Coronaviris - innovation

A Wall Street Journal article is about innovation during the coronavirus pandemic. Shoes to Masks: Corporate Innovation Flourishes in Coronavirus Fight. It features several cases of how private companies have changed what they do in response to economic demand. Since the article is behind a paywall, the following -- until the asterisks -- are some excerpts.

The innovations "run the gamut from individuals using 3-D printers to turn out N95 masks and academic labs repurposing themselves into coronavirus test centers to General Motors Co. teaming up with Ventec Life Systems to make ventilators."

The "shoes to masks" in the title refers to a small Pennsylvania company that switched from making children's shoes to making face masks for protection against the coronavirus.

The True Value Co. switched some of its paint production lines to make hand sanitizer.

During World War II, government agencies "such as the War Production Board and the U.S. Maritime Commission decided what should be produced and which companies would get contracts, which generally had a guaranteed profit margin."

"Yet compared with wartime, the federal government has thus far mostly played a supporting role in mobilizing economic resources to combat the pandemic. Most of the acquisition and production of vital supplies has fallen to states and health-care providers working with private suppliers and intermediaries."

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The above innovations occurred in a partly free market economy, where production and decision-making are not centralized. Any market participants may make decisions and take initiative. They do not need authorization from government officials (with exceptions). Socialism is usually the idea that government should own and control all production. (Even socialists who advocate worker-owned firms typically desire extensive government planning at a macro level, especially for finance and capital allocation.) Production, capital allocation, and decision-making are centralized, subject to laws, regulations, and approval by government officials. The spontaneous order of markets is more conducive to innovation and more adaptive to changing circumstances than the command or planned order of politicians and government bureaucrats.

Why You Shouldn’t Be A Socialist #2

Robinson misunderstands limited liability. A key feature of incorporation is that non-employee stockholders have limited liability for actions made by employees. Why should the former, who have minimal control on how the corporation is run, be held personally responsible -- beyond the worth of their stock -- for the actions done wholly by others, employees? Even trying to make them responsible is a big conundrum. The ownership of publicly-traded stocks of big companies is ever-changing. (If non-employee stockholders are personally responsible, then why not lenders, too?)

Robinson abuses the concept of marginal utility. It was developed to explain an individual’s valuation, not different valuations by different persons like he does. He shows no understanding of marginal utility’s importance to market prices or the division of labor.

All but one of his “explanations” of why opponents of socialism are wrong (Chapter 12) are weak or wrong. His response to one alleged criticism of socialism -- that socialists are boring and humorless -- isn’t worth further comment.

He says critics say socialists dislike freedom, but he says “Democratic socialists believe deeply in freedom.” He adds, “capitalism actually restricts people’s freedom. We believe that the choices capitalism gives people -- obey your employer or starve to death -- are not really choices at all “ (234). Huh? They can’t seek a different job, become self-employed (be their own boss), find free food from a charity, or sponge off relatives or socialist friends? He characterizes “free market freedom” as “the freedom to die when your medical bill exceeds your paycheck” (245). Oh my, so simplistic and so wrong.

One “freedom” that Robinson doesn’t mention is that many socialists approve of is a government free to use coercion and bullying against other people they dislike. The freedoms and rights of people they dislike matter little or none to them. When they decide who gets elected, that’s the road to democratic mobocracy, or as Karl Marx said it, the dictatorship of the proletariat.

To be continued.

Why You Shouldn’t Be A Socialist #1

Nathan L. Robinson’s book Why You Should Be A Socialist might convince some socialists they are wrong. It’s that poorly argued.

His critique of capitalism is a harangue and hate speech. Chapter 3 is even titled ‘The Army of Psychopathic Androids: How Capitalism Works.’ He shows at best a superficial understanding of how capitalism works. He shows no understanding of how markets develop and change, the price system, entrepreneurs, division of labor, risk, or the role of knowledge and information in economic production and distribution (see F. Hayek's work). Capitalism (or free enterprise) does not ban ownership by other than stockholders -- worker-owned firms, nonprofits, coops, credit unions owned by depositors, mutual insurance companies owned by policyholders -- none of which Robinson acknowledges. Such firms can exist in capitalism because it’s a voluntary, live and let live system. And if a business were worker-owned like Robinson says all should be, wouldn’t the workers then be capitalists? Or would they somehow operate with no capital, not even borrowing from outside lenders?

He makes many contrasts between capitalism and socialism. One he doesn’t make is voluntary versus coercive. That’s probably because of the following. In capitalism, or a free market, entrepreneurs create goods and services for customers to satisfy the latter's particular needs. They deal with suppliers and employees voluntarily. The entire system is voluntary; coercion is banned. Entrepreneurs are not forced to create, and they don't force investors to give them money, employees to work, or customers to buy their products. Government is the opposite - a system based on coercion. A politician's ability to get something of value for themselves or others is the power to coerce certain people to provide it for them.

“If a corporation were a person, they might be the worst person you have ever met in your life. They might manipulate you into doing things you don’t want to do, take advantage of your weaknesses, lie to you if it benefited them, and show zero regard for basic standards of moral conduct” (78). Does this describe Robinson’s own corporation, Current Affairs, LLC? Anyway, Johnson & Johnson’s reaction to the 1982 Tylenol poisoning contradicts his very biased portrayal. If any business treats its customers and suppliers with zero moral regard, the business will soon fail.

On p. 79 he misrepresents Milton Friedman's position. Friedman did not say a corporation's sole responsibility is to its shareholders and shareholders' only concern is profit. He said a corporation's main responsibility is to its shareholders, and he recognized that shareholders’ desires may include some sort of social responsibility. They also have a means of expressing that, via voting their shares. Some corporations contribute to charities and do charitable gift-matching. Friedman also qualified corporate social responsible action to include the business staying within the rules of the game, i.e., engaging in open and free competition without deception or fraud. Robinson blatantly ignored it. Very likely Friedman made these remarks when others were advocating greater coercion and bullying of business by those in government on behalf of some political view of "social responsibility."

To be continued.

Dirty secrets of capitalism??

The speaker in this video of a TED talk, Nick Hanauer, claims the “dirty little secret” of capitalism is neoliberal economic theory. He claims the assumptions of neoliberalism are wrong, especially “selfishness.” The “new” economics he supports holds cooperation and reciprocity as central. He doesn’t explain what “reciprocity” means. Is it trade, in which customers pay for products or services? Does it include employers paying its own employees?

The Mises Institute responds to that part of the TED talk here. Excerpts:

- “But Hanauer can’t bring himself to praise that kind of cooperation and reciprocity because market exchange also involves self-interest and competition.”

- “Reciprocity and cooperation are indeed good things. But contrary to what Hanauer thinks, they are, in fact, the very basis of capitalism, a system of voluntary exchanges.”

Like many people do, Hanauer seems to regard selfishness and altruism as wholly mutually exclusive. Some actions are entirely one or the other, but not all are. Suppose a wife buys groceries for herself, her husband, and their children. Suppose one partner of a business acts for the benefit of the partnership that benefits the other partner(s) as well. Are such actions selfish or altruistic? Or both?

Hanauer claims that neoliberalism holds that the purpose of a corporation is only to enrich the shareholders. Not exactly, at least per the main advocate of a similar idea. Milton Friedman said it was the main purpose (link); “main” and “only” aren’t identical.

More than three years before this TED talk, Richard Epstein debated Hanauer about Hanauer’s idea of “middle out” economics (contra “top-down” or “trickle down”) and a minimum wage (link).