When initiated coercion is legalized, it attracts those who are willing to use it.*
Those who are more willing to use legalized, initiated coercion than those who are hesitant will advance faster in the system. Eventually, the more willing rise to the top. The more willing, then, use the initiated coercion against those they have bypassed and anyone else who gets in their way.
This in essence, though not his words, is the identification made by F. A. Hayek in his 1944 book The Road to Serfdom (chapter 10, “Why the Worst Get on Top”).
The identification explains how and why an interventionist, increasingly bureaucratized government becomes a dictatorship.
The way Hayek put it is that “democratic statesmen” expect citizens to approve of their coercive policies peacefully through discussion and majority vote. As this does not work, and leads to chaos, those with “lower moral and intellectual standards” step in to take over. They appeal to the “docile and gullible,” uniting them with a “hatred of an enemy” and “envy of the better off.”
A casualty along the way is language, meaning the rise of Goebbelsian propaganda, with the word “liberty” being the first to go, or rather, turned on its head, Orwellian fashion, into its opposite.
By “democratic statesmen,” Hayek means the democratic socialists who thought they could avoid a Marxist violent revolution by voting their brand of initiated coercion into power. Instead, they paved the way for the Lenins, Stalins, Mussolinis, and Hitlers of the twentieth century.
The “docile and gullible” in today’s political climate are the patsies of the socialist/fascist left. They are those alleged victims who in reality are beneficiaries and opportunists of our entitlement culture. They are the ones who clamor for coerced handouts and privileges in the name of reparations for past discrimination and in the form of protections and other initiated coercions against the hated enemies, their alleged current persecutors.
The “hated enemies” of today have congealed around several targets. Historically, ever since the rise of the early Progressives from their democratic socialist beginnings, and continuing in the present, the favorite Marxist whipping boy has always been, and still is, big business—“America’s Persecuted Minority,” as Ayn Rand so aptly put it.
Other hated targets include white straight males and, of course, our current president, and anyone who dares to disagree with the socialist/fascist left’s mantra.
Envy of those “better off” targets is the motivation of our contemporary “democratic statesmen” and their “docile and gullible” followers.
Envy—not a self-confident, self-responsible, and independent psychology.
The way, indeed, is being paved for a modern-day . . . well, who knows what.
In contrast to the upward mobility of the worst in government, the most competent and able, self-responsible, and independent individuals—the best—rise to the top in free-market businesses.
When ability is recognized and rewarded, as in a private, profit-making business in a totally free market, which means where there are no interfering regulations imposed as a result of initiated coercion, the most competent at identifying what will improve human life and most able to deliver created goods and services to their customers will advance.
In business, competence and ability are rewarded. In a bureaucratized government, willingness to develop new laws and regulatory rules and the desire to execute them, which means more opportunities to coerce, is the criterion of advancement.
In business, the criterion and means of success, and therefore the means to high profits to sustain and grow the business, is customer satisfaction, that is, making products better than the competition to meet the objective needs (the requirements for an improved life) and wants (optional tastes) of the customer.
The day to day work, whether by employee or entrepreneur, entails a myriad of detailed communications, both outside the company, with customers and suppliers, and within the company, to employees in the various departments necessary to run the business. All of this “myriad detail,” then, must be coordinated to produce and deliver the product in a timely, need- and want-satisfying manner.
Those who possess the greatest ability to communicate with others and to motivate them in a positive way, and who can retain the greatest detail, which includes surveying the company for means of improvement and, especially, the market for opportunities, will be the ones to advance.
Today, however, we do not have the kind of freedom I have described above. Today, we live in a “mixed economy,” which means a mixture of freedom and dictatorship.
Business people today are harassed by thousands of regulations—legalized, initiated coercion—that deflect attention from the proper operation of their companies.
As a result, the incentives become mixed. Some incentive of customer satisfaction remains, but much of the time today is spent on compliance with the regulations, many of which conflict with customer satisfaction.
Increased prices is the most obvious conflict, but reduced supply and elimination of some products from the line also follow the increased regulation.
In heavily regulated industries, the “best” who rise to the top are likely to be the ones who are good at working with regulators, complying with the rules. In such industries, the business has become so bureaucratized that it operates much like a government bureau—meaning incompetent and indifferent to customer needs and wants.
It’s not uncommon for “successful” bureaucrats in these businesses to join government agencies to become regulators themselves and administrators of legalized, initiated coercion.
This is where we are today. Only time will tell how far the socialist/fascist left pushes us.
* “Legalized, initiated coercion” is the pernicious opposite of the constitutionally valid and rights-based self-defensive use of force.
Showing posts with label free market. Show all posts
Showing posts with label free market. Show all posts
Monday, April 09, 2018
Wednesday, October 13, 2010
Working in Business as Opposed to Being a Student
When I began working in business, shortly after receiving my bachelor's degree, I experienced a pleasant surprise: I immensely enjoyed what I was doing. Indeed, I felt that working in business was a lot more fun than being a student, so much so that it took nearly six-and-a-half years before I could summon the strength to go to graduate school. I have related this story to a number of people, but never had a good explanation or understanding why being an employee is so much more enjoyable than being a student.
The answer is not the money difference—being paid to do work as opposed to paying the school for an education. It is the feeling of importance. The work itself may not be top-level decision making, which in my case it was not, but every stroke of my pencil mattered. It made the difference in customer satisfaction and company earnings. Everyone in the company contributed to both. The sense of importance also came from the familial atmosphere I experienced with my co-workers and boss, an atmosphere I experienced in every business that I worked for but have not found in any of my academic jobs. Is there something fundamentally different about business and education?
Ask a group of students if they feel important in their school and you are likely to get a blank or incredulous “are you kidding?” stare (Glasser, p. 45). Importance in school, they say, comes from their friends or their extracurricular activities (sports, music, theater, etc.). As a student they feel more like a number on a roster, not overly seen or respected as a person, but as just another piece of produce to be graded and sorted. This, of course, comes from the bureaucratic nature of government-run and -regulated education (1, 2, 3). Grading and sorting are among the main functions of bureaucracy. Students do not feel important because they are not treated the way customers are in privately-run businesses.* Students are not customers, but they should be.
How are customers treated in private businesses? The slogans “customers are number one” and “the customer is always right” gives an indication of the importance of customers to businesses and the importance customers should feel when patronizing most well-run businesses. But what businesses can we compare to education to see what an education customer in a free market might feel? There are today several (relatively) free markets in education. Private lessons, whether piano, personal training, or tutoring, are one. The customer is given the instructor’s full attention and is rarely graded or made to suffer rewards and punishments. Importance is built-in to this type of learning.
Team lessons, especially in sports, are another. While softball and basketball coaches do evaluate players for best position and first or second team, they usually do not employ rewards and punishments of the type that carry the weight of school grades. The players, as a result, have fun working as a team to beat the other teams. There are small private classes, sometimes held in an instructor’s living room or in a rented hotel room. Customers feel relaxed and important to the instructor because they are there just to learn and have fun in the process. They are not there to be graded or tested, the source of anxiety and decreased feelings of importance. Finally, there are large private classes—lectures—sometimes given in hotel ballrooms. No grades, no tests. The customers are there to learn and take away from the lecture what they want. They are important to the lecturer for the revenue he or she earns. They may not have personal contact and receive personal attention from the lecturer, but the atmosphere nevertheless is pleasant—far more pleasant than the impersonal grad-student run megasections many of us have endured in research universities.
Clearly, it is the critical, comparative grade-and-sort atmosphere of government-run education that eliminates almost any chance for the student (customer) to acquire a sense of importance. Throw in at the K-12 level the compulsory attendance laws and you have students, especially at the secondary level, who have the sense of being in jail.**
The bureaucratic nature of education also makes it difficult for faculty to enjoy the familial atmosphere I experienced in private businesses. As professors, we have to fill out the right forms (and get our hands slapped if we don’t) and comply with the myriad rules. Customer satisfaction and earnings are irrelevant, so there is no benchmark of performance or importance. Conflict frequently erupts with the lack of a common goal. With guaranteed lifetime employment, the “family” sometimes becomes enmeshed in what seems like a marriage “without the possibility of divorce.” The stakes in such a situation have become too small.
* I include private universities, including the for-profits, in the category of bureaucratic education, because they are regulated and therefore their culture is controlled and defined by the government.
** Craig Haney and Philip Zimbardo, “It’s Tough to Tell a High School from a Prison,” Psychology Today, June 1975. Also, see John Holt, The Underachieving School.
The answer is not the money difference—being paid to do work as opposed to paying the school for an education. It is the feeling of importance. The work itself may not be top-level decision making, which in my case it was not, but every stroke of my pencil mattered. It made the difference in customer satisfaction and company earnings. Everyone in the company contributed to both. The sense of importance also came from the familial atmosphere I experienced with my co-workers and boss, an atmosphere I experienced in every business that I worked for but have not found in any of my academic jobs. Is there something fundamentally different about business and education?
Ask a group of students if they feel important in their school and you are likely to get a blank or incredulous “are you kidding?” stare (Glasser, p. 45). Importance in school, they say, comes from their friends or their extracurricular activities (sports, music, theater, etc.). As a student they feel more like a number on a roster, not overly seen or respected as a person, but as just another piece of produce to be graded and sorted. This, of course, comes from the bureaucratic nature of government-run and -regulated education (1, 2, 3). Grading and sorting are among the main functions of bureaucracy. Students do not feel important because they are not treated the way customers are in privately-run businesses.* Students are not customers, but they should be.
How are customers treated in private businesses? The slogans “customers are number one” and “the customer is always right” gives an indication of the importance of customers to businesses and the importance customers should feel when patronizing most well-run businesses. But what businesses can we compare to education to see what an education customer in a free market might feel? There are today several (relatively) free markets in education. Private lessons, whether piano, personal training, or tutoring, are one. The customer is given the instructor’s full attention and is rarely graded or made to suffer rewards and punishments. Importance is built-in to this type of learning.
Team lessons, especially in sports, are another. While softball and basketball coaches do evaluate players for best position and first or second team, they usually do not employ rewards and punishments of the type that carry the weight of school grades. The players, as a result, have fun working as a team to beat the other teams. There are small private classes, sometimes held in an instructor’s living room or in a rented hotel room. Customers feel relaxed and important to the instructor because they are there just to learn and have fun in the process. They are not there to be graded or tested, the source of anxiety and decreased feelings of importance. Finally, there are large private classes—lectures—sometimes given in hotel ballrooms. No grades, no tests. The customers are there to learn and take away from the lecture what they want. They are important to the lecturer for the revenue he or she earns. They may not have personal contact and receive personal attention from the lecturer, but the atmosphere nevertheless is pleasant—far more pleasant than the impersonal grad-student run megasections many of us have endured in research universities.
Clearly, it is the critical, comparative grade-and-sort atmosphere of government-run education that eliminates almost any chance for the student (customer) to acquire a sense of importance. Throw in at the K-12 level the compulsory attendance laws and you have students, especially at the secondary level, who have the sense of being in jail.**
The bureaucratic nature of education also makes it difficult for faculty to enjoy the familial atmosphere I experienced in private businesses. As professors, we have to fill out the right forms (and get our hands slapped if we don’t) and comply with the myriad rules. Customer satisfaction and earnings are irrelevant, so there is no benchmark of performance or importance. Conflict frequently erupts with the lack of a common goal. With guaranteed lifetime employment, the “family” sometimes becomes enmeshed in what seems like a marriage “without the possibility of divorce.” The stakes in such a situation have become too small.
* I include private universities, including the for-profits, in the category of bureaucratic education, because they are regulated and therefore their culture is controlled and defined by the government.
** Craig Haney and Philip Zimbardo, “It’s Tough to Tell a High School from a Prison,” Psychology Today, June 1975. Also, see John Holt, The Underachieving School.
Monday, November 16, 2009
Education and the Rent Control Model of Monopoly
Education in the United States today is a monopoly, as is the supply of rental apartments in many cities. Monopoly[1] is the restriction of a portion of a market for the exclusive use of certain select sellers at the expense of other sellers who are forbidden entrance into these markets. It is a government-granted privilege.
The delivery of first class mail is the most obvious privilege granted to the US Postal Service. When teenage entrepreneurs have attempted to compete with the post office, they have been ruthlessly put out of business by the feds. But monopoly does not have to be a single seller. It can be a monopoly of the many, as occurs in occupational licensing where the goal is to restrict supply in order to increase prices and therefore income for those who are granted the license.
In government-run monopolies, such as education, the goal is to keep price low and the supply widely available. Inefficiencies that result from the top-down, non-market focus of bureaucratic management in turn lead to high costs that are subsidized by the government. The effect is to freeze out private-sector competition—if it is legal in the first place to compete with the government-run schools. In some countries it is not. If a private-sector system of schools is allowed to exist, the costs of private education often require a quite high price.[2] This is what we have today in the United States and it is analogous to the rent control markets in such cities as New York and Berkeley and Santa Monica, California. The only difference is that the controlled apartment buildings are privately owned. City housing removes the need to call the comparison analogous.
The privilege granted to the operators of government-run schools consists of far more than the obvious lack of competition. It creates a guild of teachers and administrators who work primarily for the benefit of their own needs and wants, not those of their students. As Adam Smith[3] put it over two hundred years ago, referring to publicly financed higher education:
And:
In the privileged comfort of tenure and salary guarantees, most of today’s K-12 and college teachers seldom, if ever, have to face real competition. Opposite the intended goal of a widely available supply, bureaucratic inefficiencies and indifference create large class sizes and shortages of instructors such that students bang down the teachers’ doors begging to get into the classes that are scheduled—not because the students want to learn from the great masters, but because they need the units. Government involvement in education creates a situation in which sellers do not have to do anything to attract customers. Some sellers—the teachers—find the door banging annoying and the students a nuisance. Niceness, cordiality, and, generally, concern for the customers’ needs and wants, as a result, often go out the window. The same is true of rent-controlled apartment house superintendents.
The solution to both education and rental housing is decontrol and privatization. The privatization of the education market and the decontrol and privatization of the rental apartment market would at once increase the supply and variety of schools and rental apartments, because anyone would be free to begin offering these services and would be free to do so at a profit. The disparity between the current private and public sector prices would converge, because the abnormally high prices of the private sector would immediately drop due to the immediately increased supply (or promise of such increase).
In a free market real prices decline over time. As efficiencies and innovations emerge in the newly deregulated education and rental apartment markets, prices—in terms of the number of labor hours required to purchase a unit of the service—would also decline. Customer satisfaction would become the means to earning a profit. Niceness, cordiality, and catering to the needs and wants of the customer, not airs of guild-like smugness and superiority or indifference, would become primary.
1. Chapter 10
2. See “Dozens More Colleges Pass the $50,000 Mark This Year,” The Chronicle of Higher Education, November 1, 2009.
3. Book V, chapter I, part III, article II
The delivery of first class mail is the most obvious privilege granted to the US Postal Service. When teenage entrepreneurs have attempted to compete with the post office, they have been ruthlessly put out of business by the feds. But monopoly does not have to be a single seller. It can be a monopoly of the many, as occurs in occupational licensing where the goal is to restrict supply in order to increase prices and therefore income for those who are granted the license.
In government-run monopolies, such as education, the goal is to keep price low and the supply widely available. Inefficiencies that result from the top-down, non-market focus of bureaucratic management in turn lead to high costs that are subsidized by the government. The effect is to freeze out private-sector competition—if it is legal in the first place to compete with the government-run schools. In some countries it is not. If a private-sector system of schools is allowed to exist, the costs of private education often require a quite high price.[2] This is what we have today in the United States and it is analogous to the rent control markets in such cities as New York and Berkeley and Santa Monica, California. The only difference is that the controlled apartment buildings are privately owned. City housing removes the need to call the comparison analogous.
The privilege granted to the operators of government-run schools consists of far more than the obvious lack of competition. It creates a guild of teachers and administrators who work primarily for the benefit of their own needs and wants, not those of their students. As Adam Smith[3] put it over two hundred years ago, referring to publicly financed higher education:
In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.
And:
The discipline of the colleges and universities is in general contrived, not for the benefits of the students, but for the interest, or more properly speaking, for the ease of the masters. Its object is, in all cases, to maintain the authority of the master, and whether he neglects or performs his duty, to oblige the students, in all cases to behave to him as if he performed it with the greatest diligence and ability.
In the privileged comfort of tenure and salary guarantees, most of today’s K-12 and college teachers seldom, if ever, have to face real competition. Opposite the intended goal of a widely available supply, bureaucratic inefficiencies and indifference create large class sizes and shortages of instructors such that students bang down the teachers’ doors begging to get into the classes that are scheduled—not because the students want to learn from the great masters, but because they need the units. Government involvement in education creates a situation in which sellers do not have to do anything to attract customers. Some sellers—the teachers—find the door banging annoying and the students a nuisance. Niceness, cordiality, and, generally, concern for the customers’ needs and wants, as a result, often go out the window. The same is true of rent-controlled apartment house superintendents.
The solution to both education and rental housing is decontrol and privatization. The privatization of the education market and the decontrol and privatization of the rental apartment market would at once increase the supply and variety of schools and rental apartments, because anyone would be free to begin offering these services and would be free to do so at a profit. The disparity between the current private and public sector prices would converge, because the abnormally high prices of the private sector would immediately drop due to the immediately increased supply (or promise of such increase).
In a free market real prices decline over time. As efficiencies and innovations emerge in the newly deregulated education and rental apartment markets, prices—in terms of the number of labor hours required to purchase a unit of the service—would also decline. Customer satisfaction would become the means to earning a profit. Niceness, cordiality, and catering to the needs and wants of the customer, not airs of guild-like smugness and superiority or indifference, would become primary.
1. Chapter 10
2. See “Dozens More Colleges Pass the $50,000 Mark This Year,” The Chronicle of Higher Education, November 1, 2009.
3. Book V, chapter I, part III, article II
Tuesday, September 08, 2009
Interest and the Core Curriculum
In discussions of curriculum over the past one hundred or so years, debate has ranged from letting children choose entirely what they want to study, guided only by their interests, to forced memorization of the encyclopedia, usually called the core curriculum. “Memorizing the encyclopedia” might be a harsh characterization, but some die-hard core-curriculum advocates would not object to it.
The question is, when you take the church and state out of education and replace it with a free market, what would the curriculum be? The answer is whatever the market decides, that is, whatever the parents and students decide they want to pay money for. Just like what we find in the automobile market. The parallel question is, what would cars be like if we let the free market decide? Well, we have a (relatively) free market in automobiles today, so we have big cars, small cars, fast ones, expensive ones, cheap ones, etc. We have an enormous variety of cars but most of us do have cars and we manage to get around town and country without much hassle. Actually, with considerable satisfaction. (Those of us who don’t have cars choose other means of transportation, including walking.)
The core curriculum is a one-size-fits-all strategy and assumes that someone—an education czar or panel of education experts—knows what is best for our children. In automobiles, this strategy would give us one design, one engine, one type of tire, interior, color, etc. Maybe a modest variety of styles—two or three at most—but none that the market actually wants, only what the “experts” think they should want. In education, thoughts of letting parents and children choose what they want unleashes panic screams from the core curriculum crowd about how parents will seek out all sorts of weird ideas, or perhaps not educate their children at all, and the children will go for easy A’s and no homework. The assumption guiding the notion of a core curriculum remains that only one institution, the government, can require such a curriculum and that at the point of a gun.
A little history shows that force does not need to be brought into the curriculum debate. Hellenistic Greece is the origin of our current three-part structure broken into primary, secondary, and higher education. Governments in the ancient world rarely interfered with the educational process. Fathers paid teachers to educate their sons. The curriculum? Greeks called it enkyklios paideia or general education. Romans translated it at as artes liberalis or liberal arts. Today, we might also call this an education in western civilization. Higher education in the ancient world split into two factions that we still have to this day: professional education (rhetoric, medicine, law) versus knowledge for its own sake (philosophy). Weird ideas and easy A’s? There were mystery cults but they did not dominate the education system. And there was no grading, examination, or credential system at all. That is a product of the medieval guilds and the rise of modern bureaucracy.
Another assumption of the core curriculum advocates, especially those who would require specific textbooks and lectures on western civilization, is that the students who are coerced to be in those classroom seats would actually read the book and listen to the lectures. It is obvious to anyone who teaches in the present system that many, and sometimes most, do not do this even in elective courses. The coercive, bureaucratic environment of modern education kills interest in all but the strongest, most purpose-driven students.
Let the parents decide. Let the students decide. Summerhill and Sudbury Valley Schools have amply demonstrated how wide-ranging freedom and learning guided by interest can lead to a satisfying education for one’s chosen purpose in life (1, 2, 3, 4). The students’ education in these schools may not match the pristine dictates of the core curriculum advocates, but it does match the students’ needs and wants. That’s what capitalism is all about.
And that brings us to the “weird ideas” that core curriculum advocates fear. The problem is that “weird” depends on who you are talking to. Some fear that atheism might be taught to the young. Others fear that it might be religion. Others fear capitalism and the greedy, selfish profit motive being taught. Still others fear communism will become the core curriculum.
And therein lies the heart of the issue. Core curriculum advocates want to control the minds of the young with their particular ideas. They want their ideas to rule. When enforced by the government, however, there is only one name that can be given to the core curriculum: censorship. It forces out or removes to the margin all other ideas. Students’ and the students’ parents do not get to choose.
Let the market decide.
The question is, when you take the church and state out of education and replace it with a free market, what would the curriculum be? The answer is whatever the market decides, that is, whatever the parents and students decide they want to pay money for. Just like what we find in the automobile market. The parallel question is, what would cars be like if we let the free market decide? Well, we have a (relatively) free market in automobiles today, so we have big cars, small cars, fast ones, expensive ones, cheap ones, etc. We have an enormous variety of cars but most of us do have cars and we manage to get around town and country without much hassle. Actually, with considerable satisfaction. (Those of us who don’t have cars choose other means of transportation, including walking.)
The core curriculum is a one-size-fits-all strategy and assumes that someone—an education czar or panel of education experts—knows what is best for our children. In automobiles, this strategy would give us one design, one engine, one type of tire, interior, color, etc. Maybe a modest variety of styles—two or three at most—but none that the market actually wants, only what the “experts” think they should want. In education, thoughts of letting parents and children choose what they want unleashes panic screams from the core curriculum crowd about how parents will seek out all sorts of weird ideas, or perhaps not educate their children at all, and the children will go for easy A’s and no homework. The assumption guiding the notion of a core curriculum remains that only one institution, the government, can require such a curriculum and that at the point of a gun.
A little history shows that force does not need to be brought into the curriculum debate. Hellenistic Greece is the origin of our current three-part structure broken into primary, secondary, and higher education. Governments in the ancient world rarely interfered with the educational process. Fathers paid teachers to educate their sons. The curriculum? Greeks called it enkyklios paideia or general education. Romans translated it at as artes liberalis or liberal arts. Today, we might also call this an education in western civilization. Higher education in the ancient world split into two factions that we still have to this day: professional education (rhetoric, medicine, law) versus knowledge for its own sake (philosophy). Weird ideas and easy A’s? There were mystery cults but they did not dominate the education system. And there was no grading, examination, or credential system at all. That is a product of the medieval guilds and the rise of modern bureaucracy.
Another assumption of the core curriculum advocates, especially those who would require specific textbooks and lectures on western civilization, is that the students who are coerced to be in those classroom seats would actually read the book and listen to the lectures. It is obvious to anyone who teaches in the present system that many, and sometimes most, do not do this even in elective courses. The coercive, bureaucratic environment of modern education kills interest in all but the strongest, most purpose-driven students.
Let the parents decide. Let the students decide. Summerhill and Sudbury Valley Schools have amply demonstrated how wide-ranging freedom and learning guided by interest can lead to a satisfying education for one’s chosen purpose in life (1, 2, 3, 4). The students’ education in these schools may not match the pristine dictates of the core curriculum advocates, but it does match the students’ needs and wants. That’s what capitalism is all about.
And that brings us to the “weird ideas” that core curriculum advocates fear. The problem is that “weird” depends on who you are talking to. Some fear that atheism might be taught to the young. Others fear that it might be religion. Others fear capitalism and the greedy, selfish profit motive being taught. Still others fear communism will become the core curriculum.
And therein lies the heart of the issue. Core curriculum advocates want to control the minds of the young with their particular ideas. They want their ideas to rule. When enforced by the government, however, there is only one name that can be given to the core curriculum: censorship. It forces out or removes to the margin all other ideas. Students’ and the students’ parents do not get to choose.
Let the market decide.
Monday, May 21, 2007
The Market Function of Piracy
In marketing the most effective way to introduce new products is the free sample. In 1978 Lever Brothers spent $15 million ($47.55 million in today’s currency) delivering a free sample of Signal Mouthwash to two-thirds of all US households. The strategy was a success and the product remained on the market well into the 1990s.
The significance of the free sample is product trial; it gets the product into consumers’ hands. If consumers use the sample and like it, they may go on to buy the product and buy it again and again, that is, become repeat purchasers; they may even spread the good word to others. When repeat purchasing and favorable word of mouth kick in, the product’s sales will experience a shift from slow to rapid growth and management will consider the product a success.
Free sampling is the best method of introducing new products, but it is also the most expensive. Not surprisingly, then, Forbes ASAP magazine (April 5, 1999, p. 54) reports this alternative way to practice free sampling:
Imitation is a universal trait of human behavior, ranging from the use of phrases and mannerisms of admired others to the reuse of hummable themes in music, recognizable images in paintings and well-known plots in literature and Disney movies. Imitation is a normal part of the competitive process in growth markets. As the sales of an innovative new product takes off, competitors enter the market with their own, often cheaper, versions.
If the innovative product is patented, competitors make minor design or functional changes to secure their own patents. Knock-offs are unauthorized, usually cheaper copies. And, of course, the innovative marketer often produces its own cheap version, sometimes called a fighting brand, to fend off the competition. Over time real prices in the product category decline and quality improves.
Knock-offs are pirated products. Because they are usually cheaper than the original, knock-offs tend to appeal to a more price-conscious segment of the market; that is, the buyers of pirated products are probably not legitimate prospects for the innovative new product, either because they cannot afford, or do not want to pay, the higher price. Message to the innovative marketer? Either drop the price of the new product or produce a cheaper version—or be the first to exploit a new technology, something the movie and recording industries chose not to do.* Many, including these two industries, would rather sue than practice good marketing.
One study found that users of pirated software sufficiently influenced—by word-of-mouth communication—eighty percent of the software’s prospects to buy the legal product and another described several scenarios in which piracy can help increase the sales of legal products.** The pirated product functions as a free sample that the innovator does not have to fund.
So what about free copies? How do you compete with free, to state the battle cry of the new Luddites who fear digital technology? It’s done all the time. One of the most dramatic recent instances of this was the strategy of science fiction writer Cory Doctorow who, over the course of three years, gave away 700,000 electronic copies of Down and Out in the Magic Kingdom. Sales of the hard copy went through six printings and surpassed his publisher’s expectations. Many of the downloaders, Doctorow said, did not buy the hard copy and probably would not have regardless, but the giveaway created considerable buzz and a significant minority did buy the hard copy. Compare the experience of the Mises Institute with Omnipotent Government.
Free—no matter where it comes from—can help sell.
* See Ray Beckerman’s "How the RIAA Litigation Process Works" to read how the Recording Industry Association of America uses questionable legal tactics to sue teenagers and grandmothers instead of designing creative money-making uses of P2P file sharing.
**Moshe Givon, Vijay Mahajan, and Eitan Muller, “Software Piracy: Estimation of Lost Sales and the Impact on Software Diffusion,” Journal of Marketing, 59:1 (January 1995), 29-37; Julio O. de Castro, David B. Balkin, and Dean A. Shepherd, “Knock-Off or Knockout?,” Business Strategy Review, Spring 2007, 28-32. Thanks to Gil Guillory on the Mises Scholars List for alerting me to the former study.
Cross posted on the Mises blog.
The significance of the free sample is product trial; it gets the product into consumers’ hands. If consumers use the sample and like it, they may go on to buy the product and buy it again and again, that is, become repeat purchasers; they may even spread the good word to others. When repeat purchasing and favorable word of mouth kick in, the product’s sales will experience a shift from slow to rapid growth and management will consider the product a success.
Free sampling is the best method of introducing new products, but it is also the most expensive. Not surprisingly, then, Forbes ASAP magazine (April 5, 1999, p. 54) reports this alternative way to practice free sampling:
One security manager for a major manufacturer, who asked not to be identified, says she is sure some companies actually view being counterfeited as a boon to their efforts to build brand awareness. After all, she says, if some companies give away merchandise to expand market share, what's not to like about having someone else take on the expense of manufacturing and distributing the goods, as long as they’re high-quality copies?
Imitation is a universal trait of human behavior, ranging from the use of phrases and mannerisms of admired others to the reuse of hummable themes in music, recognizable images in paintings and well-known plots in literature and Disney movies. Imitation is a normal part of the competitive process in growth markets. As the sales of an innovative new product takes off, competitors enter the market with their own, often cheaper, versions.
If the innovative product is patented, competitors make minor design or functional changes to secure their own patents. Knock-offs are unauthorized, usually cheaper copies. And, of course, the innovative marketer often produces its own cheap version, sometimes called a fighting brand, to fend off the competition. Over time real prices in the product category decline and quality improves.
Knock-offs are pirated products. Because they are usually cheaper than the original, knock-offs tend to appeal to a more price-conscious segment of the market; that is, the buyers of pirated products are probably not legitimate prospects for the innovative new product, either because they cannot afford, or do not want to pay, the higher price. Message to the innovative marketer? Either drop the price of the new product or produce a cheaper version—or be the first to exploit a new technology, something the movie and recording industries chose not to do.* Many, including these two industries, would rather sue than practice good marketing.
One study found that users of pirated software sufficiently influenced—by word-of-mouth communication—eighty percent of the software’s prospects to buy the legal product and another described several scenarios in which piracy can help increase the sales of legal products.** The pirated product functions as a free sample that the innovator does not have to fund.
So what about free copies? How do you compete with free, to state the battle cry of the new Luddites who fear digital technology? It’s done all the time. One of the most dramatic recent instances of this was the strategy of science fiction writer Cory Doctorow who, over the course of three years, gave away 700,000 electronic copies of Down and Out in the Magic Kingdom. Sales of the hard copy went through six printings and surpassed his publisher’s expectations. Many of the downloaders, Doctorow said, did not buy the hard copy and probably would not have regardless, but the giveaway created considerable buzz and a significant minority did buy the hard copy. Compare the experience of the Mises Institute with Omnipotent Government.
Free—no matter where it comes from—can help sell.
* See Ray Beckerman’s "How the RIAA Litigation Process Works" to read how the Recording Industry Association of America uses questionable legal tactics to sue teenagers and grandmothers instead of designing creative money-making uses of P2P file sharing.
**Moshe Givon, Vijay Mahajan, and Eitan Muller, “Software Piracy: Estimation of Lost Sales and the Impact on Software Diffusion,” Journal of Marketing, 59:1 (January 1995), 29-37; Julio O. de Castro, David B. Balkin, and Dean A. Shepherd, “Knock-Off or Knockout?,” Business Strategy Review, Spring 2007, 28-32. Thanks to Gil Guillory on the Mises Scholars List for alerting me to the former study.
Cross posted on the Mises blog.
Wednesday, April 11, 2007
Drop Errors and the Trouble with Peer Review
In product development there are two kinds of errors. A “go” error occurs when the green light is given to a product that eventually fails. The Edsel, a $250 million write-off by the Ford Motor Company in 1959, is one example. The “drop” error occurs when an idea that could have been highly profitable is eliminated from further consideration. How do we know that the idea could have been profitable? In a free market dropped ideas have the habit of being picked up by someone else. Chester Carlson’s invention was dropped by such notables as General Electric, 3M, Kodak, RCA, and IBM, but picked up by the small Haloid Company. In 1961 Haloid changed its name to Xerox. Even go errors in a free market often get corrected; just a few years after the Edsel fiasco, Ford rolled out a better idea called the Mustang.
Peer review is the process by which millions of dollars of government money are handed out to researchers in medicine and the physical sciences; the process by which recognition, promotion, and tenure are determined for professors, especially those in the “softer” sciences who do not need or use grants for their research; and one of the criteria—numbers of peer-reviewed journal articles, for example—used to determine accreditation for universities.
Peer review, a “blind” process in which the names of author and evaluator are concealed from each other, requires two or three so-called peers to read a paper or proposal to judge the quality of actual or proposed research before acceptance. As such, peer review is a product development process that protects only against go errors. It is at best quality control that insures accuracy and reliability of research done. At worst it holds back innovation through drop errors. Since there is no free market in scholarly research—today’s government-university-science complex is a severely hampered market—dropped ideas either never get a hearing or take many more years than they otherwise should to surface.
Medical researcher and long-time critic of peer review, David Horrobin, argued that the peer-review process, which developed in its current form largely as a screening device after World War II, has perhaps improved the accuracy and reliability of conventional research published in medicine, but it has done so at the price of innovation. Prior to World War II, unknown researchers could submit papers to journals only with the endorsement of a published author. The editor would then decide whether or not to publish. Peer review was ad hoc and not common. It was the growth of government involvement in education and, especially, the government’s lavishing of money on research that called for the blind-review screening process.
In a paper titled “The Philosophical Basis of Peer Review and the Suppression of Innovation” Horrobin urged that more unconventional and innovative research be encouraged by journal editors. When a reviewer questioned the need for such a statement, Horrobin produced eighteen incidences of medical innovations rejected by the peer-review process. In 1995 Horrobin’s paper was cited by the US Supreme Court as support for the argument that some “well-grounded but innovative theories” may not be published in peer-reviewed outlets.
Horrobin’s solution to divvying up grant money was to give funds equally to all researchers and let each work on whatever his or her interests indicated. Prior to 1960, said Horrobin, this interest-as-guide process was essentially how funding was distributed in the UK and more innovation in medicine resulted in those years than in the years since 1960. Horrobin approved of government involvement in and funding of research, but the analogy to free markets in his solution—bottom-up, self-interested choice by researchers—versus central planning—top-down, “expert” direction by peer reviewers—cannot be escaped.
Never mind that Socrates and Galileo were badly treated by their peer reviewers or that frauds and hoaxes sometimes dodge the quality controllers or, further, that you may want to cite Ayn Rand and Ludwig von Mises but can’t figure out how to get past your peer-review gatekeepers, the real problem of peer review is the severely hampered market in scholarly research. What would a truly free market in scholarly research be like?
First, publishers of journals and scholarly books would have to earn a profit from their buyers and not live off the donations of their authors or other benefactors. Some university presses, for example, are now publishing what are called “supported books,” which means someone, usually the author’s department, must contribute one or two thousand dollars to the publication of the author’s book. And at least one commercial press requires authors to do their own copy edit and provide camera-ready typeset text; this can add up to two thousand dollars or more that authors must fund. Twenty-five dollars per page, charged to authors or their departments, has long been the going rate for published papers in some fields. (In some quarters today this method of getting into print would be called subsidy or vanity publishing.)
In addition, the so-called nonprofits, which finance a portion of today’s research and journals, are in fact creatures of the tax system and must, despite their descriptive name, show an excess of donations over expenses lest their organization become some philanthropist’s very expensive hobby. Under laissez-faire, in the absence of tax write-offs and the guilt and ignorance of economics that wealthy business people tend to exhibit, there probably would be far fewer such organizations than exist today.
Second, there would be no government money to dangle in front of researchers and no government-owned or -regulated universities filled with bureaucratized product lines (curricula designed by committee), bureaucratized sales reps (the professors), or bureaucratized performance evaluations (those mounds of paper, which include lists of published research, that must be produced for promotion, tenure, and most every other consideration). All of this distorts the market and probably encourages the overabundance of pretentious minutia that fills today’s overabundance of academic journals.
Under laissez-faire, only the market would decide who produces what and who gets what in scholarly output. Indeed, the market for this research might not differ much from the product development market in automobiles. Private, profit-making firms, both traditional businesses and universities, would finance the work and effectively and efficiently produce market-satisfying results. Portions of the results might be published in profit-making journals and books, much of it perhaps not.
Yes, there might be some Edsels created by this free-market development process and there might still be some delayed acceptances of Xeroxes, but there also might be a lot more Mustangs! Absent the government-encouraged gatekeepers and other hurdles that must be jumped in order to get into the market, researchers who cannot find an outlet will be free to start their own journals, publishing companies, businesses, or even universities. The hampered market today, which includes the “golden handcuffs” of tenure, makes this quite difficult.
See related posts on the Mises blog: 1, 2.
Peer review is the process by which millions of dollars of government money are handed out to researchers in medicine and the physical sciences; the process by which recognition, promotion, and tenure are determined for professors, especially those in the “softer” sciences who do not need or use grants for their research; and one of the criteria—numbers of peer-reviewed journal articles, for example—used to determine accreditation for universities.
Peer review, a “blind” process in which the names of author and evaluator are concealed from each other, requires two or three so-called peers to read a paper or proposal to judge the quality of actual or proposed research before acceptance. As such, peer review is a product development process that protects only against go errors. It is at best quality control that insures accuracy and reliability of research done. At worst it holds back innovation through drop errors. Since there is no free market in scholarly research—today’s government-university-science complex is a severely hampered market—dropped ideas either never get a hearing or take many more years than they otherwise should to surface.
Medical researcher and long-time critic of peer review, David Horrobin, argued that the peer-review process, which developed in its current form largely as a screening device after World War II, has perhaps improved the accuracy and reliability of conventional research published in medicine, but it has done so at the price of innovation. Prior to World War II, unknown researchers could submit papers to journals only with the endorsement of a published author. The editor would then decide whether or not to publish. Peer review was ad hoc and not common. It was the growth of government involvement in education and, especially, the government’s lavishing of money on research that called for the blind-review screening process.
In a paper titled “The Philosophical Basis of Peer Review and the Suppression of Innovation” Horrobin urged that more unconventional and innovative research be encouraged by journal editors. When a reviewer questioned the need for such a statement, Horrobin produced eighteen incidences of medical innovations rejected by the peer-review process. In 1995 Horrobin’s paper was cited by the US Supreme Court as support for the argument that some “well-grounded but innovative theories” may not be published in peer-reviewed outlets.
Horrobin’s solution to divvying up grant money was to give funds equally to all researchers and let each work on whatever his or her interests indicated. Prior to 1960, said Horrobin, this interest-as-guide process was essentially how funding was distributed in the UK and more innovation in medicine resulted in those years than in the years since 1960. Horrobin approved of government involvement in and funding of research, but the analogy to free markets in his solution—bottom-up, self-interested choice by researchers—versus central planning—top-down, “expert” direction by peer reviewers—cannot be escaped.
Never mind that Socrates and Galileo were badly treated by their peer reviewers or that frauds and hoaxes sometimes dodge the quality controllers or, further, that you may want to cite Ayn Rand and Ludwig von Mises but can’t figure out how to get past your peer-review gatekeepers, the real problem of peer review is the severely hampered market in scholarly research. What would a truly free market in scholarly research be like?
First, publishers of journals and scholarly books would have to earn a profit from their buyers and not live off the donations of their authors or other benefactors. Some university presses, for example, are now publishing what are called “supported books,” which means someone, usually the author’s department, must contribute one or two thousand dollars to the publication of the author’s book. And at least one commercial press requires authors to do their own copy edit and provide camera-ready typeset text; this can add up to two thousand dollars or more that authors must fund. Twenty-five dollars per page, charged to authors or their departments, has long been the going rate for published papers in some fields. (In some quarters today this method of getting into print would be called subsidy or vanity publishing.)
In addition, the so-called nonprofits, which finance a portion of today’s research and journals, are in fact creatures of the tax system and must, despite their descriptive name, show an excess of donations over expenses lest their organization become some philanthropist’s very expensive hobby. Under laissez-faire, in the absence of tax write-offs and the guilt and ignorance of economics that wealthy business people tend to exhibit, there probably would be far fewer such organizations than exist today.
Second, there would be no government money to dangle in front of researchers and no government-owned or -regulated universities filled with bureaucratized product lines (curricula designed by committee), bureaucratized sales reps (the professors), or bureaucratized performance evaluations (those mounds of paper, which include lists of published research, that must be produced for promotion, tenure, and most every other consideration). All of this distorts the market and probably encourages the overabundance of pretentious minutia that fills today’s overabundance of academic journals.
Under laissez-faire, only the market would decide who produces what and who gets what in scholarly output. Indeed, the market for this research might not differ much from the product development market in automobiles. Private, profit-making firms, both traditional businesses and universities, would finance the work and effectively and efficiently produce market-satisfying results. Portions of the results might be published in profit-making journals and books, much of it perhaps not.
Yes, there might be some Edsels created by this free-market development process and there might still be some delayed acceptances of Xeroxes, but there also might be a lot more Mustangs! Absent the government-encouraged gatekeepers and other hurdles that must be jumped in order to get into the market, researchers who cannot find an outlet will be free to start their own journals, publishing companies, businesses, or even universities. The hampered market today, which includes the “golden handcuffs” of tenure, makes this quite difficult.
See related posts on the Mises blog: 1, 2.
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