The Problem is Clueless Investors

We are told of the wisdom of markets, of the foresight of people to enter into ventures, of people to put money into them, and of consumers to buy goods and services. And we are told of the consequences of not performing as well as we can as businesses, investors, and consumers in our self-interest. This is reasonable provided the game is fair and everybody is well-informed and reasonable. In reality human weakness make this perfectly running, perfectly free market system quite a bit less than ideal. People often behave with great short-sightedness whether out of greed, stupidity or ignorance, and sometimes all three. We are also often told the myth that government is somehow basically in conflict with free markets and that the less government the better, as by Libertarians and some Republicans, or by Conservatives in general. The historical fact is that government plays a basic role in establishing and protecting markets by providing seed resources to overcome the risk of starting new industry and by protecting the economic system from instability and threats. It has done so from the beginning of nations. In addition Government mitigates some of the risks of doing business, both for producers and consumers. That is wny most real-world economies are "mixed" and not totally deregulated. Even when that word was in fashion noone really wanted a return in America to the government non-involvement of the beginning of the 20th Century and even when Robber Barons and Social Darwinists in Capitalism ran the show, they did so with the help of corrupt politicians.

When we think of problems in our economy, large and small, we must put much of the lack of insight on the shoulders of investors, whether institutions, investment bankers, or individuals, because it is the question of whether money can be raised that mostly determines if a given venture can go forward. It is not either the desire to start a business or the needs of consumers. Alerting investors to a need is pretty inefficient. They must wait for proposals for ventures, so in that part of the process, the consumer is often the last served; ideas for ventures can come from people who happen to see a need of consumers, but dissatisfaction from the public at the quality of services has to be seen as such. The proposals often are first presented in business plans that emphasize return or investment rather than the question of
whether the public is being served. This is why so much money has to be wasted on marketing, because business have to sell consumers on the business plan supported by their investors, not what consumers obviously need.

I'll give you an small example in the town I live in. About ten years ago there was one of those family-style breakfast places that did a land-office business because its food was excellent, reasonably priced, and it had been at that location for 40 years. The restaurant was good sized and there was lots of parking. The owners retired and the place went out of business. Within the next few years there had been a succession of much more pricey fish and steak places, at that location none of which survived more than a year or two. In the meantime a popular cafe opened that was not really a full-serve restaurant but did serve breakfast, hot and cold sandwiches, other pre-made entrees. It is still there. The problem is that the place is overcrowded on weekends, especially in the mornings and especially in wet weather. The seating in the place is all small tables. It is not really suitable for large parties especially with little children. There are other restaurants that serve breakfast but each has its own set of issues, size, parking, and in one case closing on Sunday probably because of religious convictions. I am amazed that no one has seized the opportunity to take advantage of this situation. The town where I live is not poor. It has a Chamber of Commerce, there are banks and investment bankers and institutions aplenty; in fact they are displacing business that offer tangible goods and services.

This little local story shows the disconnect in market systems and it can be seen at a larger scale whenever people go unserved for any length of time. The information that a need to be filled is not getting communicated. Either the people who want to do business in the area don't see it, or don't care, or they do and can't get investors to start them up. The odd thing is that the restaurant business is inheritly risky and yet there were people who were more than willing to throw their money at up-scale menus that had a far greater chance of failing than does a breakfast menu that is relatively inexpensive and caters to families, like the place that was there for 40 years. That location is still there, the building and parking spaces are still there going under utalized. What amazes me is that there are people who are supposed to know all these things in great supply in this town and yet none of them has come forward. I guess that they would rather put up with the crush and noise at the cafe rather than see that a good family-style breakfast place large enough to hold many large parties and with plenty of parking go into a venue that already exists down the road. I may decide to move somewhere else rather than put up with the short-sightedness of the people here, and I have less faith in the wisdom of markets as a result.