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OP-ED: Failure proves the merit of the system

  • Published at 12:00 am June 7th, 2020
D2_April 28, 2020_Uber Eats
Photo: Bigstock

Uber Eats shutting down may not be a bad thing

Uber Eats is closing down in Bangladesh -- excellent, then free-market capitalism works. True, that’s not the conclusion you’ll see all that many reaching as a result of the withdrawal from the market but it is exactly what we all should be saying. 

Failure is the very thing which proves the merit of the system. Just so that we all understand the words being used, this is not to say that the Marxist interpretation of capitalism -- the expropriation of labour of the worker -- is not proven to work, nor that the extreme of free markets, where anyone can just do anything, is proven valuable. 

Rather, markets here just mean that people are able to produce things and see whether, in competition against all the other people doing the same thing, people wish to purchase them. Capitalism is only that profit is the incentive for them to do so. 

Think through, for a moment, what our essential economic problems are. What is it that people actually want? We can’t go and ask them as we all know talk is cheap. Being slightly more refined about it, we say that expressed preferences aren’t truly valid, it is revealed ones that are. 

To see what people truly want we’ve got to observe. For example, and pertinently at present, no one would say they would risk grandma’s life just for a haircut. Yet that is what people have been doing -- the largest number of reports about breaches of the lockdown regulations, where a business is concerned, in the UK is of people getting just that, haircuts. 

We learn what people truly think important by observing them, not listening to them. This is also why so many business plans look great on paper, the research, and the surveys assume people will love it yet the custom never actually does turn up. 

This is complicated by the manner in which what we’re able to do keeps changing. Technology marches on, and the things we can produce changes all the time. Further, what people want are changes, it has been possible to produce vinyl long-player records for well over 70 years and yet 15 years ago no one was interested and now they are again. 

Our economic problem is, therefore, to sort through this universe of what is possible and try to match it up against that universe of human desires. Both of which keep changing and worse, we’re trying to do this with the maximum efficiency too. So, how do we do this? We can’t plan it because we’ve no way of knowing what people really want other than watching what they do when things are available.

So, we’ve got to reduce ourselves to simply trying everything. Sure, some things won’t work -- meat flavoured ice creams for dogs perhaps. Although who knows? Vegetarian food for cats is quite a market currently. What’s the fastest manner of trying everything? Simply allowing people to start producing whatever comes into their heads. That gives us the largest universe possible of what is made. 

But then we need a method of sorting through what it is that people want. Further, our definition of want is the willingness to pay more for something than it costs to produce. Again, we can only observe this, it’s not fully predictable ahead of time. 

Thus our method of measuring what people want has to be what they buy from among those things that are made. The incentive to try making whatever new things can now be made is that if people do want them then profit can be pocketed. 

This is what drives the experimentation system -- and that’s what a market economy is, at heart. It’s a continual system of experiments to see what the matchup is between what can be done and what people want to be done. 

At which point we can return to our current example, Uber Eats closing in Bangladesh. The new mobile phones, mapping systems, and so on can be added to the extant system of restaurants, motorbikes, and taxis. Out of which a food delivery system can be built. 

This is obviously technologically possible because we’ve just watched it being done. Our question now is, well, do people want this thing being done? As it appears the answer is no. Or even, perhaps they do -- there are many competitors after all -- but not by these people. 

Or even, not at the price that these people, Uber, can do it at. Excellent, we now have more knowledge about our world. This thing which is technologically possible is not something people wish to have done at this price, by these people. We can now redeploy all of those assets, the people, labour, time, and effort, to doing some other thing which people do desire to have. Don’t forget, by definition, if people have more of what they want then they’re richer. 

That constant experimentation into ways of delivering more of what is wanted is the very definition of economic growth. The closure of Uber Eats in Bangladesh can obviously be seen as a failure. For it is, it was an attempt at a business that hasn’t worked out. 

But it’s also proof of the success of the system. Something that had not been done before was tried. There was the space to try it, the system allowed the experiment. That the experiment happened meant people could provide their full judgment on the issue -- were they prepared to pay for it? And so our knowledge of that interaction between what is possible and what is wanted has advanced. 

We can -- and will -- now go and try something else and eventually, we’ll stumble across something actually desired and so become richer. That is, it is possible to try is the very success of the free market system even as bankruptcy is that selection system for what survives. 

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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