Freeman

ARTICLE

Perspective: Economics and Ecology

MARCH 01, 1989 by JOHN A. BADEN

Only under certain institutional arrangements do we find complementarity between economic and ecologic goals. Specifically, only institutions that tightly link authority to act with responsibility for the outcome of the action foster both. Political management often weakens or eliminates the link between authority and responsibility.

One good way to produce these benefits is to design institutions that rely upon clear and enforceable property rights which can be freely exchanged. A free market promotes such exchange. For example, such a system holds people and firms accountable for the costs of pollution. It also permits them to capture the benefits of sound environmental management, as International Paper has done, by blending wildlife and timber management. In this way, the reforms advocated by “free market environmentalists” encourage entrepreneurship as individuals face incentives to seek more efficient and valuable outcomes.

—John A. Baden,

Chairman Foundation for Research

on Economics and the Environment

Automotive Genius

Who rules the marketplace? Consider this excerpt from “Charles Kettering: Automotive Genius,” by Mark Bernstein, in the July 1988 issue of Smithsonian:

“When Kettering joined General Motors in 1920, the sales figures and efficiency of GM’s array of vehicles badly trailed Henry Ford’s single Model T. By 1927, the organizational brilliance of GM’s celebrated president, Alfred P. Sloan Jr., coupled with a plethora of improvements from Kettering’s busy lab, had helped drive the Model T into retirement. With a Ford, went the inevitable wisecrack, you could have any color you wanted, provided it was black. At GM, you could have all sorts of colors. And you could have higher horsepower for more zoom, and the new ‘balloon’ tires for a smoother ride, as well as all the other improvements that made each year’s model comfier than last year’s.

“Americans loved it, turning the nation into the world’s first automotive society. To the Boss [Kettering], this was the test that mattered; not results in the laboratory, but response in the marketplace, which Kettering unquestionably believed consumers ruled. Once the public saw something better, Kettering held, it would settle for nothing less. Henry Ford once told Kettering that the Model T would never adopt a self-starter. Kettering replied, ‘Mr. Ford, that is something you yourself are not going to have anything to say about.’”

Man Alone

There is a qualitative distinction between the behavior of an individual and that of the human crowd in an extreme situation. A people, nation, class, party, or simply crowd cannot go beyond a certain limit in a crisis: the instinct of self-preservation proves too strong. They can sacrifice a part in the hope of saving the rest, they can break up into smaller groups and seek salvation that way. But this is their downfall.

To be alone is an enormous responsibility. With his back to the wall a man understands: “I am the people, I am the nation, I am the party, I am the class, and there is nothing else at all.” He cannot sacrifice a part of himself, cannot split himself up or divide into parts and still live. There is nowhere for him to retreat to, and the instinct of self-preservation drives him to extremes—e prefers physical death to a spiritual one.

And an astonishing thing happens. In fighting to preserve his integrity, he is simultaneously fighting for his people, his class, or his party. It is such individuals who win the right for their communities to live—even, perhaps, if they are not thinking of it at the time.

“Why should I do it?” asks each man in the crowd. “I can do nothing alone.”

And they are all lost.

“If I don’t do it, who will?” asks the man with his back to the wall.

And everyone is saved.

—Vladimir Bukovsky

“The Soul of Man Under Socialism”

Soviet Agriculture

In a speech calling for farmers throughout the Soviet Union to be freed from the state-run system of collective agriculture, Mikhail Gorbachev remarked:

“Comrades, the most important thing today is to stop the process of depeasantization and to return the man back to the land as its real master.”

The New York Times,

October 14, 1988

Facing the Facts

At Phoenix House, the highly regarded drug-rehabilitation center in New York, a typical therapy group will start out by listening quietly to all the victim chatter of a recently arrived addict. Then someone will say something like: “It isn’t your mother or society or even the pushers who put the needle in your arm. You did.” And therapy starts from there.

—John Leo,

writing in the October 17, 1988 issue of

U.S. News & World Report

A Vital Difference

American borrowing from abroad in the 19th century bore little relation to our rising indebtedness of the 1980s. When foreign investors in the 19th century bought stocks and bonds from our companies, the money generally was put to productive use. In many cases, the profits from those enterprises far exceeded the cost of the capital that was provided.

In contrast, in recent years the U.S. Treasury has been borrowing heavily abroad to finance deficits arising from rapid expansions in defense outlays, entitlements, farm subsidies, and interest payments. No matter how socially worthy or politically necessary those items of federal expenditure may be, they represent current consumption. These federal expenditures are not investments that generate a future return to repay or even cover the interest on the Treasury securities issued to help finance them.

—Murray Weidenbaum

Center for the Study of American Business

ASSOCIATED ISSUE

March 1989

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