Posts Tagged economy
The reason that capitalism has lifted more people out of poverty and created more wealth over the last 100 years than ever before is because when practiced correctly entrepreneurs are free to create products and services that solve problems. Then in the marketplace of ideas customers vote with their wallets. This creates jobs and wealth for the founder, investors and employees. It’s the old line “if you build a better mousetrap, people will come.”
This concept is captured in the idea of Permissionless Innovation. Permissionless Innovation can be summarized with the statement “Innovation should be allowed by default”. Freedom to Innovate should always be given the benefit of the doubt, it should be assumed that something is legal rather than the other way around.
This sounds like a no brainer but we see examples everyday where government at all levels doesn’t allow for the freedom to innovate. Two of the most successful examples would be Uber and AirBnb which have succeeded in spite of the myriad of road blocks that varying governments have put in their way. Which begs the question “what is governments role regarding business innovation?” In what areas should they have to give permission? When should the government step in?
I believe that the government should step in only when someone’s rights are violated or if there is a proven danger to life or liberty. It is important to point out that rights does not mean livelihood. Too often governments are stepping in because the new entrant is threatening the livelihood of a company or group that has managed to use to government to protect themselves.
Local and state governments around the country interfere with regulations governing things like nail salons, hair stylists, interior decorators and even food trucks. In San Antonio, if you operate a food truck within 300 ft of any establishment serving food (including convenience and grocery stores) you are subject to a $2000 a day fine. Even if you are on private property. Another example is the fact that in many states Tesla can not sell a car directly to the customer, they need to work through a dealer network. How is the customer harmed in this transaction? Who is the government really protecting?
The Heritage Foundation (www.heritage.org) does an annual ranking of economic freedom. They rank every country on 10 categories including things like property rights, corruption, trade and investment. One of these categories is Business Freedom. Business freedom covers what it takes to start a business, obtain a license and close a business. It is appalling that the United States which is supposed to be the most free country in the world ranks 12th on the overall rankings and 15th for business freedom.
This is how we turbocharge our economy and deal with income inequality. I am waiting to hear candidates talk it but I am not holding my breath.
As an Engineer and an Entrepreneur chaos is not my friend. When executing on a business plan chaos is the last thing that I want. It scares your two most valuable resources, capital and people. Investors want surety and employees want stability. When designing a warehouse space chaos only gets in the way. The whole idea behind any facility design is order and predictability so things move smoothly from manufacturing to the customer.
But I have learned to embrace chaos. Driving along Rte 128 around Boston during rush hour or walking through Rockefeller Center in NY at 2:00 in the afternoon you see chaos all around you. People moving through close proximity but with wildly varying starting points and destinations. To add to the lack of order, the variation amongst what they are driving or what they are wearing would drive any central planner to drink.
But that’s the point. Each person driving on that highway got there based on decisions that they made. They decided what type of car they wanted to drive based on their budget, tastes, driving style and experiences. They decided what time to leave based on when they needed to be at their destination, the weather and their knowledge of local traffic patterns. No one told them what to do, they got to decide for themselves and that’s what makes it work. That’s what makes Chaos beautiful.
We all have defining moments in our lives. As strange as it sounds for me one of mine was when I was 27. I was a consultant working for Kmart (back when they mattered) and I was tasked with fixing their distribution network. One day I was standing alone in a 1,500,000 sq ft warehouse (almost 40 acres) looking around at TV’s, housewares, clothes and various other products stacked 40’ tall. People were moving all around me, the din of the conveyors made it hard to hear myself but I was in awe of the beauty of it all. Totally chaotic but it was the embodiment of the free market system at work. There were no central planners deciding what to produce, no government agents setting prices. Just products flowing based on consumers in 100’s of stores sending signals by buying things. Those signals flowed up the supply chain via orders for restocking and new purchase orders. An economy working. To me it was more beautiful then the Mona Lisa in the Louvre.
Politicians abhor chaos. They want order. They believe order allows for knowledge and control. Anytime a new regulation is enacted or a law is passed chaos is reined in and the free market dies a little. Yes it would be much more efficient is we all drove a Ford Fusion. Just think of the economies of scale that could be achieved. But where is the fun in that.
As you go through this holiday season, I encourage you to observe the chaos all around you. In the grocery store with tens of thousands of products all begging for you to put them in your cart. In the mall with 100’s of options (styles, colors, fabrics) of where to shop and what to buy your mom for Christmas. On the streets with people going here and there, running errands, picking up kids or just enjoying a cup of coffee. Every where you look people are making literally thousands of little decisions everyday. All of these tiny unorganized chaotic decisions when added up create our economy.
Merry Christmas and embrace the chaos.