The Science of the Free Market

The question of integrity concerning academic institutions’ involvement with outside donors seems to be a topic of interest these last couple of weeks. It has been suggested that academic institutions have sold out to outside donors and further that these donors have unprecedented and unwarranted involvement in the selection process of faculty. Of course the specific donors in question are the Koch brothers, or more accurately the Charles G. Koch Charitable Foundation, and the subject of the work they support is economic freedom.

I am an assistant professor of economics, and I have received a grant from the Koch Foundation. I have also participated in workshops on Koch’s Market-Based Management, a management philosophy based on the principles of a market economy and fully explained in Charles Koch’s book The Science of Success. This work is an important aspect of my professional development, and I am sharing my intellectual discoveries with my students, my colleagues and members of my community. I thought this was my job.

To that end, the Koch Foundation is interested in supporting teacher-scholars devoted to advancing individual well-being and in turn social progress by incorporating the principles of economic freedom in their work. It isn’t a big secret, and it shouldn’t be appalling. One can read about their mission right on the front page of their website.

I teach entrepreneurship in addition to economics. I use MBM in my classroom, by my own choice. It helps me drive home the relevance and linkages of individual integrity, value-creation for the customer and in turn the company, long-term profit maximization and the betterment of society in contrast to the short-sighted approach to business that is the focus of traditional business ethics education (I choose to let my students learn the habits and practices of winners rather than losers). For those not familiar with MBM, the five dimensions are:

1. Vision
2. Virtue and Talents
3. Knowledge Processes
4. Decision Rights
5. Incentives

Compare these five dimensions with the cornerstones of economic freedom:

1. Private ownership of resources or property
2. Personal choice
3. Voluntary exchange
4. Free entry into markets or competition.

An economist or a student at the introductory level immediately recognizes these four cornerstones of economic freedom as nothing more than underlying characteristics of a market economy, taught in every Principles textbook I have ever read. These are relatively simple, basic notions. Yet, society has managed to abstract from these basic principles, as success so often has the tendency to cause. Some argue of course, Joseph Stiglitz comes to mind, that we can’t assume these principles are strong enough to override the problem of imperfect information. Yet, technology is removing information barriers with amazing leaps, so much so that much of society is now more concerned with privacy rights than ever before – a recent WSJ article about researching human behavior through cell phone records comes to mind. Yet, looked at from another perspective, market innovations in science and technology are helping disseminate better, more complete information. On the basis of economic principles, this should suggest that the free market is becoming better able to deal with resource allocation and efficiency in production, not less able.

So in conclusion the Koch Foundation supports research and scholarship on economic freedom. I wonder if we would witness a media uproar over an energy firm, other than Koch of course – maybe BP before the big spill, supporting a chemistry department’s research into alternative fuels. Would there be outrage to find a Fortune 500 company supporting marketing research and learning activities? Would there be outrage to find that the EPA supports student competitions to come up with all the reasons regulation is good, which the EPA has actually done.

From the perspective of economic freedom, this is just more competition. But then, it shouldn’t be a surprise that opponents of the free market are opposed to competition.