1 Entrepreneurship and Consumer Sovereignty

The three questions that every society must answer are:  What will be produced, how will it be produced, and For Whom will the output be distributed?   The first question of what will be produced, as well as the other two, is determined by the type of economic structure.  In a traditional society the question was answered  where “the family of the metal worker was named “Smith,” the merchants were “Mongers,” the barrel-makers were named “Coopers,” the candlemakers where “Chandlers,” and so on” (Munger).  In a central planned economy the question of “what will be produced” is determined by a committee or person trying to figure what people need without market information and possibly additional society goals.  The complexity of central planning generally misses the target of what consumers desire with failed mechanisms to respond to dynamic preference changes. In a market economy, of which we inhabit, the question of what will be produced is determined by consumers.  A central committee does not make the decisions.  Consumers are king.  When consumers want more of something, we buy a lot of it bidding the price up to incentivize production.  When consumers tire of the good or service, the falling demand creates surpluses, pushing price downward and the producer decreases or stops production releasing resources to produce something else. The economist Ludwig von Mises stated that consumers “…attitudes result either in profit or in loss for the enterpriser.  They make poor men rich and rich men poor…with them nothing counts more than their own satisfaction.  They bother neither about the vested interest of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.”(as quoted in Munger p. 111).  Consumers through their choices direct the flow of production resources within the society.

Consumer Sovereignty rules the market.  But do consumers really know what they want?  Steve Jobs of Apple Computer once said, “You can’t just ask customers what they want and then try to give that to them.  By the time you get it built, they’ll want something new?”(Burlington).  More to the point was Henry Ford who has been quoted as saying, “If I had asked consumers what they wanted, they would have said ‘Faster horses!’”.  The entrepreneur is the risk taker and needs to be visionary and see what people want in the future as production is not instantaneous.  The entrepreneurship of some will be rewarded by fickle consumers, but by and large most will fail.  Government does provide some help to encourage entrepreneurship through tax incentives and funding programs through the Small Business Administration.  However, the government also creates bureaucratic red tape obstacles that make it difficult for businesses to operate.  Additionally, governments can also use subsidies to alter consumer desires to spur production where consumer demand is not enough on its own(ex solar panels).

The innovation of entrepreneurs can be seen clearly.  Goods and services that were not available ten years ago are all around us.  So, who decides what will be produced?  The consumer my rule the market, but they can only obtain what the entrepreneur produces.

Questions:

1. Do some research on the net. What is the success rate of an entrepreneur?  In what additional ways could the government encourage entrepreneurship.
2. Do consumers always make good choices? DESCRIBE three examples of consumer choices that may not be a good use of society resources.
3. Governments sometimes argue they could make better choices for consumers. Describe three examples of U.S. government programs and taxes that steer consumer choices.
4. Consumers are using more online retailers to purchase goods instead of visiting a physical store. How has this trend impacted employment in the retail sector and what do you predict will happen in the future.  Are consumers making a good choice for society or just themselves?

References:

Burlington, Bo. (1989) “The Entrepreneur of the Decade: An interview with Steven Jobs.” INC. April 1.  https://www.inc.com/magazine/19890401/5602.htmlInc.com

Greene, Ann Norton. (2008) Horses at Work: Harnessing Power in Industrial America.  Cambridge, MA: Harvard University Press.

Munger, Michael. (2018) Tomorrow 3.0: Transaction Costs and the Sharing Economy. Cambridge University Press. United Kingdom