In the heat of the Comcast Kerfuffle last week, Steve R. made some comments that I thought were important. In response to my “Market Meme” post, for example, he said:
Regulatory intervention is the outgrowth of companies doing underhanded and unethical behavior on a consistent and long term basis. So if we don’t want regulation why are there no calls for these companies to act ethically to begin with?????
Since there are no posts suggesting that these companies act ethically, the implicit assumption is that it is OK for companies to “steal” from customers until caught. Once caught, to quickly apologize (as a demonstration of how the free market works to regulate itself) and to then initiate a new hidden scheme to defraud the consumer until caught again, and again, and again, and again.
Consumer vigilance it a vital ingredient to a free market, but so is ethical and open corporate behavior. If you don’t want regulation, behave responsibly.
[I]f the posters on TLF want a free market, without regulation, they must demand that corporations act ethically.
These are fair comments that deserve some consideration. Where’s the call for ethical business practices in the TLFosphere?!
Here’s my thinking:
Given their purpose to maximize profit for owners, I don’t think of businesses as things that can be innately ethical. A friend of mine who is less a fan of business and the corporate form of organization than I am would call them sociopathic. While that’s a little bit negatively connotative, I don’t think it’s wrong. You could no more expect an inherently ethical business than you could an inherently ethical shovel. But that doesn’t make shovels or businesses inherently bad. It depends on how you use ‘em.
Rather than being ethical animals, businesses are neutral/sociopathic machines that respond to the inputs given them. Getting into the mechanics of these machines, there are a lot of things that determine their success or failure. The most immediate are things like the price and quality of the goods and services they produce.
In an advanced economy, we can’t all examine each good or service as experts, so we rely on others to help us decide. There are a number of ways we make decisions without perfect information, and one of them is to use reputation. All of us rely on reputation for many decisions, from restaurants to real estate agents to ISPs.
Being ethical is a thing that can help bolster companies’ reputations, and thus get them more profits. I went looking for a book or article that I remembered reading about some years ago, which argued that markets promote trustworthy behavior. (Nevermind the press constantly raising contrary examples – that’s the job of the press and not an accurate, neutral portrayal of business behavior.) Instead of that article, I found a book called Trust or Consequences: Build Trust Today or Lose Your Market Tomorrow. It probably tells roughly the same story. It’s certainly possible to generate trust and a good reputation without being ethical, but one of the most reliable ways to generate and maintain trust over time is undoubtedly to act ethically.
So businesses can’t be inherently ethical, but ethics is one of several constituents of successful business. One might consider ethics a meta-characteristic of goods and services that consumers sometimes use, like price and quality, to decide what to buy.
Transparency is a similar meta-characteristic that helps garner and protect trust. I think the absence of a call for ethics here on TLF during the Comcast Kerfuffle is the product of the fact that Comcast’s main failing was in transparency. It’s still a matter of debate whether Comcast did anything wrong. It’s almost unanimous that Comcast did something opaque, and that hurt them.
A friend of mine who has no knowledge (or need to know) of the Kerfuffle told me last night that she would have selected Comcast as a matter of course to be her ISP at her new house, but “people always wrinkle their noses” about the cable company. She is now researching options – the classic marginal customer.
Comcast does not have the confidence of her community, whether due to lacking ethics, transparency, or some other factor. That’s cutting into Comcast’s bottom line, as it should. Her avoidance of Comcast is one of millions of tiny correctives being deployed against Comcast until it finds the mix of characteristics that more pleases consumers. Is a blunter corrective warranted, through prescriptive regulation?
Well, speaking of sociopathic machines, the legislatures and agencies who would compose and administer any regulation of broadband service are increasingly well understood to be a lot like businesses. The public choice school of economics has helped demonstrate that politicians and bureaucrats are self-interested actors first. They are almost always genuine in their claims to be promoting the “public interest,” but they are also almost always acting in ways that maximize their own power and budget, which leads to profit for those very same politicians and bureaucrats.
Just like with businesses, there is no inherently ethical legislature or regulatory body. The difference is that you can withhold your money from businesses. The comparable punishment you can mete out to politicians – withholding your vote – is available only once every couple of years and not very effective.
So be careful what you wish for when you argue for regulation. The business “machine” and the government “machine” can interface quite well at times. You might end up with two sociopaths uniting to take their profits from a third party, the citizen/consumer.