Four Scenarios to Test Your Business

First article from the AnCap Entrepreneur Network:
 
 

A useful planning exercise is to consider the Strengths, Weaknesses, Opportunities, and Threats related to your business. Your SWOT Analysis depends, of course, on how you estimate the broader business environment will develop.

So let's consider four scenarios for the future of the United States economy. The scenarios make some very different assumptions, yet I believe each incorporates themes drawn from anarcho-capitalist literature. The idea is not to try to guess which scenario is the most likely, but to consider different ways to position our businesses so we can adapt. How will your market be affected? Your financing? Your suppliers or personnel? Will your production methods be able to fulfill your orders? Can your business scale up or down as required to meet customer demand? Will you be able to openly promote your product or service without being a target for extortion?

The market is not monolithic, but highly varied. Your local business environment will be different from any broad description of the "US economy", and during this exercise, you should consider what those differences could be. Given the relative size and reach of the US economy throughout the world, it will likely affect you, even if you are on a different continent.
 

Hyperinflation

In this scenario, the federal government has extracted all the taxes it can from the economy without risking riots and large scale non-compliance. It has borrowed as much as the bond market can bear; buyers don't believe that the government will be able to extract enough future wealth from its tax base to pay off its loans. The only means for finding the dollars necessary to meet government promises is for the Federal Reserve to create money out of nothing. The new dollars are distributed as the government sees fit and the recipients use these to bid up prices for the limited goods and services in the economy.

At first, new or existing suppliers work overtime to increase production to chase the higher prices. But soon, all suppliers hit the physical limit of what they can produce, and are bidding against each other for whatever factors of production they need. Still, the government is issuing huge payouts in an attempt to command the economy to do the impossible. If it were a monolithic entity, "government" might recognize what is happening and perhaps act intelligently and decisively to correct the problem. But despite its rhetoric, government is nothing more than a collection of individuals, each with their own agendas and spheres of influence. The political game gets more ruthless as each power broker tries to grab more before the whole system collapses.

As the realization sets in that the economy is at capacity, and that many projects underway will never reach the stage that generates revenue, various actors scramble for more newly created money to outbid competing buyers in a zero-sum game for control. Prices begin to rise significantly; market participants lose faith in the ability of fiat money to hold any value over time. They trade whatever dollars people will take for hard assets, and cautiously save these, waiting for sanity to return to the market. Production is lowered, unrest increases, and government feels ever more pressure to either outbid in the market, or directly seize by force, the resources necessary to gain control. In a matter of months, the situation spirals out of control, ending with complete loss in faith of the currency.

How can faith be restored in any fiat currency at this stage? Will people who have never touched a gold coin accept it in trade for their goods? Will people be willing to run hospitals, generate power, and deliver train- and truck-loads of goods without knowing how they will get paid? How can they manage their companies productively if even the pricing structure has broken down?

If doctors are dedicated enough to work in their communities without pay and survive from donations of food, how long will they have the supplies and support services to continue? How effective can they be when each day batteries, perishable medicine, office supplies, vehicle parts, or communications could be missing?

As lenders see the prospect loom large of being repaid in worthless currency, how drastic will they be in repossessing equipment or foreclosing on properties? How much political pressure will they bring to bear to have contracts unilaterally rewritten to suit them? How secure can property titles be in such a world?

What happens to local police who don't get paid? Will even honest police understand what is happening? How will they deal with housebreakings, repossessions, the collection of outstanding fines, family violence from mounting stress, lesser police gone rogue or simply run away--when the number of cases that used to occur in a year are now happening weekly? What about the rest of the bureaucracy that supports government? Will each DMV clerk or health inspector try to support themselves by bribes? When murders are going unsolved, what are the chances of getting caught for petty corruption?

In short, this scenario presents a rapid disruption to existing institutions. New organizations can be introduced to fill the gap, but they will be judged quickly and harshly if they are not perceived to be effective. Not only Austrian Economists, but every school of thought that predicts a cataclysm will be claiming vindication and proposing bold new solutions. People will find it difficult to separate the wheat from the chaff, and will settle for solutions that feel familiar, even if flawed. It will not be a time of tolerance and exploration. There is a danger that people will accept any authoritarian that can make the trains run on time.
 

Ron Paul for President

The second scenario considers what unfolds when a libertarian reformer takes the reins of government. Simultaneously aware of the urgency of avoiding hyperinflation, of the folly of introducing solutions by decree, and of the political backlash that awaits anyone closing down entire departments of government immediately, the reformer has little room to maneuver.

Ending foreign interventions would yield the largest boost for the economy--it simultaneously improves both sides of the ledger by saving hundreds of billions of dollars per year and yielding improved trade relations in return. But it would require huge amounts of political capital to disrupt the military-industrial-aid complex that infiltrates every corner of society: not just military contractors, but politicians, media companies, banking, education, energy companies, and telecommunications. It is not enough to win the presidency; the reformer must be accompanied by legislators that dismantle major portions of the State. The obvious source of the reformer's political capital would be popular support, but could this be achieved in time for the 2012 election cycle? Could the current monetary system survive until the presidential elections in 2016? If this minefield proves too difficult to navigate, will Liberty be discredited as a solution?

Domestically, the wisest course for the reformer may be to open all government functions to competition. As private and home schools now compete with federally subsidized government schools, and express delivery services compete with the US Postal Service, the government may grant permission to establish private monetary systems or pharmaceutical testing. If so, the market could begin immediately and openly to serve the demand for these goods and services without waiting for government departments to be dismantled. But, politically and legislatively, government monopolies would have to be dismantled department by department. Can competing businesses afford to wait until they are given permission to start their venture?

The Federal Reserve may take concrete action to restore faith in the dollar. Certainly, holders of US Treasury Bills will bring whatever pressure they can bear to maintain the purchasing power of future Federal Reserve Notes. Interest rates could rise significantly for an extended period, say between 10%-20% for several years as they did in the US during the 1980s. A rescued (and less malleable) dollar would put pressure on the federal government to return significant tax revenue to bond holders--perhaps by cutting spending, perhaps by increasing taxes, perhaps both.

Suppose the reformer manages to bring us back from the brink of monetary disaster, make significant cuts to government spending, and introduce new government enforced checks and balances on the growth of government. What will happen when he leaves office? Will individuals who believe they have been set free by their ruler change their minds when the next ruler tells them otherwise? Will they be satisfied with the freedoms they are allowed, or will they demand others and inspire a government backlash? Will the market have developed its own checks and balances on coercive government? Will the gains in individual wealth and productivity make coercive control of markets impossible? Or will central planning creep again into every transaction, bleeding value from the market and using it to build yet another empire?
 

The Road to Serfdom

While the previous two scenarios were driven by sudden events, these next two are gradual. This one supposes that we endure a long, steady decline of freedom and prosperity.

What if the US experiences economic stagnation for years, as in the Great Depression or Japan's "Lost Decade" of the 1990s? Each year brings more government Keynesian plans; whatever wealth is created in the voluntary economy that could be used for growth is transferred instead to inefficient, politically-connected organizations via "stimulus" plans. Some analysts predict disaster with each new bailout, but they underestimate the initial wealth and resilience of society. As another wound is inflicted, somehow the host limps on, using up every last bit of reserves to find another way to compensate as parasites suck the life from him.

As new ideas emerge, they are censored. As political reformers step forward, they are jailed. Before new businesses can open, they must wait months for licenses, worker approval by government labor boards, and connection to municipal services. Older people see options closing down; the young are never introduced to the ideas that could save them. The "brain drain" and "capital flight" by which individuals once escaped the State have been stopped by border patrols and currency restrictions. Prices become more meaningless each day as they are set by coordinating committees instead of negotiated by individuals.

How can we preserve wealth and knowledge under these circumstances? What tools can we prepare now, when communication is still possible, which could help us escape from this death spiral? How have pockets of resistance communicated and sustained themselves under totalitarian regimes in other places and times? If the best hope for survival is escape, what services will develop to help people realize this hope? What will the escapees be able to offer in return? Where will they escape to?
 

Stumbling Toward Utopia

This scenario is more optimistic. It posits that a free society emerges as if of its own accord, molded into shape by the invisible hand.

Although each human has their own unique flaws and perspective, they seek out those who help them most effectively fulfill their goals. They may hold ideologies that are radically different, but over time a trend dominates showing people avoid those who abuse them and deal with those who cooperate with them. Decision making genuinely is distributed at the individual level in the world, and this natural sovereignty of individuals, over centuries and millennia, reveals that central control by a separate ruling class of humans is an unworkable fiction.

Suppose, for the most part, we are good people trapped in a bad system. That when we realize where our authoritarian institutions have brought us, some of us--not all, but enough of us--decide not to act as cogs in a machine, but as human beings: teachers who refuse to indoctrinate children to submit to authority; judges who set free a youth rather than ruin her future; Guardsmen who do not follow orders to disarm their neighbors.

As we accumulate wealth, each individual becomes further empowered. As more people have access to the knowledge of the world's cultures, past and present--as they adapt the best inventions to serve their own goals--as they communicate ever more widely and precisely--they use this power to entrench individual sovereignty. The world becomes a tangled mesh of billions of actors negotiating how to meet their own ends; so complex that no nano-sized eavesdropping device, no supercomputer, no authoritarian ideology, no weapon of mass destruction can coerce it under control. The cost/benefit ratio for violence grows ridiculously large. It is only the rare criminal that risks losing the opportunity to trade with a globally diverse selection of suppliers to instead attack nothing but well-protected targets.

How could we connect with this urge to become more than boxes on an organizational chart? How can we insulate our customers from the State, so they not only imagine life without it, but look forward to it? How will our suppliers insulate us? Is our business flexible enough to do things on our customers' terms, rather than the way things always have been done? Can we offer people a richer life, full of possibilities denied by the institutions they were trained to take for granted? Are we prepared to operate in a hyper-competitive world where we either meet our customer's unique need or refer her to someone who can?
 

Conclusions

Anarcho-capitalist entrepreneurs, by definition, recognize that their direct impact on the world extends no further than control over their life, liberty, and property, and cooperation with others who freely associate with them. They introduce change into the world by arranging factors of production into new, unproven ventures and offer these to the market to accept or reject. They are not so ambitious to imagine that they can control the weather, or interest rates, or command the people of the world how to think.

For this reason, we need to consider how our ventures will adapt when they meet with the larger forces of nature outside our control. We can construct a few scenarios to anticipate how society might develop, but this exercise is only to help us better plan our ventures. When events unfold, they will be a combination of these scenarios, perhaps similar to one for awhile until some exogenous event suddenly makes another dominant. Perhaps different scenarios develop in different regions, or in different market sectors, before they interact in some larger area. It is impossible for any one human mind to contain the wonderfully complex and subtle ways events will play out in the real world. Your venture should be ready to adapt to the various ways the market could shift.

As an agent of change, the ancap entrepreneur views existing institutions not as fixed structures defining acceptable thoughts and actions, but as human inventions; chosen perhaps unconsciously, but chosen nonetheless, by individuals one at a time. The ancap entrepreneur can search for principles of human culture, and use these to offer better ways for us to interact with each other.

Share this

I vote for serfdom <G>

Our large middle class is a freak post WW2 phenomenon and we are regressing the world historical norm of 80% working class aka serfs. For the 30 years after the war we supplied the machinery and the 3rd world nations supplied cheap to run the machines. Now our serf nations are building their own machines and selling them to us.

Drop US wages another ten bucks/hour and raise Indian /Chinese wages $10/hour and the world working class will be approaching par. We will then have to supply our own cheap labor.

Further, for the first 30 years 80% of the net from increased productivity went to the working class, mostly to those with good union jobs. But during those years the companies started to move production from the union states to the scab states. In the last 30 years our owners have been taking the 80% from increased productivity and sending the manufacturing jobs offshore.

Third, how can the stock market be rising while at the same time unemployment is over 10% and people are still losing their houses? Because there are two parallel economies, one for the working class which borrows money and one for the owner class which lends money. (My personal money guy has been investing in hard assets in foreign companies.)

No one can explain to me why the economy can't stabilize at 10% unemployment and 80% serfs.

The title of this scenario

The title of this scenario came from F.A. Hayek's book. I have to admit to only reading the Classics Illustrated version here. My take on it is that, left to the inertia of institutional forces alone, central planning will ultimately lead to totalitarian dictatorship. Anyone who wants to avoid that outcome needs to design products that can better address the market and displace these institutions.

The question then would be, would 80% of the participants in the economy be satisfied to live as serfs? If not, what new goods or services could we introduce to help them avoid their serfdom? And even if 80% are content to live in serfdom, what is the size of the market (perhaps the number of owners minus the 80%) who want freedom, and how do we reach that market?

The nature of poverty has changed

In the bad old days, the serfs starved and froze to death in the winter. Slavery was tried and rejected in the industrial northern US because it was more economical to hire "free" serfs and let them starve in the winter than to house and feed slaves. In the South, the slaves could grow their own food and required a minimum of shelter and clothing.

In the US the poor people are dying of excess food. people on welfare have every sort of consumer good that the rich people have but at a much lower quality. The BIG difference between rich and poor these days is economic security, vacations . . . and rich people don't stand in lines.

"Bread and circuses" still works. If I was running for congress my platform would be a public sports channel for the people.