The Free Market and Responsiblity

Today was a tough day. The meltdown in the financial stocks continued. The stock market fell 504 points. Lehman Brothers and Merrill Lynch went out of business. Previously Bear Sterns and Countrywide also went out of business. These companies went out of business because they were managed irresponsibly.

I am using the word "irresponsibly" because a small segment people who profess to be free market advocates refuse to acknowledge that corporations, if they wish to operate in a regulatory free environment, must behave responsibly. Besides, I don't want to get into the other inflammatory issues such as unrestrained greed.

According to some free market advocates the onus for uncovering corporate misconduct belongs to the consumer and that a magical black box, in the form of "market forces" will somehow cause the offending corporation to mend their ways. This is a simplistic argument for few of us have the expertise and time to fully investigate corporate operations. Even the experts, who are paid full time to monitor companies were unable to detect the severity of the problem. Regretfully, the invisible corrective hand of "market forces" failed the financial sector since these companies did not mend their ways before it was too late. In a real absolutist sense the free market has worked, these companies have gone out of business due to mismanagement. A fairly draconian solution. Now, we as nation have been left to clean up this mess.

An issue currently under debate is Network Neutrality. The uncompromising free market advocates claim that regulations requiring that internet providers deliver the packets in their trust in a neutral manner to the packet's destination will destroy the internet since it will squelch innovation and hinder investment. They assert that internet service providers must have the "flexibility" to manage the flow packets as they see fit. On the other hand, those in favor of Network Neutrality want to be guaranteed that the internet service providers will deliver the packets to their destination in a fair and neutral manner.

My concern with the Net Neutrality Debate is that the word "flexibility" in the corporate environment has degenerated to mean that we (as a corporation) can do whatever we want. The financial institutions are in deep trouble because of their misuse of "flexibility". In terms of the Net Neutrality debate, we are seeing that some companies are abusing their "flexibility". Comcast and AT&T , for example, have already demonstrated, in some cases, that they cannot be trusted. Of particular concern is that in the absence of Network Neutrality guarantees the consumer will have no rights concerning how their packets are delivered. My observation in following the Net Neutrality debate, there are regretfully few calls by commentators for offending corporations to modify deplorable behavior when it is uncovered.

My intent is not to advocate for more regulation. Corporate managers can take steps to avoid regulatory oversight by accepting responsibility to operate their companies in a clear transparent manner. One means of accomplishing this would be the creation of a professional code of conduct. Self regulation, if done properly would avoid the necessity of regulation and would represent a commitment to operate responsibly for the benefit of both the corporation and its customers. The ability to act freely should also mean that one is responsible. The freedom to act "flexibility" in a whimsically self serving manner ultimately leads to failure.

If companies fail to operate ethically, they deserve to be regulated. Unfortunately, the meltdown of our financial institutions is not a positive indicator that corporations, especially on the issue of Network Neutrality, will act ethically .

Revised: September 16, 2008.