Saturday, March 21, 2015

How Business Productivity Makes Us Wealthier and Safer

This is a followup on Gary Faraci’s letter titled Economic status quo must change, which was published in the Asbury Park Press and also appeared in the print edition of the New Jersey Star-Ledger.

Gary Faraci posted this rebuttal to my comments, discussed in my last post on 3/19/15, “Only Free Markets Can Fairly Determine Economic Success”:

Contrary to what you say, in today's system big business investors don't risk their capital - they use our tax dollars in the form of grants, subsidies, tax abatements & deferments. The billions the oil companies get from us, and the billions in breaks we give them are good examples. And big business investors are guaranteed a return - just look at the TARP bailout of the financial industry. Increased productivity also means less labor needed, thus less not more earning power for many. And climate change indicates business has NOT led to a safer, healthier human environment. The only thing we agree on is the first responsibility of a CEO is to maximize shareholder value. But that is not in any way a MORAL responsibility, as the other stakeholders are not considered. And that is immoral.

My Reply:

Today’s system is seriously corrupt in many ways, and I agree the TARP bailouts are terrible. But mixed economy corruption aside, investment, production, and trade drive progress.

I also agree that any actual subsidies—direct payments from taxpayers to companies—should end. That includes the massive, decades-long subsidies to so-called “renewable” energy companies. But tax breaks are not subsidies. They are companies keeping more of what they have earned. And oil companies earn their profits by producing the indispensable values—energy and myriad petroleum-based products—that we voluntarily buy.

“And climate change indicates business has NOT led to a safer, healthier human environment.”

This is the most fantastic statement imaginable. Where would we be without central heating and a/c; water purification and delivery systems; sturdy structures; advanced sanitary waste disposal; advanced medicine; electrification; modern transportation; modern agriculture; modern communications; stores stocked with products to meet every imaginable need and desire. The list goes on and on. We are saturated in the wonders of business, big and small. In the midst of plenty, you see only “climate change,” ignoring the monumental benefits. This is irrational prejudice. Well, climate danger, not climate change, is and always has been the real threat. And we’re better protected from climate danger than ever before. Before the capitalist era of business prominence, life for all but the very wealthiest ruling elites was a brutal day-to-day, hand-to-mouth struggle to stay one step ahead of the next drought-induced famine or storm or infectious disease or cold wave. If what we have today is not a safer, healthier human environment compared to what existed back then, then how exactly do you define safer and healthier?


Now let’s explore in more depth Faraci’s statement that “Increased productivity also means less labor needed, thus less not more earning power for many.”

Increased productivity does cost jobs in the short term, and these workers who lose their jobs can face hardship if they don’t find an alternative livelihood.

But productivity works both ways. The workers who remain are more productive, and thus, over time, earn higher wages. Furthermore, lower costs lead to lower prices, resulting in increased sales that tend to mitigate the shrinkage of the more productive company’s workforce. And as existing industry gets more productive and sheds workers, the way is paved for the birth of new technologies and new industries—including those that produce the new, labor saving technologies. This process leads to more goods at more affordable prices, and more jobs.

Steady economic progress has been the history of capitalism. Before free market capitalism gave birth to the industrial revolution, almost everyone worked on the basic necessities of life—food and clothing. That was all most people had time for. As recently as 1870, at least 70% of the U.S. population worked in agriculture. Today, only 2%. Add in the productivity-led shrinkage of jobs in the textile industry to 2% of the labor force, and—according to Faraci’s logic that productivity is regressive—we should have 90% unemployment today. Not only is that obviously not so, we are all immensely wealthier than in pre-industrial times. We have indoor plumbing, electrification, autos and planes, central air conditioning and heating, amazing healthcare, cell phones, television, the internet, plentiful food, much better protection from the natural elements, and whatever else one cares to add to this list. And we live almost twice as long, with a wealth of job opportunities unimaginable 250 years ago.

Faraci doesn’t explain specifically what he means when he says that a CEO’s duty to maximize shareholder value “is not in any way a MORAL responsibility, as the other stakeholders—the community, the employees and the environment—are not considered.” But we can surmise. Apparently, Faraci believes businessmen’s interests are to be subordinated to the “community”—i.e., anyone other than the owners and operators of the business; and that the world owes “employees” a living, which it is business’s moral duty to provide for, whether or not the employee is any longer needed and regardless of his level of competence. As to the environment, Faraci apparently believes that the natural environment is safe, and businessmen have made it less safe—the exact opposite of the truth. Does Faraci prefer a pre-industrial existence over today’s comparatively thriving industrial, technological civilization? Or is Faraci demanding that  business somehow produce what we need without affecting the natural world? Your guess is as good as mine.

Of course, capitalism balances and harmonizes everyone’s interests, through the mechanism of trade, so that no one’s interests are sacrificed to anyone else’s. This is so because, under capitalism, individual rights are protected equally and at all times, under a government constitutionally limited to that purpose. Capitalism is the system of self-reliance and respect for the rights of others. It is the system that liberates producers to transform the natural world, with all of its inherent dangers, into a safer, livable human life-centered environment. Parasites, power-lusters, and “Mother Earth”—worshipping primitives have no place in a capitalist society, and that’s what makes capitalism the only moral social system.

Related Reading:

Businessmen—Ayn Rand

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