Peace Through Commerce

Peace Through Commerce brought together people that want to use trade and markets to make the world a better place. Like many people that attended, I am starting a business that I hope can do just that. I hope to see some great things growing out of this event. The event was mainly a gathering, a welcoming, a beginning. It did not attempt to impose a particular agenda, other than to let people gather and share ideas. It was not a partisan event. I'm quite sure that we had liberal, conservative, progressive, republican, democrat, libertarian, and many more belief systems represented. It was not particularly ideological, other than to say that it was "pro-commerce and pro-peace." And that is a good place to start. From my perspective, the event started with this key assumption: "Free markets can bring peace to the world." I do not intend to elaborate (at this point) about my thoughts about this assumption. What I do want to do is examine this assumption. Personally, I think reflection brings clarity. For a group, it helps you get a sense for where people think similarly or differently. So let me ask some questions: 1. What is a free market? Can a market not be free? Are there degrees of freedom? 2. What is peace? Lack of violence? A deeper sense of calm? Understanding and awareness of one's strengths and weaknesses? 3. How do free markets bring peace to the world? 4. Do free markets do this all by themselves? What other ingredients do we need to bring to the recipe? 5. Do free markets ever go wrong? If a free market were a baseball player, what would its batting average be? Of course, these questions will open up many other questions! Let me offer some concepts that I think are useful: 1. Market failures. How many businesses in an industry do you need to have strong competition? Three? Five? Ten? What happens when the market price of an item ignores its negative effects on others? What happens when trade simply is not economical because transaction costs are too high? Economic theory warns us what can happen when markets have externalities, transaction costs, imperfect competition, and so on. It also gives us some guidance about how to repair these failures. 2. Accountability. Who are markets accountable to? Markets have very different underlying processes than democracy. In a democracy, we strive for "1 vote of political power per person." It is not too much of a stretch to say that markets strive for "1 vote of economic power per dollar." This has huge implications for inequality. 3. Risk-taking.  Businesses can afford to take risks and innovate.  But can government agencies afford to run themselves "more like businesses" if this means greatly increased risk? It is also interesting to turn this on its head. Could banks afford to issue home loans if the US government did not provide the underlying insurance? Hmmm... who is the bigger risk taker now? Who bailed out the savings and loan industry in the 1980s? Who bailed out the electric industry in California after the rolling blackouts and Enron? There are lots of other concepts to talk about, but I think these are great starting points. After studying public policy myself, I find it really interesting to see other perspectives on these topics.  For example, I attended a great event in Austin a few months ago (the MIT Enterprise Forum) where we discussed these very issues.  A recent TexChange meeting discussed similar ideas. There were some fantastic ideas about using markets, loans, and so on to improve the developing world.  It is really exciting to see so much discussion about these topics. Government is far from perfect, but is also greatly misunderstood.  I have found that many intelligent business people and technologists are a bit narrow-sighted when it comes to government.  Frequently they overemphasize the importance of efficiency, at the expense of accountability and risk-management. (And don't forget how important it is to shield the administrative parts of government from the capriciousness of the political process. Do you want a new administration to have the power to fire the entire staff at a major federal agency every four years?) In fact, I don't think the term "efficiency" is very clear.  Efficiency calls to mind the engineering equation of output divided by input. A simple formula, indeed. But using this formula wisely is not so simple. A business that may be very efficient on the day-to-day level may in fact be quite inefficient on the year-to-year level.  Adaptability works on many time scales.  (Just because a tree grows very slowly doesn't mean that it is not efficient.  The US Government has outlived many businesses that were once claimed to be "efficient" and "innovative.") Well, I think I will stop there for now. I hope to stimulate some discussion on these themes first!