When the facts lead you away from what's really going on

I said I was going to dispatch eugenics to the abyss. I got the outline and half of it finished, then got distracted and wrote this instead. Since I should really be studying for my last exam tomorrow, I'm just going to post this and continue on.

Further to this piece ...



Government gets unfair flack for inefficiency because it takes on stuff that is inherently difficult to do and that's why the market doesn't do it. Some political outcomes allow us to address market failures in ways that are desirable for people, rather than assuming that market solutions alone will achieve the results that are most desirable for the greatest number of people.

For example, the US has private medical insurance, yet spends a greater portion of GDP on health care than any nation in the world, yet, achieves average health care results among the lowest in the OECD.

For example, I don't suppose unemployment insurance would be very effectively offered by private markets. While slow and inefficient service by the government may effectively deter some claims, it's hard to imagine that a private market would not do even more to minimize these payments in each case. Furthermore, people in seasonal or otherwise unpredictable lines of work would not likely be able to get insurance for a decent price. While this may engender 'economic efficiency' at the surface, that doesn't mean that it's socially desirable to leave employment insurance to private markets (although if they want to sell extra coverage, why not?).

For example, many of the most profitable industries are the result of massive public investments in education and technology. For example, aerospace, health and medicine, energy technologies... Of course, market mechanisms are trusted to sort out the best business models and marketing methods, but public resources are key to technological development in many industries.

For example, private schools only provide education to families with the means or desire to spend on education. Public education develops the skills and human capital of all of society.

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On the other side, let's consider public corporations. There is no shortage of examples of ineffective publicly-owned corporations. Let's make that absolutely clear. I'm not even going to bother starting a list here. However, there are notable exceptions.

Let's consider the Canadian mint. Forget about the fact that they print money. It sounds crazy, but the fact that these guys literally make money does not confer any ability, in and of itself, to be profitable. In recent years, successful marketing and business development and a reputation for good quality has led to the Canadian mint from a crown corporation that lost money to one that is profitable. This company competes in a global market where each national government could choose to print their money at home or in any number of places. They choose the Canadian mint. This begs a 'simple' question - what incentives were in place and what mechanisms were unique to the mandate of this organization that allowed it to be so successful in a competitive marketplace? Was it just a highly capable individual or team in the right place at the right time, or was there something institutionally correct that we can learn from this example?

Other examples such as the LCBO or Petro Canada (when largely government operated) are not entirely fair comparisons. They are highly profitable companies mostly because the government awards itself a monopoly. The efficiencies of a monopoly can be great, since there are no expensive and duplicit marketing campaigns, and locations can be strategically chosen to maximize profit while offering better average service. However, I should say again that the much of the LCBOs profits must (by economic theory) be due to the fact that they have a monopoly power to set prices. This is the reason that I choose to emphasize the example of the mint, which operates in a competitive market.

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We have seen here that governments fill important gaps that would be poorly served by markets. We have also seen that at least some crown corporations can operate competitively and efficiently.

Let me emphasize that I am well aware that I am making a rather one-sided argument. The other side of the argument is very well established, and is nearly an article of faith among a significant portion of society. However, it has its basis in a simplistic view of fact.

I will readily admit that governments don't tend to be as efficient as markets. The problem of perception comes from the fact that governments are active precisely where efficiency is hardest to achieve.

The facts will tell you that governments are less efficient than markets. What I have argued, is that with a little thought, we can see that much of the cause for this is that governments tackle the most challenging and unprofitable issues. Counter-intuitively, these are absolutely vital to efficient and profitable operations in markets.

This last statement is not an original point, but I think the explanation I offer for why so many people are inclined to disagree with the argument is.