Volume 2, Number 59
28 November 2002

Is Reform Profitable?

Dear Friends,

How are "bads" (pollution, unsafe working conditions, unfair treatment of labor, etc.) converted into "goods?" One way is to pass laws disallowing the "bads." Whoever commits them is punished. Another way is for "goods" to become profitable. How could that ever happen? Here's one example. Early in the nineteenth century businesspeople believed they would earn more profits if their workers were educated. One who trained workers would have a jump on competitors. Soon the competitors got the idea and trained their workers as well. (The guilds had done this even earlier.) But they became concerned that workers they had trained would quit and work for competitors. So all agreed that the greatest profit for all required a public school system that would create a generally educated population. This is how public schooling got started in the US, circa 1830.

(In this letter my dates may not be exact because I don't take the time to look them all up. All are approximations, from my general knowledge of history. I submit that these approximations are adequate for a letter to friends. I would be exact if I were writing a book.)

Here's another example. One firm may find that by having clean and safe working conditions it can attract the best workers. Others catch on and copy the first. Or, one firm discovers it is profitable to pay wages high enough to attract good workers. The firm that discovers these truths becomes more profitable than other firms, and others are forced to follow by competition. This is why multinational corporations pay higher wages and supply better working conditions than their local competitors, in every country in the world. (Many research reports, including by the International Labor Organization, show that this is so.)

What? Don't we have laws requiring a public school system? Or safety laws for work places? Or minimum wages? Yes we do. But these laws do not usually precede the spreading of the idea. Their main purpose is to bring the stragglers in line, so they will not be "free riders" (taking advantage of their competitors by maintaining unsafe working conditions, or low wages and long hours, etc.) Eventually free riders would be punished by the market, but maybe not right away.

Every time the minimum wage has been advanced in the United States was a time when very few workers were earning it. Most were already higher.

But what about the environment? If a law requires all firms to respect the water supply (for example), no one can out-compete the others by fouling it. But without regulation, the firm that decides, on its own, to apply sound environmental standards may be at a competitive disadvantage next to those who do not. So, do we not need federal regulation requiring all producers to abide by minimum environmental standards?

Maybe we do. But in many cases "pollution permits" will do the trick. There is a certain amount of pollution that the environment itself will correct. The sun purifies running streams, and the wind disperses smoke. If we democratically define the maximum permissible pollution and sell permits allowing holders to pollute that much and no more, then we can solve the problem. Firms whose pollution would be expensive to correct might The latter would correct their pollution cheaply. In this way, the profit motive leads to the efficient elimination of excess pollution. The Clean Air Acts of the United States operate along these principles.

Once "bad" firms find it more profitable to produce "goods," then regulation may be necessary so none will take advantage by free riding. Here's a true example: Despite urging by reformers, twenty years ago (say), multinational corporations would not stop bribing foreign governments because their competitors would still do so and gain an advantage. So they urged the US government to pass a law prohibiting all US corporations from bribing foreign governments. (This law was passed about fifteen years ago, at the behest of MNCs). Then they discovered that European firms, without this law, had an advantage. So they urged — and obtained (about five years ago) — an international treaty forbidding all multinational corporations of any country from giving bribes. I don't know how well this is enforced, but merely doing it is a step forward.

How do you think bribery will be brought under control in less developed countries? Not by passing laws. Corrupt governments do not enforce laws forbidding corruption. The Mexican government has passed many laws forbidding bribery, but the Mexican system of laws is not widely respected.

One way will be that MNCs will find that local companies outcompete them because they can get favors through bribery, whereas MNCs are forbidden to bribe by treaty. So they will complain to LDC governments that unless those governments enforce their anti-bribery laws, the MNCs will see no point in investing — bringing the capital and technology that is badly needed. Here's an example: US firms complained to the Argentine government (about four years ago) of being asked to pay bribes. They even accused the president of seeking bribes, thus creating quite a scandal. Now these firms are no longer investing in Argentina, and the economy misses them sorely. The main reason is that Argentina defaulted on its debt, but surely the demands for bribes are also a factor.

Successful laws are passed when virtually all people want them — e.g., stop at red lights, drive on the right (or left) — and their purpose is to get the few stragglers to come into line. If a law (or regulation) is passed that "everyone" (or even a powerful constituency) objects to, it will not be enforced. When laws are passed but not enforced, the system of laws becomes discredited.

If the system of laws is discredited, then even good laws are not obeyed. The process is cumulative. If laws and regulations are forced on an unwilling population, they are not obeyed, and the country is in a vicious spiral downhill (like Argentina today).

These ideas may not conform to conventional Quaker wisdom. Please tell me what you think.

Sincerely your friend,


Readers' Comments

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If your assertion from TQE #58 that Quakers generally look down on businesses is true (and I believe it most definitely is), then I think that Friends would not support the solutions proposed in TQE #59. They are based on profits and competition, which most Quakers view negatively. These negative views [of Quakers] are harmful to the business of providing any real help.

— Beth Stevenson, Stillwater (OK) Friends Meeting.

You observe that laws which are not widely supported by a nation's citizens will not be enforced and that "when laws are passed but not enforced, the system of laws becomes discredited." This is an observation of profound importance.

An example of such laws in the United States is the body of anti-drug legislation which is generally enforced only against certain segments of the population and which has done absolutely nothing to discourage drug use, as anyone with experience in this area can attest. Despite the failure of Prohibition, our politicians, with a few courageous exceptions, continue insanely to advocate ever toughening the drug laws (insanity here understood as continually doing the same thing with the expectation of a different outcome). The result is widespread disrespect for the law and law officers, especially amongst those against whom the laws are selectively enforced, and unavoidable corruption within the law-enforcement community.

— Ken Allison, Episcopalian, Paradise Valley (AZ).

The Quakers you are describing are typical of the FGC Meetings which I don't believe are the majority of those who call themselves Quakers in this country at this time. In the FUM Meetings, there are plenty — if not the majority — who are middle-of-the-road Republicans, to even right-leaning pro-business types. Many of them are currently having great difficulty with the Peace Testimony, not the mention their avoidance of the "H" word (aka homosexuality.) And if you get into the EFI Friends, you are even further to the right. I think it is a mistake to speak of Quakers as though they were all cut from the same cloth or pattern.

— Joyce Overman Bowman, First Friends Meeting, Indianapolis IN.

Thank you for this correction. In an earlier letter I mentioned that I speak only of unprogrammed Friends. But this needs to be repeated every time. — Jack

Editor's note for our non-Quaker readers: FGC = Friends General Conference, FUM = Friends United Meeting, EFI = Evangelical Friends International. — Loren [30 May 2005]

Another way to encourage goods and discourage bads is with the tax structure. An idea I've seen bandied about (more specifically I read about it in Natural Capitalism by Amory & Hunter Lovins and Paul Hawken, and some follow-up reading in Beyond Growth by Herman Daly) is that we should tax bads such as pollution and non-renewable energy and at the same time remove taxes from goods such as employment (SS tax, income tax). This then should discourage pollution and encourage conservation, renewable energy use and job creation. On the surface this seems eminently reasonable to me but are there pitfalls to this plan?

— Betsy Fadali, Reno (NV) Friends Meeting

Your view that laws need to reinforce or conform to the will of the people is a sound one, and I do believe it conforms to Quaker thought. In the governance of our society, does not authority flow uphill? As meetings within a yearly meeting or conference come to consensus on issues, only then does the larger body take a position. We can contrast this with the Catholic church, whose stringent positions on women in the ministry and birth control are disavowed by many church members. Might one also apply this method of thinking to US drug policy?

I believe, however, that in situations where private companies are engaged in cost-cutting but harmful behaviors that are hard for the market to monitor or understand (air and water pollution for instance) -- and where regulation would be universally discouraged by the offending industry — would still require proactive governmental involvement.

— Charles Rathmann, Milwaukee (WI) Meeting.

I wonder if economics can allow tropical rainforests to exist. On a recent Elderhostel trip I saw how even in forest reserve areas the mahogany and ceiba trees are disappearing — probably never to return — with poachers (who use violence against forest rangers) being well rewarded by a U.S.-based company that turns the ceiba into plywood.

— Clarkson Palmer, Swarthmore (PA) Meeting.

Economics merely explains how the world does function, not how it should function. However, economics is useful in predicting the results of policy designed to make the world function better. (Often economics will predict that policies designed to make the world function better actually make it worse). If you explain the policy you propose to control the destruction of rain forests, economics can help predict the results of that policy.

The British had a policy of replanting teakwood in Burma every eighty years. The independent Burmese (Myanmar) government abandoned that policy, and the teak forests are now being decimated. — Jack

With regard to the environment, the Quincy Library Group is a good model. For several years the various parties (lumber companies, the Forest Service, environmentalists, job holders,etc.) met at the library in the little town in the Sierra Nevada, Quincy, where a lot of lumbering goes on. They thought through the issues of timber harvest vs. forest preservation and finally reached an agreement on how to help the forest without too much dislocation of companies and people. Conversely, when the very independent Westerners felt decrees (however well-intentioned) were being rammed down their throats, "sagebrush rebellions" occurred.

— Trudy Reagan, Palo Alto (CA) Friends Meeting.


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Publisher and Editorial Board

Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board:

  • Roger Conant, Mount Toby Meeting, Leverett (MA).
  • Carol Conzelman, Boulder (CO).
  • Ann Dixon, Boulder (CO) Friends Meeting.
  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Merlyn Holmes, Unitarian, Boulder, Colorado.
  • Janet Minshall, Anneewakee Creek Friends Worship Group, Douglasvillle (GA).
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor
  • J.D. von Pischke, a Friend from Reston, VA.
  • Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

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Copyright © 2002 by John P. Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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