Friday, July 23, 2010

There Is Only One Boss

The phrase "the customer is always right," should never be taken in an absolute metaphysical sense. I've worked in retail and I can tell you there are plenty of times when the customer is wrong. The phrase does capture, however, an important economic principle: consumer sovereignty. Rightly understood, consumer sovereignty means that if entrepreneurs want to earn a profit, they must serve customers better then their competitors. To the extent that they do not, their profits will be lower that possible. As I've mentioned before, entrepreneurs serve customers.

That is one of the main points Ludwig von Mises makes in his lecture "Capitalism" in his book Economic Policy: Thoughts for Tomorrow and Today, a series of lectures he presented to businessmen, professors and teachers, and students in Argentina in 1959. The opening paragraph of his lecture reads:

Descriptive terms which people use are often quite misleading. In talking about modern captains of industry and leaders of big business, for instance, they call a man a "chocolate king" or a "cotton king" or an "automobile king." Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes or lords of earlier days. But the difference is in fact very great, for a chocolate king does not rule at all, he serves. He does not reign over conquered territory, independent of the market, independent of his customers. The chocolate king—or the steel king or the automobile king or any other king of modern industry—depends on the industry he operates and on the customers he serves. This "king" must stay in the good graces of his subjects, the consumers; he loses his "kingdom" as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete.

There is a BIG difference between actual political rulers and the "kings" of industry. One set can compel obedience and the other must earn voluntary cooperation.

One of the reasons Wal-Mart became the successful company it has is that early on, Sam Walton, the company's founder also recognized the same principle. Wednesday's "Tip of the Day" at Business Insider is a quote from Walton that again dispels the myth of the free market plutocrat commanding his minions to buy from him. Walton said,

The folks on the front line - the ones who actually talk to the customer - are the ones who really know what's going on out there. There is only one boss. The customer. And he can fire everybody in the company from the chairman on down simply by spending his money somewhere else.

Note, however, that consumer sovereignty is a practical sovereignty, not an ethical sovereignty. From a cosmic point of view, God is our Sovereign and Lord of all creation. It is He who made us and to whom we owe all allegiance. There is only one Almighty. He will hold us all to account for how well we exercised stewardship and dominion while on earth.

Additionally, Christian ethics require we recognize private property in our relations with others, thus allowing entrepreneurs to do with their property as they see fit. If they choose to reap lower profits than possible because they want to keep certain people employed at a certain wage in the midst of a downturn, that is their right and the principle of consumer sovereignty does not allow us to compel them to lay off workers in the name of the consumers.

1 comment:

  1. Great post Shawn. I like the distinction you've made here between the practical sovereignty of the customer and the ethical sovereignty of God over our consciences, noting how as our sovereign ruler, God still gives us a great amount of liberty and prohibits others from taking it from us unjustly. Knowing that we have to give an account to God for how we've performed as stewards anchors our morality in something other than arbitrary human conventions or "norms".