CHAPTER 4
ELIMINATING SMALL BUSINESSES
ELIMINATING SMALL BUSINESSES
The Marketplace Ecosystem: Honoring Our Neighbor's Choice The natural balance of the marketplace ecosystem also determined whether or not new ventures would stay in business. Business people who pleased their customers with better service and/or low prices got referrals and repeat business. Profit was a direct reflection of how well they served their neighbors. If they charged their customers excessively, other entrepreneurs began providing the product for a lower price, voluntarily accepting less profit to attract more customers, and ultimately more profit. Greedy competitors lost consumers. Profit and loss gave the tradespeople feedback that told them when they were- and were not- serving others adequately. Service providers reaped as they sowed. The customers voted daily with their purchasing dollars to supply this feedback. They directly regulated the marketplace ecosystem, keeping it in balance without aggression. The customer was the final authority. The customer was king. If our fictitious neighbor George thought his employer was exploiting him, George might decide to create wealth by going into business for himself. We'd never dream of stopping George at gunpoint from providing service to willing customers because he hadn't gotten our permission to do so. The business that George and his customers voluntarily agree to transact is up to them. We simply honor our neighbor's choice. We know that trying to tell George- at gunpoint- what he can and cannot do is likely to destroy any feelings of concern and trust that George may have for us. Brotherly love seems to dissolve when looking down a gun barrel. Of course, if we "start it," George will probably fight back. Perhaps he'll call the local sheriff and have us arrested. Perhaps he'll retaliate with sufficient force to make us unlikely (or unable) to threaten him again. "Starting it" is a prescription for warfare, whether we're adults or children. If we prevent George from creating wealth for himself,
how would he survive? Chances are that he would feel justified in stealing
the wealth we create, perpetuating the conflict between us. Just as our
interference with George and his willing customers would wreak havoc with
our neighborhood, so would the same actions create animosity and beget poverty
in our city, state, and nation. Licensing laws instructed the government enforcement agents to stop, at gunpoint, if necessary, individuals from providing a service to a willing customer unless they have permission from a licensing board. By requiring high licensing fees, written examinations for manual occupations, and excessive schooling or apprenticeships, licensing boards were able to exclude blacks and other disadvantaged minorities. Blacks were almost entirely forced from the trades, even the specialties in which they had been well represented. U.S. citizenship was frequently required to exclude new immigrants as well. (2) While minimum wage laws prevented the disadvantaged from getting that first job, licensing laws prevented them from starting their own businesses. Prevented from being an employer or an employee, disadvantaged individuals frequently found themselves unable to legally create wealth for themselves and their loved ones. In New York City, for example, would-be taxi drivers must
purchase a "medallion," or license, before they can legally carry
customers. The number of medallions is limited and has not been increased
since 1937. A new driver must purchase a medallion from someone who is retiring.
In 1986, these medallions were selling for more than $100,000.3 Many people
who have a car and would be capable of creating wealth for themselves and
their loved ones are forbidden, by law, to do so, because they can't afford
the medallion. Those who are prosperous enough to purchase one must charge
their customers more to make up for the extra expense. Thus, the first requirement
for a successful cab driver in New York City is not pleasing the customer.
Having money or the ability to borrow it is more important. Customers are
no longer king. By 1979, these "gypsy" operatives were believed to be more numerous than the number of medallion holders.4 As long as they stayed in the ghetto areas, the government enforcement agents looked the other way. When the gypsy cabs came into the better areas, however, medallion holders insisted that the government enforcement agents prevent the gypsy drivers from servicing customers- at gunpoint, if necessary. (5) We can learn several important lessons from the New York experience. First, the gypsy drivers were almost exclusively minorities, mostly black and Puerto Rican, (6) yet they were able to create a substantial amount of wealth, even in their impoverished areas, by providing a desperately needed service. When we don't interfere with the marketplace ecosystem, even the ghetto residents are able to create a significant amount of wealth. Second, the licensing requirements excluded the disadvantaged from creating wealth in the better areas of town where more profit was possible. The aggression of licensing laws simply made the rich richer
and the poor poorer. Because many of the poor were minorities, these licensing
laws were, in fact, discriminatory. Finally, the customers suffered as well.
In the better areas of the city, they paid more for taxi service, because
the licensing laws increased the cost of doing business and limited the
number of drivers to select from. The would-be customers in the ghetto frequently
had no service at all! Other Examples Licensing laws dealing with day care have severely impaired the ability of women with young families to create wealth. As mothers enter the work force, they select a child-care provider that best suits their standards and their pocketbook. Mothers who have no other marketable skills can create wealth by caring for the children of working mothers. Unfortunately for everyone, these natural child-care providers are often forbidden by law from providing this service, because they cannot afford to remodel their homes to meet licensing restrictions, pay for licensing fees, or deal effectively with the red tape required to get government permission to provide day care. (8) We've supported this aggression to protect young children from unsafe and unscrupulous day-care providers. Obviously, most parents are better equipped than anyone else to evaluate the quality of care their child receives. Parents who are not competent or interested enough in their child's care to do so usually pose a much greater threat to their children than a sloppy day-care operator could! Our efforts are redundant at best. At worst, licensing laws harm the very people they are meant to help. Licenses to operate day-care centers are not always easy to get. Some have been denied because the yard was deemed to be several feet too short! One center had to replace its four smoke detectors with a five-detector interconnecting system, at a cost of $2,000. A prospective day-care operator had to remove a wall because the door was 36 inches wide instead of 38! (9) The women who succeed in upgrading their homes and working their way through the red tape (57 forms in Washington, D.C.) (10) must charge more for their services to make a profit. In North Carolina, 25% of the cost of day care is due to licensing-by-aggression. (11) Some women, faced with these increased costs, can no longer afford to work outside the home. When they try to create wealth with a home business, licensing laws again hamper them. If they attempt to cut or even braid the hair of willing clients without getting several years of training to obtain a license, law enforcement agents will stop them, at gunpoint, if necessary. (12) In Chicago, hooking up a home computer to one owned by a business is illegal. (13) In Massachusetts, no goods and services can be produced in the home for a business located elsewhere. (14) Even in areas where home businesses are permitted, no employees may be allowed. (15) Through my years as a landlady, I've watched my low-income
tenants struggle with the aggression of licensing laws. Those who take in
sewing or operate day care in their apartments live in fear that one day
the government will stop them from creating wealth without a license. What
callousness to demand that others get our permission before being allowed
to put food in their children's mouths and a roof over their heads! Home businesses have low overhead and so provide another avenue for the disadvantaged or part-time worker to create wealth. Because the overhead is low, products are frequently priced lower than similar items manufactured by skilled factory labor, giving consumers an option they wouldn't otherwise have. Although customers are pleased, factory workers are not. Many licensing laws are supported by skilled workers who want to keep the disadvantaged from offering to serve the customer better than they are willing to.(16) Does this mean that skilled workers or union members are selfish others who deserve our wrath? Not at all! Those who propose licensing laws have seen our willingness to sanction aggression-through-government for "a good cause." Perhaps the last time we used aggression, skilled workers were its victims. In a system of aggression, we simply take turns being winners or losers. Instead of cooperative win-win scenarios, we perpetrate a win-lose game in which we are constantly at each others' throats. The skilled workers do not use aggression themselves. Like
the proverbial serpent in the Garden of Eden, they tempt us to practice
aggression against our neighbors for their benefit. They only kindle the
flames of poverty and strife. We choose to smother the flame by refusing
to direct our government enf˙˙˙˙ment agents to do their bidding or we fan
it with our acquiescence. Without our consent, the skilled workers (and
the serpent) are powerless. The choice- and the responsibility- belongs
to us. The Ladder of Affluence (Figure 4.1) illustrates this process. If our parents are on the upper rungs of the Ladder of Affluence, they probably have enough wealth to put us through college or professional training so that our first job is several rungs up on the Ladder. Disadvantaged individuals, however, have to start at the bottom and work their way up. Training jobs at low pay and home businesses are the first rungs of the Ladder. Minimum wage and licensing laws destroy the lower rungs, giving the disadvantaged less opportunity than ever. Instead of being paid a low wage while getting training and experience, the disadvantaged must pay for training or an expensive license. Instead of having the opportunity to work their way up the Ladder of Affluence, they cannot get started. They are excluded from climbing the Ladder at all! If they wish to survive, they must rely on the charity of others or use aggression to wrest wealth from those legally permitted to create it. How can we claim to care for the disadvantaged if we are willing to put them in this position? Those who manage to get that first job in spite of these handicaps find that the marketplace ecosystem cannot effectively protect them from exploitation. For example, when licensing laws excluded blacks from the trades, these would-be entrepreneurs swelled the ranks of those seeking employment. Employers had the upper hand when the former slaves were no longer permitted to start their own businesses. By supporting aggression, we put blacks and other disadvantaged groups at the mercy of prejudiced employers. The disadvantaged workers were sacrificed for the benefit of consumers who received no net benefit at all! |
Take care of your customers and take care of your people and the market will take care of you. - Tom Peters and Nancy Austin, A PASSION FOR EXCELLENCE
Wealth comes from successful individual efforts to please one's fellow man... that's what competition is all about: "outpleasing" your competitors to win over the consumers. - Walter Williams, ALL IT TAKES IS GUTS
DAY CARE LAWS LIMIT PRIVATE-HOME CENTERS THAT PARENTS LIKE BEST. For about 17 years, Susan Suddath kept other parents' children in her home... The state of Maryland... told her she would have to reduce the number of children, or close down... her basement was too low in one place. Almost 6 feet tall herself, Mrs. Suddath assured the inspector she would be the tallest person in the room. But he couldn't bend the law. - The Wall Street Journal, October 26, 1982
...Northrup cited an Eagle Comptronics Company incident where a group of women, who also were single parents, contracted to assemble electronic components in their homes. The State Labor Department, he said, closed them down under the anti-labor law, so the work is now contracted out of the country and the women, who were supporting themselves and their families, now are on welfare. - Ithaca Journal, September 11, 1982
The more laws and restrictions there are, the poorer people become. - Lao-tsu, TAO TE CHING |
As aggression is used to limit the creation of wealth by the disadvantaged and to augment the income of the advantaged, the gap between rich and poor widens. Since the disadvantaged create less wealth than they otherwise would, the society as a whole is poorer. Now we can begin to understand why the distribution of wealth is most even in countries with the highest GNP per capita (e.g., Switzerland and the United States). (17) Countries can decrease poverty and uneven wealth distribution by abandoning the aggression that restricts the creation of wealth by the disadvantaged. Many disadvantaged Europeans immigrated to the Unress States because aggression-through-government in their homeland forbade them to create wealth for themselves and their loved ones. They wished to go where their children would not have to beg for permission to create wealth. Today, their descendants find themselves in the same trap, which they have helped to create by refusing to honor their neighbor's choice. This situation is tolerated, even encouraged, by the well-to-do in the belief that widening the gap between themselves and the disadvantaged makes them winners. People in the trades saw their incomes rise as their licensing laws forced blacks out of business after the Civil War. Licensing laws prevent ambitious, unskilled workers from offering customers a better deal than highly paid union members could. Aggression appears to serve these special interest groups well. However, this gain is largely an illusion as Figure 4.2 shows. When we look closely, we see that aggression is a lose-lose proposition for everyone! Figure 4.2 The Wealth Pie
As licensing laws and minimum wage laws forbid the disadvantaged from creating wealth, the Pie shrinks accordingly. Our Piece (the goods and services our money can buy) is proportionately diminished. Because those who lobby for and enforce these laws create no new wealth themselves, the Pie shrinks once again, making our Piece smaller as well. As skilled workers, we may see our Piece of the Pie increase relative to everyone else's with these changes, but the absolute size of our Piece is smaller than it otherwise would have been. We cannot buy wealth that does not exist, no matter how much money we have relative to everyone else. Even with the extra dollars, we have much less purchasing power than we would have had in the absence of aggression. The enforcement agents who keep the disadvantaged from producing wealth produce none of their own. Consequently, they must take some of ours in the form of taxes. Our diminished Piece shrinks further. To survive, those who are not legally permitted to create wealth demand that the law enforcement agents take some of ours- at gunpoint, if necessary- as taxes to provide welfare. Our Piece of the Pie shrinks accordingly. Both the employed and the unemployed battle to control the force of law to gain an advantage. Each group attempts to have the guns of the law enforcement agents pointed at the other, taking turns being victims and aggressors. This is not brotherly love; this is war! The only difference between this war and conventional ones is that both sides take turns "capturing" the only weapon - the government. Because each side occasionally "wins," both have the illusion of gain. The cost of the weaponry of aggression (lobbying, limiting the creation of wealth, supporting those who create no wealth) is so high that both sides lose in the long run. Hostility is created and wealth is not; other fallout occurs
as well. Against the background of chronic unemployment, a belief emerges
among the advantaged that some people are simply not competent enough to
ensure their own survival. The disadvantaged, trapped by aggression and
told that only more aggression-through-government can save them, begin to
believe in their own impotence. While one segment of society justifies its
aggressive actions on the basis of its own alleged superiority, another
segment cringes with loss of self-esteem. Approximately 80% of all new jobs are created by small businesses. (18) Destroying small businesses through the aggression of licensing laws is the fastest way to destroy jobs. As small businesses are thwarted, large companies dominate. As jobs are destroyed, employers get the upper hand. As people become even poorer, dependence replaces self-sufficiency. If small businesses were not stopped at gunpoint from creating goods and services, consumers would have more options and lower prices. No one would need to support enforcement agents, lobbyists, or the unemployed. Available wealth would be increased greatly and everyone's piece of the pie would be correspondingly larger. If we truly wish to narrow the gap between rich and poor, while increasing the wealth of all, the most effective thing we can do is to say "No!" to the aggression of minimum wage and licensing laws. Instead of interfering in the voluntary transactions of others, we simply honor our neighbor's choice! It's that simple! What do we do about those who would exploit or discriminate against the disadvantaged? When no physical force, fraud, or theft is involved, we simply let them reap as they sow. Employers who treat their employees poorly will lose them to the many other opportunities available when the marketplace ecosystem is free from the aggression of minimum wage and licensing laws. Employees who stay with an unenlightened employer are either happy where they are or they aren't sure how to make a move. If we want to help them, we can encourage them to apply elsewhere, show them how to improve their skills, or hire them ourselves. Such actions require us to get personally involved with the disadvantaged and to truly show our concern and care. Surely, action of this type bespeaks brotherly love more than pointing guns at selfish employers! In working with the disadvantaged in this way, I have discovered that they frequently prefer a steady, safe job with low pay to the rigors of job hunting, interviewing, and the uncertainties that come with a new position.Some choose to accept low pay for jobs they are overqualified for in return for a low-stress, supportive environment. Those who really want to get ahead usually know what they need to do. A common belief in our society is that aggression can be used to rectify destructive social attitudes, such as prejudice and discrimination. Many people supported minimum wage laws because they were supposed to help, rather than hurt, the disadvantaged. As we've seen, such aggression hurts those it was intended to help. Some licensing laws were supposed to protect the consumer rather than the worker in areas where a mistake can be life-threatening, such as electrical or medical work. In the next chapter, we'll see again that aggression, as usual, harms the very people it is supposed to help. |
In the absence of aggression, everyone creates goods
and services, so that the Wealth Pie and our Piece of it (shading) is as
large as it can be for our current level of knowledge.