The Objectivist Voice

Earlier this week, The Denver Daily News put up an article titled, “Beer battle brewing again?” Trying-too-hard-to-be-witty title aside, this article centers on a very important economic and political issue: protectionism. The case at hand involves small liquor stores, which can sell “full-strength” beer, and supermarkets and convenience stores, which by law cannot.

Lawmakers are concerned that the added competition would put smaller liquor stores out of business at a time when small business is already hurting in Colorado.

While I have no desire to see businesses fail or people lose jobs, it is important to remember what a business is. It is a person or group of persons offering a product or service to customers; customers gain some value from a business, which they do by voluntary exchange of goods, services, and money. So in the case of a liquor store, I as a customer would go there to purchase liquor. The liquor, in this case, has some value to me — a value that must be produced, transported, and offered by people in order for me to acquire it. Since I am not a thief, I pay the liquor store for the value they are providing me. I gain something of value (the product), and the liquor store owners gain some of value (profit to sustain their livelihood).

Imagine a few alternate scenarios for a liquor store:

• Liquor Store A sells many kinds of products, but they all cost five times what competitors charge.
• Liquor Store B doesn’t sell anything, but simply has a cash register to accept money from customers.
• Liquor Store C does not sell any products customers want, no matter how low their prices go.

Obviously, these three stores would go out of business, and deservedly so. Would anyone say that these stores, which respectively charge more than customers are willing to pay (Store A), sell nothing at all (Store B), and sell things nobody wants, deserve to stay in business? Of course not. These stores cannot offer anything of value to the people who have money to give in exchange.

Now imagine that those same three stores are privately owned, each by some local citizen who has no other source of income. Does the situation change? Are people now obligated to pay exorbitant prices (Store A), pay money for nothing in return (Store B), or pay for undesirable or useless products (Store C)? I would bet that you would say no — but the state of Colorado disagrees.

Instead of directly compelling people to pay Store A’s high prices, to buy nothing at Store B, and to buy useless items from Store C, Colorado has opted for the more subtle mechanism of protectionism. That is, the state will prop up small liquor stores that cannot compete on the basis of good prices, or good service, or convenience, or other values offered in exchange for customers’ money. This is accomplished by disallowing competitors from selling the same products, or selling them on the same scale.

If a business cannot survive, that means that it has failed to convince customers to willingly spend their money. If a business cannot offer customers a convincing reason to do so, why should the business survive? It has failed to meet the sole condition of a viable business: offer value such that profits are earned.

The Denver Daily article quotes one store owner: “These proposed changes will put hundreds of stores like mine out of business.” Call me heartless, but that is not my problem nor anyone else’s. No one has a right to success in business; if you wish for your business to succeed, you must find some way to offer a compelling value to customers. If you are incapable of doing so, or unwilling, then you have every right to pursue your livelihood in some other way. Your livelihood is not owed to you — certainly not by your customers or your more capable competitors.

Another owner: “A recession is no time to gamble with Colorado jobs.” First, this person for some reason believes that free markets and reality’s law of cause-and-effect should be suspended simply because it’s a recession. Huh? Secondly, this person adopts the assumption of the state of Colorado and others, which is that it is the government’s task to gamble with jobs. In truth, the state has no legitimate role in allowing or disallowing liquor sales in supermarkets; now that it has wrongly disallowed those sales, gambling is not the proper term. Facing reality is the proper term and the proper conduct. The state should repeal such restrictions and allow businesses to succeed or fail on their own merits.

Protectionist laws of this sort are nothing more than a sneaky form of economic welfare, and like all forms of government-enforced welfare, they impose a kind of wealth distribution from a group of apparent “haves” to the “have nots.” The supermarkets have something the small liquor shops do not — large supply chains that allow for compelling prices for customers, etc. Of course, small businesses often can offset their higher operating expenses by offering other value to customers, such as personalized service, hard-to-find products, and so on. But rather than allow these businesses to compete fairly, the government steps in and actually punishes larger businesses for offering more value!

If a business cannot compete, what is its value? If it can’t offer customers a reason to willingly spend their money, why protect it? These small liquor stores allege that they cannot compete, but that they still somehow deserve money. Like all welfare, this kind of law protects those who offer less to individual customers and also contribute less to society (e.g. their products cost more and they’re not willing to offer better value somehow). The state of Colorado is, effectively, saying the following to you and I as prospective customers of one of these stores: “It’s not right for you to have the option of spending more or less money based on your own individual judgment. The proper thing for you to do is to spend more money, in possibly less convenient places, because we have a moral obligation to provide people with jobs even though they can’t offer you a compelling reason to pay them money.”

Protectionism is just more of the same gunboat altruism we expect from our governments: someone’s declared need (small liquor stores) becomes a claim on others who are not needy (other stores that are more competitive) which will be imposed by government force (laws).

In sum, these economic welfare laws…

• forcefully promote the worst-performing businesses simply because of someone’s alleged need;
• violate the moral right of business owners to offer products to willing customers for mutual benefit;
• harm the economy by punishing businesses that can offer more of what people want, with better bang-for-the-buck;
• support businesses whose owners refuse to innovate and compete, because they “deserve” success for some undefined reason;
• create an economic environment where money flows based on government coercion, rather than the judgments of individual people deciding how, where, when, and why to spend the money that belongs to them.