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Notes to myself, possibly of interest to others.
-- Bill Northlich

Saturday, December 19, 2009

What is Business?

Aside to the previous post...

Business is the process of getting money. If I am in a business, my focus is how to get money from - you. It has nothing to do with serving the public. Fair enough. There is truth in the idea of the Invisible Hand - that a society of people going about, following their individual interests integrates somehow, magically, to a society which best serves a public interest.

However we know that the Invisible Hand can and will get out of - ah - hand some times, and needs to be restrained by a fight-the-good-fight quest of regulation. Witness the recent Credit Crises, a result of a perfect storm of avarice and greed (that is, people following their interests) accross Deposit Banking, Investment Banking, Real Estate, politics, the housing industry, government sponsored agencies, regulatory agencies, and others. A vicious circle of reinforcing action took place which in individual industries might not have been bad but which together nearly destroyed Western Civilization.

There are many good and thoughtful reasons for one to participate in business activity. I myself have invented technology, and profited by and had fun by getting it out to the masses through the business process. This is healthy. A good way to assure you are not wasting your time is to assure that whatever you are working on can be sold to someone, ie, that someone else can be convinced to see the value that you (think you) do.

However, this process can get out of control. For various reasons a company can detach from any feedback loop validating the utility of what it is doing, so it's actions become solely about Getting Money. At this point said company is actively working against Invisible Handedness, free and competitive markets, and the positive aspects of Capitalism.

Take Health Insurance. Insurance is a business activity which contemplates a large population of people most of which do not have an issue, and in this population a company can pay for those that do have an issue by taking in money from the others and have some money left over for profit. This works for houses and cars, but not so well for health. In the old days before globalization most people had health insurance through their jobs. The system was riddled with contradictions but these did not come to light because companies could readily pay for the insurance. Now with globalization, as Reich points out in Supercapitalism, companies are gradually reducing benefits, and health companies are increasingly unable to make easy profits. With globalization, the question of what useful service the Health Insurance business actually provides is increasingly brought to light. The answer is - none. They simply take money for profit and advertising which, in a Medicare-like scenario, could be used for patient care.

My charge to you is to beware the mythology of the Invisible Hand and the Free Market. Many times, a "Free Market" mantle is draped over a business situation which is dying and is thus anti-competitive, provides no discernible value added, and exists solely to get money for someone.

Obviously, I think many banks have gotten themsleves into this non-value-added slew of despond.

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