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Government Should Not Regulate Business. Businesses Should Regulate Themselves And Their Customers.

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Business regulations are of two kinds: government-imposed regulations on businesses and business-imposed regulations on employees and customers. From the standpoint of liberty and property, the first kind of regulation is always bad and the second kind of regulation is always good, even when the regulations are bad.

Let me explain.

First of all, there are government-imposed regulations on businesses. These can take many forms.

The Family and Medical Leave Act (FMLA) requires employers with 50 employees or more to provide 12 weeks of unpaid leave to “eligible employees” because of the birth or adoption of a child or for the serious illness of the employee or the employee’s spouse, child, or parent.

Most people are aware that the Obamacare individual mandate dictating that every American not covered by Medicaid, Medicare, or private health insurance must purchase health insurance or pay a penalty was eliminated in the Tax Cuts and Jobs Act of 2017 and then declared unconstitutional. However, the Obamacare employer mandate is still in force. It dictates that all employers with 50 full-time or full-time-equivalent employees or more must offer them “affordable” health insurance that provides “minimum value” or pay an annual tax penalty of $2,000 per employee.

There are also minimum-wage laws that dictate that an employer cannot pay an employee less than a certain amount per hour even if the employee agrees to work for that amount. The Fair Labor Standards Act also requires that employers pay a “covered employee” overtime pay of one-and-one-half-times the regular rate of pay, even if the employee agrees to work overtime for his regular rate of pay. The U.S. Department of Labor (DOL) actually administers and enforces more than 180 federal laws.

Most employers with at least 15 employees must comply with anti-discrimination laws enforced by the Equal Employment Opportunity Commission (EEOC). The EEOC mandates that employers cannot discriminate in hiring or promotions on the basis of race, religion, age, sex, national origin, disability, sexual orientation, or gender identity.

Manufacturers must comply with labeling laws on everything from mattresses to canned goods.

Businesses that employ more than 100 people are required to report each year to the EEOC how much they pay each employee, broken down by race/ethnicity, job category, and gender.

Businesses must also comply with environmental regulations, safety regulations, antitrust regulations, advertising regulations, licensing, and permits.

And then, of course, there are the various taxes that businesses must collect for federal, state, and local governments: sales taxes, excise taxes, Social Security tax, Medicare tax, unemployment tax, withholding tax.

Government regulations on business are a tremendous burden and a costly drag on the economy. According to economist Dan Mitchell,

  • Americans spend 8.8 billion hours every year filling out government forms.
  • The economy-wide cost of regulation is now $1.75 trillion.
  • For every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.

And that was just a few years ago. According to the Competitive Enterprise Institute (CEI), “The aggregate total of regulations issued since 1976 (when the Federal Register began itemizing them) has increased from 195,189 at the end of Obama’s tenure to 204,802 now.” (And “now” was before the coronavirus pandemic.)

Then there are business-imposed regulations on employees and customers. These are generally misunderstood. Should they be allowed? Should they be limited? Should they be enforced by government? Are they constitutional? Two recent incidents relate to this subject.

When the Black Lives Matter (BLM) movement was the focal point of the news earlier this year, some employees of Whole Foods Market in Canada came to work wearing insignias and clothing in support of BLM. In response, Whole Foods Market prohibited all employees from wearing such items. But then the company went a step further. It prohibited the wearing of Remembrance Day poppies during Veterans Week. “The poppy represents those who’ve served, fought, and died for Canada, and it’s deeply personal to everyone here,” said Lawrence MacAulay, Canada’s Minister of Veterans Affairs. Ontario Premier Doug Ford, who termed the ban “disgusting and disgraceful,” said that his family would be boycotting Whole Foods Market. But he also announced that “he would seek legislation in the province to ban employers from prohibiting staff from wearing poppies during Remembrance Week.” Other grocery stores in Canada took advantage of the public outcry directed towards Whole Foods Market. Some posted photos of employees wearing poppies. Whole Foods Market then reversed its poppy-wearing policy and issued a statement: “Our intention was never to single out the poppy or to suggest a lack of support for Remembrance Day and the heroes who have bravely served their country.”

But it’s not just Whole Foods Market in Canada that is in hot water. In the United States, Whole Foods Market was sued in July by employees in Massachusetts, New Hampshire, California, and Washington when it barred them from wearing BLM face coverings while on the job. The company said in a statement that employees “must comply with our longstanding company dress code, which prohibits any visible slogans, messages, logos or advertising that are not company-related, on any article of clothing.” The plaintiffs allege that “the company has allowed other messages on workers’ attire, including rainbow pins and flags, and sports team names and logos.” The lead attorney said that Whole Foods Market “‘selectively and arbitrarily’ enforced the dress code to specifically suppress the Black Lives Matter message.”

The other incident concerns business regulation of customers. And it is more than just one incident. It actually affects millions of Americans every day. Since the advent of the coronavirus “pandemic,” many businesses have begun requiring not just their employees, but their customers as well, to wear face masks while patronizing their place of business. Now, much of this is because of government mask mandates that exist in many states, counties, and cities, but not all of it. In some places where there are no mask mandates, businesses have instituted their own.

Should they have the right to require their customers to wear face masks? Of course they should, but not because (so they say) masks help to limit the spread of coronavirus, are recommended by the CDC, keep everyone safe, or are just a minor inconvenience. Businesses should have the right to require their customers to wear masks for the same reason that they should have the right to require their customers to wear plaid shirts, dress pants, or blue suede shoes. No one has the right to shop at a particular store. Just as no store has the right to any customers.

In a free market, before a business makes any regulations, it must take into account whether a particular attire or conduct regulation — or any regulation — will upset employees or alienate current (or potential) customers. Mistakes can cost them employees or customers, or both.

It is never the business of government to regulate business. But it is perfectly acceptable for businesses to regulate the attire and conduct of employees and patrons. We may not like working for or shopping at businesses that have certain attire and conduct regulations — just as we may not like the prices they charge, their return policies, their hours of operation, the cleanliness of their restrooms, their employee benefits, or the snacks available in their employee break rooms — but in a free society it is businesses that decide those things and employees and consumers who decide if they will go along with them or work or shop somewhere else. In a free society, the government wouldn’t be involved in any way.

The Driving Force Of Free Markets Is Empathy. Only The Entrepreneur Who Prioritizes Other People’s Needs Can Be Successful.

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Both capitalists and anti-capitalists frequently accuse capitalism of being a system driven by selfishness and greed. Capitalism’s defenders sometimes say: “By nature, man is selfish, which is why socialism will never work. Capitalism better reflects the fundamental characteristics of human nature.” Anti-capitalists claim that capitalism promotes the worst characteristics in man, especially greed.

But are greed and unbridled selfishness really the driving forces of capitalism? Human self-interest is one—not the only—driving force of all human action. But this has nothing to do with a particular economic system. Rather, it is an anthropological constant. In capitalism, however, this self-interest is curbed by the fact that only the entrepreneur who prioritizes other people’s needs can be successful.

There is overwhelming evidence to suggest that empathy, rather than greed, is the true driving force of capitalism. Empathy is the ability to recognize and understand another person’s feelings and motives, and this is the most important characteristic of successful entrepreneurs.

Take Steve Jobs as an example. He came up with the iPhone and other products because he understood modern consumers’ needs and desires better than anyone else. Under capitalism, consumers can (and do) punish companies that behave selfishly and lose sight of the needs of their customers.

The same applies to Mark Zuckerberg, today one of the world’s richest people. He created Facebook because he knew better than other entrepreneurs what people wanted. Like all successful entrepreneurs, it was consumers who made Steve Jobs and Mark Zuckerberg so rich. For many years, the Albrecht brothers were the richest people in Germany. They earned their fortunes from the food discounter Aldi, which was founded on the principle of offering good quality products at very reasonable prices. This was the same recipe for success followed by Sam Walton, the founder of Walmart, who was consistently one of the richest people in the United States.

Consumers’ purchasing decisions confirm that Jobs, Zuckerberg, the Albrecht brothers, and Sam Walton had correctly understood their customers’ desires, needs, and emotions.

Of course, under the capitalist system, there are also examples of companies that have acted selfishly and lost sight of the wants and needs of consumers.

One example is Deutsche Bank, which has faced thousands of lawsuits. Such companies are punished under capitalism, not only by the law but far more so by the market. Deutsche Bank lost its position as one of the world’s leading banks because it put the interests of its investment bankers above those of its customers and shareholders.

Even companies that appear omnipotent today, such as Google or Facebook, will not retain their power forever.

A company’s most important asset is its image, and companies that behave like Deutsche Bank end up incurring massive damage to their images and reputations; their customers lose confidence and flock to their competitors.

In socialist systems, on the other hand, consumers are powerless and at the mercy of state-owned companies. If a state enterprise acts with no regard for the needs of consumers, they have no alternative under socialism because there is no competition.

Under capitalism, consumers can (and do) punish companies that behave selfishly and lose sight of the needs of their customers. Every day, customers vote on the company with their wallets—by buying its products or not.

Monopolies under capitalism are a temporary phenomenon. Even companies that appear omnipotent will eventually be ousted by new competitors as soon as they overreach their power and lose sight of their customers’ needs.

Ever since capitalism has existed, anti-capitalists have criticized the system’s inherent tendency to create monopolies. Lenin wrote over 100 years ago that imperialism and monopoly capitalism are the last stages of capitalism. But the monopolies he criticized at the time no longer exist. Even companies that appear omnipotent today, such as Google or Facebook, will not retain their power forever. Other companies and ambitious young entrepreneurs will seize the opportunity as soon as Google or Facebook starts to act too selfishly.

What is strange is that socialists who criticize capitalism for its tendency to form monopolies are in favor of state-owned companies. After all, the state is the most powerful monopolist of all, with the ability to brutally trample on the needs and wishes of its citizens through its means of coercion and because there are no alternatives for the customer.

The fact that people and companies pursue their own interests is the same in every society. This is not a specific feature of capitalism.

Under capitalism, though, only those entrepreneurs and companies who prioritize their customers’ interests rather than their own self-interest will achieve success in the long-term. Companies that fail to understand and respect what consumers want will lose market share and may even disappear entirely as they are driven out by other companies that better meet their customers’ needs.

Empathy, the ability to recognize the desires and needs of others, is the true basis of capitalism—not unbridled greed and selfishness.

 

Dr. Rainer Zitelmann is a historian and sociologist. He is also a world-renowned author, successful businessman and real estate investor. His most recent book, The Power of Capitalism, was released in 2019.

 

How A.I. Will Create A New Era Of Entrepreneurship, And As Much Meaningful Work As We Demand.

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Journalists and commentators are trying to instill in us the fear that robotic automation, using artificial intelligence, will eliminate many, perhaps a majority of, jobs. We will all require a universal basic income, we’ll lose the sense of worth that comes with purposeful work, and we’ll have to shift our focus to figuring out what to do with our spare time.

These commentators forget – or, more likely, they never understood in the first place –  one of the first principles of economics: customer sovereignty. The customer is king. The customer determines what is produced by the act of buying or not buying. Anything the customer buys or wants to buy – i.e. there exists what the economists call demand – producers will figure out how to produce, and how to produce more and better, and how to produce more variations. If people want jobs, then they will be produced.

Robert Lempert explores this potential for AI to produce more meaningful work for humans in an article he titles Bezos World or Levelers published at AIPulse.

He observes that it is potentially possible that technology could destroy vast numbers of jobs – as many as 40% of the world’s jobs could be replaced in the next 15 years. Skills training, social insurance programs, and universal basic income (UBI) could only nibble at the edges of such a major social transformation.

But Lempert argues that the threat that AI poses to the system of jobs and meaningful work exists only because the giant tech companies that, so far, dominate the application of AI in commerce are deliberately creating the threat to further their own interests. They will make profits from automation, both directly and by selling it to other large corporations who want to substitute computer code and robots for expensive employees.

In order to explain the possibility of a totally different kind of outcome from the current technological revolution, Lempert first goes backwards in history rather than forwards. He returns us to the original promise of free markets. They shattered aristocratic hierarchies and government-chartered monopolies. They promised “a world of independent proprietors, whose few employees would be young apprentices on their way to running their own small firms”. He quotes Abraham Lincoln as a proponent of this vision, and he might have added Thomas Jefferson or even Adam Smith.

But another revolution undermined this happy vision by “creating economies of scale that required vast enterprises to exploit”. While this revolution greatly expanded consumer choice and convenience in travel, electric light, food and clothing, it also generated new hierarchies of power and wealth in large corporations. Industrial age production required large agglomerations of capital, and those reinforced the imbalances of the power hierarchy.

AI, says Lempert,  is being deployed by new but similarly large corporations towards a future in which machines do all the work and technology is used to maximize power and wealth in the hands of a small number of companies who own the capital. Why do corporations use AI to replace people with machines? Because that’s their goal.

But it doesn’t have to be this way. Lempert says we can just as easily imagine – and act purposely to create – a very different scenario in which we as individuals use technology to unwind the large corporations and disperse the productive capital into more hands in order to use it better.

He asks why we need these big corporations in the first place. Economists point to transaction costs: productive assets need to be organized within managerial hierarchies associated with large stocks of capital. Today, corporations add centrally managed proprietary data (often gathered from customers), and sell services that enable the collection of the data and the AI learning from that data to make services more efficient and effective.

But AI does not necessarily have to be used in support of centralization of organization and concentration of economic power. It can be used to reimagine the firm and reverse the existing power arrangements. Think of it in the role of helping labor to hire capital, instead of helping capital to dispense with labor. Let’s imagine a small team wanted to join together to build a new kind of car. AI would help them identify others with the skills they need for design and resource assembly, and to rent 3D manufacturing facilities to produce their design. Or AI could help drivers and passengers get together using competing databases without the need of an Uber to own the network. Overall, Lempert says, we could envision an economy of radical equality in social and economic opportunity, in which everyone’s an entrepreneur, finding their highest and best use, and hiring the capital and connecting to the collaborators necessary for efficient production, in a world of abundance, choice and convenience.

What has to change? The way we write algorithms. More specifically, the demand for the scenario that Lempert imagines must drive the producers of algorithms to new forms and designs – algorithms with different goals and functions than those that are common today. Algorithms can “enable individuals to make reasoned and consequential choices about their own lives, to act on those choices, and to evaluate the results in terms of their own goals and values”.

Many of today’s most touted algorithms are designed to reduce this “reasoned and consequential” human choice. Such algorithms start with a clear objective and a set of actions they can take, and they choose the actions to best achieve the objective. Drive this car to that destination without accident. The algorithm determines that the best method is to reduce human involvement. Such algorithms employ predict-then-act analysis, aiming for a single computer-generated understanding of the future and making prescriptive recommendations for action. They are designed to operate independently from human subjectivity and influence.

What if the algorithm had the objective of helping to improve the human experience? It could certainly help individuals gather resources, including skills, capital, and material resources, and connect to appropriate human collaborators. It could help the individual make good choices, examining those choices from multiple vantages and explaining the choices to others. Such algorithms do exist. They are called agree-on-decision algorithms and follow a process called “deliberation with analysis”. They can facilitate a collaborative process of social choice, where everyone recognizes that there can be many competing views and are judged by the extent to which they empower people involved in the process to make what they subjectively regard as meaningful choices. Do you want purposeful work? Then choose it. AI can help.

In other words, it all comes down to demand. What kind of a world do we want? Let’s make sure we communicate our preferences to the algorithm producers.

Here’s How Small Business Will Take Over The Planet.

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Small business generates about 45% of US GDP, provides close to half of the jobs in the US Economy, and, in a typical year, accounts for more than 60% of the new job creation.

That all adds up to big economic impact. And the news is that small business impact is going to get bigger. In fact, small business will grow to dominate and take over the economy as the problems of managing big business compound.

Big Technology Comes To Small Business.

We have become habituated to the idea that big business deploys technology at scale to achieve reach, coverage and efficiency that small business can’t match. Giant telcos have vast, expensive networks; cable companies have their wired infrastructure; amazon has warehouses and airplanes and unlimited computing power. Today, all infrastructure is variable rather than fixed. It can be rented by the minute and on demand, so that small business can use big technology at the time and in the amounts and for the highly targeted purposes it is needed. Big technology can be downloaded from the internet, and economies of scale are no longer the barriers to entry or to efficient operation that they used to be. Flexibility, agility and timeliness are far more important economic attributes for a winning business, and small business has a good shot at not just competitiveness but at superiority on those dimensions.

Science Comes To Small Business.

We may traditionally think of small business as the product of hard work, super-specialization and local relationships rather than as a child of advanced science. Artificial intelligence and adaptive machine learning will change all that. Small businesses will be able to employ the cognitive assistance of software and robotics to personalize and tailor their services for individual consumers. Aestheticians will be able to offer and implement individually tuned facial treatments and cosmetic procedures. Landscapers can design and manage plantings and gardenscapes and irrigation systems customer by customer. Vehicle fleet owners will pick up and deliver at precise times door-to-door for their local and global clientele. Lawyers will have the searchable data from every relevant case, judgment and law text at their disposal with a robot paralegal who is smart and fast and productive: the best in the world at what they do. Personalized medicine can be practiced by the local doctor, and the local dentist will be able to implant the latest in dental construction and architecture into their patient’s mouth at the neighborhood clinic. Rapid prototyping and fast-turnaround micro-testing will be fully available to small businesses and keep them on the leading edge.

New Organizational Forms Favor Small Business.

The age of bureaucratic management is coming to a close. Bureaucracy has always been a problem for business. Big business needs it to exercise control over far flung organizational outposts, over budgets, over project management and resource allocation and HR policies. But bureaucracy slows response times down in an era when agile responsiveness is a requirement to maintain customer loyalty, and it alienates talented employees in an era where individual creativity is becoming the most important tool to manage in-market performance.

The replacement for bureaucratic management is small, agile, customer-obsessed networked teams with unrestricted autonomy for responding to customer requests and marketplace changes. There is no waiting for HQ approval. There’s no actual organizational model – every company is capable at arriving at its own form of organization that works best for its customers in its geography and its business. Therefore this organizational style is not mediated by business school-imposed standards or consultants’ print-outs. As a result, it’s hard for big business to adopt, which is one reason why small business will take the lead in organizational innovation.

Small Business Will Win With Humanity.

It’s remarkable how many people complain about their jobs in large corporation. Gallup’s global survey (2016 edition) on the subject of employee engagement (whether employees find their jobs meaningful and look forward to their work) indicates that only 13% of employees worldwide say they are engaged. The rest actively hate their jobs or merely put up with them. If they can’t engage with their jobs, how can they engage with customers? Gallup calls it an engagement crisis.

Entrepreneurial small businesses operate on empathy. They are tasked with understanding their customers’ needs and responsively designing services that meet those needs and are simpatico with customers’ values and are able to compete with every other offering that’s available. Small businesses depend on their humanity to succeed – their success in matching values with their customers in an extended and deep relationship depends on it. Digital tools can help in tracking the state of the relationship, but it is the subjective, emotional, and idiosyncratic elements in business exchanges that will be the mark of future winners. Big business will find that they can’t be successful on these dimensions.

People Prefer To Deal With Small Businesses.

We live in a time when people’s tolerance for unresponsive, insulated institutions is at a low point. This is true for political institutions like Congress and the Presidency. NPR reports that only 8% of Americans have a great deal of confidence in Congress, 19% in the Presidency, and 22% in the Supreme Court. The number for big business is 12%. If you let people down, and don’t act with humanity, you lose trust. Small business has a much greater incentive than a bureaucratic management team to be human, to engage, to respond and to earn customers’ trust.

In a 2017 Public Affairs Council poll, 41% of respondents expected small business owners to exhibit high honesty and ethical standards and only 5% expected them to have low standards in those departments. For employees of major companies, there was an expectation of high ethical standards among only 18% of respondents, and that number declined to 9% for big company CEO’s.  (Only elected officials in Washington polled lower: 7% of respondents expected high honesty and ethical standards there!)

People prefer to deal with those they know, like and trust. Small business can win big on these three fronts. More and more customers will make the choice to buy from small business, especially now that technology, science, efficiency and organizational effectiveness are no longer reserved to big business.

 

 

 

 

 

 

 

 

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