This article was published in the Autumn 1996 issue of Formulations
by the Free Nation Foundation
 
Business in a Free Nation
 
by Richard O. Hammer

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Outline
Introduction
Changes in The General Business Environment
Comments Upon Specific Forum Questions
Notable Differences in a Particular Industry, Residential Building
 
 

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INTRODUCTION

Working with this topic "Business in a Free Nation" has educated me. But perhaps I have learned more of importance about the meta-topic, the larger problem which includes this topic as a particular instance, than I have learned about business in a free nation.

Later, in the body of this paper, I will get to the intended meat, speculating on general changes which I believe we would see in the business environment in a free nation, and speculating more specifically on residential living arrangements that I think would evolve in a free nation. But before I get to that I want to share what I think I have learned about the meta-topic, about the problem of finding people to contribute on this topic.

I have searched far and wide for people who could contribute ideas to answer any of the five questions with which we outlined this topic, "Business in a Free Nation." A few people have told me that they like the questions. But almost no one has developed, so far as I have found, answers to the questions.

As I think about it, perhaps I should have expected this. It is difficult to imagine what institutions of business would evolve if government backed out of regulating business. It is guesswork. It is a little like trying to predict the specific behavior of a cat which is set outside the door. The behavior will unfold, in a mix which reflects both the motives of the cat and the moment-to-moment experiences of the cat as it moves into the environment.

To the extent that we can predict what the animal will do, we must employ our understanding of the nature of the animal. And similarly, if we would predict what business will do when freed, we must employ our understanding of the nature of business.

My frustration in finding so few people who have ideas about "Business in a Free Nation," has let me to think that maybe complaining about government is not all bad. As you may know, since I have grown weary of the stream of angry complaints about government which emanates continuously from both me and other libertarians, in FNF I encourage people to stop complaining and start building. I do not want to hear again what is wrong with government. I want to build, by first building the vision, what we will use to supplant government.

But while many libertarians have a vision of how medical care, or schools, or highways, will be supplied without government involvement, because these libertarians know well how government has messed up these services, not many libertarians, or anybody for that matter, has an idea of how business will change if we get government out of business law. This lack of vision may exist because there have not been enough complaints, circulated in the libertarian media, about the sorts of ills which I think I see resulting from government seizure of law. Maybe now and then a spate of robust complaining helps things along.

During the last few years I have developed a sort of specialty (some, I am sure, may reasonably call it a sort of insanity) in spotting ill effects of state action. I can find plausible ways to blame government for almost every social malady.

Every act of state, I believe, has some bad side effects. But while many people who object to acts of state are vividly aware of the bad side effects of an act during the era in which the act is debated, as many Americans now know the bad side effects of a government takeover of the medical industry, it seems to me that most people forget the bad side effects of an act long after the act has passed, as fewer Americans now know the bad side effects of government takeover of care for the elderly poor (in social security). As time passes it seems to me that people forget the particulars of the debate.

And worse, they forget that there ever was a debate. Fewer people question zoning than social security because, I propose, zoning has had longer to seep into the public mind. Still fewer people question bankruptcy law, and government-granted protection of intellectual property. Almost no one questions whether government needs to run courts of law; this, you see, was one of the earliest ways that government metastasized.

Okay, now that I have given you my excuses for failing to find more material on the topic, "Business in a Free Nation," I will proceed to give you some of what I, personally, have come up with.
 

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CHANGES IN THE GENERAL BUSINESS ENVIRONMENT

Law

In several ways, the business climate would be more favorable in a free nation than in America. Perhaps the most significant of these ways pertains to enforcement of contracts. In a free nation I am quite sure that contracts would be enforced more effectively. Let me explain why I believe this.

Whenever a contract is broken someone is hurt. Someone has been promised something that he or she has not received. Now, when someone is cheated, he usually can be expected to seek redress, if means of redress are readily at hand. If however, there are no means readily at hand, or if, which has the same effect, the means available are prohibitively expensive, then the wronged person is just whistling in the wind, and has no effective recourse.

In a great many of cases, where the wronged person is powerless to seek recourse, the government can be blamed; some act of state has removed from the wronged person the power that person would have had in voluntary society.

Consider the government-monopoly system of law. Generally, someone wronged in a business deal in America must work through the government court system, and that system is so inefficient and expensive that it is pointless for anyone to seek redress unless they have been wronged in excess of, say, $1000. This means that there is a whole class of little crimes which go largely unenforced. While businesses usually have things they can do to try to protect themselves from these little frauds, still, in too many cases, businesses must be prepared to accept losses in this range.

Now this problem might not cripple business in America as much as we might first think because, I am learning as I study human institutions, order grows where it is needed. Even where government has done something to bollix up the works, the current of enterprise often finds a way to flow around the blockage, to satisfy the demand for a good or service. For example, I am struck that credit card companies have done a good job of creating inexpensive ways to settle disputes between vendors and customers.

So in order to find the aspects of business which I posit would work better in a free nation, we need to look in places where free enterprise has not flowed around government blockage. Such places will exist where government requires that business deal with it in one stage of the process. For instance, to repossess an automobile, or to evict a tenant, often a government court order is required, and this process of seeking justice then becomes the sort of action that costs $1000 or more. Businesses doing this sort of business simply have to assume that values of less than $1000 cannot be recovered, and must adjust their practices accordingly, possibly passing the expected cost on to a broad class of customers, or perhaps taking steps to avoid doing any business with a suspect class of customers.

So, in the free nation, more businesses will readily sell to suspect classes of customers, because those businesses will have access to less expensive, and more reliable, means of seeking justice.

In the free nation, the extension of law into the policing of low-cost transactions would allow the growth of certain businesses which are not possible in America. To illustrate, I speculate about an industry in single-trip car rental.

When I go to the airport, to a shopping mall, or to an office in a crowded downtown, I think I should be able to rent a car, economically, for just that one trip. And then rent another car for my return trip. When I arrive at my destination, why should I have to go through the hassle of finding a place to park, and then pay to park, when at about the same time other people are leaving there to go to somewhere else. There should be some business which takes the car I am done with, rents it to somebody else, saves the hassle and expense of parking, makes more efficient use of the capital invested in the car and makes a profit. And this should be cheaper for me than taking a taxi, because I would not be paying the driver. But there is no such business, because, I believe, of a swarm of acts of state.

Let us focus, in particular, on the government-monopoly legal environment and its ramifications. A business that rented cars routinely and rapidly, in this way, would need efficient recourse against a fraud who took a car under false pretenses and wrecked or stole the car. Not in America.

Furthermore, a business that rented cars in this way would need legal support to enforce many little, but necessary-for-the-business, provisions of the rental contract. Probably this business could not work if renters routinely abused the cars and got away with it. So the business probably would need to screen its customers, and probably would need efficient restitution for nuisances, such as $5 soda spills and $50 paint scratches. Not in America. But in a free nation I think it would be possible.

 

Cities

Businesses in a free nation could work in cities which were densely populated, clean, and safe. Here I explain why, and contrast cities in the free nation with cities in America.

Since trade among people became established, cities have formed spontaneously because transactions costs decrease as trading partners come nearer to each other. Creation of wealth, through specialization and trade, occurs with more efficiency in cities. People, wanting a share of the wealth, have moved to cities.

Unfortunately governments also grow, almost spontaneously it seems, in human populations which attain certain levels of density and wealth. Thus, if I am not mistaken, governments grew first and fastest in cities. And governments, when they reach a certain size, become a fatal cancer. This, in my view, is what happened in most large American cities during this past century. The cancer of government crippled the natural institutions of voluntary society first and worst in cities. The cities became unlivable.

But since, for FNF work, we assume that we will have mastered the factors which promote growth of that species of tumor called government, cities in the free nation will not degrade but will, more likely, improve constantly.

In a free nation there would be less flight from cities. In America many middle and upper class people have fled the inner cities for a mix of reasons, notably: a desire to be safe from criminals; and aesthetic attraction to nature in rural settings. The first reason would not drive people out of cities in a free nation, because I would expect cities to be more safe than the countryside, not less. Most services, including security services, can be more efficiently provided in dense populations.

Regarding the second reason, attraction to rural settings would still draw people out of cities. But, not being driven out by fear, I think people would travel to countryside less often, and would make the trip only when it really did provide a refreshing change from the city.

With highways provided by free markets, and with the costs of those highways charged more directly to the users of highways, I expect in the free nation there would be fewer superhighways constructed for the needs of commuters.

 

Help

In the free nation it will be easier to hire help, because the hiring process will not be crippled by government regulation. Notably, it will be easier to hire inexpensive and unskilled help. There will be no minimum wage, so employers will be able to hire workers to complete low-valued tasks, assuming willing workers can be found. And there will be no immigration restrictions, so employers will be able to hire help from anywhere in the world, assuming those workers can get free.

Also, the process of hiring will be more relaxed in the free nation because, in the free nation, employers need not fear firing a worker who has not worked out. In America, most employers find hiring has become a risky process, because the employer may wind up with a counterproductive employee that the employer does not dare to fire. Consequently, employers are reluctant to hire, and many tasks for which they might hire help, if hiring were a non-threatening process, go undone or understaffed.

The flip side of this is that workers wanting work would find it easier to find work, because employers would be more casual about hiring, because hiring would not be such a big risk to them.

All in all, in a free nation, the work force would be more mobile. And the paperwork burden, which government places upon the decision to hire, would not exist.

 
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COMMENTS UPON SPECIFIC FORUM QUESTIONS

Protection of Stockholders From Liability

In outlining the topic of this Forum, I asked, in the third question, "If the state does not intervene (through legislation) to protect stockholders from liability for failings of corporations ... how will investors satisfy their need for protection from liability?" I now believe that probably I was wrong in assuming that the protection from liability originated with legislation.

Robert Hessen, in his book In Defense of the Corporation, tells that this protection originated as a kind of contract between business partners. One partner, being active in the business, would promise another partner, not active but nonetheless maintaining an interest, to assume responsibility for all liability. The corporation, with numerous inactive and immune-from-liability shareholders, grew out of this origin in limited partnerships. It started as a voluntary contract between partners.

But still I smell the stench of state in an institution which allows someone to act without being responsible for the consequences. Consider an example: Someone is offering $5,000 each to carry old nuclear warheads, which probably will not detonate, from one side of a city to another. Suppose I do not care for this job myself, but I have an old truck and I can find an immigrant who will gladly drive the truck for $1000 per trip and who will even sign a contract with me saying that he will take responsibility for all liability. What kind of court would shield me from liability because of my contract with the truck driver? A government court perhaps, but not an honest court.

In voluntary society I believe that liability will be assigned to people who have made the choices which led to an injury. Surely, if the institutions are honest, a person who chooses to invest in a business which may injure third parties must feel the burden of that risk. In a free nation I expect that insurance companies, if deregulated and thus able offer coverage where it is wanted, would gladly offer policies to protect investors from liability. The price of the insurance would pressure investors to choose wisely. This pressure on investors would translate into pressure on managers in the business, to make responsible choices.

 

Insurance

The fifth question, outlining this topic, deals with insurance. "With the insurance industry deregulated ... what new offerings can we expect ... what needs will we satisfy through voluntary institutions for sharing risk?"

In a free nation I think insurance policies would tend to apply pressure on people making choices which involve risk. This pressure would come to bear on many choices which the government in America regulates, such as construction of buildings to minimize risk of fire, and such as wearing seat belts.

Here is an example. In a free nation, I think we might see a clause such as this in an auto insurance policy:

 

The insured, in order to enjoy a 30% discount in premium, consents to electronic monitoring by the insurer of the insured's adherence to the agreement to buckle seat belts. The insured also consents to installation, in his vehicle, of electronic equipment which may, if detecting an infraction, disable the vehicle. The insured understands that any attempt on his part to defeat or circumvent the electronic monitoring may result in his permanently forfeiting bond, as specified in section X, as well as temporarily forfeiting insurance coverage during the infraction. The insured agrees, in all disputes relating to this contract, to accept the judgement of arbitration agency XYZ.

 

This is what I call insurance with teeth. Notice that it is voluntary. And notice that I am not advocating the wearing of seat belts. Decisions about whether to buckle up will be influenced by calculations made by insurance companies, and choices made by cost-aware drivers.

I think the whole undertaking of regulating safety, which government in America has arrogated to itself, would be performed more efficiently, providing more safety at lower cost, by insurance-like businesses in a free nation. These businesses would respond to honest market forces, not to political pressure and sound-bite journalism.

 
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NOTABLE DIFFERENCES IN A PARTICULAR INDUSTRY,
RESIDENTIAL BUILDING

Perhaps because I have worked as a residential builder, I have seen ill effects of regulations that most libertarians have not noticed. In this section I will show how government has distorted residential accommodations in America, and speculate on what would come to exist in a free nation.

Whoops. Already I see I have fallen into a government-created channel of thought. I have written "residential" building, as though building of residences were a specialty separate from other building. Well, in America it is a separate specialty, but mostly because of government regulations. Government requires different licenses (for the builders and licensed crafts), different standards (codes and bonds), and different locations (land use zones). Because of all these arbitrary interventions, residential building has separated from the larger industry, more than it would separate in natural circumstances.

Historically, in most cities, before government grew big, most human functions, including residence, retailing, education, and industry, mixed together freely in buildings and in neighborhoods. The need for commuting and for parking spaces was not so great, because many people could work, learn and play within walking distance of where they lived.

The need for police patrols was not so great because there were not commercial zones which emptied out (of law abiding citizens) at night, or residential zones which emptied out during working hours; most neighborhoods were occupied and observed most of the time by residents who, because it was their home, cared about the lawfulness of the place.

In a free nation I expect this mixing of functions would return to most communities. There would be less invested in commuting, and in highways and vehicles required by commuting.

 

Government Regulators Embrace Two Damaging Notions

In America I think that our masters in government have fixated upon two notions, much to the degradation of our quality of life.

The first notion is that residential units should be designed, in terms of rooms and facilities, to serve a prototypical family of the all-American sort. Each family is assumed to have two parents and possibly a few children. Furthermore, each family is assumed to live separate and independent from other families, such that each residential unit needs, in addition to bedroom(s), its own dedicated kitchen, dining, bathing, and possibly laundering facilities. Ninety percent, I would guess, of all residential units in America were designed to accommodate such stand-alone family groups.

Now our masters, being broad minded and all that, understand that not all of us live at present as part of one of their ideal family groups, so they allow housing units to accommodate singles or remaining fractions of family groups. But almost no housing units will be found which were designed to accommodate groups of people other than a traditional family or remaining fraction thereof. For the most part, any group of people other than the traditional family has to fit somehow into a residential unit which was designed for a traditional family.

As an illustration, in my experience it is quite difficult in America to get the government's permission to add additional quarters onto existing residences, especially if the addition contains an arrangement of furnishings and appliances which the government deems to be a kitchen, because if the government decides you are adding a kitchen, you have just entered a new realm of government love, called multiple-unit dwelling, regulated by different code books. But don't worry about the different code books, because probably, in any case, the zoning board will not permit a multiple unit on your lot.

The second damaging notion is that, to fight bias, residential units should be available to all persons. Real estate and rental agents generally live in fear of the state, with its agenda to homogenize humanity, and typically they must allow residence to anyone whom the state would regard as qualified.

As a consequence of this well-intentioned idiocy, few of us find ourselves living next door to, or even in the same neighborhood with, good friends or family members. Instead our closest neighbors are an eclectic mix. They are mostly good people, I would bet, but they are not people with whom we would have any reason to feel close. As such, when we want to be with people to whom we do feel close, but who do not live within our own single-family-sized residential unit, we must, for the most part, get in our cars and take a trip.

Another consequence is we need good locks at the exterior perimeters of each of our residential units. Our next door neighbor, whom the government deems qualified, may be a newly released multiple rapist, or worse.

And finally notice that the second notion makes part of the first notion true. Because government mixes us up in an eclectic mix, I am unlikely to find myself living near people with whom I might happily share child care facilities or a kitchen. Wasteful duplication of these facilities becomes more necessary because of government's agenda to homogenize us.

 

A Free Market in Building will lead to Better Lives

In the free nation I expect there would come to be community dwellings which house people in numbers of perhaps 10 - 100, perhaps roughly the number we associate with a clan. For privacy, these community dwellings would have private units within them. These private units would provide nuclear families, singles, or other groupings, with lockable and separate quarters consisting of any number of rooms. But also, I expect, there would be a number of community rooms, such as child-care, kitchen, dining, living, guest rooms, porches. There might be only one ample lawn, one driveway, and one good-sized parking garage. Probably the entire community could be served by only a few washers and dryers. Perhaps the whole community would be situated together under one roof, in a large building such as a dormitory or hotel, or perhaps there would be several separate buildings on a lot, connected by paths or covered walkways.

Certainly it is not for me to say how such a community would be owned and organized. It might be a business which catered to a particular clientele. Or it might be the natural community of an aging matriarch, including: children, grandchildren, extended family, and a few good friends. It might be a group of libertarians, or even a bunch of socialists whose thing in life is to bring back zoning and building codes.

Before leaving this topic I want to predict that such community housing would be less expensive, not more expensive, than most of our living arrangements now in America. It might be reasonable for you to think it would be expensive, because the closest parallel in your experience in America might be places such as a retirement community or a hotel, places which tend to be expensive. But in America government strictly zones, licenses, and regulates such places. They are built to often ridiculously-expensive commercial standards, they tend to be allowed only in zones of prime real estate, and they are required to operate to standards which would not be chosen voluntarily by either the owners or the residents of the community. In the free nation, such community dwellings could be built almost anywhere. Compared with present arrangements in America, there would be savings in all the shared facilities. And all these savings would be passed on to the residents.

 

Greater Mobility Would Ease Consolidation of Communities

On a related issue, I believe people in a free nation would be more mobile, would face less barriers in choosing to move to be among compatible people. In America, government and its attendant parasites have affixed themselves onto moving, making moving much more expensive and difficult than it would be in a free nation. To move you have to pay taxes growing out of real estate transactions, and you have to work through government-created monopolies (brokers, lawyers) to trade real estate. Government-licensed and -regulated banks can take weeks to make simple decisions. And you have to work through the bureaucracy of government-monopoly utility companies.

If you have been or will be a tenant, lease negotiations, between landlords and tenants, are likewise stilted by government. The process of resolving disputes about leases has been seized and rendered almost

worthless by government. As such, landlords and tenants do not always negotiate in a context in which they are dealing simply with the other party, seeking some win-win arrangement, but instead take positions which they can take, or feel they must take, because of the way that government law operates.

Many people, who would like to move to be nearer their friends, do not do so, because to move is such a cumbersome thing. And much of this difficulty, I assert, has been created by government. In a free nation, many more people would, because of the unregulated ease of moving, find themselves living in closer contact with people with whom they felt compatible. D

 

Richard O. Hammer, of Hillsborough, NC, for the time being works full-time on the Free Nation Foundation. In the past he has worked as a residntial builder and engineer.

 
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