Sunday, October 16, 2011

The Great Confusion - a critique of "socially-conscious" enterprise

Whether its renewable energy, microlending in Asia, or low-income housing, we end up hearing "socially-conscious" or "social entrepreneurship" frequently enough to nauseate. As I look through the news, at "socially minded entrepreneurs," I cannot help but notice just how insignificant they really are. For all of their "changing the world," only microlending appears to have changed much, and microlending was not started as "social entrepreneurship" but rather adopted by the figurative guild of "social entrepreneurs" later.

One of the great dangers of social entrepreneurship is the tendency to treat profit as a hurdle instead of an objective. Whereas standard business aims to sell enough at a good enough price to justify its existence, expand and attract others to compete, social entrepreneurship does just barely well enough to exist. Worse, sometimes it doesn't even do that, but rather siphons off funds from the taxpayers through government edict that could be put to better use. In the end, this destabilizes governments and entire economies, as America is only now finding out.

Sometimes people claim that social entrepreneurship can fulfill aspects of true progress that standard entrepreneurship could not. This, simply, is a lie. Take green energy for example. The claim is that we cannot create carbon-free/pollution-free energy without some kind of government investment, but the reality is that we already have such things. We have at least two extremely profitable carbon-free power sources: hydroelectric and uranium-based fission nuclear. We also have a moderately profitable one called Geothermal. Detractors will argue that uranium creates nuclear waste, hydroelectric floods land and threatens biodiveristy, and geothermal takes land in natural areas like the Valles Caldera. And yet they advance wind, which takes up far more land in natural areas then geothermal ever would, and hydro would in some cases, and harms biodiversity by destroying migratory birds, and solar, which, like all semiconductors, requires dangerous chemicals and chemical wastes in the production of solar panels, or else, in the form of solar-thermal, takes up vast land and destroys entire habitats like wind, while taking astronomical costs to build and in the end not being sustainable for the simple and basic reason that nothing built can last forever.

Another claim is bringing third-world countries out of poverty, but alas, every first-world nation was once a third-world nation, and every one of them was brought out of this condition by the expansion of private business. And today, in India, Brazil, Russia, Rwanda, Uganda and China, private business is bringing a few more home. Does this mean there is no role for government or charity? Hardly, this is all collectivist we have not even looked at taking care of individuals yet, but it does mean that your "social entrepreneuers" are wrong about precisely what that role is.

And then there's the matter of precisely what profit is. When most people here the word, they think of some fat guy in a suit who already has too much money (in this day and age, that more accurately describes politicians.) Most business today is done by a combination of ma and pa business and joint stock ventures, depending upon the sector. Indeed, "fat suit guy sole proprietor" has not been the dominant model since the late 1800's.

Joint stock ventures are made up of 1,000's of investors of every social status, both wealthy seeking more wealth and workers seeking a retirement through 401K's, putting money towards a limited liability venture that they are not in control of but still suffer the gains and losses of through stock price and dividend. When you create profit for your joint stock venture, that's a larger 401K for a soon to be old man as well as a larger portfolio for a serious investor (who is not always, but usually is, rich.)

But that's not all profit does! Profit also means that a large enough number of people will contribute a large enough sum to your product to make it more then worthwhile to produce. It also creates new investor groups, both ma and pa and joint stock, to create more production of the desired thing. This virtuous cycle puts out WHAT PEOPLE WANT IN THE GREATEST SENSE, instead of what is desired by a small "ecologically friendly" elite. Indeed, it is far more democratic then democracy, as democracy only considers yes or no and not the degree to which something is desired. Democracy is like a net of thick rope with 4 inch gaps and the free market is like the finest of satins - its holes nearly invisible.

Profit too prevents the waste of resources - if building space, workers and raw materials are demanded by a more profitable enterprise, the price will increase until finally the less profitable either go out of business or rearrange their assets, freeing up the building space, workers and raw materials. As our society decided "getting off of foreign oil" was the highest of all goals, E85 drove up the price of food to cause many of our poor to starve by taking tons of corn and turning it in to small quantities of motor oil. Meanwhile, oil prices continue to rise astronomically, and a few foolish legislators suggested increasing Ethanol content beyond what engines can take without corrosion.

The reality is that profit is a very lofty and socially honorable thing, that very much does empower all of society, and create the best world the given conditions can create for the common man. Treating it as a problem, instead of a solution, will lead to hubris and a small elite dictating things as "the right thing to do" instead of allowing nature and the common man to decide amongst themselves. There is no one so ignorant as one who thinks he knows what's good for his neighbor, and so much of the 20th century has been ruled and ruined by such men.

Full Extent of the Pacific Electric Railway, circa 1920. Public domain work of US Federal Gov't.

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