How IKEA and Innovation Help Refugees in Iraq and Jordan

 An individual needs to fail with a fallback position, a small startup firm needs to fail quickly, and a large, established firm needs to fail gracefully.

Acton Institute –  When looking for solutions to humanity’s problems, conservatives and libertarians tend to prefer turning first to free markets rather than government. The reason for such a preference is often misunderstood, and can be difficult to explain since it appears paradoxical: free markets are often better at serving human needs than governments because free markets make it easier to fail.

As Arnold Kling explains, the best way to deal with failure depends on the institution. Anindividualneeds to fail with a fallback position, asmall startup firmneeds to fail quickly, and alarge, established firmneeds to fail gracefully. But government, says Kling, cannot do any of these things well.

Of the many things that governments do poorly, failing is probably the worst. That is why governments rarely produces significant innovations. To produce innovative ideas, products, processes, or services requires testing what works and adjusting what doesn’t until you find the right formula. In a free market, the actions of consumers provide a signal to individuals and firms that they are doing well – or that they are failing.

If a company is failing, they have an incentive to adjust — and are pressured by competitors to adjust quickly — in order to give the customer what they need. They are often faced with a brutal, binary choice: innovate or fail. Government agencies, in contrast, tend to lack such feedback mechanisms and the ability to adjust quickly precisely because they have a low fear of failure. Even if they are unable to innovate and serve the needs of their “customers” they will likely stay in business due to bureaucratic inertia.

One way to overcome this problem is through public-private partnerships, like between IKEA, the Swedish furniture company, and UNCHR, the UN refugee agency. As the company explains, IKEA has the “knowledge to make thing easy to pack, easy to move, and easy to use.” By sharing their knowledge they have helped UNCHR do a better job of serving refugees.