Category: Business and Society

Via The New Editor, a restatement of a basic economic rule that we all need to remember as government in America swings back to the left. Clive Crook, in the course of reviewing Robin Williams’ Man of the Year, notes the potential unintended consequences if an anti-business mood overtakes our representatives:

Case by case, the merit in these proposals varies from substantial (executive pay) to less than none (taxing profits), but put the merits of the individual policies aside. What they have in common is a fallacious premise — namely, that the cost of a new fiscal or regulatory burden stays where you first put it, with the companies concerned. The idea is very appealing: If businesses are told to give their workers more-generous benefits, or to pay higher taxes, or to use alternative fuels that reduce their greenhouse-gas emissions, or whatever it might be, the rest of us — workers and consumers — get that benefit at no cost.

But that is rarely, if ever, true. In the end, the costs of those policies, as well as the benefits, mostly find their way back to voters at large as higher prices or lower wages (and this is to say nothing of the dynamic effects on incentives to grow and innovate). In short, business is not a separate segment of society that can be squeezed to advance the interests of the other segments. Economies are not built that way.

A very basic idea, to be sure, but one far too easily overlooked by populists who promote governmental intervention and regulation on behalf of “the poor” or “consumers” or whatever other group happens to wander into their line of sight. And having worked in political offices in the past, I know all too well the pressures that politicians face to “do something” when economic problems begin to mount. But we all need to step back and remind ourselves that in many (probably most) cases, governmental action to correct perceived economic injustices ends up penalizing not only the intended target of the action, but also the intended beneficiary.

Blog author: kschmiesing
Thursday, March 1, 2007

The John A. Ryan Institute at the University of St. Thomas has been organizing a series of international conferences on Catholic Social Thought and Management Education. The latest was on the topic “The Good Company: Catholic Social Thought and Corporate Social Responsibility in Dialogue.” You can access a number of the papers through this site.

These conferences are usually a mixed bag, so investigate at your own risk. But there are always a few outstanding presentations and this edition is no exception. Albino Barrera offers a fine, concise treatment of the application of Catholic social teaching to the issue of outsourcing. My only question is whether the phrase “race to the bottom” is an accurate description of what happens in some cases. But I can agree with Barrera’s conclusion, which includes a caveat: “A race to the bottom, if true, is not permissible in CST’s vision of a properly functioning economy” (emphasis added).”

Blog author: jballor
Tuesday, February 27, 2007

As a follow-up to the rather wide-eyed optimism I expressed in a post almost a year ago, the city of Grand Rapids has rejected the sole bid application received for development of property on the Grand River.

Duane Faust’s group did submit materials by the deadline, but the application lacked $65,000 in fees. reports that there were two other developers in the running, but “Faust’s bid was the only offer to come into the city offices on Friday, but without $65,000 needed as an earnest deposit and to cover the cost of evaluating the proposal. Initially, city officials were assured the money would be in their hands by the end of business last Friday. But it wasn’t and still isn’t.”

“I am at a point where I personally would not like to see this go forward,” said Grand Rapids mayor George Heartwell. “Chalk this up to experience. Sooner or later we will develop that property, but not this time around.”

It looks like for the time being at least the plans to make Grand Rapids a “cool” city won’t include that riverfront property.

This made me think of this.

From the NYTimes: “Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.”

From the poem, “The Incredible Bread Machine”:

Now bread is baked by government.
And as might be expected,
Everything is well controlled.
The Public well protected.

True, loaves cost a dollar each,
But our leaders do their best!
The selling price is half a cent.
Taxes pay the rest.

Having a small child in the home gives the opportunity for exposure to things you might otherwise never have reason to see. Such is the case with the VeggieTales in my house. We have “King George and the Ducky” on VHS, which gets occasional play on the set. The story itself adapts the tale of David and Bathsheba, but before the story gets underway, there’s a brief prelude.

Larry the Cucumber and Bob the Tomato are the stars of the VeggieTales, but two of their friends who don’t usually take center stage give telling a story about selfishness a try. What they come up with doesn’t meet the VeggieTales standards, but it does help tell us something about the way the market works in the real world. Jimmy and Jerry Gourd tell the tales of “The Englishman who went up a hill (and came down with all the bananas),” and “The Swede who went up a hill (and came down with all the strawberries).”

The Englishman has taken all the bananas, “leaving of course the inhabitants of the hill with no bananas and therefore bestowing the term ‘selfish’ upon myself” (QuickTime video here).

When asked if he’s going to eat any of the bananas, the Englishman responds that of course he can’t eat any, because you can’t have bananas without strawberries. “You’re soooo selfish,” cries a voice from off-camera.

The Swede who went up a hill does the same thing as the Englishman, but with strawberries instead of bananas. And the Swede will not eat any strawberries, because you can’t enjoy strawberries without bananas.

When the Englishman and the Swede see that the other one has what he needs to enjoy his own fruit, they ask in turn, “Might you spare a banana/strawberry?” But each character is so selfish that he is unwilling to part with any of his own fruit, and so both the Swede and the Englishman are left unable to enjoy their fruit but unwilling to simply give away his own fruit to make the other better off.

This brief story ends with Jimmy and Jerry Gourd moralizing, “Don’t be selfish.”

Needless to say, Larry and Bob are not satisfied with this tale, and go on to tell the story of King George and the Ducky. Part of the reason Jimmy and Jerry’s tale doesn’t work is that it is too simplistic and unrealistic.

That is, it doesn’t take into account the way in which market mechanisms can redirect selfish behavior into something that does benefit both parties in an exchange. The situation Jimmy and Jerry sets up simply has each possessor of the fruit ask for the corresponding fruit, implying a reliance upon the charity of the other party.

But what is much more likely to happen in a situation like this is that the Swede and the Englishman would engage in a trade, so that each would give their own fruit to get the other fruit, and in the end both would be able to enjoy strawberries and bananas. There’s no need to depend on or appeal to the charity of the other party in this situation. And an unwillingness to trade would make the lot of both the Swede and the Englishman worse off, as they would each be left with unusable and rotten fruit.

The incentive for their own material benefit would be to trade. In this way the market mechanism can function to take selfish action and make it serve a mutually beneficial purpose. In doing so there is an element of public, civic, or social good that is performed, irrespective of the selfish motivations of the parties involved.

None of these observations do anything to mitigate concerns about the ways in which the Swede and the Englishman went about obtaining their monopoly on the respective fruits. Nor does the material benefit created in the exchange obviate the need for charity and love in human social relations. And furthermore we certainly can’t say that because selfish behavior resulted in some material good that somehow selfishness is to be understood as a virtue in the truest sense. At best brazen selfishness can manifest itself as external righteousness, civic virtue, or a public good and is to be distinguished from true righteousness, virtue, and good. Selfishness is still sin.

But what such an exchange does show is that even in a world marked by sin and depravity, some good can come out of evil. As the Puritan theologian Richard Baxter has written,

If nature be not supported, men are not capable of other good. We pray for our daily bread before pardon and spiritual blessings; not as if it were better, but that nature is supposed before grace, and we cannot be Christians if we be not men.

In this sense, the market mechanism functions as a sort of preserving grace by which material wealth is created and enjoyed, allowing human beings to continue to live and even flourish. But rather than being the end of human activity, such material prosperity is a foundational reality necessary for the actualization of greater goods, a necessary but not sufficient condition for human happiness.

Blog author: jballor
Thursday, February 15, 2007

One of the stories told in the Acton’s forthcoming documentary, “The Call of the Entrepreneur,” (trailer available here) is that of Brad Morgan, a Michigan dairy farmer, who bucked the odds and the naysayers and turned the problem posed by the disposal of his herd’s manure into a profitable business venture.

His innovative solution to manure disposal, turning it into high quality compost for a variety of purposes, led to the formation of Morgan Composting in 1996, and more than ten years later the business is still going strong.

Sirico: “Sometimes they’re the most common resources that we walk over, that we ignore, that we even are perhaps repulsed by…”

Reflecting on the role of the entrepreneur in the market economy, Acton president Rev. Robert A. Sirico says, “Sometimes they’re the most common resources that we walk over, that we ignore, that we even are perhaps repulsed by, that become the source of wealth, the source of jobs, the source of prosperity. I mean this is an incredible institution.”

Perhaps no “resource” illustrates this reality better than manure. Brad Morgan turned the waste from cows into a valuable commodity. And now researchers and government officials are following Morgan’s lead.

Wendy Powers, a professor of agriculture at Michigan State University, says, “We really need to think outside the box on what uses for manure are.” Brad Morgan thought outside the box and Morgan Composting now offers a full line of products.

The Associated Press report says that “fiber from processed and sterilized cow manure could take the place of sawdust in making fiberboard, which is used to make everything from furniture to flooring to store shelves.”

“Farmers are having to put more and more money into dealing with manure,” said Tim Zauche, a chemistry professor at the University of Wisconsin-Platteville. “This is a huge cost to farmers.” A dairy farm can spend $200 per cow per year to handle its manure, Zauche said.

But looking at manure as a resource to be managed rather than waste to be disposed of is the key difference in perspective. That’s what Powers calls thinking “outside the box.”

Blog author: jballor
Wednesday, February 14, 2007

In this week’s Acton Commentary, I examine the most recent buzz-worthy trend in the lottery industry: privatization.

While most critics of these moves have pointed to the foolhardiness of selling off a long-term income stream for a lump sum jackpot, I argue that privatization by itself does nothing to address the underlying problems afflicting the lottery business. I conclude, “A government-run monopoly would merely be replaced by a government-enforced monopoly.”

And as I’ve claimed previously, government reliance on lotteries as a morally praiseworthy generator of income is illusory. UPDATE (HT: Mere Comments): Here’s a bit from the abstract from a recent article examining lottery trends from 1976-1996: “One of the most important policy-oriented determinants of income inequality is the lottery and a significant portion of the increase in income inequality over our two-decade time period is attributable to the increasing prevalence and popularity of state lotteries” (Elizabeth A. Freund and Irwin L. Morris, “The Lottery and Income Inequality in the States,” Social Science Quarterly 86 [December 2005 Supplement]: 996-1012).

The newest incarnation of the Michigan Lottery’s attempt to sell the industry as contributing to the common good describes the lottery as a thread running through all sectors of society, connecting everyone in a single bond of community. Is it really true that under a state-run lottery system that “we all win,” or all we all simply trapped in the same web?

Earlier this year the New York Post reported that the expansion of legalized gambling is having a deleterious effect on the ability of non-profits to raise funds through gambling fundraising events (HT: Don’t Tell the Donor).

And now there are some plans in the works to expand lotteries to a whole new level. The UK Telegraph reports that within five years a multi-million dollar worldwide lottery could be put in place.

I actually am quite (pleasantly) surprised that some enterprising young congressperson hasn’t yet been successful in putting forward the idea of a national lottery. Surely the Commerce Clause could be invoked to regulate and nationalize the regional interstate lottery games that are currently underway. The talk about something like No Child Left Behind being an unfunded mandate could be cut off in one fell swoop.

Read the entirety of this week’s commentary here.