Self Employed or Bust

Why Free Market Economies Work

July 2, 2008 – 11:46 pm

We’re going to start with a thought experiment. Our previous post, Wealth Redistribution and Other Copouts touched on why things are the way they are in America and suggested there’s a reason things are the way they are. I’m going to try to expand on that a little. Let’s fulfill your dreams and make you a hypothetical business owner. To make our point, let’s also introduce Bob.

Bob isn’t very ambitious. Oh, he loves money as much as the next guy, but he’s not the kind to break a sweat to get it. But he is dependable. He comes to work when he’s scheduled to be there. He does exactly what he’s assigned to do. He clocks out precisely when he’s supposed to and then goes about his life. In the rare event that work requires extra time of him, Bob expects overtime pay. Finally, he’s picked a job fairly close to home because he isn’t the kind who likes to deal with traffic. Bob’s job is stuffing envelopes for delivery to prospective clients.

In our thought experiment, you own the company in which Bob works. You formed the company after years slaving in thankless jobs. You decided you’d had enough and you were ambitious enough to try to better your lot in life. First you found a niche that needed filling. Then you wrote up a business plan. You subsequently mortgaged your house to fund your fledgling startup. When that wasn’t enough, you secured a small business loan. Every dollar you owned was tied up in this gamble.

The first two years were painful. Eighty hour work weeks were common. You rarely saw your family and when you did spend time with them it was with paperwork in your lap and wandering attention as you anguished over budgets, expenses and clients. It took you 18 months before you finally turned a profit and, though you thought you might be able to scale back after that, the opposite became the case.

In a grow-or-die environment you elected to expand. Your small business became medium. Your workforce grew. The demands on your time grew. You sacrificed and sacrificed until, finally, you are where you are today.

Years since the day you started, your company is now a billion dollar industry employing thousands of workers (including Bob). You’ve weathered several lawsuits and one close call with bankruptcy which almost destroyed everything you struggled so hard to accomplish, but you’ve finally arrived. You own a beautiful house, a boat, several great cars and a vacation home in Italy. You also own an ulcer, high cholesterol and high blood pressure. You’ve finally streamlined things to the point that you can take the occasional day off to play golf. You can also afford the time to vacation with your wife and kids (who you almost lost to divorce thanks to all the time you were spending at work). Life is finally good. Your hard work, effort and the risks you took are finally paying dividends.

Meanwhile, Bob takes a 10 minute ride on the metro to work. He stuffs envelopes from 8:30 until noon, takes an hour for lunch, then finishes stuffing envelopes from one until 5:30 when he clocks out. He does this every day and hates his job. He wants more out of life. He’s seen you leave the parking lot in your fancy Lexus and hates you for it. Why do you have it so good? Why do you get all the perks while he slaves away in a dungeon risking… well, the occasional paper cut. Oh, he doesn’t want to start his own company, pursue a degree, study about small businesses or assume any risk of his own, mind you. He just dreams of wealth redistribution.

For all of Bob’s justified reasons for hating his job, the bottom line is that he has done nothing to earn great rewards. You, on the other hand, have risked everything to be where you are today. Most relevant to my point, though, you aren’t the only one to have reaped rewards for your sacrifice. Bob has a job thanks to you. In fact, thousands of other people owe you much the same debt of gratitude. The benefit of your sacrifice extends well beyond the borders of your company. Manufacturers, shipping agencies, buyers and sellers the world over earn money from doing business with you.

As for Bob, the only ones to benefit from his labors are Bob, Bob’s cat Larry and the guy who delivers Bob a pizza for a $2.00 tip three times a week.

Free Market economies work because, in most cases, the guy at the top has the most to lose. If he didn’t sacrifice tremendously to get there, he is still likely to lose the most should he fail. Furthermore, his success translates into success for others. Though his motives may be selfish, the results are not. People have jobs, companies exist, because these people exist. Unlike the lower 80% of the workforce (you and me), the wealthy are already redistributing their wealth in very tangible ways.

Painted in this light, can you see why I’ve not thrown the big guys at the top completely under the bus (yet)? For all the annoyance of watching the company CEO drive away in a fancy car worth more than your yearly income, he very well may have earned every dime he’s making. For all his arrogance, his existence probably benefits more people than does yours. The point isn’t to loathe him. The point is to learn from him.

We spend far too much time buried in envy, self-pity and spite and far too little time learning lessons from those who’ve succeeded. They aren’t all without their faults. In fact, in subsequent posts, I’ll be sure to point out just how skewed in favor of the wealthy things are in the US. But the point even then will be to remind us that we are just as deserving, just as capable, of living those lives if we choose. In other words, don’t hate the player, LEARN the game.

Stumble it!