Freeman

ARTICLE

Who Killed Cock Robin?

JUNE 01, 1978 by JOHN C. SPARKS

Mr. Sparks, now chairman of the Board of Trustees of The Foundation for Economic Education, Is an executive of an Ohio manufacturing company.

The community was in shock. Its largest employer, a steel company, had announced the closing of a plant and a permanent reduction of five thousand jobs. This would also mean cutbacks at numerous supporting businesses in the community.

Steel company officials tried to explain that obsolete equipment, costly wage rates and fringe bene­fits, and prohibitive ecological requirements of government agen­cies had forced their unhappy deci­sion. But many people were angry. Their villain was a large corpo­ration, and the victims were thousands of hourly workers and their families—a "cause" made to order for politicians, union leaders, and even clergymen, with their var­ious schemes to save jobs but with little appreciation for the process of job-creation and, thus, little under­standing of events that had led to the demise of job opportunities at this closed plant.

A job, in the economic or market sense of the term, is an opportunity to serve customers who are willing to buy products or services at a satis­factory price level. There are many factors involved in creating a job. A steel mill job, for instance, requires a vast accumulation of capital—sav­ings in the form of plant and equip­ment—as well as the managerial initiative and ingenuity to combine scarce and valuable resources in a way that customers will approve. The price customers are willing to pay for steel determines whether the company shows a profit or a loss after paying market rates of interest on invested capital, market wage rates to employees, and market prices for raw materials consumed in the production process. Unless management can efficiently and successfully compete in the market place, it cannot long provide jobs.

Other than Market Costs

There are further costs of produc­tion operative outside, or above and beyond, the market place. Two come to mind, and both relate to govern­ment. One is the cost of being governed—taxation. Those who wish to freely enter the market for peaceful purposes of production and trade may reasonably expect to share the costs of maintaining the peace and policing the market to keep it open—lawful defense of the property and the lives of peaceful traders. This is part of the cost of producing steel, or whatever, a cost that must be recovered in prices paid by customers if the business is to successfully meet competition.

Governors, however, are seldom self-inclined to limit their activities to the basics of preserving the peace. Nor is it unusual for citizens to pledge their votes in return for vari­ous "protections"—a process of trad­ing political powers for special privileges, not in open market com­petition, but all at the expense of taxpayers. Thus has the U.S. wel­fare state grown and fed upon itself—and taxpayers—until a fourth to a third of the productivity of the nation is being shunted into these extra-market redistributionist programs.

Businesses in general, and large corporations in particular, are sorely taxed until eventually a business fails or a plant is closed—and jobs are lost. If the price of steel, or whatever, is obliged to reflect a portion of the cost of the farm sub­sidies, or the public school pro­grams, or the domestic transporta­tion and urban renewal and foreign aid bills, or the unemployment and social security and multiple other welfare and relief measures, then eventually even the cost of steel, or whatever, from a given U.S. pro­ducer may come to be more than the consumer is willing to bear.

The second major cost, reflecting governmental rather than volun­tary market conditions, stems from the inordinate power that special laws allow labor unions over the owners of business. And this union power to claim higher than market wages hits especially hard at the steel industry. Most vulnerable are the older plants, with older workers at highest wages, and with the old­est and least efficient production equipment. The result? Any major weakness in demand for steel forces these older plants to bow out of competition. No matter the arguments used to obtain exorbitant wages. Forcing employers to pay wages higher then can be recovered in prices from customers results in plants closed and jobs lost.

Berating Business

It may be self-gratifying to berate corporate officials for their failure to feed the world’s hungry masses, their failure to meet every union demand for wages and fringes, their failure to purify all the air and water of the nation, their failure to build more safety than service­ability into every company prod­uct—yes, these, and more, and above all, their failure to keep open a plant that can no longer be profit­ably operated. But instead of berat­ing the efforts of businessmen to meet competition, should not each of us be asking himself where he stood when government regulations, con­trols, privileges and subsidies were being laced into the cost of products of industry? The question is not so much who is to blame as it is a question of what ideas and actions are responsible for the closure of a plant and the loss of jobs.

In a sense, the question is not who killed Cock Robin, but what killed Cock Robin? The culprit is the fail­ure to understand why it is best to have people freely and peacefully making their own economic deci­sions. Such misunderstanding spreads from person to person, ac­cumulates until another previously profitable business is washed down the drain. Then we grieve. So let us now, in our grief and pain, resolve to question our own past actions and attitudes.

Have I been one who seeks special privileges at the cost of other per­sons? Have I used my power to in­timidate others who prefer to make decisions different from mine? Have I sneered at profits? At private own­ership? At free enterprise? Have I been willing to vote to tax others for my benefit?

When one can honestly ask and intelligently answer such questions regarding economic and political policy, then he may deserve a new type of leader in government, in business, in his labor union, in the schools, in the churches—a leader­ship that will not resort to coercion and violence but rather look to open competition in the market as the solution to the problems perennially facing mankind. But while we lack such faith in freedom, while we per­sist in our demand for political welfare measures and special privileges, we must expect many more plant closings and lost job opportunities.

ASSOCIATED ISSUE

June 1978

comments powered by Disqus

EMAIL UPDATES

* indicates required
Sign me up for...

CURRENT ISSUE

September 2014

For centuries, hierarchical models dominated human organizations. Kings, warlords, and emperors could rally groups--but also oppress them. Non-hierarchical forms of organization, though, are increasingly defining our lives. It's no secret how this has benefited out social lives, including dating, and it's becoming more commonplace even in the corporate world. But it's also now come even to organizations bent on domination rather than human flourishing, as the Islamic State shows. If even destructive groups rely on this form of entrepreneurial organization, then hierarchy's time could truly be coming to an end.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION