Why Business's Desire for Profit Is a Good Thing

To get our money, businesses--if they can't look to the government for favors--need to give us what we want.

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Instinctively, we look for people's motives. We need to know whom we can trust and whom we can't. We're especially skeptical of business because we know business wants our money.

It took me too long to understand that business's desire for profit is a good thing. To get our money, businesses—if they can't look to the government for favors—need to give us what we want. Then they must make continuous improvements and do it better than the competition does.

That competition is enough to protect consumers. But that's not intuitive. It's intuitive to assume that competition isn't really consumer protection and that experts at the FDA, FTC, DEA, FCC, CPSC, OSHA and so on must protect us. These experts consult "responsible" businessmen for advice on creating rules to make sure businesses meets minimum "standards."

Unfortunately, this standardization stops innovation.

We are imprinted to be wary of newcomers, strangers. Newcomers by definition are less experienced. Maybe they'll do something unsafe or dishonest! We don't want government to stop them from doing business—we just want consumers protected! Governments claim to do that by licensing businesses.

People like the idea of licensing. We license drivers. We license dogs. It seems prudent. People naively think this government seal of approval makes us safer.

This naivete is used to justify all sorts of rules that kill competition.

Las Vegas regulators require anyone who wants to start a limousine business to prove his new business is needed and, worse, will not "adversely affect other carriers." But every new business intends to beat its competitors. That's the point. Competition is good for us. Las Vegas' anticompetitive licensing rules mean limo customers pay more.

In Nashville, Tenn., regulators ruled it illegal for a limo to charge less than $45 a ride. One entrepreneur had won customers by charging half that, but the new regulations mean the established car service businesses no longer have to worry about him.

Perhaps Nashville's and Vegas' regulators really believe "this is an area where the free market doesn't work," as the manager of the Nevada Transportation Services Authority put it. But it's fishy that charging big fees for licenses just happens to be a very effective shakedown operation. Vegas cab and limousine businesses give "substantial" donations to Vegas-area political candidates, according to the Las Vegas Sun.

Our big government has justified its existence (at least since the Progressive Era) by claiming it is a "countervailing influence" to corporate power—when it is, in fact, incestuously entwined with corporations.

The list of business activities that government insists on licensing, supposedly for our sake, includes hair braiders in Mississippi, wooden-casket makers and florists in Louisiana and even yoga instructors in Virginia.

Established businesses always try to use government to handcuff competition. When margarine was first developed, the dairy industry got Wisconsin legislators to pass a law making margarine illegal. Several states ruled that margarine was "deceptive," since it might be mistaken for butter. Some required a bright pink dye be added to make margarine look different. An "oleomargarine bootlegger" was thrown in the U.S. Penitentiary at Leavenworth.

When supermarkets were invented, small grocers tried to ban them. "A&P will dominate the grocery business and destroy Main Street," the grocers claimed. Minnesota legislators responded by passing a law that forbade supermarkets to put food "on sale."

Established capitalists are often capitalism's biggest enemies.

I used to believe that licensing doctors and lawyers protected consumers, but now I realize that licensing is always an expensive restraint of trade. It certainly hasn't barred quacks and shysters.

Licensing is unnecessary. It creates a false sense of security, raises costs, stifles innovation and takes away consumer choice.

I don't deny that there is fraud in business. I won Emmys for exposing it. Fraud is one of three crimes that must be policed and punished for the market to function (theft and physical assault are the others). Once that's done, however, as long as there is open competition, honesty pretty much takes care of itself.

Free competition—the striving for a good reputation—protects consumers better than government ever will.

John Stossel (read his Reason archive) is the host of Stossel, which airs Thursdays on the FOX Business Network at 9 pm ET and is rebroadcast on Saturdays and Sundays at 9pm & midnight ET. Go here for more info.

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  1. This still needs to be explained to Americans?

    Yes, as long as they’re not actually selling crack, informing the consumer of what’s in the product, paying for certain externalities (I mean stuff like pollution, not offending progressive sensitivity), and not stealing stuff (eg, via the govt), then businesses are doing a service. The fact that they’re not necessarily stroking themselves about what public-spirited people they are, but are moved by the profit motive, doesn’t make their services worse, but actually better.

    Duh 101.

    1. But, but, but they’re making profits, and profits are theft!
      Profits come at the expense of the worker!
      The workers do the work while the owner just owns!
      Why does the owner deserve to profit from the worker’s labor!
      That’s theft!
      Besides, there’s only so much money out there, and when one person has more it means someone else has less!

      Waaaaaaaaaaaahhhhhhhhhh!

      Not faaaaaaaaaaaaiiiirrr!

      /Tony

    2. Remember, it’s intentions that matter not results. If you go into business intending to make piles of money then you are obviously a greedy 1% fat cat with no soul. If you go into business intending to make a device that benefits humanity then you are an angel sent directly from heaven, unless you admit that you’d like to make some money selling it.

    3. Nothing (morally) wrong with selling crack.

    4. This still needs to be explained to Americans?

      If my conversations with leftists are any indication, not only does it still need to be explained, but many of them still won’t get it.

  2. Isn’t it the insurance industry really driving doctor licensing (by the States) and board certification (by doctors associations)?

    What insurance company would choose to would cover the procedures of an unlicensed doctor?

    If, from a legal standpoint, licensing became optional, would any insurance companies change their policy towards unlicensed doctors?

    1. Why not get government out of the way and let insurance companies pay competing independent agencies to certify doctors?

      1. Why not get insurance companies out of the way and let people pay doctors competitive rates, and let them choose which doctors they want to give their business to?

        1. In your world I am going to start an ambulance service!

          I am going to pay some up front for a really good google page rank and call myself SUPER SPEEDY AMBULANCE and our slogan will be “It can save your life!”

          Then, on the way to the hospital, or whatever unlicensed emergency service provider they have had time to independently research while bleeding to death, I will stop on the side of the road and say “We have a halfway fee of $4,000!” If they don’t like it, and try to use their cellphone to call someone else, I’ll just keep driving around so they can’t find me.

          What a wonderful thing freedom is! Neither force nor fraud was used!

          1. I think your example would be fraud since the deal was for you to take them to the hospital. At any rate, eventually oddly sadistic people like you would go out of business, as trusted ambulance services ultimately win the competition for that market.

            1. Oh, come on, is it my fault they didn’t read the fine print and find out that there might be mid-course transport fees?

              They were bleeding to death, I took advantage, just like capitalists take advantage of short supply to jack up prices.

              There’s nothing oddly sadistic about it. It’s a sure fire way to make money.

              1. not a sure fire way to make money for very long.

                1. @alan_s

                  not a sure fire way to make money for very long.

                  “There’s a sucker born every minute!” — some con man, possibly P.T. Barnum

                  1. You really think you came up with a viable business plan, don’t you? Well, there are lots of unregulated lines you can try your notion out in…if you’ve got too much money on your hands and want to get rid of it.

              2. just like capitalists take advantage of short supply to jack up prices

                Which actually helps consumers by creating an incentive to get goods to where the prices are high, raising supply, and bringing the price back down.

                If prices were fixed (as you imply that they should be) then there would be no incentive to get goods to market, and the shelves would run out and remain empty. Consumers lose.

                But at least you stopped evil capitalists from making nasty profits.

                1. Equal impoverishment for everyone.

                  1. Thomas Jefferson believed in that, pretty much. He believed in a world of Republican simplicity, of a country carpeted by small, independent farmers, and independent in most every sense of the word.

                    He called his party the “Democratic-Republican” party, and the following is a quote about Democratic-Republics from the man who, having read parts of Jefferson’s Commonplace Law book, is clearly the source of his revolutionary spirit. Book 5, Section 3:

                    What is meant by a Love of the Republic in a Democracy. A love of the republic in a democracy is a love of the democracy; as the latter is that of equality.

                    A love of the democracy is likewise that of frugality. Since every individual ought here to enjoy the same happiness and the same advantages, they should consequently taste the same pleasures and form the same hopes, which cannot be expected but from a general frugality.

                    The love of equality in a democracy limits ambition to the sole desire, to the sole happiness, of doing greater services to our country than the rest of our fellow-citizens. They cannot all render her equal services, but they all ought to serve her with equal alacrity. At our coming into the world, we contract an immense debt to our country, which we can never discharge.

                    As a side note, that’s my ambition, and I think, if I don’t die soon, I can make it.

              3. There’s nothing oddly sadistic about it. It’s a sure fire way to make money.

                Josh, you live in the information age. How long do you think it would take before word got around?

                Also, how many people do you know that call an ambulance service directly? Ambulance services get essentially all of their business from hospitals, doctors and 911 services. These entities would sure as hell read the fine print and never send anyone your way.

                1. Thank you, some guy, for pointing out the whole in my scheme.

                  I have, however, quickly patched it.

                  I will demand that the services for 911 are privatized, and I will advertise mine more loudly than all the others combined.

                  After all, it isn’t like most people research the quality of emergency services that much before they need them, and after they do, well, caveat emptor.

                  Amirite?

              4. Here ya go Josh. The following video will help you understand why it’s not a bad thing if “capitalists take advantage of short supply to jack up prices.” By the way, it has to do with a concept called the Law of Supply and Demand, a concept you should have learned in high school, but of course, you probably were indoctrinated in a government school. https://youtu.be/h9QEkw6_O6w

          2. The stupid is strong in this one.

          3. But then there would be a pro bono lawyer following your ambulances ready to sue your ass.

            1. Sue me for what?

              Is it my fault that the person bleeding to death, needing a ride to the hospital, was lured in by my top notch advertising and trustworthy face and didn’t read the fine print?

              1. …. must….. keep…. posting!

              2. It’s not your fault, but it will be your fault when you never get a second customer…

                1. Or a first one if word gets around beforehand. Fella doesn’t know that his “perfect plan” necessitates illegalizing all social networks and cutting off a lot of socializing.

                  In fact, honest and reputable new entrants often have a tough time getting up and running unless they apprenticed on a job for several years and built up a proven reputation that way. Stossel’s right: we are naturally skeptical of the new guy with no track record. After all, we know that it takes a lot of time to polish up any craft we put our mind to.

                  Grante that there are spots of gullibility out there, but from what I’ve seen they’re confined to the get-rich-quick field.

                  1. Here’s an important P.S. to the above. I’m not trying to excuse them, but crooks in that field are convinced that they’re taking advantage of the vain and lazy. That’s how they keep up a semblance of integrity.

                    A warning: if you’re sized up as vain and lazy by those guys, even though you’re not, they’ll peg you as an easy mark and pour on the flattery and hopium. Needless to say, what they call “vain and lazy” also covers naive and trusting.

                    If you ever watch any of those late-night quick-buck infomercials, I seriously suggest that you assume that you’ve been pegged by the smiling superstar (and/or his confederates) as vain and lazy. Also, assume that the quick-buckers are self-righteous: underneath their easy-breezy or “professional” demeanour, they likely are.

                2. Typical idiot right wing thinking, a few people suffer and the cheater goes out of business and all is beautiful with the capitalist world, unfortunately reality steps in and replaces the cheater with another one, and another one and, another one.
                  Even at only 1% psychopaths, that still means millions of cheaters, guess where that 1% also means.
                  Now in the end, do you only understand why capitalism fails, there are always more lying, cheating stealing psychopaths, to replace the ones that fail.

                  1. Better bring a counterfeit-bill detector with you when you shop, then. Those Cheaters are Everywhere!

                    1. @DM Ryan

                      That’s not necessary because government investigates and prosecutes counterfeiters.

                      Not so much in an anarcho-capitalist fantasy land, but in the real world, it happens.

                  2. mmmm… a bit too much herp and not enough derp.

                  3. ” unfortunately reality steps in and replaces the cheater with another one, and another one and, another one.” – those aren’t capitalists, those are called politicians.

                  4. “Typical idiot right wing thinking, a few people suffer and the cheater goes out of business and all is beautiful with the capitalist world” – Unlike the statist world, where a LOT of people suffer, and the cheater NEVER goes out of business.

    2. Look at car insurance companies and government licensed drivers. You’d think insurers would be looking for a little more proof that drivers were competent…..

      1. You are actually supporting my point.

        Insurance companies don’t insure unlicensed drivers.

        Further, by taking extra courses on driving, a “Defensive Driving Class,” or being otherwise additionally certified, will often result in a lower insurance rate.

    3. If, from a legal standpoint, licensing became optional, would any insurance companies change their policy towards unlicensed doctors?

      As a practical matter, many already are. The push to greater use of nurse practitioners is largely being encouraged by the insurance industry as a means of cost containment. Granted, it’s still licensing of a sort. But, certainly a bit more liberalized from the status quo.

      1. I would call this more of a fleshing out of the full range of possible doctor types. LPN – RN – NP – MD.

        They are all licensed, and with the increased licensing comes increased authority to make medical decisions.

        NPs can do most anything a doctor can do, but they work in collaborative partnership with a doctor, not independently.

  3. The butter vs. margarine example is a little odd, considering margarine is shit and very unhealthy.

    But I guess that is not the point…

    1. …and very unhealthy.

      Yeah, because congealed dairy fat is just the epitome of coronary health.

      1. Care to elaborate on how margarine is healthier?

    2. But, I’ll readily concede, on taste basis, it’s butter all the way.

    3. One nice thing about margarine is that it spreads easily.
      Or was that Epi’s mom?
      I get those confused sometimes.

  4. The profit motive is categorically “good”! Oh wait…

    http://www.nytimes.com/2009/03……html?_r=1

    So here we have all the components required for a scenario that should yield perfect results according to Libertarians: Rule of law, profit motive, and private property. And yet, somehow, people are getting screwed!

    The libertarian ideal of simply “taking your business elsewhere” when confronted with a shyster really never translated well to the job market, particularly in a down economy and with health insurance tied to employment.

    But alas, people like Stossel would have us believe it’s all so simple. That really is the failing of Libertarianism: a false dichotomy born from a BELIEF that the world is black and white, that a particular form of strict and basic moral BELIEF about what is “good” can be elevated to a TRUTH, even as it is categorically unprovable.

    “It just makes so much sense and is so obvious!”

    – every libertarian ever

    1. Who is getting screwed? Shareholders are requesting information, and if they don’t like what went down, they can replace the board of directors and change the compensation of management however they see fit. In other words, they’re exercising their rights and freedoms as shareholders – rights and freedoms they should have understood when they read the prospectus and bylaws of the company in which they invested. This is a system working perfectly.

      … particularly in a down economy and with health insurance tied to employment.

      Well, see, there’s your problem. In a libertarian society health insurance wouldn’t be tied to employment.

      “Libertarianism is incompatible with the current regulatory structure. The free market is therefore a failure!”

      – every liberal ever

      1. You can add, “The world’s an imperfect place, therefore libertarianism fails.”

      2. The employees, whose retirement funds were tied almost completely into the company’s stock, are really screwed. Whatever happens after the fact may be considered “justice” to a libertarian, but the damage is already done. Billions of lost value for the employees who had no part in causing the losses.

        Anyone is free to not take their healthcare benefit from their employer and purchase the insurance themselves, but in a free market system, there is a savings to be had by entering a large pool of purchasers to get lower rates. Therefore, not taking the company’s insurance looks exceedingly foolish from a financial perspective, thus, insurance becomes practically “tied” to employment.

        There is a reason why the Scandinavian countries have some of the highest rates of entrepreneurship in the world and have maintained strong levels of employment throughout the economic downturn. Universal health care leads to efficiencies through greater employee fluidity since they don’t have to worry about gaps in their insurance. Nor do they have to worry about having insurance when they go back to school to learn a more employable skill.

        “Libertarianism is incompatible with the current or any conceivable regulatory structure in reality. Libertarianism is therefore a quaint backwater of political philosophy that is defended by a commensurate number of angry white guys that don’t like sharing!”

        – this guy

        1. With lack of imagination comes bliss, I suppose.

  5. Poverty means no free government golf carts. Or maybe a lot of them.

  6. Ha! There’s the golf cart. Called it.

  7. Sucker or moocher? You decide.

  8. These days some of that corporate welfare goes to PR work spinning the corporate welfare.

  9. A nation of permanent children with the power to vote.

  10. “So-called last 30 years”? Three decades inside scare quotes.

  11. Daddy Warbucks was defensive with his spending of the 99%’s money.

  12. Patrick looked like Vader was about to choke him and promote Stoss to admiral.

  13. One entrepreneur had won customers by charging half that, but the new http://www.ceinturesfr.com/cei…..-c-12.html regulations mean the established car service businesses no longer have to worry about him.

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