James Leroy Wilson's one-man magazine.

Monday, August 11, 2008

Freedom in the Global Free Market

Perry Willis at the DownsizeDC.org blog uses the accurate term "voluntary sector" instead of the "private sector" to refer to those segments of society and the market that are not under government control. As we all know, however, organizations and businesses within the voluntary sector vary greatly in how much freedom they give members and employees. The more numerous and rigid the rules, the less discretion and initiative individuals have to respond to new circumstances. They invariably lose out to more dynamic and flexible competitors.

The National Basketball Association is beginning to find this out regarding its salary cap. The cap limits the amount of money franchises can spend on the salaries of both individual players and on the team as a whole. The NBA has every right to impose such restrictions, but are they wise? As the basketball market expands globally, it may soon find out that such restrictions could backfire.

As J.A. Adande reports in his column, both LeBron James and Kobe Bryant have said they would consider playing in Europe, with Bryant asking "Do you know any reasonable person that would turn down 50 [million dollars]?" Today, Bryant is restricted to making "only" $21 million. If European teams are becoming wealthy enough to offer NBA stars more than double what they're now getting paid, then the salary cap rule, which limits the freedom of NBA franchises, will also harm them. If the rule was abolished, NBA teams would decide for themselves how to respond to European bidding wars, free from league rules.

What is more likely to happen is that instead of buying the biggest names, Europe will woo mid-level NBA players, the players who are not household names but provide quality team depth, who may make $2 million here but could make $4 million over there.

If the NBA retains its salary cap as European basketball grows in popularity and revenue, this will become a common occurrence. Star-driven play-off teams could be gutted as non-star starters and/or sixth, seventh, and eighth men leave for greener pastures. If the salary cap was abolished, general managers would have more flexibility to sign and keep most of their own players. If it is kept, the NBA's status as the premier pro basketball league in the world could evaporate.

As markets expand, organizations and businesses would do well to be less rigid in their practices, or else they will lose out. Obviously, if government forces business to be rigid through regulations, and depletes the resources they need to be innovative through taxation, they will be even worse off. For America to thrive, organizations and businesses must be more flexible and innovative in their operations. But most of all, they should be left alone, unhindered by the government.

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