Government is flawed, but markets are too

Tom Schaller asks: Why don't private-sector inefficiencies, which drive up costs, drive us crazy the way public-sector waste does?

May 15, 2012|Thomas F. Schaller

This column may stress you out. It stressed me out just writing it.

Start counting on your fingers how many of the following aggravations you have encountered personally. Ready?

•You call a customer line to report a problem with some product or service, and after being forced to navigate through a multi-stage menu of options, you finally get a live person — who, unfortunately, seems capable of responding to only small set of basic requests.

•You file an insurance claim, but the paperwork and documentation required to get the claim paid seem intentionally convoluted so as to deter you from ever collecting.

•Your bank — which is paying you less than 1 percent on savings and checking deposits, money you're lending it — finds all sorts of creative fees and fines to penalize you.

•You take your car in for a routine oil change, but the mechanic discovers a variety of other problems or maintenance needs that you're not sure you really need and may be overcharged for.

I could go on, but you take my point: Hidden costs, inefficiencies, paperwork hurdles, scams and other frustrations are common to everyday business transactions. And these are just the minor irritants. Beyond that are the retail costs — for everything from tuition and clothing to cable and cellphones — that seem to be rising faster than wages.

Now, a question: Why don't we blame "markets" for these problems the way we blame governments and politicians for their failures?

Consider food safety. According to Eric Schlosser in "Fast Food Nation," an estimated 14 Americans die every day from food poisoning. That's about 5,000 per year, equivalent to more than 11/2 Sept. 11 attacks. Every year. But the market cares about these fatalities only insofar as there may be lawsuits or lost sales from bad publicity.

By contrast, the Centers for Disease Control and Prevention, one of the most effective and crucial federal agencies, does a splendid job of tracking and preventing the spread of potentially lethal viruses across the globe.

I'm a capitalist. I believe in the importance of the profit motive. I also have plenty of gripes about the failures of government and the mendacity of politicians of every stripe. But I get the distinct sense that Americans are too quick to glorify markets and vilify governments.

People who email me about my columns, for example, issue a lot of complaints about waste and inefficiency in government. They say public-sector workers are lazy, overcompensated hacks who sit on their butts all day, draining the taxpayers' hard-earned dollars. And government corruption? It's rampant!

Yes, there undoubtedly are crooks who file phony Medicare and disability claims. And I'm sure there are some lazy bureaucrats not earning their bloated salaries. The government should do its best to identify these people and root them out.

But guess what? Overhead in federal insurance programs like Medicare and Social Security is minimal. By some estimates, only 2 percent of expenditures go to administrative overhead, with the remaining 98 percent is paid out to beneficiaries. By comparison, a 2009 Congressional Budget Office study shows that small, private insurers spend about 12 percent in administrative costs, and even large insurers on average spend about 7 percent on overhead.

So, in some cases, private markets operate less efficiently than do public alternatives. We just tend not to think about the lazy, overpaid person who knocks off early to play golf in the private sector as raising the costs we pay for things. We console ourselves that the "market" will correct for this, driving out of business companies teeming with incompetent jerks drawing huge compensation. Anyone who still believes this after the financial crisis of 2008 didn't follow the news accounts very closely.

Markets, markets, markets — we hear that mantra chanted incessantly during Republican presidential debates. Government is evil, crooked, sclerotic and wasteful. Sometimes, yes, government is the problem, as Ronald Reagan proclaimed en route to the White House in 1980.

But those keeping a running tally of grievances should not overlook the frustrations and failures they've encountered in the marketplace. After all, like governments, markets are imperfect. Citizen-consumers benefit most when the strengths of each counterbalance the weaknesses of the other.

Thomas F. Schaller teaches political science at UMBC. His column appears every other Wednesday. His email is Twitter: @schaller67.

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