29.3.12

THE NEGLECTED ENTREPRENEUR.

And thus does this parable break down.
Let’s imagine ourselves as belonging to a remote valley population that survives on water supplied by groundwater reserves. As a society we have collectively decided to send the best and brightest to use their ingenuity to find the reserves and dig efficient wells that can sustain the population. They consider it a proud public service. As a result of population growth and technological advancement, more wells are dug farther and farther from the valley. The society subsequently grants a charter to a group of businessmen to incorporate and manufacture electric cars to transport people to and from the wells. Again, this is considered to be for the good of the population: people need access to water. These businessmen are allowed to behave according to classical market principles whereby profits incentivize efficiency. Higher efficiency means better access water which is essential for survival.
How did we collectively make that decision? Was the development of wells also undertaken according to classical market principles, or was some other institutional arrangement at work?  Did the best and the brightest take this work out of the goodness of their heart, or in pursuit of their own gain?  And did they set up institutions by which their credentials as the best and the brightest water-finders were validated?
As time passes, the population continues to grow and technology continues to advance. It becomes increasingly clear that the most efficient way to facilitate water access to the population is to a construct a high speed train that the entire population can use. Since it’s a train, it would eliminate the need for each person to purchase an electric car. When you need water, all you would need to do is hop on the Aquatrak. People would rather concern themselves with creative endeavors and personal relationships than how they’re going to afford an electric car. Water is essential to human life, so implementing the Aquatrak is pretty obvious, right?
Yes, and it might have occurred to one of the water engineers to become a merchant of power and provide that train. (The parable parallels exactly the development of the electric interurban railways with that modification.)
Wrong, because we forgot about the owners of Megawatt Motors. We let them incorporate and accumulate profit which became an addiction. They became wealthy enough to bribe our leaders and chief decision-makers. They couldn’t let Aquatrak develop or they would lose all their business. It doesn’t matter if all of their employees stand to benefit greatly from the better access to water. The profit distribution at the top would inexorably decline.

Eventually people get unruly and uncooperative as their collective sympathy kicks in upon witnessing the poor go without electric cars and the thirsty go without water. To check the unrest, Megawatt Motors allows for the construction of Aquatrak. They refuse to fund it, but they demand that only the poor and the old can use it. This, too, starts to unsettle the savage population so they stipulate that you can get on the train if you’re about to die from thirst, but those wonderful people we sent to dig the wells are going to have to pay for it which makes them jaded and cynical. Everyone else needs to buy a car if they want water.
That argument presupposes government provision of Aquatrak. Under the conditions stipulated in the parable, an entrepreneur, including a major shareholder in a car company, could have set up the railroad.  And the shareholders in Megawatt Motors might have been reduced to lobbying for a bailout.

Thus, a parable supposedly about a cheap single payer universal health insurance operation becomes a parable about how corporate welfare deprives consumers and taxpayers of choices they otherwise might have had, but for the constraints imposed by regulation undertaken allegedly for your own good.

1 comment:

William Bruce said...

I am always stunned by the supposed persuasiveness of argument by analogy, as if any thoughtful interlocutor were incapable of divining the merely illustrative nature of analogy at its best. I am aware of there being much to say for ostensive definition, pedagogically if not philosophically, but how many analogists would permit their arguments being reduced to the category of semantics?

As for myself, I will take categories of analysis, economic, sociological, or other: externality, rivalry, natural monopoly, etc. Spare the analogies for ostensive definition of those categories, and spare us this and similar poor analogies.