Am I supposed to believe that government employees are magically exempt from the profit motive?
On a more abstract level, it is important to remember that the pursuit of self-interest (what we really mean when we speak of “profit motive”) is present in all human action. This is a definitional matter - even an ascetic who lives a spare and self-effacing life is pursuing what he perceives to be his highest interest - enlightenment or transcendence or whatever.
The profit motive isn’t just an idea. It’s a bit of a misnomer to call it “capitalism” like we have “nihilism” or “Arminianism” as if it’s just some kind of ideology which has taken hold of the world. Capitalism is first and foremost a descriptive theory of the world-as-it-is. In particular, since the Industrial Revolution the largest historical puzzle facing the economist is two-fold. First, why did people suddenly start to become so wealthy and why did technological and economic advances become so rapid around 250 years ago? Second, what took humanity so long to reach this stage?
The answers lie in understanding the role that proeprty rights play in enabling the processes of specialization, division-of-labor and what Austrians call “lengthening of the time-structure of production” a cryptic phrase that simply means we break down the task of manufacturing into smaller and smaller pieces not within firms but within the market itself. Smaller and smaller improvements are made by producers before they pass on their output to the next producer.
Well, this goes back to a proper understanding of two concepts: uncertainty and calculation.
In the first place, uncertainty is a problem that afflicts all men alike - the regulator faces as much uncertainty as the regulated. Hence, what is the correct course of action can often only be seen after the fact, if at all. The economy is essentially a process of blind search where entrepreneurs are the individuals who take on the risk of trying new combinations in the search parameters (starting new businesses, expanding investment in existing businesses or shifting investment out of a business).
In the second place, all humans engage in calculation. The caricature of the unwashed masses as blind dolts who stumble about their daily lives goaded by one animal impulse after another is just that, a caricature. The fact is that the regulated are every bit as capable of calculation as the would-be regulator. If the job of the regulator is to “foresee bad consequences and halt activities which result in those bad consequences before they are tried”, then the regulatee is just as capable of this kind of foresight. The key is strict, unlimited, individual liability for all persons at all times no matter their occupation. All individuals should be liable for any tort they commit and this liability must be unlimited because the damage that can be done is potentially unlimited. If this condition holds, then the question of foreseeing bad outcomes is reduced to the self-interest of the individual who will calculate the potential consequences of his actions. “It is cheap to dump my toxic chemicals into this creek. However, if I am discovered, then the people who live downstream and are harmed by my toxic efflluent will be able to sue not just my company but me personally and my entire wealth will be at risk. Perhaps I had better think twice about this.”
Do you see why unlimited, individual liability is so crucial? But the government’s system of business law works precisely to limit this. Many types of decisions made by CEOs and board members cannot come back on them, it is only the corporation which can be sued. This is the true reason for “corporate personhood.” In Britain they are actually fairly honest about the whole thing… LLC stands for “Limited Liability Corporation” and its express purpose is to limit the liability of the owners/operators of the corporation. So, the government unwittingly plays a role in enabling the very kinds of things that leftists are frequently alarmed about - destruction of the environment, trodding over the rights of the poor, and so on.
Finally, a closing note on this idea of having something other than the profit motive. It is often said that the government doesn’t have a profit motive like private businesses do. To the extent that this is true, the reason why is rarely, if ever, mentioned. The King (to put it in more basic language) has no profit motive precisely because he can take whatever he needs whenever he needs it. The government does not have to worry about profits because it can take whatever it needs in taxes at any time and it never hesitates to do so. Look at the second World War… there were rationing controls on almost every consumer good, taxes were stifling, government spending accounted for the majority of the entire gross domestic product of the US. So, the absence of profit-motive is due to an even greater evil, the evil of arbitrary seizure. Wal-Mart turns a profit and it benefits from a lot of bad legislation in the process that gives it unfair advantages vis-a-vis a small businessman. But Wal-Mart can’t just kick my front door in and take whatever it wants. In the limit, the government always reserves exactly this right (they’ll say “it’s an emergency” of course but that’s just a formality).
Clayton -