A Business Lesson for Socialists

As a career academic who teaches entrepreneurship, I am very familiar with the anti-business sentiment that pervades so much of higher education and the public discourse about policy in this country. It is a spreading plague grounded in infuriating ignorance.

So when I run across articles like “A Time to be Bold,” in Jacobin magazine, I want to pull my hair out.

The article, proclaiming the advantages of socialism over capitalism, features sweeping generalizations like these:

“Capitalism is the chief source of human suffering today and a system that promotes the worst of human behaviors.”

“Because a small number of people own the productive assets of society, most people have to seek out these businesses for work.”

“Socialists believe that people should care about and care for each other. Capitalist markets, on the other hand, divide.”

The authors insist that society’s ills can be resolved with state ownership of all private property, redistribution of all wealth and collective decision-making about what to build, make, produce and sell.

What a prescription for disaster! (And how many times do we have to see these ideas fail?)

The article is constructed on one flawed assumption after another.

First, the authors seem to be equating business with huge multinational corporations. But most businesses in the U.S. are small. The U.S. has approximately 28 million firms. Of those, about 21 million — nearly 80 percent — employ no one but the owner(s). Of the remaining 7 million companies, the vast majority employs fewer than 20 people. Further, most businesses in the U.S. aren’t incorporated, but of those that are, fully 80 percent are small, closely held corporations owned and operated by families.

Second, millions of people — not a small handful — own their own businesses and the property in them. Hundreds of thousands more start new businesses every year.

Third, most entrepreneurs fund their startups with savings — not daddy’s trust fund.

Fourth, it takes a lot to grow an idea into a successful business of any size — much less a multinational corporation. A lot of what? Not money. Not power. Satisfied customers.

Far from being exploited victims, we as the consuming public weigh in on what we want from businesses every single day. Don’t think so? I’ll bet that wired-telephone manufacturers, camera filmmakers, newspapers, bookstores and record companies would love to have the business they had in the 1980s. But they don’t.

Why? Because inventors and entrepreneurs have developed something new. And we — the public — decided we liked it better.

What you get with “democratic socialism” is a state bureaucracy or some “people’s collective” deciding what products and services are available. Why should I have to settle for what the majority wants, if I want a niche product?

But this isn’t just a question of a handful of disgruntled connoisseurs. Virtually all radically successful innovations (automobiles, the internet, smartphones) started as niche products, precisely because “most people” wanted what already existed. The companies that had become successful producing the status quo had no incentive to change. But some entrepreneur thought, “I want something different. Maybe others do, too.”

Not only do entrepreneurs have to spend their own money to fund their ideas but they also then have to persuade you to part with your hard-earned cash for their product. If it’s completely new, that task is even harder; why try Y when you’ve always used X? But if Y is good, people start to buy it. Small numbers, at first. Then more. And eventually, lots of people want this new thing.

That’s how innovation works. That’s how new businesses become big businesses.

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Laura Hollis is a Nationally Syndicated Columnist.