Basic Free Market Principles

Part 2: Working Conditions

“The government must intervene to improve working conditions.” Well, isn’t this claim interesting? Let’s analyze it, shall we?

As I mentioned recently, the government is running out of excuses to tax the people and get away with it. The arguments the government presents and that people sometimes believe about the improvement of working conditions have no firm foundation. They ultimately claim that the free market is incapable of improving working conditions for itself. Therefore, the government must provide the resources and create the laws that oblige firms to improve the conditions of labor. However, most people do not realize that this hurts businesses and the people.

First of all, as I mentioned in part one of this essay, the government does not and cannot ever function as a business, so, where do they get the money to provide resources and how do they know what people want? The government basically has to plunder the people to be able to supposedly “improve” working conditions.

Imagine that a new device has been made. Let’s say it is a new gadget that writes down everything you speak to it in a computer or, also, in paper. Now the government and all businesses acknowledge that this new piece of technology will help increase the amount of things written and in a short period of time, this will increase the creativity of people and new ideas might come faster, it will make the taking of notes a lot more accurate, it will let your eyes rest from looking to much at a computer screen, it will let your hands rest from typing or writing, and it might just allow people to do something else while “writing”. Hence, this apparatus will raise the efficiency of the workers who work in companies that use it and, perhaps, also enhance the production of those firms.

Nevertheless, there is only one problem, because it recently has been put into sale, it costs thousands of dollars to obtain just one gadget. Many companies will not be able to afford it, at least for a certain period of time. Even so, here comes the government and makes a new law that says all companies must have this gadget and those that do not have it, will be fined or the government will simply just take the firm away from them.

As I explained in the first part of this essay, the government does not have a way to receive feedback from the public, some governments might not even have a price system. Threfore, it does not know at what pace, amount, and in which companies it will be convenient to place the improvements of working conditions, like the gadget, for example. If they force every single company to have it immediately, more than half of the firms would probably suffer terrible economic consequences. Some businesses might only be able to afford one gadget for the whole company, others only for 50% of their employees to have one at first, and others might not even be able to afford having such luxury. The government can’t ever know what businesses really need and it ends wrecking things up.

Now, in the free market, the reality of competition and the fact that some firms will be able to afford the improvement will leave less capable businesses with a need to act intelligently that they may not lose all their employees to the competition. This is when companies that cannot bring the improvement compensate their workers. Maybe a company will not be able to have the device and make workers labor risking their eyes to the light of computer screens and make them type or write on paper. However they will offer a 15 to 20 percent more in wages than the other companies with the gadget to make up for the less attractive working conditions. This is called “compensating differentials”. Although, sooner or later, the employer will come to realize that it is economically more attractive for the company to buy the improvement than to keep on paying higher wages, than what their competitors who have the better working conditions do.

In this we can see that the free market provides a proper balance in the pursuit of safety in the workplace. Because in this economic system we have a price system that provides accurate feedback from the public, you can truly know at what pace, amount, and in which companies you can bring out a better working circumstance, one that does not damage employees and provides greater comfort. While you are upgrading the workplace, you can still steadily grow economically and not go into bankruptcy because of the intervention of meaningless laws.

Facts that I know will interest many is that since the Occupational Safety and Health Administration (OSHA) was created in 1970, boosters have claimed that workplace injuries have fallen. What they do not tell us is that these types of injuries had already been in the decline before 1970 and have not fallen any faster ever since OSHA was formed. As a matter of fact in the quarter century before OSHA was created the fall of workplace fatalities was at 70% faster than the quarter century that followed after the administration.

It is important to note what economists Thomas Kniesner and John Leeth point out, that “The most optimistic figures show OSHA currently creating three times more costs than it generates in benefits.” Let’s also say that forty percent of recent “workplace” deaths are related to transportation, half of which occur in the highway.  Another 20% of fatalities involve assaults and violent revolts at work. Therefore, only two fifths of workplace fatalities are the kind of incidents that most people associate with “workplace fatalities”. Companies nowadays, spend 1600 times as much on compensating differentials and on workman’s compensation than on all of OSHA’s fines combined. Dear reader, do we need more government intervention?

We can also apply the free market in maximum-hours legislation. I have written in my “A Capitalist Economy” essay, in the section where I speak of improving the standard of living, that by today’s standards we work far much less hours than what people worked exhaustingly in the past. When productivity is low, a supply of consumer goods that can satisfy the expectations or needs of the public will require people to work longer hours in order to provide the enough amount of goods. As the productivity of labor increases, so do wages and this takes people to prefer additional free time than to continue working the long hours of the past. If someone who once worked 80 hours a week now prefers working for 60 hours (which is three quarters less) and is willing to accept less than three quarters of his previous wage as a premium for the free time he will now enjoy, it makes sense for his employer to propose these things.

All this can only be done by gaining lots of capital goods. Capital goods are the things you use to create consumer goods, like the baker using flour to make bread. Remember that calculating the correct amount of capital goods that you will need to produce the correct amount of consumer goods can only be achieved with a price system. The price system can only be effective when there exists no government intervention.


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