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Affluent Christian Investor | May 27, 2020

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President Trump, Fundamentally Transform Entrepreneurial Rules For The Better

President Donald Trump speaks during the 136th Coast Guard Academy commencement exercise in New London, Conn., May 17, 2017.

While I may not be a scholar of history, I sure am a student of history, especially looking for wisdom in both our American and Biblical history, which we can learn from and apply for today. The French economist J. B. Say (1767-1832) coined the word “entrepreneur” around 1800, saying, “The producers themselves are the only competent judges of the transformation, export, and import of these various matters and commodities; and every government which interferes, every system calculated to influence production, can only do mischief.”[1]

What started my exploration of new ideas during this current COVID-19 crisis was watching Larry Brilliant’s TED Talk 2006 My Wish: Help me stop pandemics video. While I am not a medical professional, as an entrepreneur I look for connecting the dots between pieces of information to ask the question: What works? Then I ask a second question: What works better than what we have? Brilliant’s comments showed how a different approach to system/process solutions creates a better harmony between mitigating the spread of COVID-19 yet allows the economy to keep moving along, albeit at a slower pace. No government stimulus is needed, but there are additional solutions that do not cost money or require government oversight.

It reminded me during the early 1990s when I was involved in the U.S. Air Force with the emergence of Total Quality Management, and one of the concepts we got to observe concerning production was Dr. W. Edwards Deming’s Red Bead Experiment. Swap out his names of  “management” and “workers” with “government” and “businesses/citizens” and you get the same answers to problems of almost 50 years ago. Little has changed since Deming’s 1980s red bead experiment by those entrenched in government with the same old ideologies, thinking, systems, and processes.

We need to fundamentally transform rules for entrepreneurs for the better just when we require more production of essential items; this is not the time for “a tremendous opportunity to restructure things to fit our vision” and create a wish list of things to restrict, control, or burden our economy. American workers are not much different than solopreneurs, ranchers, and farmers who don’t have a fallback position when our business tanks.

The current run on toilet paper, paper towels, and bottled water is one such example. The question becomes: What should the role of government be to get necessary resources to needed areas, the ability of people to pay for it, businesses not to price gouge, or the ability of others to donate needed resources? As one who knows, a Biblical free market based on virtue beats the one extreme of lawlessness or the other extreme of statist or Pharaoh-based governance attitude of, “Let them go and gather straw for themselves” […] “Let the labor be heavier” (Exod 5:7-9). A statist view translates into “management/government” and the elite telling “workers/entrepreneurs/citizens” they are at fault following their policies while the market runs past their thinking and policies.

Price gouging becomes a hot topic during this crisis and other large emergencies. But government’s statists policies and “price nazis” are not the answer. Market forces respond quicker to supply and demand fluctuations better than government bureaucrats can keep up. Take the run on toilet paper. Businesses that allow a few to buy up ALL of their inventory of toilet paper run the risk of alienating, angering, and ratchet up the panic buying of the rest of their customers seeing empty shelves. Good businesses will take responsible actions, so they take care of all of their customers.

When I worked at Apple when the iPhone was released, certain groups of people, like tickets scalpers, would come in purchase large numbers of iPhones with cash. They resold their iPhones at higher prices to restricted areas but for those able to purchase them in the right locations, none were available. Apple did a smart thing. All purchases would require a debit/credit card to track multiple purchases of multiple iPhones and flag those who abused Apple’s pricing and supply policies. It helped mitigate the full swing of supply and demand and the perceived lack of customer loyalty.

Retail stores are taking a similar approach when it comes to toilet paper. They are setting a policy of “Limit X per customer” as a way of ensuring most customers get what they need and prevent panic or hoarding purchases of the items. They even allow the elderly select hours to purchase alone without the threat of infected individuals passing on to them the virus. But there is another issue bubbling up which can help both entrepreneurs and prevent the potential government crackdown on “price gouging” issues: It’s the opposite of “volume price discounts” and becomes “volume price premiums.”

Volume price premiums (a takeoff of freemium pricing) means those that could least afford an increase in prices, the poor or elderly on fixed or limited incomes, can still purchase for their own needs and not go without and suffer. But this advertised volume pricing premium structure allows those who can afford it to buy at higher prices for higher volumes. It will also enable businesses to raise additional funds to increase investments to create more supply to meet demand and prevents the government from becoming the price police.

As one friend mentioned about this approach, any raising of one’s prices during these tough times could constitute the state coming in and punishing a business for price gouging. In some cases, it does happen and needs to be investigated. But government policies which don’t allow for fluctuations of prices based on market forces result in more price controls and the resultant loss just when the market needs to increase supply.

Yes, there is a difference between selling toilet paper, paper towels, and tissues versus generators and snow shovels. Still, if we keep this idea in mind during a crisis of supply and demand between customers, businesses, and government entities, we might create a better marketplace for all of us.  It becomes a frictionless economy that harmonizing everything together.

Let’s flatten the pandemic curve by instituting good policies to mitigate the spread of the COVID-19 virus, but let’s not flatten the economy at the same time with similar inadequate supply and demand policies.

 

 

Originally published on Townhall Finance.

 

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