In this time of political turmoil, we all tend to fall back on elevator speech bullets — free enterprise, individual freedom, and balanced budgets. But what is the real meaning behind these pronouncements. Why is free enterprise better than a centrally controlled economy? Why did all of the random, uncontrolled, chaos in the late 19th
and early 20th
century rapidly raise the United States into a position of economic and political prominence in the world? How does this relate to our U.S. culture of individual freedom? This article will seek an answer to why free enterprise can have accomplished these incredible things.
35 years ago I had the privilege to attend the United States Air Force Test Pilot School. As part of that training, I was introduced to the then fairly new field of digital flight control systems. This can be a very complex subject but in its simplest form it uses what is called negative feedback to enable control of a system like an aircraft in flight. As an example, if you want the aircraft to go straight and it starts turning right on its own, you have a force generated pushing the aircraft back to the left and the opposite if the aircraft starts turning left. You thus use that negative force to keep the aircraft flying the direction you want it to. A model of the aircraft in flight is built with natural aerodynamic forces and mechanical control forces and then with the magic of computers, a control system is designed that can control an aircraft in flight. Although a model can never exactly represent the real world, models do give us insights into how the real world works. If you think about it, all natural systems have similar opposite forces or negative feedback that keep those natural system within some normal bounds.
Figure 1: Negative Feedback Enabling System Control
So now let’s apply this same model to a business, hardly a natural system but one in which there is a business goal and a need to prevent the business going in the wrong direction. Simple to say — but ask yourself the question, “What is the wrong direction?” Looking at the simple model of a business, money, raw materials, and labor come in one end, and a product comes out the other. We can then look at what comes out and how the business operates in producing those products and provide the negative feedback to prevent the business from running astray. With an optimistic view of people, we could say that the people running the business are going to do the right thing in taking care of people and the environment and respecting other people’s rights. But obviously there are plenty of examples of businesses not doing this. If a company dumps hazardous materials in water sources or uses child labor, there is a need to provide negative feedback to the business.
Figure 2: Control System Model of a Business
We pride ourselves in the United States as a nation of laws and laws are one method to provide negative feedback in the running of a business — if you break a law, the police come and take you away — pretty negative. But is this the best means of accomplishing our societal goals of a thriving economy while preventing the excesses of a completely unconstrained business?
Unlike a hundred years ago or even 40 years ago, I would submit that there is a much more natural type of feedback in our modern consumer based economy — we, the people, have control over where we spend money. We don’t have to eat at a restaurant that mistreats it employees. We don’t have to buy clothes from a company that uses raw materials from a country that uses child labor. Even a few percent of revenue moving to a competitor is enough to force change in how a company is run and quite often the firing of the president and CEO. We, the consumer in a free society, have real power, respected by every business if they hope to survive. Laws of course are necessary to provide a level playing field, but to the greatest extent possible, we should not cede our personal power to the blunt instrument of laws.
Our task then as consumers, as active members of the economy, and as citizens in a free society is to find the “right” balance of legal and societal constraints that will cultivate and encourage innovation while ensuring that companies do not step outside societal norms.
Stand by for next week’s article — “Why a Free Society does Social Programs Better than Socialism.”
David Bryant had a first career as a U.S. Navy fighter pilot, test pilot, and aircraft carrier commanding officer followed by extensive experience in both large and small production companies. He has graduate degrees or equivalents in physics, aeronautical engineering, international relations, and nuclear engineering rounded out with an Executive MBA from the University of Washington. He is board member of the Theodore Roosevelt Association and active in politics in the other Washington. He strongly believes in Theodore Roosevelt’s oft quoted approach to foreign policy, “Speak softly and carry a big stick.” To read more of his reports — Click Here Now.
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