a 2nd Stop,’ New York Times, July 30, 2012).

ZOA National Chairman of the Board Dr. Michael Goldblatt said, “Governor Romney was correct to observe that culture plays a decisive role in economic performance. In particular, he was right to note that this has produced widely divergent results in economic performance between Israel and the Palestinian Authority.

“Israel has a culture of private enterprise, competition, innovation and technology and has had it since its earliest days. In contrast, the PA has been bedeviled from its inception with crony capitalism, endemic corruption, distortions of the market and other malpractices which also affect its economy in drastic ways, not least in the loss of foreign investor confidence.”

“Israeli society is characterized by religious, economic and personal freedom. By contrast, the PA is unsafe for political dissidents or religious or sexual minorities. Bethlehem, under PA control since 1995, has seen its traditionally Christian population dwindle to less than 20%. In Hamas-controlled Gaza, there has been an even sharper flight of Christians. And Palestinian gays who wish to live without fear of death or imprisonment often have only one option: refuge in Israel. It makes sense that a society with Israel’s open and broadly liberal culture would be more stable, better educated, attract greater investment and produce more and better goods.

“Palestinian culture is also afflicted with incitement to hatred and murder, glorification of violence and terror. One only has to look at PA TV programs, radio broadcasts and media features to see that it is the terrorist, not the entrepreneur, who is honored. The PA doesn’t name streets, schools and sports teams after scientists and inventors. It names them after suicide bombers and jailed terrorists.

“In the PA, as the ZOA has pointed out on many occasions, a public square, a summer camp for youth, a computer center and several events have been named in honor of Dalal Mughrabi, who led the terrorists who carried out the 1978 coastal road terrorist attack on an Israeli bus, murdering 37, including a dozen children.

Many Americans will recall that Palestinian enthusiasm for terrorism extends beyond Israel to the U.S., as those Americans who saw on their TV screens Palestinians celebrating the 9/11 attacks need no reminder.

“Saeb Erekat claims that Governor Romney’s statement was racist. This is predictably absurd: there was no reference in Governor Romney’s comparison of Israel and the Palestinians to religion or ethnicity, let alone race. He referred to culture, which indeed can make a major difference. A society which aspires to terrorism and ‘martyrdom’ rather than innovation and wealth-creation is going to perform poorly by comparison in the economic sphere.

“Erekat objects that the PA cannot perform well economically because it is under ‘occupation.’ Some people cannot live without alibis and need to blame others for failure, as Erekat does here. But the facts repudiate this shop-worn, opportunistic charge. Before the PA was established – in other words, when the areas now controlled by the PA were under Israeli control – economic growth was steady among Palestinians. Economic performance tapered off immediately after the PA assumed control in 1994, following the Oslo Accords, and all the attendant problems mentioned earlier came into play.”

“Even then, the PA was doing better in the mid-1990s than it was to do after 2000, when it launched a terrorist war against Israel. Naturally, joint projects, Israeli (and much foreign) investment came to a halt and the resultant hostilities destroyed or damaged much infrastructure. You can have war, but rarely can you have war and development. The Israeli economy also suffered from this war but, because of the general soundness of Israel’s economic culture, it recovered much more quickly once Palestinian terrorism was brought under control.”

“On this point, Governor Romney is right and his critics are wrong.”

NOTE: On May 1, 2012 the author returned from a 10 day visit to Israel and observed the vibrant economy and prosperity in the Israeli community he visited.

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Culture Does Matter by Mitt Romney in the National Review