Chapter 9 - Market and Non-Market Economies

The prevalence of business enterprises in many economies around the world has been so taken for granted that few people ask the question why this particular way of providing the necessities and amenities of life has come to prevail over alternative ways of carrying out economic functions.
Even in countries where profit-seeking businesses have become the norm, there are many private non-profit enterprises such as colleges, foundations, hospitals, symphony orchestras and museums, providing various goods and services, in addition to government-run enterprises such as post offices and public libraries.
Misconceptions of business are almost inevitable in a society where most people have neither studied nor run businesses.

Businesses versus Non-Market Processes:

The fact that businesses have largely displaced many other ways of organizing the production of goods and services suggests that the cost advantages, reflected in prices, are considerable.
There have been many theories about the merits or demerits of market versus non-market ways of producing goods and services. But the actual track record of market and non-market producers is the real issue.
In principle, either market or non-market economic activity can be carried on by competing enterprises or by monopolistic enterprises.
In practice, however, competing enterprises have been largely confined to market economies, while governments have usually created one agency with an exclusive mandate to do one specific thing.
Monopoly is the enemy of efficiency, whether under capitalism or socialism.
Even in a mixed economy, with some economic activities being carried out by government and others being carried out by private industry, the government’s activities are typically monopolies, while those in the private marketplace are typically activities carried out by rival enterprises.
Inertia is common to people under both capitalism and socialism, but the market exacts a price for inertia.
Socialist and capitalist economies differ not only in the quantity of output they produce but also in the quality.
The incentives are radically different when the producer has to satisfy the consumer, in order to survive financially, than when the test of survivability is carrying out production quotas set by the government’s central planners.
The consumer in a market economy is going to look not only at quantity but quality, but a central planning commission is too overwhelmed with the millions of products they oversee to be able to monitor much more than gross output.
Comparisons of government-run institutions with privately-run institutions often overlook the fact that ownership and control are not the only differences between them.
Government-run institutions are almost always monopolies, while privately-run institutions usually have competitors, while competing government institutions performing the same function are referred to negatively as “needless duplication”.
While some privately owned businesses in various countries can and do give poor service, or cut corners on quality in a free market, they do so at the risk of their own survival.
Perfection is not found in either market or non-market economies, nor in any other human endeavors, but market economies exact a price from enterprises that disappoint their customers and reward those that fulfill their obligations to the consuming public.
Behind all of this is the basic fact that a business is selling not only a physical product, but also the reputation which surrounds that product.
While a market economy is essentially an impersonal mechanism for allocating resources, some of the most successful businesses have prospered by their attention to the personal element.
What is called “capitalism” might more accurately be called consumerism. It is the consumers who call the tune, and those capitalists who want to remain capitalists have to learn to dance to it.

Winners and Losers:

Many people who appreciate the prosperity created by market economies may nevertheless lament the fact that particular individuals, groups, industries, or regions of the country do not share fully in the general economic advances, and some may even be worse off than before.
The fact that scarce resources have alternative uses implies that some enterprises must lose their ability to use those resources, in order that others can gain the ability to use them.
During all eras, scarcity implies that resources must be taken from some in order to go to others, if new products and new methods of production are to raise living standards.
The political temptation is to have the government come to the aid of particular industries, regions or segments of the population that are being adversely affected by economic changes.
What can be done instead is to recognize that economic changes have been going on for centuries and that there is no sign that this will stop—or that the adjustments necessitated by such changes will stop.

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Chapter 9 - Market and Non-Market Economies

The prevalence of business enterprises in many economies around the world has been so taken for granted that few people ask the question why this particular way of providing the necessities and amenities of life has come to prevail over alternative ways of carrying out economic functions.
Even in countries where profit-seeking businesses have become the norm, there are many private non-profit enterprises such as colleges, foundations, hospitals, symphony orchestras and museums, providing various goods and services, in addition to government-run enterprises such as post offices and public libraries.
Misconceptions of business are almost inevitable in a society where most people have neither studied nor run businesses.

Businesses versus Non-Market Processes:

The fact that businesses have largely displaced many other ways of organizing the production of goods and services suggests that the cost advantages, reflected in prices, are considerable.
There have been many theories about the merits or demerits of market versus non-market ways of producing goods and services. But the actual track record of market and non-market producers is the real issue.
In principle, either market or non-market economic activity can be carried on by competing enterprises or by monopolistic enterprises.
In practice, however, competing enterprises have been largely confined to market economies, while governments have usually created one agency with an exclusive mandate to do one specific thing.
Monopoly is the enemy of efficiency, whether under capitalism or socialism.
Even in a mixed economy, with some economic activities being carried out by government and others being carried out by private industry, the government’s activities are typically monopolies, while those in the private marketplace are typically activities carried out by rival enterprises.
Inertia is common to people under both capitalism and socialism, but the market exacts a price for inertia.
Socialist and capitalist economies differ not only in the quantity of output they produce but also in the quality.
The incentives are radically different when the producer has to satisfy the consumer, in order to survive financially, than when the test of survivability is carrying out production quotas set by the government’s central planners.
The consumer in a market economy is going to look not only at quantity but quality, but a central planning commission is too overwhelmed with the millions of products they oversee to be able to monitor much more than gross output.
Comparisons of government-run institutions with privately-run institutions often overlook the fact that ownership and control are not the only differences between them.
Government-run institutions are almost always monopolies, while privately-run institutions usually have competitors, while competing government institutions performing the same function are referred to negatively as “needless duplication”.
While some privately owned businesses in various countries can and do give poor service, or cut corners on quality in a free market, they do so at the risk of their own survival.
Perfection is not found in either market or non-market economies, nor in any other human endeavors, but market economies exact a price from enterprises that disappoint their customers and reward those that fulfill their obligations to the consuming public.
Behind all of this is the basic fact that a business is selling not only a physical product, but also the reputation which surrounds that product.
While a market economy is essentially an impersonal mechanism for allocating resources, some of the most successful businesses have prospered by their attention to the personal element.
What is called “capitalism” might more accurately be called consumerism. It is the consumers who call the tune, and those capitalists who want to remain capitalists have to learn to dance to it.

Winners and Losers:

Many people who appreciate the prosperity created by market economies may nevertheless lament the fact that particular individuals, groups, industries, or regions of the country do not share fully in the general economic advances, and some may even be worse off than before.
The fact that scarce resources have alternative uses implies that some enterprises must lose their ability to use those resources, in order that others can gain the ability to use them.
During all eras, scarcity implies that resources must be taken from some in order to go to others, if new products and new methods of production are to raise living standards.
The political temptation is to have the government come to the aid of particular industries, regions or segments of the population that are being adversely affected by economic changes.
What can be done instead is to recognize that economic changes have been going on for centuries and that there is no sign that this will stop—or that the adjustments necessitated by such changes will stop.