Recently, thanks to generous donors to the Ball State Institute for the Study of Political Economy, Economics Club students and faculty went on our annual trip to the Indiana Statehouse in Indianapolis. In the Indiana Senate chamber, speakers who work for or with state government gave us an inside look at state revenue, expenditures and the legislative process.
Our next stop was the Indianapolis Motor Speedway. Alex Damron, vice president of Penske Communications, and IMS President Doug Boles spoke to the group. Their presentation and the subsequent discussion gave numerous real-world economic insights. Here are just a few.
The Indianapolis 500 is unique in the world of sporting events. It is the world’s largest single-day sporting event, with over 300,000 in attendance. When we asked Damron and Boles whom they considered their competitors, both speakers emphasized that they compete with all other recreational events. There are a lot of substitutes for going to the Indy 500, so the management team’s focus has to be on enhancing and improving the fan experience.
When energetic octogenarian Roger Penske acquired the Indianapolis Motor Speedway in 2019, what was the first thing he wanted to inspect at the racetrack? The pits for the drivers and crews? The bricks? No, he wanted to examine the more than 300 bathrooms and concessions to evaluate how they impacted the customer experience. His example inspires all 500 employees to focus on customer experience. We imagine such attention to detail was never a priority of high-ranking Soviet commissars and bureaucrats.
We mention this because Penske Enterprises is a privately owned firm competing in a capitalistic economy. Many commentators are uncomfortable with the label of capitalism. Rather than calling our economic system capitalism, economist Dierdre McCloskey prefers calling it “trade-tested betterment.”
Private ownership, freedom in pricing and the ability to trade private assets induce owners of resources to not just milk a brand for what they can get today but to enhance the brand to assure profitability in the future.
That is why the Indy 500 team routinely entices youngsters to the track with low prices, even if that reduces this year’s bottom line. Since the average racing fan is in his or her 50s, lower prices for younger fans and more entertainment possibilities help youth develop the tradition of going to the track, enhancing profits in the coming years and decades.
Trade-tested betterment makes customers and companies better off and creates the Indiana state revenue necessary to fund education, transportation and other state expenditures.•
Bohanon and Horowitz are professors of economics at Ball State University. Send comments to firstname.lastname@example.org.