The Things Business Gets Wrong

Not Markets, Business

Having posted bad arguments against the free market and receiving slight pushback with some confusion between business (things within markets) and free markets themselves, allow me to criticize business some.

Before I get to the cases where business goes awry, I want to be clear that business and especially big business is a critical, essential part of markets. In fact I join Bryan Caplan and Tyler Cowen in their love and appreciation of business including how both recognize that business is severely underappreciated (here is Caplan making his case in a short blog post).

To be fair in this criticism and with a nod to the pushback, I must admit that the market as we see it in the wild has allowed businesses to run afoul.

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1. An undesirable engagement with philanthropy. This is largely a principal-agent problem resulting in a misappropriation of shareholder funds. The principal-agent will be an ongoing theme here.

   The fundamental role of business is to use resources make profits. Of course, nobody said it better than Milton Friedman. When businesses engage in philanthropy, they substitute the desires of those in the business (agents) for those of the business owners (principals).

   Often these gifts are not actually gifts, they are profit-enhancing activities under the guise of giving. I’m sure there are examples somewhere of businesses giving to charity anonymously, but these are vanishingly rare. That should give you a hint about what is really going on.

   In those cases I see no problem. It is when gifts are true gifts that we have a problem.