Business succeeds because its risks, rewards and incentives are aligned with human nature.
Why Business Succeeds
By: George Noga – June 28, 2020
This post is a companion to the one last week entitled “Why Government Fails“. If you missed it, go to our website www.mllg.us. In that post, we revealed seven reasons why government fails. This week we explain why business succeeds.
Business succeeds because it excels at aligning risks, rewards and incentives with human nature – unchanged since men walked on two feet. The imperative to make a profit creates urgency, focuses attention and summons great exertion because success confers wealth and status while failure has immediate and unpleasant consequences. As a result, business attracts motivated, hard working, talented, non risk-averse people whose bias favors action over inertia. Business closely aligns personal incentives with the goals of the business such that they nearly are one and the same.
Business is based on markets, in which knowledge flows from the bottom up and confers valuable information about consumer choices and preferences along with prices. All transactions are voluntary, non-coercive and mutually beneficial; that explains why both parties to a market-based transaction always say “thank you“.
In business, one solitary person can literally improve the daily lives of billions of people as did Bill Gates, Steve Jobs, Sam Walton and Walt Disney to name a few. One driven entrepreneur can change the whole world. Moreover, businesses are able to tightly manage world-wide trillion dollar enterprises and prevent most waste, fraud, abuse and corruption through strong governance and independent audits.
Why Government Fails While Business Succeeds
At all its levels, always and everywhere, government fails for many reasons; foremost among them is that its risks, rewards and incentives are misaligned with, and often even diametrically opposed to, human nature. Politicians and bureaucrats respond to incentives that reward them even when they are contrary to the public interest.
Government is top down, command and control and coercive; it ignores consumer preferences. Rather than forming mutually beneficial relationships, it creates winners and losers. It divides people by race, age, income and gender.
Government brings us TSA, Madoff, USPS, failed public schools, OSHA, Medicaid, IRS and public sector unions. People are fleeing as fast as they can from dysfunctional states like Illinois, New York, Connecticut, California and New Jersey and from cities such as Baltimore, Newark, Cleveland, Detroit and Chicago.
Government failure is systemic, structural and incapable of reform; nonetheless, some government is necessary because it is preferable to anarchy. The only possible remedy is to reduce its overall size and scope to the absolute minimum.