Dr. Schaefer is Professor of Management at the University of Texas of the Permian Basin.
Dr. Streicher is Associate Professor of Mid-Management at Odessa College.
Few of us non-saints live fully by what we preach. We excuse ourselves, of course, by admitting we’re human. But there are limits to how far we can tolerate a gap between what we preach and what we do. When the gap gets too large, we must ask if we really believe what we preach.
In the realm of free enterprise, the gulf between American rhetoric and American practice has grown so large as to force the question: Do we really believe in competition?
• Item: A recent segment of the ABC-TV show, “Good Morning America” described cosmetic surgery performed in a California physician’s office. The procedure is less expensive than having it done in a hospital. The reporter quoted a hospital administrator who complained that loss of revenue from surgery performed outside the hospital would cause increases in hospital charges to make up the lost income. The physician replied that increased competition should force the hospital to lower, rather than raise, its prices.
The saddest part of this tale is not the upside-down view of economics displayed by the hospital administrator. His complaint, as soon as a whiff of competition appeared, typifies an attitude. His ignorance is deplorable, but the mind-set that led him to complain is frightening.
Increasingly, in knee-jerk fashion, we look to government, not to the market, to solve our problems. Surely it is logical to turn certain economic functions over to government, or other institutions. However, these practices have been carried to such extremes that it is difficult to see how public interests are being served.
The Public Be Damned?
In the late 1880s, the New York Central railroad decided to discontinue the Chicago Limited, a fast, extra-fare passenger and mail train which ran between New York and Chicago. Reporters interviewed William Henry Vanderbilt, son and heir of the Commodore. They asked, “Don’t you run it (the train) for the public benefit?” Vanderbilt’s famous answer, “The public be damned,” was only part of what he said. The rest of his reply was, “I am working for my stockholders. If the public want the train, why don’t they pay for it?”
Vanderbilt’s question touched both sides of the supply-demand equation. Had the public wanted that fast, extra-fare train, they would have paid for it by buying tickets to ride it. The railroad chose to discontinue the train because it was not profitable. When alternatives to trains became more plentiful in the forms of trucks, airplanes, and automobiles, the railroads became less and less profitable, and there were widespread changes in railroad operations.
Traditional View Under Attack
The ability to turn a profit traditionally has depended on a firm’s ability to compete for the customer’s dollar. Increasingly, however, firms, through government, seek to control competition while masquerading as friends of the consumer. Their efforts often turn out to be anything but friendly.
• Item: A spokesperson for the American dairy industry recently described it as the most efficient in the world. Compared to what? Price supports provided for dairy products by the federal government have removed competition from the dairyman’s world. Producers can produce as much as they want, without regard to supply and demand. What the consumers don’t buy at the supported price, the government will. Even the Edsel would have been a winner if Ford had had that kind of help in 1958!
• Item: A recent article in the Wall Street Journal, headlined “Truckers Ask U.S. to Forbid Rate-Cutting.” A 1980 law made it much easier to get into the trucking business, and increased competition soon followed. About 6500 more regulated truck businesses operate today than in 1979.
The crux of the truckers’ complaint is “shippers are taking full advantage of the overcapacity,” and there is “a feverish scramble to force the best deal out of each carrier.” This is what the free market is all about. But the truckers want the ICC to restrict rate-cutting. They claim lowered rates violate tariffs filed with the ICC. For whose benefit? The trucking companies will be forced to compete, and they don’t like it. As deregulation produces lower prices for shippers, truckers will have to fight to stay in business. They don’t look forward to the experience. The dairy industry has similar reservations about the prospects of free market competition.
• Item: Greyhound Bus Lines is ready to discontinue service to some towns in upstate New York because of extremely low passenger traffic. Greyhound cannot justify the service when so few seats are occupied. The outcry from the affected towns is piteous. Elderly people are quoted to show how they will be immobilized if the buses stop running into their towns. The State of New York has been asked to take steps to insure that Greyhound does not discontinue the service. Once again, here is anticompetitive bias at work.
If there is sufficient demand for bus service in upstate New York, somebody will provide it, even though Greyhound may not. If a profit can be made, an entrepreneur will seek to make it. If no profit can be made, how can we justify forcing an organization to provide the service?
Do we, then, really believe in competition, or do we merely mouth the words and back away when one of our own vested interests is involved? Is it un-American to suggest that Greyhound be permitted to stop carrying a few senior citizens on otherwise empty buses? Are we against Motherhood if we believe Elsie the Cow ought to sell her milk on the open market and pull in her horns when supply exceeds demand? Is it too much to ask that American businesses serve their clients in a competitive market?
Real Source of Wealth
The prime source of wealth for nations, as for individuals, lies beyond resources of oil or iron, corn or wheat. Wealth, as demonstrated throughout history, lies in internal worlds of will and idea. As the economist Joseph Schumpeter insisted, the root of abundance is competition and entrepreneurial activity. Entrepreneurs, dedicated to risk-taking and the building of the earth, may be suppressed. They are now being suppressed throughout our land. But a government which obstructs competition writes its own economic obituary.
The attitudes which nourish wealth may be temporarily neglected without causing permanent damage. The spirit of the free market is so deeply ingrained in our heritage that no minor force may destroy it. But people cannot live off their capital forever. The broadening circles of anticompetitive attitudes which now rage through all levels of our society threaten the proverbial goose and her golden eggs. We can avoid a reckoning only by encouraging the will to physical and spiritual excellence that resides in the free soul.
The effort of the California doctor to compete with the local hospital is really a test case. If the hospital, which sees the government as its real client, appeals to that client and forces the doctor to retreat, our heritage will suffer a loss. If the doctor prevails, we will have a small victory in the effort to resurrect those elemental attitudes which make Americans “fighters, dreamers, creators of new worlds.”
Let The Market Work
We believe the market system ought to be allowed to work. We believe consumers, whether individual or corporate, will benefit from market functions. And we believe American business will be stronger for it.
The alternative, facing us on every hand, is a legalized twentieth century version of “the public be damned.” But this time, it may be too late for public action to prevent the damning.