Government fails while business succeeds because of immutable human nature. At root, it is exactly the same reason socialism fails while capitalism succeeds.
By: George Noga – August 14, 2016
Business succeeds because its risks, rewards and incentives are properly aligned with human nature. The need to make a profit focuses attention and demands great effort because success confers wealth and status while failure has immediate and unpleasant consequences. Thus, business attracts motivated, talented and hard working people. Why would anyone be a bureaucrat if he/she could succeed in business?
All that is well understood; however, there are more compelling explanations for spectacular corporate successes like Apple, Walmart, Disney, Berkshire Hathaway, FedEx and Coca-Cola. Juxtapose these against abject government failures such as public schools, terrorism, Madoff, economic growth, jobs, disaster relief, health care, IRS, USPS and most major cities (Newark, Detroit, Chicago), states and nations.
It all comes down to human nature which is unchanged since man walked on two feet. Humans are hard wired to further their self interest and to respond to incentives. This explains why socialism has never worked outside a small group like a family, clan or tribe. Socialist or Utopian schemes never have worked for more than 50 people – probably it is more like 25. We need look no further than Jamestown and Plymouth to see how socialism resulted in starvation and every form of privation; it was only when the settlers instituted private property that hunger and suffering were alleviated.
The same principle that dooms socialism also casts its pall on government – even in capitalist countries. Both are contrary to the most basic laws of human nature – self interest and incentives. Public sector economics explains the inner workings of government; it proves,inter alia, why government prefers debt over taxes, why taxes are opaque and why failed public programs continue to exist and even to expand.
In business, all it takes is one driven entrepreneur such as a Jobs, Gates, Buffet, Fred Smith, Sam Walton or Walt Disney to change the world. By its very nature government must appeal to the lowest common denominator (“LCD”) of the populace to win elections. Politicians behave rationally when they do whatever is necessary to win elections. That explains why they divide people by race, gender, age and income and pursue policies they know to be detrimental to those they represent.
A great paradox lies at the heart of government and human nature. Some limited government is necessary but there is no practical way to make it respond to the people’s long term best interests. The only possible solution is to reduce the size and scope of government to the absolute minimum, i.e. more liberty and less government.
Business structures its incentives to appeal to the best and brightest among us and, as a consequence, one talented and motivated business person can change the world and make life better for everyone. In contrast, government always descends to the LCD or to the level of the least of us. Socialism and government always fail because they are, at the most elemental level, diametrically opposed to abiding human nature.
Next: The timeless struggle between personal freedom and government power.