Don’t Underestimate the Power of the Invisible Hand to Drive COVID-19 Safety Measures

Skeptics of market forces vastly underestimate the power of the “invisible hand,” a term coined by Scottish philosopher and economist Adam Smith that refers to the unseen market forces that drive an economy.

Sunday, December 6, 2020
Peter Clark, fee.org

Amid the COVID-19 pandemic, the question of enforcing compulsory mask-wearing laws has been fiercely contested, frequently devolving into a debate over political ideology rather than a discourse based on hard science. Naturally, proponents of mask wearing prefer this prescription to be codified in formal statutes rather than an unspoken courtesy. However, could it be possible that people still opt to take precautionary measures even in the absence of such laws?

Better yet, couldn’t owners of private institutions such as stores, restaurants, and entertainment venues implement their preventive measures as conditions of patronizing their establishment? The incentives are present to keep their customers safe when faced with the uncertainties of the pandemic.  

In the state of Arizona, the issue of mask-wearing mandates has been left up to the local governments. Most municipalities have opted to require masks while occupying indoor venues, threatening a hefty fine for non-compliance. Back in June, for example, the city of Phoenix imposed a $250 fine for individuals repeatedly refusing to wear a mask. The suburb of Chandler, Arizona imposed a fine of $100 or 30 days in jail for mask-related infractions. By contrast, residents and visitors in the towns and cities located in Pinal County are not subject to mask requirements but are strongly encouraged to wear masks. This conjures the image of bare-faced shoppers casually strolling along without masks in the local grocery store. In reality, despite the absence of formal restrictions, this couldn’t be further from the truth.

Most stores within Pinal County require that all customers wear masks, generally posting signs on the front door warning prospective patrons of this requirement. Not only are the stores and eateries of these communities filled with mask-wearing customers, but many establishments are taking measures not required by any municipality in the state. These shrewd business owners, anticipating that customers may avoid doing business if masks are not required at their brick-and-mortar locations, are proactively responding to the concerns of their clients. Therefore, they have elected to require wearing a mask as a precondition of doing business.

In addition to urging patrons to wear masks, they also are making concentrated efforts to increase sanitation, and they are placing markers indicating the presence of six-foot gaps to maintain social distancing. The smell of bleach and other disinfectant products fills the entryway of the grocery stores. Employees are constantly cleaning. The local grocery store has never looked more pristine. Frankly, the increased frequency of cleaning and sanitization schedules was long overdue. The local Walmart is even wiping down and sanitizing the carts, a sight that few would have predicted a year ago. All these preventive steps are taken without any laws, penalties, or ordinances — completely implemented through non-political channels.  

This micro-level self-governance on the part of local business proprietors and franchisees demonstrates the power of the profit and loss mechanism. Since business owners have a stake in the company they own and operate, it is in their best interest to put the customers first. If the customers are comfortable, happy, and healthy, it will be mutually beneficial for both parties. The customer will continue to obtain the goods and services they need and want. Simultaneously, the stores and restaurants will continue to receive business which will keep them afloat. 

Establishments that are insensitive to the needs of their customers will invariably see a dip in sales. This would hold even if we were not in the midst of a pandemic. The entrepreneur must adapt to the present climate. That may mean investing in more cleaning supplies and requiring mask-wearing requirements for their establishment.

Business proprietors who do not respond to customer concerns about the virus will be effectively punished by market forces through a sullied reputation, lackluster sales, and even insolvency. While constrained by federal, state, and local laws, business owners by their possession of the enterprise still retain an immense amount of authority to create the rules governing their store.

Simply put, having the ability to formulate the policies that govern the direction of the business enables them to better serve their customers. Hence, profit and loss mechanisms can direct precautionary measures even in the absence of laws. 

From an economic perspective, business proprietors responding to these market pressures is an example of polycentric decision-making. This can be thought of as a decision-making structure under which multiple governing organizations enforce and formulate the rules for a specific region, sharply contrasting with the one-size-fits-all approach applied by governments.

Under this system, individual shop owners can tailor their precautions to the specific concerns of their regular customers instead of obtusely applying rules that may not even be effective or pertinent to how COVID-19 is impacting the region. 

Direct customer input about the absurdity of funneling customer traffic through two entries instead of three can be an example of ground-level adjustments made through business safety procedures. Thus, we can avoid the red tape and lethargic process of passing legislation or town ordinances. Fluidity is necessary for dynamic circumstances— fluidity is lost with the typical overarching top-down approaches favored by government action.

Skeptics of market forces vastly underestimate the power of the “invisible hand,” a term coined by Scottish philosopher and economist Adam Smith (1723-1790) that refers to the unseen market forces that drive an economy.

In jurisdictions where there are no regulations enforcing mask-wearing, store owners not only often require masks but in many cases go the extra mile to ensure sanitary conditions for their customers. Most who are skeptical of the market driving private solutions to the COVID-19 outbreak tend to cite avarice on the part of business owners. They argue that without formal regulations, most will skimp on investing in extra precautionary measures due to the additional cost of enacting such changes. But the willingness to make such changes is what separates a prudent business person from a fool. The long-run profits from investing in alleviating the concerns of your customers will quickly outpace the minuscule costs, making refusal to adapt to consumer health concerns shortsighted.

Peter  Clark
Peter Clark

Peter Clark is a blogger and enthusiastic advocate of free-market economics. Find his work on Medium.

This article was originally published on FEE.org. Read the original article.
Main Image: Nickolay Romensky, CC BY 2.0