Good Fences Make Good Neighbors (Robert Frost)


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The Quaker Economist
Letter #54
12 September 2002
http://tqe.quaker.org/

Good Fences Make Good Neighbors (Robert Frost)

Dear Friends,

Fences (real or imagined) tell the world whose apples grow on whose trees,
who mows whose lawns, and who has a right to invite friends to a garden
party. When the neighbors recognize each other's rights and obligations,
they are good neighbors. Then they cooperate on mosquito control and other
aspects of community interest.

You have to know who you are, yourself, if you wish to reach out to others,
psychologists tell us.

Is it the same in economics? For many centuries, the Western World has been
erecting fences not only between property owners, but also between laborers,
capitalists, boards of directors, accountants, and governments. Once they
all know who they are, and what are their rights and privileges, they learn
to cooperate.

Some fences have been broken down lately, as when Arthur Andersen and Enron
did not know where the fence stood -- or should have stood -- between them.

One can, of course, be both laborer and capitalist, property owner and
accountant, and so on. But if so, one must know one's rights and privileges
in the capacity of each, without mixing them. Then the laborer may cooperate
with the capitalist, and others as well.

We all cooperate in a free market society. The shirt I wear was bought in
the USA, but it was made in Taiwan, possibly with cotton grown in Australia
and woven in China. I don't know the various steps, but I do know that free
people trade this way. When a job is offered at a given wage, the worker has
a right to refuse, and seek employment elsewhere. Likewise, each material is
sold at an agreed price; and I buy the shirt at the price the seller states.
If I don't like the price, I don't buy.

There are those whose circumstances give them little or no choice. They eke
out a scant living on a farm in Mexico or Africa, etc., and do not have the
funds to seek betterment in the city. For these, I favor a cash subsidy,
where the public purse supplements their earnings for a minimal living, plus
the possibility of seeking something better. But let them keep their fences.

Fallacies of Non-Fencists

The ideal of communism was a non-fencist state. Laborers would make products
for the sheer joy of doing so and would gladly share them with consumers,
who would not take more than they needed. As it turned out, workers lagged
on the job when they were not paid, and some consumers wanted more than
others thought they should. The organization of this society -- say, the
Soviet Union -- required the coercion to tell laborers what to produce and
consumers what they might buy. But power breeds greed, and soon the entire
society was dominated by a few decision-makers who did not (could not) make
the proper decisions to create an abundant society (see TQE #49). When the
Soviet Union found its economy far behind the West, with starvation on some
collective farms, a shift in direction became imperative.

Many good people today believe that fences should be torn down because they
divide us. Here are some of the proposals I heard on a radio talk show in
which I recently participated, followed by my comment:

(1) Employees should own their companies. The very people who make the
product should sell it and receive the profit.

Why not? Well, because often they do not think up the product, nor do they
supply the capital. Those who innovate frisbees or come up with the cash to
produce them think they have more rights over size, shape, and how to market
them than the helpers they hire. Are they right to think they should control
the process, with employees accepting their terms or looking for jobs
elsewhere?

Employee ownership works just fine in small enterprises, like Moosewood
Cookbook, in which friends get together to produce something. But, small or
large, if the company in which you work and invest goes belly-up, you lose
both your life savings and your job. Better to build a fence between them.

In large companies, it is different. United Airlines boasts of being
"employee owned." True. But the employees cannot all sit on the board of
directors, nor do pilots and stewardesses have experience reading balance
sheets. So, they hire a professional board of directors, which hires
professional management. Recently, management has considered bankruptcy as a
result of 9/11 losses. The employee unions do not want that. Who decides?
The directors, of course, after listening to the unions. If the
owners/employees do not like the directors' decisions, they can fire the
board. If they do that, however, they have to find another board, probably
one not much different from the one they just fired.

Whatever they decide, the employees, board, and management must cooperate
or the planes will not fly.

(2) Company books should be open.

There is good reason for this. It might have prevented the Enron,
World.Com, etc. scandals. But it would also allow competitors to see what
you are planning, and if so, you might be less inclined to innovate. Would
we have computers and software today if others had looked over the shoulders
of the inventors all along?

(3) Labor-based political involvement ought to represent the political
interests of labor, which is usually the underdog.

Many countries have this. In Argentina, for example, the Ministry of Labor
negotiates and enforces agreements between workers and management. (Anyone
want to work in Argentina?) By my sights, labor-based political involvement
creates the class society that its backers want to avoid. By winner deciding
issues, instead of both negotiating them, it drives a wedge of "them against
us," as opposed to a fence, which teaches us our identities but over which
we can speak to each other.

BTW: The Labour Party in Britain (and the Labor Party in Australia) no
longer represent Labor. The name is just a hangover from earlier days when
labor-based political involvement was thought to be fruitful.

(4) Boards of Directors should be open to all stakeholders, who are all
those who have some stake in the company: workers, customers, suppliers,
stockholders, and others. They should not be selected by stockholders alone.

This high case of non-fencism has been tried in Germany and Yugoslavia.
Unfortunately, the interests of each group were so different that they
harmed the company for their own benefit. In Yugoslavia, workers milked the
companies into bankruptcy. Finally, the country fell apart. German boards
have mandated such extraordinary sick leave, vacations, and terminal pay
that management has tried to get along with fewer workers, using machines
instead. Finally, Germany has retreated from being the lead economic power
in Europe to becoming a secondary player.

People cooperate in an endeavor (say, Enron) so long as the success of the
endeavor is more meaningful to them than what they can individually get out
of it if they destroy it. The experiences of Argentina, Germany, and Enron,
etc., have taught us that a corporation is successful only if adequate
fences are maintained between stakeholders.

(5) We should strive for a society of equality in income and wealth.

This is a tough one. I could be much more wealthy than I am, if I had
stayed with business or government. But I like teaching, so I preferred that
career. Many say that when we have enough, we should not want more. When I
started at the University of Colorado, I was the highest paid professor in
the Department of Economics. Then others, more distinguished than I, were
brought in at higher salaries. I had the choice of being jealous or
accepting them as role models. "Equality" was not an option.

Do we (or should we) have equality in other aspects of life? Sports, for
instance. Should we abolish baseball, football, and the Olympics, because
they encourage some to be better than others? Should we abolish the
valedictorian of the class, so as not to shame those who didn't make it? Can
we strive to be the best without having to beat someone else? Can we
innovate, or invent, for the sheer joy of doing so?

Many think so. But I believe that we would remove many of the joys of life
and decrease our innovations if we were all the same, or pretended to be.
The inventor of the steam engine, the automobile, the computer, want to
think of themselves as bringing society something better than it had before.
They also want to be rewarded. How would we grow, if we did not have role
models better than we are? How would we live, if we did not learn how to
accept defeat?

There are only so many places for the freshman class in Swarthmore each
year. Those not accepted must learn that not going to Swarthmore is not the
end of the world. There is always the University of Colorado (actually, a
pretty good place, I have found).

But, what about the economic system? Can we allow some to be richer than
others? Well, Europe and its cultural descendents, and Japan, that have
enjoyed the most freedom of enterprise and have put fewer barriers on trade
than have others, are the very ones that have reached the greatest
prosperity and the most egalitarian distributions of income. They have done
so by each person knowing who he or she is, by innovating and saving, and by
all knowing they can bargain freely. Then inventors freely take their
products to capitalists, and together they become innovators. New technology
is discovered in a world of both fences and cooperation. Innovators are rich
at first, but the wealth spreads over time. (Yes, they also used slaves, but
innovation was far more compelling than slavery as a reason for development,
and it even led to the end of slavery.)

(6) The free market punishes the poor.

This is another tough one. However, most economists (including me) believe
the cause of poverty lies elsewhere than the free market. If the poorest of
the poor, even with very limited opportunity, should be free to make their
own choices -- whether to stay on the farm or work in maquiladoras or
sweatshops, for example -- they will choose what is best for them. Better
for well-meaning outsiders not to interfere with their choices, though we
may help them if they ask. (We might also give them money, as I have
suggested above.)

We should be very careful about assigning cause to poverty. If we guess
wrong, as I believe this statement does, and then base policy decisions upon
our guess, we can do great harm.

How do you feel about living in a world of fences, provided you can talk
over them to the next-door neighbor?

Sincerely your friend,

Jack

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Readers' Comments

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Fences are certainly necessary in today's world for bringing about some sort
of rationality in economic life. But I'd like to believe that human beings
are still evolving and could eventually reach that level of enlightenment
where the Communist (and Christian, too) ideal of "From each according to
his ability; to each according to his need" could become a reality for much
of society. There are altruistic people in the world today, and even
occasionally we hear of a business where there is real cooperation and
altruism at all levels. It may be a few thousand years before we get to the
point, though, for a whole economy to be based successfully on that
philosophy.

-- Virginia Flagg, San Diego (CA) Friends Meeting.

--------------------------------

In a "fenced world" I think equality of income and wealth are best addressed
in ones role as voter. (You fenced off Government, but not voters). You
argued persuasively against mandated equality (but hinted at redistribution
in giving money to peasants): However, this leaves a question as to what
sort of world do we want to live in? Fiscal policy can be used to influence
income inequality (taxation, especially of wealth) and promote equality of
opportunity (subsidization of education). Yes there are implications for
incentives, equity and even political feasibility, but these are issues
deserving your precise analysis.

-- Wilfred Candler, Annapolis (MD) Friends Meeting.

--------------------------------

Is there any justification why anyone should receive 4x more than the
average or 4x less than the average? Is anyone that valuable or that
worthless? Wealth and income involve all aspects of oneâs life as well as
the lives of oneâs family.

-- Roger Benham, Smithers, BC, Canada.

--------------------------------

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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board:

* Roger Conant, Mount Toby Meeting, Leverett (MA).
* Carol Conzelman, Boulder (CO).
* Ann Dixon, Boulder (CO) Friends Meeting.
* Virginia Flagg, San Diego (CA) Friends Meeting.
* Merlyn Holmes, Unitarian, Boulder, Colorado.
* Janet Minshall, Anneewakee Creek Friends Worship Group, Douglasvillle (GA).
* Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor
* J.D. von Pischke, a Friend from Reston, VA.
* Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

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