
Credit: Staff Sgt. Madelyn Brown
For a long time political pundits have wished that the US government was run “more like a business”; thus, believing that a businessman would be preferable to a politician. A businessman’s goal is to make a profit. He does this by finding profitable markets, pricing his products properly, promoting them to likely buyers, controlling costs, etc. Political scientists have pointed out that government is not a business. For one thing there is no profit motive, beyond the general goal to balance the budget. Government derives its revenue from taxes and fees, not from willing buyers. If a government “gets too expensive”, we citizens cannot choose another government to rule over us. We may have the ability to vote in new leaders, but they rule from the same general playbook of long established laws.
However, there is one area within government’s bureaucracy in which businessmen may be better suited than politicians—military procurement. Naturally, even tough-as-nails businessmen running a military procurement program will be susceptible to political pressure to buy from one company rather than another, especially domestic over foreign. The general argument for “buying local” is that our military cannot be held hostage to a foreign supplier of critical material who may refuse to sell to us in our time of need. Thusly, the argument is that the US has to control resources just to protect ourselves from this possibility.
However, this is normal business planning, and businessmen are well suited for resolving this so-called threat. The more complex the business the more susceptible a business becomes to the whims of suppliers. A recent documentary about John D. Rockefeller explained how he dealt with a supplier who attempted to take advantage of a temporary monopoly. Rockefeller was shipping his refined oil products by rail in tank cars. When the contract came up for renewal, the railroad tried to raise the rates drastically. Rockefeller responded by building pipelines that bypassed and bankrupted the railroad.
Rockefeller’s response illustrated just one possible solution, what we now call “vertical integration”. He adopted an alternative solution that he alone controlled. Although it worked, the “in house” solution contained its own risks. Refining petroleum is one thing; transporting it is another. An alternative solution would have been to foresee the risk of dealing with just one railroad and cultivating a business relationship with another or maybe several others. If one railroad tries to raise rates, Rockefeller could transfer his patronage to other suppliers. Rockefeller did not need to control the transportation service; he needed access to it at a reasonable price.
The modern concern of the monopoly threat is over China’s monopoly over the production of rare earth metals, which are critical components of military hardware. China’s monopoly is not based solely on having the resource in abundance within China as much as China’s long term investment in mining and processing these metals. Rare earth metals can be found in most countries including the US, but, for one reason or another, none have matched China’s investment.
The solution is not necessarily investing in this process ourselves; i.e., the vertical integration solution. A businessman would know to seek other, perhaps even slightly more costly, suppliers. As these suppliers mature, their costs will fall and their expertise will rise. A complementary solution is to stockpile the refined rare earth metals purchased from China to draw upon while other suppliers gin up production.
Conclusion—Acquiring Access Does Not Necessitate Acquiring Control
Austrian economists remind us that it is not money we seek necessarily as much as what money will buy. Likewise, it is not control over critical inputs that we seek as much as ready access to them. This is a normal business problem which confronts businessmen on a daily basis. No matter how secure one may feel with a monopoly supplier, it is always good business to let him know in subtle terms that he can be replaced. An expensive in-house crash program is seldom the solution. The solution is to ensure access by cultivating alternative suppliers and/or stockpile cheaply acquired material until other suppliers can ramp up production.
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