Friday, June 18, 2010

Economic Myths, Fallacies and Stupidity - Capitalism vs. Government Run Enterprises

What amazes me about seemingly well educated people, is that they fail to grasp the fact that businesses have to satisfy their customers in order to survive, and Government run services do not. Given this observation, perhaps the liberal educated elite do grasp it and do not care. Maybe they have another far reaching agenda, that of creating a society where they have total control and can run roughshod over us common folks' freedoms.

Wal-Mart owns 8,300 stores, of which 4,000 are in 44 different countries. Its 2010 revenues are expected to top $500 billion. Putting Wal-Mart’s revenues in perspective, they exceed the 2009 GDP of all but 18 of the world’s 181 countries. Why is Wal-Mart so successful? Millions of people voluntarily enter their stores and part with their money in exchange for Wal-Mart’s products and services. In order for that to happen, Wal-Mart and millions of other profit-motivated businesses must please people.

Compare our level of satisfaction with the services of those “in it just for the money and profits” to those in it to serve the public as opposed to earning profits. A major non-profit service provider is the public education establishment that delivers primary and secondary education at nearly a trillion-dollar annual cost. Public education is a major source of complaints about poor services that in many cases constitute nothing less than gross fraud.

If Wal-Mart, or any of the millions of producers who are in it for money and profits, were to deliver the same low-quality services, they would be out of business, but not public schools. Why? People who produce public education get their pay, pay raises and perks whether customers are satisfied or not. They are not motivated by profits and therefore under considerably less pressure to please customers. They use government to take customer money, in the form of taxes.

The big difference between entities that serve us well and those who do not lies in what motivates them. Wal-Mart and millions of other businesses are profit-motivated whereas government schools, USPS and state motor vehicle departments are not.

In the market, when a firm fails to please its customers and fails to earn a profit, it goes bankrupt, making those resources available to another that might do better. That’s unless government steps in to bail it out. Bailouts send the message to continue doing a poor job of pleasing customers and husbanding resources.

Government-owned nonprofit entities are immune to the ruthless market discipline of being forced to please customers. The same can be said of businesses that receive government subsidies.
Read "Economic Myths, Fallacies and Stupidity" here.

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