Free Enterprise For A Free Society

An economy that welcomes successful companies must also leave room for the people who might eventually challenge them. James Dyson is a perfect illustration of this.

In this article, Fighting for a Free Future Associate Luke Lucas continues to explore Dr Nigel Ashford’s Principles for a Free Society, focusing on the fourth principle: free enterprise. Each month, Luke will examine one principle and tell the stories of the people who put them into practice.

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At Labour Conference, Jonathan Reynolds argued that Britain’s economic renewal depends on working with businesses and entrepreneurs, with an industrial strategy to turn British ideas into British production, investment and jobs. Few would dispute these ambitions. But they raise the question of what conditions allow an entrepreneur to turn an unlikely business idea into a successful business.

The idea of supporting innovation is a straightforward concept once an idea has proved its worth. But the harder test comes at an earlier point when the potential is unrealised. An economy that welcomes successful companies must also leave room for the people who might eventually challenge them. James Dyson is a perfect illustration of this.

Through dissatisfaction with current dust bags, he set out to build a much better system. He constructed a crude cardboard version and attached it to his vacuum cleaner in place of the bag, but the original prototype failed. Over 5000 prototypes later, he finally found one that worked and the familiar product we all know today was created. Dyson identified a problem, he had an idea, and he dedicated himself to discovering whether his idea could solve the problem.

But this mission was not started with certainty. Public celebrations of technological advancements tend to conceal the journey it took to get there. Success appears inevitable when viewed backwards, but each attempt requires the desire and motivation to succeed. When at the conclusion, each step looks like a chapter in a book, but an entrepreneur must make decisions before the chapter is written, and the possibility of wasting time and money is ever present.

But the successful design wasn’t the end of the story either; the established manufacturers rejected his prototype until he eventually launched it under his own name. If Dyson didn’t have the freedom to start his own business in an economy that allows challenges to the market, then the customer would never have been able to demonstrate the desirability of his innovative design.

This is Free Enterprise in practice, the fourth chapter in Nigel Ashford’s Principles for a Free Society. An established company can refuse an invention, an investor can refuse to fund it, a customer can refuse to buy it. But one action does not give authority over everyone else. The entrepreneur is ultimately in charge of the destiny of the invention.

This is why the ambition from labour deserves scrutiny. Government-backed finance ambitions are understandable: bring resources together, identify promising ideas and accelerate growth. The danger begins when political judgment dictates commercial enterprise.

A minister backing a project - potentially a large unnamed railway project as an example – is spending money collected from other people. A subsidised business can gain an advantage over competitors that must persuade investors to voluntarily part with their money. If the project shortfalls, there are potentially political incentives for further support. Perhaps jobs have been promised, announcements made or even reputation damage mitigation. The public may find itself financing commercially unviable enterprises that, in a sound market, should be wound up to allow for the next idea to be attempted.

But none of this means one entity knows best. Dyson’s story is crucial precisely because no single entity’s judgment superseded another’s. Either the manufacturers or Dyson could have been wrong about the viability of the cyclone technology, but it was the competitive market that allowed the disagreement to be tested through customers having the freedom to accept or reject the product.

The government should therefore be careful about organising economic renewal around selected businesses that they perceive to be what is needed for growth. Fully realised businesses that are unable to grow would be seen to not be a sound investment in a competitive market; the government should therefore be focusing on the future, the emerging challengers helping to shake up the market and catapult Britain’s future.

From a consumer perspective, would you want tomorrow’s products limited to ideas endorsed by today’s leading firms or would you want to test a promising new invention that could revolutionise the way you go about your day? A consumer’s purchasing decision demonstrates when ideas are viable, not how much money a government scheme can prop up ideas of individuals.

Secure property, enforceable contracts, and protection against fraud let people cooperate without political direction dictating ambitions. Proportional and equal rules make investments easier to assess, and barriers that protect incumbents should be challenged even when under the guise of national renewal. Scrutiny must be applied equally to all ideas. Free enterprise remains valuable through ongoing competition. Every business should face the possibility that someone else will find a better answer to the problem it aims to solve. If business cannot keep up with modernity, then ultimately, it should fail rather than be propped up.

Labour wants Britain to invent, invest and produce. But Dyson’s story shows how demanding that ambition is. The next important invention could just begin with someone being frustrated at a household product. However, you can't promise a minister that certainty; what matters is that the creator has the freedom to find out.

Luke Lucas is a Fighting for a Free Future Associate and also runs Voices for a Free Future’s monthly column, Liberty Around the World.