We work in order to eat, not vice versa. In other words, an economy should, first and foremost, benefit consumers, not producers _ individuals rather than the established interests of business and labor.
This simple truth, which is regularly ignored by politicians and the media, is at the heart of many of our current debates _ over free trade, taxes and, most recently, the antitrust action against Microsoft.
Adam Smith said it best in 1783: "Consumption is the sole end and purpose of all production, and the interest of the producers ought to be attended to, only in so far as it may be necessary for promoting that of the consumer."
That's why free trade is so beneficial. If we make it easy for Italy to export inexpensive shoes to us, then U.S. shoemakers may have to find jobs in other fields. But, meanwhile, the 260-million Americans who wear shoes every day get a bargain. The money they save can be used to buy other things and start businesses, such as software, in which Americans have a clear advantage.
In its defense of fast-track to boost trade deals, the Clinton administration has ignored this approach: that the main reason we trade is to get good, low-priced imports, which, incidentally, help keep down inflation. Politicians have spent so much of their time helping producer interest groups (a term that always includes big labor) that they've forgotten the best argument for free trade: It's a boon to consumers.
But consumers are consistently given short shrift _ even by groups, such as Ralph Nader's, that purport to represent them. Take Attorney General Janet Reno's million-dollar-a-day fine against Microsoft, hailed by Nader and based on her claim that the company is "forcing PC manufacturers to take one Microsoft product as a condition of buying a monopoly product like Windows 95."
Yes, producers are forced to do something they may not like, but consumers get something free _ a browser that helps them move around the Internet. It's difficult to see how the aggressive tactics of companies such as Microsoft and Intel have hurt consumers, who now enjoy more computer power for less money.
It's nonsense to believe that a computer industry in a constant state of revolution will thwart individuals unless government steps in. It's consumers who determine whether a product succeeds or fails. For an economy to reward the best producers, consumers have to be given free rein to make choices and send signals about what they really want.
Unfortunately, the history of antitrust reveals a pattern of enforcement that benefits politically powerful producers while paying lip service to consumers.
If I seem overly agitated about producer-favoritism, it's because I've seen the deadly results. I just returned from a trip to Germany, which, a few years ago, U.S. politicians held up as an ideal. Today, there's a complacency and hopelessness about the economy. Unemployment is 11.7 percent.
Germans are precise, diligent, well-educated and technically proficient. But between 1990 and 1996, their total industrial output declined by 3 percent while that of the United States rose 17 percent. (Output in Japan, another producer-oriented economy that's in the dumps, fell 5 percent.)
Why? One reason is the drag imposed by the size of the German welfare state, but at least as important is an economic policy that consistently stymies the interests of consumers. For instance, wage agreements, enshrined in law, are set by the big manufacturers and their unions, then imposed on smaller companies _ a process that prevents serious competition.
German regulations also keep new entrants out of the marketplace. The medieval guild system still rules, and it's hard to start a business without the certification of companies that are already in it.
The most glaring example of producers-first is the law that sets nationwide operating hours for retail businesses. A year ago, those hours were finally extended _ for just 90 minutes.
Why have such a law at all? While some in the Bundestag argued that longer hours hurt family life and church-going, the main opposition came from producers themselves (and their attendant unions). Cartels love the status quo. Allow innovation, and new firms might drive us out of business. In other words, the consumer be damned.
Economic policy really isn't as complicated as it seems. Since, as Adam Smith pointed out, the consumer comes first, then the first question should always be: Does this help consumers, not in some imagined future but in the here and now? Free trade does. Microsoft's free browser does. A tax system that stresses low rates, simplicity and no breaks for special interests does.
The people who run Germany may never learn this important axiom, but most Americans know it instinctively. Now, if only the politicians and the press would catch on.
The writer is a fellow at the American Enterprise Institute.
Special to the Washington Post