All Commentary
Wednesday, June 1, 1966

Private Enterprise in the Public Interest

From the 1965 Annual Report of the United States Steel Corporation.

Private enterprise is freedom to produce and sell, and freedom to buy and consume; and the con­sumer, as well as the producer, is an integral part of the private enterprise system — indeed, the consumer also is in a way a pri­vate enterpriser. As an economic system, private enterprise is char­acterized by competition, open markets, private ownership, and private initiative. Producers take production initiative on the basis of price and profit-and-loss signals essentially given by consumers.

Thus on the firing line of open competitive production is the busi­ness firm — an individual or a group of individuals. The firm pools the savings and plans of in­vestors and the talents and ener­gies of employees with the expect­ancy of meeting some particular demand of the consumers and with the hope of earning a profit for the owners. To prosper — in-deed to survive — the firm must serve the public, that is, the pub­lic interest. But running a busi­ness is a risky operation as the public is a hard taskmaster, quick to switch its life-or-death patron­age from any firm it deems lack­ing.

Private enterprise is open to all comers. Anybody with an idea for enterprise and the requisite capital is free to start a business. Quite a few people, some even without any money of their own, have had such ideas. In fact, there are now some 11 million business­es, including farms, in the United States. The overwhelming propor­tion are sole proprietorships and partnerships and only about 11 per cent of the total are corpora­tions….

The Consumer’s Interest

The consumer’s interest in pri­vate enterprise is in getting more and more for less and less — with maximum freedom of choice. So naturally the consumer — Mr. Everybody, the entire American public — is keenly interested in private enterprise, because pri­vate enterprise is the consumer’s servant, and consumer choice is the heart of private enterprise.

Thus through the cash register or company order book, through his power of purchase or nonpur­chase, the customer speaks to and — in the sense that actions speak louder than words — for Ameri­can business. Moreover, he pos­sesses virtually an absolute veto over every major decision of a firm. He largely decides the pub­lic interest in private enterprise because, collectively, he is the pub­lic — as well as a key participant in the business system.

His power is crucial. Every cost of doing business — every tax, wage, salary, fringe benefit, ma­terial cost, interest payment, and so on — must be ultimately sought from one and only one source, the cost-aware customer.

His purchase therefore sanc­tions a firm’s prices, makes pro­duction and jobs possible, and sustains the very life of the busi­ness. In effect he assigns profits to those firms he deems in his in­terest — the public interest — and these firms prosper and expand. At the same time he assigns losses to those firms he deems not in his interest — the public inter­est — and these firms, unless they mend their ways, weaken and eventually fail. Thus, under pri­vate enterprise it is said, wisely, that the customer is king — the consumer is sovereign.

To be sure, consumer sover­eignty is not absolute; the pro­ducer also has freedom of choice. He can choose his industry or field of endeavor, where and how he wishes to operate, the prices he would like to get, but in the long run he cannot sell below cost nor above competitive prices. Nev­ertheless, it is the consumer who ultimately decides in effect what and how much will be produced, by whom, and at what price it will be sold.

Another point on the consumer’s interest: The marketplace is dem­ocratic to an almost unimaginable degree in the political realm. Every day is Election Day in the market. Each purchase is a vote, and a company’s sales is its tabu­lation of consumers’ ballots, the customers’ dollar. For each com­pany there is neither tenure nor a fixed term of office. A big busi­ness can be voted small, a small business can be voted big, and any business can be voted out of office.

So through his dollar votes the consumer, who may also be an employee or investor or both, ever adjusts supply— and suppliers — to demand, to the public interest.

The Employee’s Interest

The employee’s interest in pri­vate enterprise is his job, for it is the source of his well-being. He too is keenly interested in maxi­mum freedom of choice. He is born a free man in a country in which opportunity and equality of opportunity are unexcelled in the world. He can choose his ca­reer from available opportunities, decide how hard he wishes to pursue it, select where to live and work. These are his personal de­cisions.

Naturally, he is also interested in business growth, which means job opportunity growth and wage and salary growth. American wage and salary scales are far and away the highest in the world, and the job-sustaining and job-creating ability of the private enterprise system, for all the talk of automation, has never been in greater evidence.

He should likewise be interested in profits. Some assert that wages and profits are in opposition, that profits exist only at the expense of wages. Nothing could be further from the truth. Private enterprise is based on competition and coop­eration — not conflict. Labor and capital are in natural partnership— each is dependent upon the other. And from the employee’s point of view, the more capital the better; and since profit at­tracts capital, the more profit the better. For capital is the key to productivity, and out of improv­ing productivity alone comes all continuing real wage and salary improvement as well as gains to consumers, governments, and in­vestors.

Little wonder, then, that capital investment per employee in Amer­ica clearly exceeds capital invest­ment per employee in all other countries. It follows that Ameri­can wages and employee benefits arise out of America’s tremendous capital productivity which, in turn, arises out of the private en­terprise system. Plainly, these wages and benefits — and job op­portunities — are not bestowed by benevolent governments nor, for that matter, by aggressive union leaders or magnanimous business employers.

The consumer in the final anal­ysis is the real employer; his pur­chase creates job opportunities. It is his dollar that meets the payroll. It is his nonpurchase which rejects uneconomic wage scales or shoddy workmanship, and workers so re­jected may well find little consola­tion in being the highest-priced and most unemployed workers in the world. So, in a very real sense, the employee doesn’t work for the employer; he works for the con­sumer.

Thus job-creation will continue to go on, provided wage rates are responsive to the consumer’s in­terest; provided savers and in­vestors, in their investment func­tion of providing tools, have the incentive to go forward; and pro­vided the intricate price mecha­nism that governs the billions of daily transactions through innu­merable continually changing prices in the American economy remains self-governing.

The Government’s Interest

The government’s interest in private enterprise should be in the vitality of business. Business can prosper, economic growth can con­tinue, and tax revenues can be sustained only when essential gov­ernmental duties are properly per­formed. Such duties include main­taining law and order, safeguard­ing property and contracts, and securing the individual from vio­lence from within or without.

But governments can overreach themselves and set back the cause of “Life, Liberty, and the pursuit of Happiness.” For the tendency of governments throughout his­tory has been to assume supreme economic insight, to inflate the money supply, to introduce rigid­ity (“stability”) into economic af­fairs, to favor some groups at the expense of others, to fix “reason­able” prices and “reasonable” profits; in short, to intervene in normal everyday business deci­sions and upset the entire competi­tive mechanism, all too frequently in the name of “the public in­terest.”

The Investor’s Interest

The investor’s interest in pri­vate enterprise is in putting his money to work profitably. This is vital to him, to private enterprise, to government, and to the entire American society. He is one of millions of direct investors, in­cluding 20 million shareholders, who have supplied job-creating capital to business through risk­ing their savings. In addition, he is one of more than 100 million in­direct investors who, through their savings deposits, insurance poli­cies, and pension fund participa­tion, invest in American business. The investor’s key problem: He must decide where and how to in­vest. In this he is motivated by powerful, if quite different, drives — the hope of gain and the fear of loss. The investor readily recog­nizes that management plays a crucial role, that enterprise and risk go hand in hand, that today’s return on operations could turn into tomorrow’s loss.

Importantly, however, the investor is not committed to his in­vestments. He is also a free agent — most willing to hold or even in­crease his investments when he deems their yields right and risks reasonable. But, at the same time, whenever he thinks yields are un­satisfactory or risks too great, he can switch his investments — sell his stocks, bonds, or properties and use the proceeds for other in­vestments — or, if he lacks confi­dence in the future, he may not invest at all. In any event, invest­ing or disinvesting, he keeps a con­stant watch on profitability which, as noted, is essentially a signal from consumers.

Through the profit incentive, then, comes a mighty flow of in­vested savings: the capital that makes modern private enterprise possible; that keeps it on its toes; that provides employees with tools — factories and machinery — which make job opportunities, high pro­ductivity, and high wages a real­ity; that enables producers to fur­nish the goods and services which the consumer desires at prices he is willing to pay. Thus, three fac­tors of overriding importance gov­ern the investor’s interest: sav­ings, confidence in the future, and the prospect of profit.

Thus, private enterprise and the decisions of private enterprise —decisions shared by all Americans — inherently and most democrat­ically reflect the public’s wishes, the public’s interest. Interference with the decisions of private en­terprise in the name of the public interest thus amounts, ironically, to interference with the public in­terest. For the decisions of pri­vate enterprise are the decisions of the people, by the people, for the people.



Political Decisions

The expansion of government to its present scale has political­ized virtually all economic life. The wages being paid most work­ers today are political wages, reflecting political pressures rather than anything that might be considered the normal working of supply and demand. The prices farmers receive are political prices. The profits business is earning are political profits. The savings people hold have become political savings, since their real value is subject to abrupt depreciation by political decisions.

SAMUEL LUBELL, The Future of American Politics