Related to my last post, and reinforced by this article from Ezra, is the simple fact that there are things which private industry will not do. Why? Because there’s no money in it. Companies exist to make money, they are motivated by what allows them to make the most money.
As Ezra details in his article, the Health Insurance market incentivises less and worse coverage:
[I]t’s natural that insurers — which are, after all, for-profit companies, not government agencies or public trusts — turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable.
Matt also touches on this idea in a different industry:
My understanding is that the internet is radically faster in some Asian countries, notably South Korea and Japan, than it is here in part because the state has intervened in a more heavy-handed way to ensure that this is the case. Clearly, though, South Korea and Japan are not crushing the United States economically. One potential explanation for this is that all this talk about the Internet is way off-base, and digital communication isn’t actually all that important to the modern economy. I don’t find that especially plausible. Another explanation is the Cowen/Quiggen explanation—the consumer surplus associated with digital communication is only very partially captured as profits. That will predict that absent heavy-handed government intervention, capital markets will underfund broadband infrastructure and you’ll have less of it than would be socially optimal. This is, I think, a fairly reasonable interpretation of the broadband gap.
He comes at it from the perspective of productivity, but the idea is the same: private enterprise will only go so far. Matt has been reiterating that markets are not inherently better, they are only more efficient a lot lately, and I think that now is a really good time remember that.
President Obama touched on it during his campaign and in some of his speeches recently, particularly about the stimulus bill. For almost 30 years, we have been asking the service sector of our government to do more with less. Military spending is still through the roof, but infrastructure projects go unfunded and education requirements are created but not funded (see “No Child Left Behind”). Our electrical grid is antiquated and (as Rachel Maddow loves to point out) vulnerable to the most predicatable occurances like snow in winter. Or broadband infrastructure practically prehistoric in technological timeframes. And all the while our population grows, placing more dependence and stress on all facets of our infrastructure.
It’s obvious to me that the private sector would have been jumping all over these opportunities if there were profit to be had. Yet they haven’t, which seems to indicate that there’s no money there. Why should an ISP invest in upgrading their consumer grid when those same consumers will just expect better performance for the same price? Why should a power company improve the reliability and durability of their lines when customer will object to the higher costs?
This is where government’s role is, but the very idea of the value of government has been so besieged that we have silly debates about whether it’s wise to raise taxes on the riches 2% of the population. We’ve all heard and used the phrase “you get what you pay for”, but, somehow, it’s never applied to government. We’ve all complained about the efficacy of some governmental office (see DMV), but don’t really consider that they do the best they can, given the resources. We’ve probably all moaned a little about the exorbitant price of stamps (ohmigod! $.42), without really considering that for that price you we can send a letter anywhere in the coutry (or further) and have it arrive within a week.
And, since government is, in many ways, a service industry, the quality of those services can depend greatly on the quality of the employee providing it. When government offers 10-20% less salary for an equivalent private sector job, is it any wonder that the exemplary employees find themselves better paying jobs? But, that’s all the government can afford, because we’re so deathly afraid of the taxman.
This is not to say that there aren’t inefficiences in the way that government operates. There are, and we would be right to demand that those inefficiencies be sought out and corrected, which can be more difficult that in private industry because the bottom line is much fuzzier. But such a task costs money too, and we’ve starved our governments of that money for so long it’s almost amazing they manage to do as well as they do.
Here’s hoping that President Obama has a very successful administration, and that people stop being afraid of the big-bad-government monster for a while.