Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

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"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

"The virtue involved in helping those one loves is not 'selflessness' or 'sacrifice', but integrity." Ayn Rand

16 October 2010

Did Capitalism Save the Chilean Miners or Try to Kill Them?

On 14 October 2010, Daniel Henninger wrote an upbeat opinion in the Wall Street Journal that noted that what Americans do in their work in the private sector often has noble consequences despite the frequently negative view of the market and corporations of such socialists as Obama.  In particular, he notes that a small private company, Center Rock, Inc., in Berlin, PA developed an amazing down-the-hole hammer drill head suitable for drilling quickly through unusually hard rock.  This drill head is a canister 28-inches in diameter and consists of 4 air hammers and 4 drill bits.  The Chilean miners just rescued after 69 and 70 days more than 2000 feet beneath the surface were brought out about 2 months earlier using a Schramm T-130 drill system using the Center Rock drill head.  Schramm Inc. is a West Chester, PA company.  These tools were created and marketed by for-profit American companies.

For 17 days the miners had no contact with the outside world and historical precedent would have given them but little hope of ever being rescued from that great depth.  It had taken some 30 probe holes to intersect a part of the mine to which the trapped miners had access.  On the 18th day, water, food, and medicines were being supplied to the trapped miners.  Brandon Fisher, President of Center Rock, and Richard Soppe of Center Rock worked very long hours for 37 days of drilling to create the shaft wide enough to bring the miners out.  A fantastically successful rescue had been accomplished through the efforts of many companies from around the world and the Chilean government.

Daniel Henninger noted that Obama has been campaigning throughout the U.S. with the message:
The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.
To which, Henninger says that's a caricature, but yes, it is basically right.

This flies in the face of the viewpoint of the socialist or Progressive.  They usually view man as an animal dominated by low emotions such as envy and jealousy, hatreds and bigotry, a deep-seated dishonesty, and a willingness to use violence and fraud to take whatever he wants.  Most men are stupid.  A few who are brighter and fortuitously of a slightly better or more trainable nature, can be indoctrinated in the basic rules of the better socialist man.  These few, after many years of training and indoctrination in government-run schools, will form the elite who will guide a large and complex government apparatus to force upon the unwashed and largely stupid masses the values they would not themselves choose.  This government, too complex for most of the people to understand or to concern themselves with, will then nudge them and force them as need be to live their lives on a higher plane than they otherwise would.  They will be told this is for the collective good.  The guiding elite politicians and academics are rewarded for being the guiding elite with power, prestige, and money, while pretending that it isn't so.  They pretend it is self-less service to the unwashed masses.

This was the conclusion the socialist Owens, father and son, came to when their socialist experiment failed in New Harmony, Indiana in the early 1800s.  The viewpoint was still similar in such proselytizers for the American public school system as Horace Mann, John Dewey, and William James.  The teachers unions of today continue in that tradition.  So do Obama, Pelosi, and Reid.  So probably does Associate Professor William K. Black of Economics and Law at the University of Missouri - Kansas City.  He felt he had to respond to Daniel Henninger with a blog post called Capitalism Would have Killed the Chilean Miners: a Reply to Mr. Henninger.

Prof. Black wants to defend Obama and the Progressive viewpoint on the need to rigorously regulate the free market because human beings operating without severe regulation will eat each other alive.  He starts with asking why the miners needed to be rescued in the first place.  He says the Chilean mine was private and it had a bad safety record.  Black says
Reports from Chile stress that the mine violated the law in failing to have a second entrance to the mine (which would have greatly reduced the risk of the miners being trapped by the collapse of a portion of the shaft.)  Local officials have claimed that the only way the mine owners could have gotten away with such an obvious violation of the safety rules was through bribery of the regulatory officials. ....
Once the mine shaft collapsed in Chile, the private mining company declared that it not only could not pay to rescue the miners -- it could not even pay their wages.  The private company threatened to file for bankruptcy.  The rescue was paid for by the State-owned mine (i.e., the Chilean government had to bail out the private mine owner to the tune of an estimated rescue cost of $10 to $20 million in order to rescue the miners.)  A $25 ladder apparently would have prevented the tragedy, but the private owner's profit motive led them to avoid that expense.  The Chilean mine had gold and copper ore.  Both of these minerals are selling for record prices.  This makes the private mining company's failure to provide another exit and a ladder all the more outrageous.  Where did the profits go?  Capitalism would have left the miners to die.  The government paid to rescue the miners.
Prof. Black says "When we prevent a corporation from engaging in fraud or endangering its workers we do not harm capitalism, but rather save honest businesses from being driven from the marketplace."

I agree with Prof. Black that bad behavior is evidenced in the additional information on the mine, the mining company, and the Chilean government regulators.  The issues are complex and require us to carefully establish a context for our evaluation of the role of government in regulating businesses.  He is very concerned that the mining company controlled the miners and foisted a fraud upon them that endangered their lives.  He gives us a number of facts that bear on this issue of how the miners were forced into a life endangering job, which he does not seem to think need examination and discussion.  They do however.

First, the mine is said to have had serious safety issues and they were well-known to the miners and their union.  Their protests had been ignored.  Yet the miners kept going down into the deep mine knowing their lives were at risk.  Second, Black says the mining companies profit motive was so strong that it would not pay for a live-saving $25 ladder, even though gold and copper prices are at truly record levels.  Third, the company bribed government regulators to ignore the lack of a second mine entrance, rather than spend the money to create one.  Fourth, the mining company preferred declaring bankruptcy rather than paying for the rescue of its miners which cost $10 - 20 million and was paid by the Chilean state-owned mining company.  In fact, the mining company was unable to even pay the miner's salary.  Fifth, the final consequence of the miners being trapped for the company was that it was shutdown.  It no longer is allowed to operate the mine.

While Prof. Black is on the Economics faculty, he does not seem to think that we need know anything about this company but that its product sells for a lot and the company itself is greedy and irresponsible.  The facts suggest that it is more likely that the company was in fact so marginal in profitability that it should have gone out of business some time ago.  If it were making big profits because of the skyrocketing price of gold and copper, why would it go out of business rather than pay a mere $10 - 20 million of rescue costs?  Why would it bother to bribe government officials and ignore real safety issues correctable at a cost of $25?  These greedy mine owners are supposed to have been blind to the fact that their earning huge profits on gold and copper could easily be lost to them because of safety violations?  Possible, but probably less than likely and the professor does not even see the need to offer us evidence that this is so.  Perhaps he assumes, in the best Progressive fashion, that we are too stupid to ask such questions ourselves?  While gold and copper are very high priced now, one still has to consider the costs of production.  That Chilean mine may well have had a vein rich in gold and copper at one time, but it appears likely from the behavior of the company that they were working the dregs and barely eking out a living even given the present high prices of gold and copper.  If this is not the case, then the Chilean government will be trying to recover their costs for rescuing the miners from the hidden profits of the mining company owners, I expect. 

Enough with the mining company!  Let us return to the miners.  If conditions at the mine were known to be life-threatening, why didn't they simply take other jobs?  If Chile has a free market, which Black treats them as having, then no one forced the miners to stay on the job at the mine.  They could simply take a job that offered them a safer and more pleasant workplace.  Given that Chile has a state-owned mining company, the private mining sector is probably less free than in a real free market.  Governments that operate state-owned businesses often interfere with any competitive private businesses to support the less competitive state-owned business.

Now Chile, is not Haiti, which was very obvious when each nation had a very severe earthquake recently.  Chileans have property rights and consequently they build much better buildings that underwent much less damage.  They have a society that could recover from such devastation relatively quickly.  They are better educated than most people around the world.  While they sought help with the rescue, they also contributed greatly to the rescue work and managed it.  Chile may not be at the level of the U.K., the Netherlands, Germany, or France, but it is no Cuba, Bangladesh, Siam, or Angola either.  Chile has had the inheritance of instability of many South American countries and the legacy of the Spanish Conquistadors and favored old families.  Nonetheless, it is now a relatively advanced nation, though saddled with some state-owned businesses.  In the end though, it does not have so vibrant a free market that these miners felt they could walk away from a dangerous job and a marginal employer to find better work.

Why?  Basically the answer is that the rule of law and the equal, sovereign rights of the individual have not been long recognized as essential to Chilean society so that a broad-based and vibrant, innovative free market could develop on the scale of that in the U.S. or at least close to the potential of Chile.  One aspect of the mine story demonstrating this was that bribes were effective to avoid being shut down for some time.  This is a failure of the rule of law.  That many Chileans were unequal was long a part of Chile's tradition.  There is no U.S. Constitution to limit the powers of government and not yet a strong and always dependable will among the people to insist that the government serve them, rather than they it.  When Prof. Black says Americans need to have more business regulation, which Obama calls for constantly, because of the nature of business in Chile, he is using that story in a very out-of-context manner.  Indeed, the context is neither right for Chile nor for the U.S.

It is very reasonable for libertarians to argue that government regulation of American businesses is excessive and often very naive and ill-informed.  It is very reasonable to argue that the ends to be achieved by it are very often not achieved or achieved at too high a price.  It is also very reasonable to argue that regulations often infringe upon our equal, sovereign individual rights.  It is also clear that regulation is often a tool to keep smaller companies from becoming effective competitors against larger and older companies.  Here in the U.S., we do have a very vibrant free market by and large and when it is not so free in some segment, we find that it is not free and vibrant because the government is regulating it.  When there are jobs restrictions, it is commonly because of government interference in the market.  When companies are not being innovative, it is commonly because of government interference in the market.

Prof. Black acts as though business regulation is always done only to prevent business fraud.  He acts as though it is possible to expect that despite positing a human nature which is constantly trying to get away with fraud except when the moral hand of government uses regulations to prevent every effort at fraud.  The Progressive seems to naturally assume that men in the market are evil, while men in the government are angels.  The angels in the government will anticipate and prevent with regulations most of the evil actions being devised by the devils in the free market.  The angels will devise rules with minimal collateral damage because they will have a very good understanding of the market place and all the interrelationships in that market.

In reality, this is far from the truth.  In reality, the complex free market has many internal and private means to counteract anyone's attempt to use control frauds of the type that worry Prof. Black.  In the real private sector, people learn about the frauds of others and refuse to do business with them.  If a business produces unreliable products, people stop buying from that business.  Retailers will stop putting that company's products on their shelves.  If the product does harm, the company is quickly taken to court.  Prof. Black seems to think that without regulation the fraud control company will prosper.  But by the time the government knows to take regulatory action, there are likely to be many in the free market who already know the same thing and have already moved against the fraudulent company by no longer buying their product or by suing them in court.  In fact, one of the reasons companies sometimes want to be regulated by a friendly government agency subject to the guidance of politicians who can be bought with campaign funds, is to avoid the wrath of their customers expressed in lawsuits.

Workers often do make a decision, often a very conscious and considered decision, to take a job which is more dangerous than most.  Often they do so for higher pay, sometimes for greater adventure, and sometimes because they simply want to work with tougher, more courageous people.  This is their right to do.  There are many sub-cultures in the workplace.  Many of these sub-cultures do not wish to be turned into pre-school nurseries.  There is a human need for freedom of choice and some people will choose what most others would not choose.  This individuality should be honored and respected in America.  It once was and it did many good things for our country.  Despite the Progressive's desire to completely regulate our lives, we must, the unique individuals we are, assert the right to choose our own values and manage our own lives both as business owners and as employees.

The decision on how safe a workplace should be is very complex.  For instance, it is often a strong function of the knowledge of the workers, more than of fences and gates and shields.  It is often most affected by how focused people are on their tasks.  It may be a function of the culture.  It is certainly a function of the economics and competition at times as well.  It is also a strong function of the tasks that need to be done.  If central planning by government cannot do an adequate job of producing and distributing toothpaste, it certainly cannot do an adequate job of policing workplace safety.  The vast majority of these workplace safety issues are best left to the people involved in a free market relationship in that workplace.  Government is generally unable to do the job as well.  Indeed, government does not do as good a job at almost any aspect of business regulation as free people in a free market do.

As an employer, I can assure you that employees stay when they are getting what they want from the workplace and they leave when they are not.

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