In the Market for New Businesses

Dr. Malcolm Cross

Frequently, when somebody tries to establish a new business, others ask whether that business is really needed.  The implication is that it really isn’t, and should therefore be prohibited or at least discouraged.  But actually, only a free market can answer that question.

This thought occurred to me as I was reading posts on the Erath County Rant and Rave Facebook page.  One person had asked, “Anyone else confused as to why we are getting even more car washes? What’s the point [of] it? This town is not that big. It does not need more washes.”  And this question reminded me of arguments I heard when I was on the city council listening to opponents of a measure to allow a given restaurant to offer to sell beer or wine with its meals:  “We have enough restaurants selling alcohol.  We don’t need any more.”

Now I personally neither know, nor really care to know, if, when, where, why, or how someone else wants to establish a new car wash.  Those issues are purely a matter between the would-be car wash entrepreneur and anyone who decides to patronize it.  

Nor could I possibly guess whether Stephenville needs more car washes or fewer car washes, or whether it has the magical right number of car washes for a city its size.  Only the market knows, and it won’t tell us until after the new car wash is up and running.

Therein lies the value of the market.  My economics are basically free market libertarian.  I consider free markets in most goods and services—markets uncontrolled by monopolies or any other power that can arbitrarily manipulate prices or supplies—to be the most productive creators and most fair distributors of wealth.  The wealth is created to supply demand, and its creation rewards those entrepreneurs with the vision and courage to try to satisfy that command.

Perhaps the greatest power of the market—the sum total of consumers seeking a given product or service—is that the market itself can ultimately determine the “correct” number of suppliers required to produce a given product or service and offer it at a price consumers are willing to pay.  In countries with socialistic economies, one frequently finds gluts of unbought products or unused service providers, along with shortages of goods and consumers in high demand, to a much greater degree than in countries with free markets.  That’s because economic planners in socialistic states, even with the best intentions, cannot possibly exercise judgment as accurately as can the thousands of free consumers and producers in Stephenville, or the millions throughout the United States or other political systems based on free market economics.  In other words, the demands of the many supply far more accurate information than the opinions of the few.

So what does this all have to do with car washes, restaurants selling booze, or anything else?  Simple:  The only way to determine whether we need a new car wash/restaurant/grocery store/whatever/whatever/whatever is to allow the entrepreneur in question to establish it and try to make a go of it.  

Whether Stephenville needs more any kind of business can de determined only by the market. If a business is established and turns sufficient profit for its owner, then by definition it was “needed,” at least by enough customers to make it turn a profit. If, on the other hand, the new business, no matter how well run it was, fails to make a profit, then it was obviously not needed by enough people in the first place. But anyone should be able to establish a car wash or any other kind of legitimate business with the understanding that he is neither initially condemned to failure nor entitled to success. As long as he breaks no rules and harms no competitors through unfair competition, his success or failure will be strictly between him and the market. If he succeeds–congratulations to him. He is entitled to whatever profit he can legally make. And if he fails–too bad, so sad. He should have the right to try something else–with the understanding that the market will be the ultimate determinant of his fate.

So to all would be entrepreneurs out there planning new businesses—Best wishes for your success in supplying consumers with goods and services they want at prices they’re willing to pay.  You have—or should have—every right to try, every right to enjoy whatever profit you make, and every right to try again should things not turn out as you would have wanted.  But in a free society, it’s all between you and the market.

Malcolm L. Cross has lived in Stephenville and taught politics and government at Tarleton since 1987. His political and civic activities include service on the Stephenville City Council (2000-2014) and on the Erath County Republican Executive Committee (1990 to the present).  He was Mayor Pro Tem of Stephenville from 2008 to 2014.  He is a member of St. Luke’s Episcopal Church and the Stephenville Rotary Club, and does volunteer work for the Boy Scouts of America. Views expressed in this column are his and do not reflect those of The Flash as a whole.

Be the first to comment

Leave a Reply