One of the most common criticisms of free market economic policies centers around the notion of self-interest, which is at the heart of free market economic theories like those espoused by Milton Friedman. These critics offer a cynical view of self-interest, likening it to greedy, self-absorbed behavior.
So what would Milton Friedman say about this? He addressed the issue of self-interest in a recent interview with Hillsdale College President Larry Arnn.
(S)elf-interest is what the individual wants. Mother Teresa, to take one example, operated on a completely self-interested basis. Self-interest does not mean narrow self-interest. Self-interest does not mean monetary self-interest. Self-interest means pursuing those things that are valuable to you but which you can also persuade others to value. Such things very often go beyond immediate material interest….If you want to see how pervasive this sort of self-interest is that I’m describing, look at the enormous amount of money contributed after Hurricane Katrina. That was a tremendous display of self-interest: The self-interest of people in that case was to help others. Self-interest, rightly understood, works for the benefit of society as a whole.
So, the entrepreneur who starts her business because she enjoys building a business that creates good jobs is acting out of self-interest. The entrepreneur who starts his business to bring to market a better way to treat a disease is acting out of self-interest. The entrepreneur who starts her business to establish a culture that is a more family-friendly place to work is acting out of self-interest.
The entrepreneurs I work with define success in terms of the common good more often than in terms of their own financial rewards. Sure, they all want to make money. But, they start their businesses for so many more reasons than just creating profits. Their self-interests are much broader than themselves.
The key to this all working properly is that these entrepreneurs must be acting from a strong moral core. Strong values and good character don’t just happen. They are developed, nurtured, and reinforced in families and communities by a strong culture that is based on common values.
However, over the past fifty years we have been abdicating what was once the domain of our shared values–our culture–to government policy, laws and regulations. What is left is a culture that is a shell of what it once was. We are moving toward a society in which government tells us what we can and should do. We are no longer responsible for our own acts. It is becoming a society that does not trust that man, acting freely, will act in a just and magnanimous manner within a strong culture that nourishes his inherent goodness.
I see two sides to the topic of self-interests as it has to do with entrepreneurs. As we have seen with the four case studies of Bongo Bob, Pathfinder, TAG, Reell and our own entrepreneurs that we interviewed, almost all entrepreneurs start their company for one main reason, independence. Though, this is the self-centered interest which typically spurs one to make the jump to be an entrepreneur, when these people think about what to provide the public, they usually service a need or area that is currently not being taken care of. By providing this unserviced need to the community, these entrepreneurs are benefiting the whole society. This aspect of self-interest is good for the economy, community, consumer and employees and therefore should be promoted rather than restricted by regulations.
On the other hand, I recently did a research paper about the S&L crisis. In that industry, the deregulation and freeing up of an industry lead to the downfall of the entire industry and the loss of billions from investors and the government. The cause of the downfall was the self-interest of the people who jumped into the S&L industry to swindle investor’s money and attempt to gamble it away in the hopes of stricking the jackpot.
There is a fine line between how much to trust people and how much to regulate because both can hurt an industry or economy if there is not a balance. The key for regulators to understand is that entreprenuers are key to an ecomomy and should be promoted while industries that are targets for abuse need to be regulated. In other words, regulators need to make it as easy as possible to start a company but need to regulate potentially abusive areas of business to protect the public from scams and fraud.
Can there be a higher motivation to perform. Self interest drives performance like nothing else.