Browsing the blog archives for November, 2014.

The Ferguson Reality


The Ferguson situation is unfortunate for many reasons. Those burning down the city lack a comprehensive understanding of the case, yet they clamor for the indictment of an officer they don’t know to be guilty. They supposedly act in the name of justice while reflecting a total disregard for private property and the rule of law. They behave like anarchists while simultaneously demanding government intervention. This is a serious problem on many fronts, but I’d like to comment on the business perspective.

Consider a simple question: If you run any type of chain or franchise establishment–or even a small business–would you consider opening in or moving to Ferguson? With the ongoing riots and seemingly no way to protect property there, the answer is obvious. High profile firms like McDonald’s will probably stay, lest they be accused of social irresponsibility. Many others will likely exit, taking jobs and access to daily services with them. Why rebuild a business in Ferguson?

But Ferguson is really a random community in this cycle of violence. What happened there could just as easily have occurred elsewhere. Savvy business executives with their own money on the line will attempt to identify and avoid the next Ferguson. You can’t blame them.

Ironically, while private investment in Ferguson will suffer, some are starting to call for the federal government to step in and “rebuild the community.” Doing so would be a travesty of justice, reinforcing the notion that crime really does pay.

At the end of the day, economic development depends on individual liberty and respect for the rule of law. When these fundamentals are lacking, entrepreneurs demand higher returns to compensate for the extra risk or avoid investments altogether. This is the reality for Ferguson, and perhaps for other urban areas as well.


The President & Net Neutrality


On Monday (November 10), President Obama definitely declared broadband Internet service as “essential to the economy.” In doing so, he asked the FCC to declare broadband as a public utility, expand its regulatory control, and invoke so-called net neutrality, the idea that all Internet traffic should be treated equally. Should the FCC oblige, there would be a fight—likely in court—with major broadband providers like Comcast, AT&T and Verizon that seek different cost structures for different types of customers.

Proponents of net neutrality claim that such an approach would ban Internet providers from discriminating against content providers. But neutrality really means egalitarian in this instance. Not all Internet applications require the same speed and bandwidth, so Internet providers should be allowed to set prices accordingly. Net neutrality would end this practice, allowing regulators to set prices, ostensibly in the public interest.

There are legitimate technical matters to consider here, but the core issue is about philosophy. The crux of the President’s argument is quite simple: Anything “essential” to the country can’t be left to the market. Whether it’s the post office, education, health care or the Internet, he’s suggesting that vital goods and services should be centrally controlled.

This argument has emotional appeal and is sold through fear: “We can’t leave the education of our kids to the profiteers.” “Everyone has a right to get the same mail service no matter where they live.” “Medical care is too important to be left to the insurance companies.” “The Internet should be available to everyone, not just large corporations.” But it also has a logical flaw. If central control of “essential industries” is in the best interest of consumers, then why not centrally control other industries as well? While most Americans would reject this idea when applied to grocery stores, restaurants, and gym memberships, many fall for the notion that important goods and services should be exceptions. In doing so, they miss the point.

In general, the more important an industry is to an economy, the less regulated it should be. Mail service, education, health care and the Internet are too important to be left to bureaucrats who lack the information necessary to make efficient decisions about products, services, and pricing. The market does all of this much better and much faster. Health care costs are not high because of greedy doctors and insurance companies who conspire to shortchange the poor. They are high because government regulations of the various related industries make it more complex and thereby more expensive.

Don’t be fooled. The President might be calling for an “open Internet,” but it’s already open without the level of federal oversight he wants. The market has already done quite well making Internet service available to the public.