Wednesday, October 10, 2007

Doing the Right Thing

A strange thing happened to me yesterday...

I had taken my wife's car to our local Honda dealership on Monday, as the check engine light had come on and it was running poorly. A few hours later, the service adviser called me to tell me what the problem was and how much it would cost to fix it. It wasn't cheap. Also, they didn't have the part, so it would be overnighted to them and they would fix it the next day. The following day I received another call. The part had been replaced, but it hadn't entirely fixed the problem. There was another part that was needed, and again, it had to be overnighted. It also increased the total repair charge by about 65%.

This put us in a bit of a bind. The money wasn't really an issue, but having the car out of commission for two days created transportation problems for us. My wife needs her car to get to work, and since part of her job is coaching a soccer team she has a lot of stuff to carry around. She also has to be able to get from work to the soccer field and all that good stuff.

So, while I'm still on the phone with the service adviser, wondering how we're going to resolve our transportation problem, he offers to reduce the overall service bill by 10%. I didn't ask him to. Nobody told him he had to. He just offered. How weird is that?

Then, as I was expressing my gratitude for this generous gesture, I told him that we would need to come get some items out of the car and casually mentioned our transportation problem. I certainly didn't expect him to do anything about it. I was just communicating that I hoped we wouldn't run into any other setbacks in the repairs. You won't believe what happened then.

The service adviser offers to provide me a rental car for the duration of the of charge! I was blown away. This was not the typical car dealership treatment. This was above and beyond, as far as I was concerned. I actually thought about declining the rental car offer, but we really did need the transportation, so that afternoon we headed to the dealership, picked up the items we needed from the car, and waited about 15 minutes for the rental car to arrive.

So what's the point of this anecdote...the moral of the story, if you will?

I've often heard the argument that in order for a truly free market to work properly, it requires that people do the right thing. However, as Adam Smith and loads of economists since him (and a few before as well) agree, the exact opposite is true. In a free market people do the right thing because it's in their best interest to do so. To quote Adam Smith directly:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages.
The service adviser at the dealership didn't offer to reduce my bill out of the kindness of his heart. He didn't call Enterprise Rent-A-Car because my need was great. No government official told him he had to bend over backwards to make sure my life was disrupted as little as possible while my car was being repaired. He did these things because he knows that I own an older vehicle that will likely require more repairs in the future, and if he treats me right in this instance I won't hesitate to bring it back to his dealership the next time it's in need of service.

The free market provides a framework wherein individuals, acting in their own self-interest, do the right thing without really meaning to. Business owners treat their customers fairly and with respect in the hopes that they will come back and do business with them later. The very survival of any business depends on it...or at least it would were it allowed to work. More often than not, however, government skews the incentives provided by the free market to "do the right thing." Heavy-handed government regulations replace incentives to "go above and beyond" in order to keep customers happy with a more costly incentive to merely comply with regulations to keep bureaucrats happy. Subsidies replace incentives to be efficient and reduce costs with more lucrative incentives to keep costs stagnant and push for even greater subsidies.

On the other side of the coin, a lot of people get hung up on motivation. They think people should be altruistic, and feel that if someone does something good for you just because they want your money it somehow invalidates the act. I say, "Who cares?!" When the levees (built by government) in New Orleans failed, and thousands of people were left homeless or worse, Wal-Mart had hundreds of trucks filled with supplies standing by to help the victims of government failure get on with their lives. But many people thought Wal-Mart shouldn't be allowed to help, since they were "only doing it to improve their image." Those evil bastards! How dare they try to help for the wrong reasons! I'm betting, though, that the people whose homes had just been washed away were probably more than happy to accept Wal-Mart's help, and didn't care in the least about their motivation.