A journalist challenged two candidates last year on the topic of Hawaii’s business climate. His argument was that the failure rate of small business was the key to determining if the business climate was good or not. If the rate at which small businesses fail was no higher in a less regulated state, such as North Dakota, than it was in Hawaii, shouldn’t that prove that deregulation won’t improve our economy after all? Unfortunately, neither of the fiscally conservative candidates on his panel could identify the fallacies in his argument.
Let’s remember two of the basic ideas of economics and see if we can demonstrate this “failure rate” argument to be the canard that it is. First, the measure of economic activity is in the standard of living that members of a community enjoy. The goal is consumption. Production is a means to an end and not an end in itself. Second, the market is self regulating. That means it will always make adjustments for the various factors of consumer tastes, productive techniques, and government interferences.
To revisit North Dakota lets agree, for now, that its regulatory environment is much less burdensome to business than Hawaii’s is. Perhaps this means in North Dakota, with a population of six hundred thousand, two thousand new business start up every year. Of these two thousand, fifty percent fail in their first 10 years. The failure rate is 50 percent per 10 years. In Hawaii with a population of one point two million, one thousand new businesses start up every year. As in North Dakota 50 percent of them, or 500, fail in the first 10 years. So one could say North Dakota lost twice as many businesses and lost them at a rate no better than Hawaii’s. However, North Dakota had twice as many people willing to take the risks of starting a business and ended up with twice as many successes in a state with half the population. Clearly in this example North Dakota’s environment is generating more business activity.
At this point liberals will want to investigate the actual statistics for Hawaii, North Dakota, and other states. This misses the point. Economic arguments cannot be demonstrated through any statistical analysis derived from actual economies. This is because there are thousands of variables involved in every economy and it is impossible to isolate the ones one wishes to compare. Economic science is based on thought problems and the application of rigorous logic.
So let’s restate our problem as one in which we will try to predict the outcome if Hawaii were to adopt the most deregulated business climate in the country. Since markets are self correcting what will happen if business becomes less regulated? In the short term higher profits should result if business regulations are cut. The so called failure rate will decline. Soon corrections will come in the form of an increase in the number of new businesses and an expansion of existing ones. Employment will increase, wages will increase, productivity will increase, and the supply of goods and services available in the market place will increase. Competition both for customers and for new employees will adjust profit and failure rates in the business community back to where they started. Individual businesses won’t be any better off than they were before. But, economic activity is judged by the well being of consumers. That would be enormously improved with the vast increases in goods and services available in the new deregulated environment. The business person would benefit only in the role as a consumer, just as everyone else does.
Looking at this argument what comes to my mind is how thoroughly Republicans, and conservatives in general, have failed to demonstrate to the electorate the key relationships between a small government, free market oriented economy, and the well being of consumers. They have allowed liberals to paint their arguments for a market economy as vested in self interest and harmful to the poor, etc. Worse, too often, conservatives seem to have no better understanding of what they are talking about than liberals do.
We Libertarians use a strong foundation of principle and a dedication to reason to develop and promulgate our positions. I hope you’ll agree a political party based on principle and logic deserves your support even if you don’t agree with everything they might say. If so please feel free to visit our Web site at https://www.lp.hi.org or to contact me about your interest in our party.
”’Tracy Ryan, Chair the Libertarian Party of Hawaii. can be reached by email at:”’ mailto:firstname.lastname@example.org