Government vs. Private Sector Services

The following is posted on behalf of Dick Marshuetz. Now we have two good topics to kick around on Monday…

Last Monday we had a brief discussion about a question that had been asked of Congressman Poliquin:  Why are we better off with for-profits than government enterprises?  I think the reference was to health insurance but that’s a variant on a general theme that by eliminating profits, government enterprises might offer better service at lower prices.  This sort of question is usually asked as an unanswerable stopper since everybody knows that profits don’t really do anything except line some plutocrat’s pocket.  Without the plutocrats presumably customers and taxpayers are better off.

As you may remember, I responded along the lines that government enterprises whether in insurance or anywhere else tend toward monopoly and monopoly is bad for almost everybody except the monopolist, also, that it’s no better if government does the monopolizing.  This is because by avoiding competitors, monopolies have no stern imperative to expand supply to fit demand and so prices go up and innovation is retarded.  Life gets comfortable for the monopolist, all of which is why we outlawed monopolies.  The Beyond Label group then went on to other things, many attendees possibly still convinced that he had a point–if government runs things, the People save the cost of profit.

Next week maybe we can revisit this subject.  Beyond the issue of choice-reduction and one-size fits all when government conducts business, there’s also the issue of constrained freedom and corresponding rise of the sum total of coercion in our society, also the shift of motivation from seeking rewards to escaping penalties.  Further, there’s the question of which costs more, profit in the private sector or oversight, policing and adjudication in the public one.

Government, of course, needs to raise capital to get into business the same as private business.  But when private business needs capital, the investors are volunteers seeking rewards (profits) and accepting their obligation to pay taxes and face the risk of losing their capital if competitors do a better job.   Government isn’t like that.  It raises taxes to get its capital, polices and penalizes those who don’t want to ante up and of course spends taxes rather than paying them.  Once in business, government enterprises usually seek to avoid competitors from the private sector and with no competitors to make sure customers are at least reasonably satisfied, government enterprises substitute “oversight”.  In the case of the Federal Government the oversight ultimately comes from Congress, a body that has earned the disapproval of more than 80% of taxpayers and voters, Republicans and Democrats alike.  How on earth does it make sense when Congress is already so clearly overextended to give it an even wider portfolio of things to oversee?

In the private sector the policing of customer satisfaction is done in the marketplace by  competitors.  The “cost” to us is profits on which the competitors must pay taxes.  With government enterprises, the policing is done by, well, police!  And a police officer by any other name–IRS Agent, Postal Inspector, Health and Human Services Secretary and so forth–is still a police officer sanctioned by government to inflict penalties.  Sure, we are entitled to due process but if judged guilty we pay a fine or go to jail.  Nobody ever gets fined or sent to jail for shopping at Target instead of Wal-Mart so the cost of that is either zero or some portion of those enterprises’ profits, depending on how one slices the cost pie.  But government overseers, bill collectors, the interest on public debt, police, courts and all the apparatus that supports them usually stand alone in government accounting.  Do these costs outweigh the alternative of rewarding private investors with profits?  Who knows!

In the case of “single-payer” health care, avoiding competitors and substituting coercion in place of competition is what’s going on by definition.  One couldn’t opt out of the government program because one likes better this or that private insurer.  A current example of that sort of thing is Social Security where young people (actually, all people) are forbidden from deciding that they would prefer to take the equivalent of their payroll tax and invest it in an IRA-like account that they own.  As one result, there’s a lot of disingenuous language about Trust Funds and “Paying Into” that insulates Social Security and Medicare from the reality that both systems are simply taxes on younger productive people to pay older non-productive ones.  It’s of course different and better with auto insurance where we must get insurance that meets certain government-set standards but where we get it is up to us.  Would we be better off with one giant Federal Auto Insurance Authority that promises to eliminate “profit” and is run by an executive appointed by the President with the Advise and Consent of Congress?  Good luck with that!

I think it is likely that Congressman Poliquin could have responded to the question about why profits have a utility but it’s not surprising that he didn’t choose to get into a complicated explanation in a public forum.

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