Business Success Comes From Skin In The Game

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Posted: Nov 20, 2019 10:58 AM

Strict central planning for a nation has been a disaster, whenever and wherever it has been imposed. Central planning, however, is not necessarily an all-or-nothing proposition. Certain industries, such as airlines, utilities, or ground transportation, may be socialized, being owned and operated by the state, with the rest of the economy being coordinated primarily by markets. In the socialism of Hitler’s Germany in the 1930s and '40s, formal ownership remained with individuals and private firms, but the planners forced them to operate according to a centralized plan. It was de facto ownership by the state rather than legal ownership. In some cases, industries or businesses might be subject to arbitrary regulation, while leaving much of the human interaction on a voluntary basis.

In all cases, the negative effects depend on how much interference from the central planner is involved, how much the market is stifled. The more tightly planned and controlled and the less the markets are relied on for information, the more damage it does. Coercion replaces voluntary commerce. In the case of American healthcare, for an example, there has been more and more intrusion by politicians over a period of decades, and during that time, the healthcare markets have become more and more dysfunctional. The dysfunction is the result of political interference, cronyism, and market limitations, not the operation of markets themselves.

A counter-argument is that all successful businesses engage in central planning, with some giant corporations extending nationally or internationally. That large of an organization requires a bureaucratic structure and coordinated planning. Every business operates according to some kind of plan, whether formal and written, or informal, in the owner’s head, and those who participate must abide by it. If everyone in the organization had their own goals and did their own things, the business wouldn’t last long. There needs to be some direction toward the accomplishment of the goal of the business.

A government entity is different from a business in a fundamental way. With a business firm, all relationships are voluntary. In exchange for wages, employees pledge their hours to the employer and implicitly and legitimately subordinate their own plans to those of the employer during the working hours. Suppliers make agreements to exchange goods and services for payment. Customers buy from the firm because they value what the firm has more than the money they have to pay for it.

With the exception of government employees, citizens don’t work for the government. Individuals, families, clubs, and other private organizations have their own goals. They don’t agree to subordinate their goals and their plans to the wishes of some bureaucrat in a far off place. At least in free societies, government does not own the people, it does not own their property.

In such a free society, though a national politician can set a vision for the country and try to get people to buy into that vision, the people cannot and should not be compelled to do so. Especially in large, diverse nations, the needs, desires, and goals for the future are vastly different for different individuals, groups, cultures, and so on. The more detailed the planning by a central authority, the less regard it has for the plans of the individuals. The plan might help some people, but it likely will hurt many more.

Planners perched in an ivory tower in a distant city know a lot less than they think they do about the real conditions for real people. They have no accountability when things go wrong, They have no skin in the game. Business owners, on the other hand, do have skin in the game, and they also have the voluntary cooperation of their employees toward reaching a unified goal.