The Business of America

...Management and shareholders would then go elsewhere, and produce other things, in response to new signals...

...Because "Consumers" don't lik tailfins—whatever happened to tailfins —they accuse businessmen of imposin "useless" (read "bourgeois") product on the public through advertising...

...In the oil industry, as in American business generally, a corporation's credibility depends first upon removing suspicions that its statements about profits are merely self-motivated...

...The "Consumers" could easily accuse the oil companies of self-dealing and trying to rip off the public, and the real consumers, who ordinarily would support a policy of expanding energy supplies, were unconvinced by the industry's statements about profits...

...Occasionally, of course, the public might overturn the market and instruct Congress to tax...

...Businessmen have a special problem making this point as they are in the uncomfortable position of trying to argue a view of the public interest that happens to coincide completely with their own self-interest...

...A deeper problem is that the Consume Movement represents not actual consum ers, but an abstract class of "Consumers' made up of upper-middle-class reforme types (ostensibly) opposed to bourgeoi values...

...The two are not necessarily identical, although many (particularly businessmen) tend to treat them so...

...If new signals are given, there is no reason why the Standard Oil management and stockholders could not take up the production of organic peanut butter...

...and one might have thought if economists have anything at all to tell us about how to defend our economic system against attack (though perhaps they do not), they would be loath to concede that the primary beneficiaries of the system can have no important part in defending it...

...But again, valued higher only by actual consumers—by individuals voting with their dollars in the marketplace...

...These were not results the public desired, but they were results that could be avoided only by increased production of oil (energy) in non-OPEC countries...

...The important question is how 0/ businessmen can respond to the situatic —specifically, how they can assist tt public in exposing the interests of tt upper-middle-class "Consumer," at thereby encourage actual consumers be an effective and forceful constituent in support of business...

...The oil industry offers a perfect example to illustrate the point...

...The Business of America At The Alternative's recent conference on the future of corporations and our economic system, Irving Kristol argued that consumers could not be counted on as a reliable constituency to defend business against increasing attacks from the government and other places...

...But while this explains consumers' very big stake in continuing to pay profits (as well as losses), it also explains the opposition of the upper-middle-class "Consumer" to the profit system...

...The oil industry tried to justify its rising profits by explaining their importance for expanding energy supplies...

...And what about losses: are they also a cost of doing business...

...On most issues, however, despite often contrasting positions on existing regulation, the interests of consumers and those of businessmen and corporation do coincide...

...When they do, corporations will begin to find in consumers—if not as consumers, then as citizens of a democracy—the effective constituency which today business is without...

...Why then have busk tssmen been so unsuccessful in cultic sting consumers to support business: How ha' e businessmen permitted a situation to develop in which, following Ralph Nader, the public's perception is that business is either indifferent or actively hostile to the needs of its consumers...

...As it was, Congress never imposed the tax, but did repeal entirely the oil depletion allowance...

...The profit system is thus the primary instrument of consumer control over producers and over business...

...From time to time, the verdict might be for less oil, or even conceivably no oil...

...In the middle was the oil industry, which, because it did not understand the nature of the problem, did not, to put it mildly, cope very effectively with the situation...

...It's just that "Consumers don't like the products that consumes want...

...it would have reduced exploration for energy supplies...

...For a year or so following the OPEC embargo, rising oil prices sharply increased oil company profits, and during that period the industry was threatened by a possible excess profits tax...

...and as it thereby reduced the supply of energy, it would have increased the price of energy to the public...

...Businessmen and their shareholders have a primary stake in defending corporations, while consumers' domiA Constituency for Business nant concern is with the market system...

...Th abstract class of "Consumers" oppos business not because business is indiffel ent to actual consumers, but, if anything because business serves actual consun ers too well...

...The implication of the latter point is that while profits may be a rip-off, they are a smaller rip-off than most people think...

...The immediate response of mo businessmen to the problem is econom 28 The Alternative: An American Spectator February 19 education...

...If profits were a cost of doing business, the obvious question would be how much profit is a cost of doing business...

...But this strategy not only incurred the wrath of the media and the upper-middle-class "Consumers," it also provided them a weapon with which to discredit the oil industry and its argument...

...In the audience were a number of prominent economists, and I was struck that none of them challenged him, or at least considered the implications of his claim...

...the other (by the abstract class of "Consumers") arguing for less...

...It is only when businessmen make credible their own primary commitment to serve the public that they will also make credible the enormous stake that consumers have in our market economy...

...they argued instead that we are "wasting" energy, and that our major efforts should go to conserving it, not producing more...

...More than any other group, economists regard consumers as the primary beneficiaries of a market economy...

...In economists' jargon, profits are a signaling mechanism for moving resources from lower-valued to higher-valued uses...

...The result, fueled by the media and by "Consumers," is the present public perception of businessmen as a self-seeking oligarchy pursuing profits and indifferent to the pubiic interest...

...This point becomes clear in considering the issue of government regulation, for in the overwhelming majority of cases it is consumers, not producers (corporations and their shareholders), who press for deregulation...

...If instead of assuming the public wanted more energy, the industry had limited itself to describing and clarifying alternative policies—increased energy production through higher profits on the one hand, versus lower energy production through lower profits on the other—the energy industry would have deprived the upper-middle-class "Consumers" of their primary weapon against business...

...Reducing company profits (by an excess profits tax) would have produced every result we wanted to avoid: it would have increased our dependence on the OPEC countries...

...Whether the issue is de-regulation of the airlines by the CAB or of the trucking industry by the ICC, it is the industry spokesmen who, speaking in every other context about the glories of the market system, support continued regulation for themselves, citing "complexities that others don't understand" and "special circumstances...

...The Alternative: An American Spectator February 1976 29...

...One difficulty becomes obvious in contrasting the problem cf defending the system—an economy that allocates resources by prices—with t'ie problem of defending corpo7 unions...

...In a market economy, profits are not a cost of doing business: they are a residual claim that may produce either a profit or a loss, but in any event serve as a signal that tells business what to produce...

...Which means, in given situations, only if they express publicly their willingness to sacrifice personal advantage and give up the profits...

...Businessmen can avoid this problem only to the extent that they can remove grounds for suspicion that their statements are selfishly motivated...

...On the other hand—and underlying thedispute over oil profits—the media and upper-middle-class "Consumers" challenged the idea that we need more oil...

...Part of the problem is simple ideology...

...The reality of the problem of oil profits was precisely the opposite of its public myth...

...And for most businessmen, that normally means telling the public two things: (a) that profits are a cost of doing business, and (b) that the public should not mind paying them, because they are less than most people think...

...If the industry had encouraged a public debate on the issue, and indicated an honest readiness to abide by the result (even if that meant the imposition of an excess profits tax), the oil industry could have offered an important example to all corporations about how business may regain at least some of the public trust and confidence it has lost over the past decade...

...The oil/ energy issue thus brought into conflict two opposing views of the public interest: one (by actual consumers) arguing for more oil...

...The Consumer Movement is a major current salient against the Establishment,and the news of greedy fat-cats ripping off their consumers thus becomes ho copy for our adversary-minded mast media...