You want to overnight a letter from downtown DC to upper Northwest DC. You go into the U.S. Post Office to accomplish this task. There are three people in line for the self-serve kiosk. There are five-people waiting in line for the full service window. Thinking it will all move quickly, you grab the overnight envelope and the address label planning to complete the label while you wait in line. You look around for a pen but there are no pens on any of the counters. Someone who is waiting in line sees you looking for a pen and informs you that they too needed a pen to complete their address label and they asked the U.S. Postal service employees at the full service desk for a pen. The person goes on to tell you that the postal employee said there were no pens available and to just wait in line and complete the address label once at the window. Hearing this and seeing the line to continue to get longer, you leave to find another place to mail your letter.
Less than a block away is a Fedex. You go in and see only two people waiting in line. There are little containers with pens all over the place, available for use. There are office supplies for sale, so if you needed a pen you could buy one. It is bright and clean. You start looking for an address label to fill out when the Fedex employee sees you are looking for something and asks what you need. You explain that you need a pen to complete an address label. She tells you that you don’t need to do that because she enters the address into the computer and then prints your label so all you need to do is get in line. As you wait for service, you note that the Fedex employee greets each customer who enters the Fedex store; asks the customer what they need; and directs them where to go in the store. The line goes fast and before you know it you are telling the Fedex employee the address; she is printing the label, popping your documents into the envelope and asking if you want it delivered by 8:00 a.m. tomorrow; 10:30 a.m. tomorrow or 8:00 p.m. tomorrow. The Fedex employee then prints your receipt; circles the tracking number for the envelope; gives you a 20% off coupon to use on your next visit; and asks you to give feedback on your experience either by calling or submitting through the Fedex site so Fedex can work to improves its operations. You are out of there in less time than it took you to not locate a pen at the U.S. Postal Service.
You just experienced why competition in business is a good thing. Over 200 years ago Adam Smith talked about the “invisible hand” of the market and how self-interest and competition can enable a market to provide the services and goods that we need in an efficient, cost-effective manner. Following Smith’s logic, when business-people start a business, they are motivated by the self-interest of providing for themselves and their family. But, self-interest alone is not enough for a business to actually provide for the business-person and their family. They also need to provide a good or service that others actually need or want and at a price that others are willing to pay. So if a business creates a product or service that no body wants or needs, the business will fail. If the business cannot provide a good that actually works or a service that actually delivers what was paid for, the business will fail. A business will fail if it charges too much because customers will buy elsewhere. Alternatively, if a business charges too little, it will fail because it won’t be able to pay its own bills. Thus, according to Adam Smith and played out in free market economies since then, we can see that self-interest and competition combine to meet what the market needs.
So, since business-people operate out of self-interest, does this mean that they are greedy? unethical? fraudsters? don’t contribute to the greater good of society? Short answer, “no.” Compare it to the kid in college who, out of self-interest, strives to write an assigned paper with the goal of getting the best grade in the class; or the baseball player, out of self-interest, who wants to have a batting average of .300. Since the student and the baseball player are driven by self-interest are they greedy, unethical, fraudsters, not contributing to the greater good of their college or their sport? Short answer, “no.”
But, are there times when the baseball player, the student, and the business-person make choices that are driven by ill-intent and as a result they make unethical or even illegal choices? Short answer, “yes.” When a baseball player takes prohibited steroids enabling him to be a more powerful hitter, he is violating baseball rules and possibly the law. When a student plagiarizes to get the best grade in the class, he is violating the college’s policies. And, when a business-person manipulates her financial statements to misrepresent the business’ financial strength, she is behaving illegally. We have laws, regulations, and policies to address this type of behavior and we should all follow them.
So, when a Yale University undergraduate, operating in his self-interest to get the best grade in the class, writes a term paper proposing a business that can deliver mail more efficiently, he is not behaving illegally or unethically. And, when that Yale student, Fred Smith, operating in his self-interest, started Fedex in 1973 based on the ideas in that paper, he was not behaving illegally or unethically. When Fedex, operating in its self-interest, lobbied to change certain laws and regulations that limited the size of the aircrafts it used, it was not behaving illegally or unethically.
Just because some people are bad eggs when they operate out of self-interest, it does not mean that operating out of self-interest in an effort to compete means that competition and business are bad or immoral. In fact, when someone as innovative as Fred Smith operates out of self-interest we all benefit. We benefit because we are given a choice on who sends our package and on how we are treated when trying to send that package.
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.” Adam Smith, The Theory Of Moral Sentiments, Part I,