Sunday, August 30, 2009

Profit In a Free Market


Dear Chris Pelly,

It was a pleasure speaking with you at the health care rally Saturday, August 29th.

You brought up a good point that I was not able to elaborate on at the time.

You stated that a patient was turned down by some business because "it would not be profitable to accept them." You provided this scenario as an example of why the health care industry needs more regulation.

The way I see it, this type of situation is only possible in an unfree market, which is what we have now in health care and insurance markets. In a free market, if a business does not satisfy consumer demand then more able competitors are attracked to enter the market, underbid their business with a superior offering, attract their customers away and expose them to bankruptcy.

Right now we have a heavily regulated health care system that inhibits entry, contrains operations, increases the cost of doing business and protects industry giants. This creates an unfree atmosphere in which to conduct business where only the biggest and well-connect corporations can afford to operate. These conditions encourage consolidation and the lobbying for legislative favors that would protect their businesses from competition.

Profit is what makes any enterprise worthwhile. Without the prospect of profit, businesses have no reason to offer products or services in the first place. In a costly, unfree and heavily regulated marketplace, the drive to maintain profitability becomes even more imperative -- and much more difficult. This government coercion causes business concerns to shift away from quality, service and price toward regulatory compliance, licensing requirements, risk and liability insurance, and 'cutting corners' to remain viable. They may even be encouraged to engage in unethical practices such as turning away worthy customers to avoid losses.

I would like to see a return to a free market in health care where competitors are not legally barred from entry and the widest possible array of options are available for the poor and wealthy alike.


"Competition, properly so-called, rests on the activity of separate, independent individuals owning and exchanging private property in the pursuit of their self-interest. It arises when two or more such individuals become rivals for the same trade." -George Reisman, The Objectivist, Aug. 1968


Is Private Enterprise Predatory?
William Anderson | Mises Institute | 6/29/2000
Economists Ludwig von Mises and Murray N. Rothbard, both of the Austrian School, pointed out many times in their writings and speeches that firms can only prosper in a free market if they serve their customers. A company that does not provide its customers what they want will look elsewhere, something that will soon show up on the offending firm's balance sheets.