Recipe for Failure

President Johnson, early in 1968, announced a program to place the hard-core unemployed in perma­nent private-industry JOBS. The National Alliance of Businessmen promptly sprang forth to imple­ment the idea. Some 30,000 job openings had been pledged by var­ious firms before mid-year, and their initial requests for Federal aid to hire and train hard-core workers averaged just under $3,­000 for each trainee.1

Early reports of experience and progress under the program have been generally favorable, reflect­ing the popular enthusiasm for so worthy an objective.² Much as one might wish to share such enthusi­asm, the evidence and returns from this new program to date are too meager to justify the hope that human nature has drastically changed for the better in 1968.

Despite what some of the spokes­men for business have been saying about the new duties of manage­ment and their willingness to help the government remodel society, the fact is that there is no meas­urable market demand for "so­cial progress" as such. The pros­pect of a subsidy or payment of $3,000 or more for the training of a worker may seem a reason­able risk to some businessmen; they may see a chance there for a reasonable return on their time and investment — perhaps, a profit. But taking such a government contract is not quite the same thing as competing efficiently to serve consumers.

There is a consumer demand for trained employees, if not di­rectly, at least for the goods and services resulting from such train­ing. Market wage rates and prices tell workers when it is to their advantage to seek further train­ing, and in what fields; and these same market signals tell business­men when to step up or cut back on training programs.

Consumers are fickle; their wants and choices are constantly changing. Every change calls for new jobs, new equipment, new employees, new skills — training.

The successful firm provides that training and shows a profit on the time and effort invested. That’s what market demand means: Con­sumers gladly reward, in the form of profit, the most efficient sup­pliers. And no self-respecting trainee or employee would be­grudge his trainer that profit. Who wants to be trained by those who bankrupt themselves in the proc­ess? Who wants to understudy a failure? What is so great about being added to the payroll of a company receiving a $3,000 gov­ernment subsidy for the favor?

Unused Resources

When the social reformers with governmental power proclaim a need that cannot be detected or measured in the market, the busi­nessman who volunteers to fill that need can hardly pretend to be operating in the free market. He is dealing instead in the uncer­tain realm of political action.

There is a popular myth to the effect that an unemployed person or an unused resource of any kind is a drain upon the economy. It could be true that the person or resource might be employed to the advantage of everyone concerned; the economy then might be health­ier than otherwise. But unemploy­ment per se does not drain the working economy. The fact that Joe Doakes is unemployed does not automatically entitle him to draw goods and services out of the market place. He is neither putting anything into the market nor withdrawing anything from it — as far as his unemployment is concerned.

The foregoing, however, is not the total picture in the United States today. Legal action has been taken to give the unemployed person drawing rights upon scarce resources. In a sense, he has been handed a tax collector’s permit. How much he may lawfully ex­tract from producers depends upon how little he produces. Not his poverty nor his lack of produc­tivity, but the tax-power granted to him by government in the form of special privilege, is what allows him to drain the economy. So, let us bear in mind that coercive pow­er has been given to those we otherwise identify as the hard-core unemployed. There is little prospect of their learning to serve themselves through honest employ­ment as long as they share the be­lief that the rest of the world owes them a living and as long as they hold the political power to prove it.

It is normal and natural for the individual to act in his own in­terest. If he clearly sees it is to his benefit to develop the skills to earn a better living, he is likely to be in the market for such training.

This is a demand situation to which suppliers can respond — an opportunity for profitable private enterprise.

Fruits of Intervention

In contrast, consider the effect of various government welfare programs over the years. What have we accomplished with force? To what lengths have we gone to shatter the mirror in which men would identify their own inter­ests?

The more a man earns, the higher tax rate he must pay on his earnings. He may lose Old Age or Disability benefits if he earns too much. Higher earnings may render him ineligible for low-rent subsidized housing or Medicaid or Aid to Dependent Children or Food Stamps or Unemployment Compensation or other welfare payments. The law has granted him these "rights," given him power to use against the taxpayer, made it very difficult for him to discern whether or not it is in his best interest to train for a job and improve his capacity to earn.

Some gentle reader may be shocked at reference to political power in these terms. But it is high time to remember that gov­ernment is coercive force — pure and simple. And it is high time to stop asking government to per­form any duty for us if the use of police power seems inappropriate to that task.

The political weapon comes in many shapes and sizes, some of which are difficult to recognize. The protective tariff hides an iron fist, as does any charter or grant of special privilege. Organized labor wields governing power in excluding competition from vari­ous job opportunities. So do many licensed professionals. Farm sub­sidy checks are drawn against tax­payers under compulsion. So is every other payment made by any government to any individual — simply because government is and can be nothing but the power of coercion.

Identifying the Problem

The point is this: tax-power is the hard-core of the unemploy­ment problem in the United States. Some persons are unemployed be­cause employers are strictly for­bidden, under full penalty of the law, to pay as little as those per­sons will earn. Some are unem­ployed because unions, empowered by law, will not admit them to certain jobs. Most of the unem­ployed are regularly drained of their dignity by bureaucrats who hand out tax-collected resources, thus inviting their "clients" not to work. And some of the unem­ployed are just waiting until Con­gress reloads that ancient blun­derbuss recently rechristened the "negative income tax."

Professor Paul A. Samuelson, in his Newsweek column of June 10, 1968, finds hardly anything wrong with a negative income tax except its "unappetizing name." What politician wants to be nega­tive! "So," says he, "call it by the sweeter sounding and more in­formative, name of an ‘incentive income supplement.’ "

But the Professor, in typical fashion, is mincing words. He knows very well that the principle of the so-called negative income tax was fully incorporated in the "progressive" income tax in effect in the United States since 1913. The principle is to soak the rich for the presumed benefit of the poor; on a steeply rising scale, take from those who produce most efficiently and give to those who do not. Now, after 55 years, he wants to change the name of the game to "incentive income supple­ment." Under the old name, it didn’t solve the problem of pov­erty. Nor will sweetening the sound of socialism change its effect. Diminishing the rewards for production inevitably and in­variably will hurt the poorest among us more than it hurts those better cushioned against starva­tion.

There is no cause for either a student or a professor of economics in 1968 to ignore the lessons of socialism so eloquently told by the millions of victims of famine in Russia and other lands that at times have carried the "incentive income supplement" to its logical conclusion.

Justice?

There is an alternative to "pro­gressive" socialism, and whether it be called laissez faire or the free market or open competition or private enterprise makes very little difference. It affords to each in­dividual precisely what he deserves — which is another way of spelling justice. One serves himself through serving others; some call it the Golden Rule. This formula permits a person to be charitable, at his discretion, and with his own resources; but it does not com­mandeer his property, against his will, for disposition by others.

If Professor Samuelson is de­termined to practice injustice and interfere with the way the market allocates goods and services ac­cording to the guides of supply and demand and consumer choice, and if he wants an "incentive in­come supplement" that might be more helpful than harmful to the poor, let him try subsidizing suc­cess rather than failure. He could call it "positive taxation," though it would be regressive in fact, like the present social security tax: exempt from taxation all earnings above a certain figure. Then, dis­tribute the proceeds, not directly to consumers, but indirectly to those most efficient at supplying the goods and services consumers want. Give the subsidies to the producers, in proportion to amounts they have invested in the productive facilities and tools that create job opportunities and sup­ply the market with goods and services.

Subsidizing the Efficient

If the Samuelsons of the Great Society were to carefully examine the farm price support program in its over-all application in the United States since the mid-thir­ties, they might begin to grasp the implications of subsidizing the rich. Not that there is any excuse or justification for such interference with the market! But the reason why such interference has been tolerable for so long is that the farm subsidies by and large have gone to the most effi­cient producers of food and fiber. Not the poor, small, inefficient farmers, but the large, efficient, prosperous ones have received most of the price support pay­ments. Despite the various "soil bank" and "plowing under" names for the game, the bulk of the benefits have been paid to those who produced the most — almost as well as the market would have done if unmolested. And the net result has been an abundance —even a surplus of cheap food to feed the poor of the entire world. No political meddler in his right mind would have planned it that way — but it has happened that way in spite of the intentions of the planners.

Maybe the farm program hasn’t helped the poor, but it hasn’t hurt them very much. By the same token, subsidizing savers and in­vestors would better serve the poor than to give the same amount to consumers. If professors insist on minding other people’s busi­ness, let them think in terms of a "positive income tax," the pro­ceeds to be used to subsidize the most efficient producers of goods and services.

Fortunately, such a proposal is wholly lacking in political appeal. Political proponents of farm price supports never meant to encourage production; that was quite acci­dental. Except by such accident, there isn’t the ghost of a chance of passing a law to reward success. But there is no need of legislation for that purpose; an unhampered market economy, leaving each per­son free to pursue his own peace­ful interests, would do the job very well. All that is asked of politicians and their brain trusts is some faith in freedom and some skepticism of those who wield po­litical power.

The Mark of Integrity

We expect too much if we ex­pect virtue and integrity from those who hold special privilege and live by the power it gives them. Nor will we find freedom if we look to them for it. Any free­dom any person enjoys will be earned by him through his own virtue and integrity in his daily dealing with others of virtue and integrity.

These are qualities we may hope to find in our business associates—the successful suppliers and the satisfied customers in the market place — under a simple but inflex­ible code of justice: each gets precisely what he earns by serving others.

Individuals or groups may hold and practice other codes of justice, and of mercy, and may have ex­cellent reasons for such codes. But no code demands greater integrity of men than does the simple code of the market. Is integrity too much to ask of those who solicit our trade?

Just what is integrity? What is this quality we have every right to expect of a business associate?

Well, we expect his product or service to be as good as his word, and his word as good as his bond. We expect him to stand fully and personally responsible for what he says and does. Our right to expect that much of him rests upon our demonstrated effort to live by that same code — a condi­tion of mutual respect.

Such integrity seems hardly too much to ask of a man who wants to do business. Yet, we know that it is human and easy to err.

In good faith, we contract for the services of an employee, who becomes a businessman when he thus enters the market. But some­times we find that instead of de­voting full time to the task he has agreed to perform, he uses part of his time at our expense to or­ganize his fellow employees to slow down on the job, or strike in unison, or forcibly deny other willing workers entry to the job opportunities thus neglected.

This is the sort of behavior we might expect if we were dealing with a governmental monopoly such as the Postal Service; for in that case, not the negligent em­ployee, but the general taxpayer is held responsible for the failure to serve efficiently. We may expect such behavior from employees of any organization which holds an exclusive charter or franchise to serve a given area. There come to mind illustrations involving public carriers, water companies, gar­bage collection, taxi service, other utilities. But we do not expect and should not have to tolerate such behavior from a business­man who is actively competing to serve customers satisfactorily. Of him, we expect responsible per­formance — and integrity.

Whenever an employee comes to work for us with political priv­ileges and power, we ought to be suspect of him. And if we, as em­ployer, have entered into an alli­ance with employees of that char­acter, our customers may well suspect our good intentions and capacity to deliver goods or serv­ices according to contract. How is the customer to know against whom the unioneer’s political pow­er will be used?

A Peculiar Partnership

With mounting evidence on every hand of the failures of com­pulsory socialism, one hears more and more, from outstanding busi­nessmen among others, of a new and golden opportunity for private enterprise to "volunteer" and car­ry out the tasks at which govern­ment has failed — a "private cor­poration" to operate the postal monopoly, a national alliance of businessmen to train the unem­ployable or remodel the inner city or clear up the ghetto or attend to foreign aid. Solving the prob­lems of Vietnam doubtless will be added to the list.

Scarcely anyone seems to be concerned that these tasks for the most part are no more the appro­priate domain of private enter­prise than of government. The conditions of the problems are so qualified and stipulated that there is no solution. There are serious problems in these areas that ought to be solved; but they have not yet been identified or described with sufficient clarity to yield to solution. To propose that business­men join forces with government, and accomplish with modified power what the full power of gov­ernment could not do, is to con­fuse and corrupt the functions of both the free market and the police force. Business is not (lone through compulsion. Policemen may need guns to keep the peace, but not to wage war on poverty.

Not until the government gets out of a particular business, relin­quishes its monopoly power in that field, is there much prospect that private enterprise will seek or dis­cover opportunities to profitably serve the needs in that area. As long as government persists in granting special privileges and in confiscating profits earned and property invested, businessmen are well advised to keep out — not to volunteer their services. If gov­ernment will confine its efforts to the defense of life and property — a fair field and no favors — that is the very most it can do to at­tract private enterprise to problem areas. Indeed, for the most part, that is the problem, and the solu­tion is just that simple: use gov­erning power only to keep the peace.

Unwanted Volunteers

Human affairs are endlessly complicated by those who "volun­teer" the power of government to solve all sorts of real or imagined problems for which armed forces have no competence. And the ex­cuse often is heard that private enterprise failed to do anything about those problems. Now, from the other side of the vicious circle, come voices urging private inter­vention where government inter­vention has failed. And a power­ful case can be made for voluntary cooperation rather than compul­sion in many human relationships.

But it does not necessarily fol­low that everything which govern­ments have undertaken or been urged to do ought to be done —either voluntarily or coercively. To voluntarily relieve individuals of the unpleasant consequences of their own weaknesses and mis­takes can be just as harmful to them as to let the government do it. To "voluntarily" relieve indi­viduals of the fruits of their own efforts without their consent is still rank injustice. Private enter­prise is not something that can be done to someone else. It is for participants only — willing partic­ipants.

The point is excellently stated in a recent article, "Enterprise Potential of the Inner City" by John H. Clay, Negro president of the Negro-owned, profit-making Business Development Corporation (BDC) in Philadelphia:

It is tragic that this nation, de­pendent for its great strength upon private enterprise, until lately has failed to recognize a dichotomy of approach so very evident to us in the "inner-city": to remove and eradicate poverty, our nation has tried pri­marily to rely upon social beneficence and assistance controlled by bodies outside the population affected, throw­ing away the vibrant lessons from our own history demonstrating time and time again that self-determina­tion and individual initiative, in eco­nomic as well as political matters, breed capacity, responsibility, com­mitment, involvement, motivation… and results.

In our society’s developing commit­ment against poverty and disadvan­tage, the greatest problem we face is not one of adequate funding but of adequate wisdom in applying this basic principle. For in a society made strong through competitive, private enterprise, we cannot solve the prob­lems of the cities through a two-so­ciety approach whose dominant themes are achievement-fostering enterprise outside the core cities and funded social reinforcement inside dependency areas; this dual approach implies inferiority and cements de­pendency, while fostering alienation in both areas. We only can eradicate poverty through steps to install and foster in dependent areas not a share of the fruits of enterprise but, rather, the enterprise system itself. It is the only instrument dynamic enough.3

Mr. Clay has reiterated the an­cient and ageless truth that people do best for themselves when left alone — and free. The idea that good may come of mixing business and government is a serious threat to human progress — not a hope­ful sign.

—FOOTNOTES—

¹ The Wall Street Journal, July 2, 1968. 592

2 For a typical report see U.S. News and World Report, July 1, 1968, pp. 54-57, "Training the Unemployables," describ­ing the experience of one company, Lock-head Aircraft, and pointing up the oppor­tunities — and pitfalls—of this campaign by which "men once deemed unemploy­able are being turned into competent workers."

³ NAM Reports, July 15, 1968.

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Alexis de Tocqueville

If it be admitted that a man, possessing absolute power, may mis­use that power by wronging his adversaries, why should a major­ity not be liable to the same reproach? Men are not apt to change their characters by agglomeration; nor does their patience in the presence of obstacles increase with the consciousness of their strength. And for these reasons I can never willingly invest any number of my fellow creatures with that unlimited authority which I should refuse to any one of them.