That used to be a provocative teaching device I used.  "I sometimes offer odds on a large corporation going out of business sometime in the next ten to twenty years. To be really provocative, I sometimes roll out supposedly solid companies including Apple or Microsoft or Wal-Mart."  The Cafe Hayek version features Don Boudreaux and his collegiate son Thomas.
Thomas and I were driving back from lunch and our conversation turned to McDonald’s.  Thomas correctly noted that McDonald’s has suffered some difficult times in recent years.  My son and I agreed that he – and possibly even I – will live to see the day when McDonald’s either declares Chapter 7 bankruptcy, is ignominiously absorbed into some other thriving firm (possibly a firm that doesn’t now even exist), or is transformed into an enterprise very different from what it is today.  Thomas and I agreed also that the same fate awaits Wal-Mart and, likely further down the road of time, Amazon.com, Apple, Google, and almost all of the other of today’s thriving commercial successes.

Thomas knows enough history to know that today’s commercial behemoths – the firms that today seem destined to survive forever, unbeatable, blessed with the touch of Midas – are tomorrow’s pathetic also-rans.  That’s the nature of market competition.  Think Pullman, Western Electric, Woolworth’s, K-Mart, Sears, Kodak, PanAm, RCA, and General Foods – to name only a few, and only national American, once-giants.
Too often, though -- and here Professor Boudreaux extends my argument -- it is when creative destruction catches up with the legacy companies (this has been the experience of the so-called Rust Belt) that the survival of those companies is in the public interest.
To criticize the success of private firms in competitive markets is to display a failure to understand that these firms’ high profits reflect their unusual success at improving the lives of countless input suppliers (including workers) and consumers.  And to seek to use government force to prevent the demise of firms being driven into bankruptcy by market forces is to seek to use government force to enable firms to continue to use resources inefficiently – that is, to use resources in ways that worsen the lives of many input suppliers (including workers) and consumers.
I wonder if that job-preservation might be a consequence of the low esteem that's attached to poverty programs.  Unemployment insurance and trade adjustment assistance and the like might be methods of helping people get back on their feet, and they might be more cost-effective or less inefficient than preserving failing businesses.  But ...

No comments: