Submitted by Gene Howington, Guest Blogger
In 1780, John Adams succinctly defined the principle of the Rule of Law in the Massachusetts Constitution by seeking to establish “a government of laws and not of men”. This reflects the democratic principles enshrined in the Constitution’s preamble: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” The very foundation of our legal system says that the law should work for us all, not just a select few.
This raises the question of what is a good law that serves the majority of society and what is a bad law that doesn’t serve the majority of society?
This idea is further bolstered by the Equal Protection Clause of the 14th Amendment:
“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” The latter addition of the 14th Amendment as well as the Preamble of the Constitution both reflect the spirit in which this country was founded as set forth in the Declaration of Independence: “When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”
Clearly, the pursuit of the Rule of Law under the Constitution as informed by the Declaration is a pursuit of the Utilitarian concept of the right course of action is the one that maximizes the overall good consequences of an action; what is in the best interest of greatest numbers of We the People is in the best interests of the country.
Utilitarianism is a quantitative and reductionist philosophical form. Utilitarianism, however, is not a unified philosophical view. It comes in different flavors with the two primary flavors being Rule Utilitarianism and Act Utilitarianism. Strong Rule Utilitarianism is an absolutist philosophical view and rules may never be broken. Like any absolutist view does not take into account that reality occasionally presents situations where breaking a rule results in the greater good. For example, the strong reductionist rule that murder is bad is countered by the exceptional example of murder is not bad if performed in self-defense or the defense of others. This result of practical application is reflected in what John Stuart Mill called Weak Rule Utilitarianism. It becomes apparent that since not all rules are absolutely enforceable when seeking the common good and exceptional circumstances require flexibility in the law, that the Utilitarian pursuit of the Rule of Law must be in Mill’s Weak Rule formulation of Utilitarianism. But is considering the greater good and circumstantial reasons for breaking or modifying rules the best way to judge whether a law is good or bad?
If one considers Kant’s Categorical Imperative – “Act only according to that maxim whereby you can, at the same time, will that it should become a universal law.” – then any law not universally applicable should not be a maxim worthy of being recognized as universal. This is contrary to Utilitarianism in general as well as Weak Rule Utilitarianism specifically, but while Kant’s view takes subjectivity into account when dealing with circumstances it does not take into account that there can be objective differences in circumstances as well. It is part of the judiciaries role as a trier of fact to consider not only subjective differences but objective differences in circumstances in formulating the most equitable and just solution to a case at bar. In seeking to be universally applicable in defining maxims, Kant is an absolutist as surely as Strong Rule Utilitarians are absolutists. As a consequence of reality not being neatly binary in nature and thus not often compatible to absolutists approaches to formulating laws for practical application, what can be done to keep Weak Rule Utilitarianism from degenerating into Act Utilitarianism where actors will seek the greatest personal pleasure when presented with a choice rather than the greater good? Utilitarianism conflicting with the Categorical Imperative? Is there a unitary philosophical approach to evaluating whether a law is good or bad?
The answer seems to be no. If there is no single view, absolutist or otherwise, that leads to a practical system for evaluating whether a law is good or bad, then there is only one option for building a framework for evaluation. That option is synthesis.
Consider that absolutist systems as they are not applicable in reality should be confined to being considered theoretical boundaries rather than practical boundaries. This does not negate the value of considering systems like Strong Rule Utilitarianism or Kant’s Categorical Imperative, but rather puts them in the place of aspirational goals rather than practically attainable goals in every circumstance. Given that Mill’s Weak Rule Utilitarianism can degrade into Act Utilitarianism and that degeneration can be compounded by the number of exceptions there are to a rule, are there ways to minimize the defects of using only Weak Rule Utilitarianism to determine the societal value of a law? What supplements can be made to that framework?
I submit that one such supplement is found in the form of Negative Utilitarianism. Negative Utilitarianism is exactly what it sounds like; the inverse function of Utilitarianism. Whereas Utilitarianism is the basic proposition that the right course of action is the one that maximizes the overall good consequences of an action, Negative Utilitarianism is the basic proposition that requires us to promote the least amount of evil or harm, or to prevent the greatest amount of suffering for the greatest number. If one takes both into account in evaluation of the social value of a law (a synthetic approach), the test becomes a balancing act. On one side of the scale is the societal value of overall good consequences, on the other side is the societal value of preventing overall harm. This proposition suggests the following framework for evaluation of whether a law is good or bad.
- How many people benefit from the good consequences of a law?
- How many people benefit from the reduction of harm as consequences of a law?
- Does the benefits from promoting good consequences outweigh the costs of reduction of harm?
- Does the benefits from reducing harm outweigh the costs to the greater good in taking no action?
- Are the net consequences of a law perfectly knowable from either perspective or does the possibility of unforeseeable consequences exist? Can the unforeseeable risks be minimized either by construction of the law(s) to allow for contingencies or by regulating other risks or contributing factors?
- Do solutions from either perspective negatively impact human and/or civil rights? Do those negative impacts outweigh the positive effects to the greater human and/or civil rights of all?
This is but one way to evaluate whether a law is good or bad for society. What are other methods? Are there ways to improve this method? What do you think?
@Bron: What is the best business a small guy can compete in out of the starting gate?
There are probably hundreds. I would suggest something he is good at, that ALSO require very little risk on the part of the consumer, and preferably relies primarily upon skilled labor and/or specialized knowledge and/or specialized equipment.
Then he has something consumers probably cannot do for themselves and his labor can be sold at a premium. Remember that if a professional company has employees that do a job, they are probably charging the consumer about three times the labor cost. Solo practitioners can about double their earnings as an employee by charging about three times, the extra part is to cover advertising and accounting.
For examples, I have a friend that puts up fencing, his main equipment is a tractorized post hole digger. None of his customers have that, nobody can beat his time or cost per hole with manual digging.
A neighbor of mine started an earth moving business with one used little bulldozer he bought at an auction for $3500 dollars (which he was already trained to use), ten years later he employs eight people and owns a few million dollars worth of equipment. He preps sites for builders, mostly.
Another neighbor lost his job as an accountant for a car dealership, and with his last paycheck advertised himself as a part-time accountant for small businesses, and has been self-employed for years, earning more than he did before.
The main trick in getting started is learning to see what isn’t there, you need to be able to identify what is missing from the menu of options, so you can fill it in.
You don’t ever want to start out competing head to head, the other guy is more experienced, his costs are refined, he knows more about the business in different seasons, the suppliers, minimizing costs, and even more about selecting appropriate employees than you do. So you want to start out serving a need that is NOT being served, so you have no real competition for whatever it is you do. Even if you are stealing customers from some existing businesses, they are customers poorly served by those businesses, and they cannot get them back without changing their business model (service, timing, guarantee, margins, whatever), which most businesses are extremely reluctant to do.
Although this is not always true, about the last thing an entrepreneur should do is try to compete on price. Everybody and their brother is brainwashed into thinking price is so important that cheaper would be better, when in fact the cost reduction that can be achieved is usually not enough to sway consumers from their tried and true habits. They may even think something must be inferior for the price to be lower.
A good first question is in the opposite direction: “How could I be different enough that people would pay even MORE than they are paying now? What is missing from their experience? What could make it better?”
That, at least, is usually the poorly explored territory where opportunity lies. Look at Starbucks. Before I ever heard of it, I absolutely would not have believed people would pay nine bucks for a cup of coffee. Never.
But I was totally wrong, Starbucks figured out how to transform the previously mundane coffee experience into something else entirely, a consumer luxury that really did not exist before they invented it. It took specialized knowledge and equipment and at least training for labor. They would not exist if they ever thought for a moment they needed to compete with Dunkin Donuts or any other morning coffee vendor on price.
Tony,
I don’t think that we are in disagreement in essence. The distinction you point out is why I differentiated branding from marketing. The tool (branding) is not intrinsically evil, the application (marketing) often makes up for that intrinsic lack.
**************
“my condolences for your loss, I know how much Kim Jong Il meant to you.”
Loss? He meant even less to me than Objectivists do, Bron, and I consider them either intrinsically evil and/or intrinsically ignorant. You do the math.
@Gene: Branding is not necesarily about creating a perception of value; it serves the same purpose as an author’s name in fiction. The “perception of value” when I hear the name “Stephen King” is a function of my past satisfaction with his work, it is not just a perception, it is the experience of actual value: I would gladly trade the amount I paid for his previous books for a similar experience of novelty and suspense and character.
The same thing is true for certain movie directors, car manufacturers and home electronic manufacturers, even chefs and car mechanics and home repair.
Ads are usually manipulative, but I do not think branding is automatically manipulative, it can be simply informing me of the identity of the artist. The value I perceive in a new book because of an author is not something impressed upon me by publishing house advertising or even rave reviews, it is impressed upon me by actual experience of their past work. The same thing goes for product brands: My past experience with the product is what gives the name value, not anything they tell me about it. (In fact if I know from using it that their ads are lying about it, it reduces their brand value by reducing my trust that they won’t cut corners in their product safety practices, and I have switched brands for that reason.)
Gene H:
my condolences for your loss, I know how much Kim Jong Il meant to you.
Tony C:
I went back and read my posts and I was talking about price as being important. I might not have been thinking about profit pricing but that is part of pricing.
Maybe a service is different than a product?
Tony C:
you dont offer to much hope for small start-ups. What is the best business a small guy can compete in out of the starting gate?
Tony,
“Branding is not all about manipulation, and it isn’t worthless.”
I’m going to have to disagree with the first part and agree with the second part. Branding in itself is about creating identity, but branding as it is used in marketing is about creating perception of value. Creating perception – valid or not – is a form of manipulation. As to the value of branding, it is reflected squarely in customer loyalty and the profits that creates so it is clearly not worthless. The question is who benefits from that worth? I think clearly the benefit weighs to the producer rather than the consumer.
@Bron: An additional factor, which goes to trust, is lifetime experience. I have been using Crest toothpaste for over 50 years, it has never made me ill and I have never thought I required any more dentistry than the average. For a newcomer, no amount of savings on toothpaste can replace my 50+ years of experience with Crest. I would not use their product if it were free. I would not risk my health for such a trivial amount of savings; I literally do not know or care what I pay for Crest.
Branding is not all about manipulation, and it isn’t worthless. For some products, the brand signals a lifetime or at least an extended period of uniform satisfaction, an absence of harm, and reliability with a product, and there is no such confidence with a new name. An old brand feels like a sure thing, while a new name feels like a bet that can be lost. Not everybody is willing to gamble on something new, and the higher the stakes, the fewer will gamble. In fact marketing demographics put the number of “early adopters” on an average product at under 10% of potential buyers; it is even lower for ingested products or personal care products applied to the body.
@Bron: How does the small competitor price to compete with P&G? Or what strategies could they use to induce people to buy their toothpaste over Crest?
You do not seem to comprehend the point. They cannot “compete,” in the sense of offering a product that could theoretically capture all buyers of Crest.
In order to capture Crest customers you must have a brand in toothpaste that is established for about 50 years, that 90% of American adults recognize as an acceptable and valid alternative in toothpaste (i.e. would not be worried about their dental hygiene if they were forced to use it), and you must have an advertising budget that constantly reinforces the validity and social acceptability and efficacy of your product.
That is an insurmountable amount of work for anybody with less than a few hundred million to invest, and that would not be a “small competitor.”
It is literally impossible for a small competitor to set a price that “competes” with P&G, even if they could match their production cost structure. Even if the small competitor produced the exact same toothpaste and, as an introductory promotion gave it away for free I would not try it and the vast majority of P&G customers would not either. They aren’t endangering their dental health for a few bucks in savings.
In the alternative meaning of compete, meaning to just capture some tiny segment of Crest customers, a small competitor can find a niche among people that do not like P&G for some reason (sometimes social reasons work), and they can go after the price-sensitive crowd. That is the purpose of “generics,” those white-package-only products that just say “toothpaste” on the tube. They might find a way to sell those for a few dimes less than Crest, but they are not “competing” with Crest, their appeal is very limited. What drives Crest customers is not price.
There is probably a tiny premium market on the other side of the spectrum, where one could charge MORE than Crest for a paste if they could convince people it was somehow better, e.g. clinically proven to restore lost enamel, prevent bacterial growth longer, erode plaque, whiten teeth, whatever.
@Bron: Which goes back to my contention that it is all about pricing the good or service at the right place. So it is all about price.
That wasn’t your contention in the first place, and it isn’t true even if it were. You do not get to redefine words, “it is all about price” is not true without a redefinition of the word “all.”
It cannot be “all about price” unless we can tell from price alone which product wins the market, and we never can.
People buy Advil and Tylenol when they could buy Ibuprofen and Acetaminophen and save a dollar. They are exactly the same thing, down to the dosage, but people still buy the brand names. It makes no difference why that is true, it is true, and proves that it is not “all about price” for most consumers.
As I said before, there is a demographic segment that is very sensitive to price, and you can cater to them as Walmart and others do, but the majority of consumers do not compare prices once they are within about 20% of each other (even on large ticket items like cars and houses), once the prices are “close enough” and in the consumer’s acceptability range, it stops being about price at all: It starts being about features, quality, pedigree, brand, prestige, guarantee, etc.
If it were “all about price,” every store would be Walmart, Sam’s club, Target, and online discount joints. Every company would be operating on a 2% profit margin. They are not: 20%, 30%, 40% profit margins are long term sustainable, even without patents or copyright protections or trade secrets. Small competitors cannot beat the trust and recognition of a brand name, or overcome the majority aversion to the “new,” or break consumers of their habits, or get consumers to read, listen, or understand the alternative or the benefits it provides. In some cases, they cannot even give their alternative product away for free, due to these obstacles, especially when it comes to things people ingest or use for personal care.
There is your proof. In my opinion, more important components than price are “trust” and the related “recognition.” I do not think sales are “all about” any particular feature, there are several important ingredients in what can constitute value, any one of which can dominate the equation. The numerator is just as important as the denominator in any fraction.
But if I were to choose the ones that usually dominate the equation, I would say trust and recognition are what let brand names operate at 20% to 40% profit margins, it is the lack of trust and recognition that makes it impossible for a price competitor to gain any real traction against the name brands. As Warren Buffett says, they have a moat: No matter how good your generic cola is, no matter how low your profit margin is, it will never be accepted like Coca Cola and Pepsi. And those two do not compete on price either, Coke has a 25% profit margin, and Pepsi does not charge less, and I do not think Pepsi has ever tried to imply they are a less expensive cola.
http://www.nybooks.com/articles/archives/2004/jul/15/the-truth-about-the-drug-companies/?pagination=false
My religion doesnt tell me that marketing is manipulation, I sorta figured that out on my own.
I guess you never drank generic beer?
there is actually a problem with generic drugs from some countries. So the higher price the reputable companies charge may be worth it. Although I usually get the generic brands.
But anyway, all of the drugs developed were for the most part developed by those “profiteers”.
“But I think most people are looking for the best deal for their money. And that is why P&G prices their toothpaste the way they do, enough people are willing to pay that price which maximizes their profit.”
Wrong. P&G prices their products to maximize profit – period. Most people who pay more for a product that has a brand name they “trust” are paying the premium for the name. The truth is that other unbranded or rebranded products may offer the exact same quality. Branding is a form of psychological manipulation that creates perceived value that may not and usually doesn’t reflect actual value. http://www.brandchannel.com/features_effect.asp?pf_id=201 Despite what your religion may tell you, perceptions can be manipulated and are by marketers on a regular basis.
The perfect example of this is branding in the pharmaceutical industry. Why does Big Pharma fight so hard to retain their branding? It’s because branding itself adds perceived value to a product that can be made to the exact same formulation but with a generic name. They spend a lot of money on creating brand name recognition and trust. They wouldn’t spend that money if it didn’t profit them. Perceived value is only a value to the profiteer, actual value is actual utility by cost. They are not the same thing.
Gene H:
I am not sure how you came away with that conclusion based on what I wrote above.
Some people want McDonalds and some people want 5 Guys, a big Mac costs 2 bucks and a dbl at 5 guys cost around 5 bucks. People like the convenience of McDonalds but the dbl at 5 guys is better quality.
Consumers want choices based on price and quality and some intangibles like ease of purchase or someone wants something right now.
But I think most people are looking for the best deal for their money. And that is why P&G prices their toothpaste the way they do, enough people are willing to pay that price which maximizes their profit. Which goes back to my contention that it is all about pricing the good or service at the right place. So it is all about price.
Tony C:
P&G has their price set to maximize profits, I understand that. What I am asking is how can a small toothpaste manufacturer compete with Crest? They have to charge what people are willing to pay, maybe the small companies customers like the fact that they use ground oyster shell instead of ground eggshell in their toothpaste or that they use peppermint grown on family farms. But things like that are only attractive to a point. Price takes over at some place in the consideration to buy a new brand of toothpaste.
How does the small competitor price to compete with P&G? Or what strategies could they use to induce people to buy their toothpaste over Crest?
Bron,
As usual, you’ve shown you don’t understand how a consumer economy works. Actual value (versus perceived value – a psychologically manipulable fiction) is less a driver of demand than end cost to the consumer. If actual value were the prime driver in consumer spending, every car would be as well engineered as a Mercedes instead of the lesser engineering of other brands and McDonalds would serve real food instead of what they actually serve, caloric pseudo-food.
@Bron: Science proves you wrong, so does logic and observation. PG has a 20% profit margin. They could reduce their prices by 15% and still be completely profitable. Why do they not do that? Because they aren’t stupid or dogmatic at P&G, they have experimented with dozens, even hundreds of price reductions in the past, and they have found that did not attract enough new customers to make up for the lost revenue. Simple.
Rational companies conduct rational experiments to test the efficacy of pricing changes, and P&G concluded what psychological studies have shown, that when prices of small goods are within about 20% of each other, consumers stop caring about the nickels and dimes and go with who they know. Proctor and Gamble could sell for less and still be profitable, but it would be less profitable than they are now, and they are in the business of maximizing profit. For them, that occurs at the 20% profit margin.
You are wrong, P&G does not compete on price. People will buy Crest because they just do not trust other brands. P&G competes on TRUST and RECOGNITION, not on price or quality or features. P&G could actually package their competitor’s exact product and then outsell their competitor under a P&G name, because people trust and recognize P&G. When people do not have (or bother to acquire) any factual information on a product, the intangible trust and recognition will sway them, they will pay 15% more just for that. That is why P&G does not have to compete on price, and that is why it is tough for anybody new to gain any traction against them, and in a similar vein, that is why entrepreneurs are wiser to pursue an under-served demographic than to pick a fight with an established company.
Tony C:
You have to compete on price, you cannot charge more than the market even if you offer much higher value. At some point the extra value has to be attractive to a consumer.
So what do you do if you are small business wanting to compete with P&G? You may have great toothpaste but at some point people are not going to spend much more for your toothpaste than for Crest. If Crest costs $3.00/tube you maybe able to charge 4.00.
@Bron: Your comments do not take competition into account.
I wasn’t trying to sum up my four decades of business knowledge and education in a few paragraphs, Bron. I was pointing out that you are wrong, it is never the intent of a rational business to provide the maximum value, it is the intent of a rational business to maximize net profits, and that is directly opposed to maximizing value. To maximize net profits one must also minimize costs. If we assume that adding value means adding costs (in personnel, quality of materials, time in production, more skilled labor, and so on) then minimizing costs is in opposition to maximizing value. Thus we want the minimum value we can deliver, but there is another tension wire pulling on value, and that is sales. If we want to operate at our maximum capacity we have to sell our product to a certain number of people. So our value must be as much as it takes to induce them to buy our product, but because value is a cost, no more than that.
I wasn’t writing to teach you capitalism, I was writing what is commonly known among capitalists and proven by practice, to show you that your claim is false.
If you want to bring competition into the picture, lets do that:
Value is much like any other cost in business, the true minimum is zero: Just cease operations! No more payroll, rent, insurance, materials, or any other cost.
Which means minimizing any costs is always with respect to one or more other objectives; the minimum requires trade-offs. The same thing applies to employee costs, insurance, utilities, tools, guarantees, service, and everything else: The intent of business is to minimize those costs while simultaneously preserving their ability to operate at peak capacity. It is a balancing act.
Competition is just another environmental variable. It reduces price, but that is not its main power. If it were, why would large public companies like Proctor & Gamble be operating at 20% proift margins? They are not the only ones, McDonald’s is just a cheap burger place, why should it operate at a 30% profit margin? Microsoft is in the weird position of having a competitor whose product is actually FREE and it operates at over a 40% profit margin.
The primary effect of competition is called differentiation. It is usually self-defeating to slug it out head to head offering the same product. That is a recipe for splitting the business, and half as many sales in any business can often means bankruptcy.
So competition provides choices, but actual head-to-head competition is relatively rare. What we tend to see instead is experiential differentiation, and that is mostly what companies advertise, although they try to be affordable they tend to abandon the rock-bottom demographic (depending on the product about 20%-40% of Americans are so price-sensitive that almost nothing else matters) to others, like Walmart, Taco Bell and such. A sit-down restaurant isn’t going to try to compete with $1 burgers or $2 Subway subs. Their business is differentiated to serve a different demographic, and when they ARE competing for members of the same demographic, they almost never consciously differentiate by price, they differentiate by the experience they offer the consumer. For example, what’s for dinner? Italian, Greek, Chinese, American, French, Mexican, German, Polish, Irish Pub, Indian? Every one of those restaurants are within driving distance of my home, often in multiple varieties, and priced comparably enough that my wife and I do not even consider price when we choose one, we only consider the experience we will have.
If you just look at the income statements of public companies, you will see profit margins (Operating income divided by total revenue) of the companies that are not in trouble in about the 20% range. Now remember that is AFTER all expenses, salaries, and costs of goods and services: So it is “excess money.” If competition had infinite power to reduced prices, they would all be in the sub-Walmart range, under 5%, not the 20% range like PG. PG does have competition, but they do not respond to it by lowering their profit margin. I do not expect they ever will: PG caters to a demographic not bothered by a 10% increase in price to get a brand they know and trust. So does a company like Kellogg, at 16% profit margin. It is actually quite easy to compete with them on price, but they do not lower their price in response.
Competition actually has a limited power to lower prices, at a relatively high margin, most consumers will voluntarily pay more for a functionally equivalent product or service. They distrust newcomers and often feel like they have a relationship with a brand or company. That, btw, has been exhaustively tested in academic settings, it is a good project for under-graduates: Re-brand the identical product and ask volunteers if they can detect a difference in quality between the new brand and a well-known brand. Very reliably, most study participants will claim they definitely can, when in fact there is obviously no difference whatsoever.
Entrepreneurially speaking, it seldom makes sense to compete head-to-head with somebody else; the vast majority of successful entrepreneurs recognize a demographic segment that is NOT being served in an area, and create the experiential difference to serve it. The extent to which they steal business from somebody else is incidental, if they do, it is because the demo they chose to serve in an area was being ill-served by their existing choices.
Competition on price is way over-rated, and in real business in the real world, both large and small, price is seldom the basis of actual competition. Most businesses strive to make sure they are NOT a commodity, because the last thing they want to do is race to the 2% profit margin.
I do indeed think, Bron, in contrast to whatever it is that you do.
Gene H:
so the liver isnt on the right side tucked slightly under the stomach?
In your world that is probably true since you think the way you do.