Which Costs the Consumer More: Profits or Politics?

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Socialists firmly believe that business profits are the bane of the consumer. If capitalists weren’t greedy bastards trying to maximize profits, consumer goods and services would be much more affordable. It is, therefore, in the mind of a socialist, preferable to shift production toward the government. Politicians aren’t chasing profits, so profits aren’t baked into the cost of whatever the government produces, and the consumers win.

In one sense, the socialists are right. The drive for profits does increase the cost of goods and services to consumers. Tesla, for instance, had an operating margin of 19.2 percent in the first quarter of this year. So theoretically, if the DOT bought Tesla’s Fremont and Austin factories, and continued to run those factories as efficiently as Tesla did, the cost of a base Model 3 would drop from its current $50,000 price tag to a more consumer-friendly price tag of $40,400.

But would the DOT continue to run the Fremont and Austin factories as efficiently as Tesla?

Maybe. If the DOT didn’t get any taxpayer subsidies that GM and Ford didn’t get, and if no one was forced to buy DOT cars, the DOT might be able to keep the Fremont and Austin factories purring along as if Tesla were still at the helm. But even in the absence of preferential treatment, I doubt the DOT would be able to pull it off. Congress is populated by the biggest buttinskis in the history of the world, and there’s no way in hell it will be able to keep its efficiency-destroying mitts off the DOT’s car operations. I’m sure, for instance, that the number of transgender engineers currently working at Fremont and Austin is woefully inadequate and Congress would have no choice but to fix that affront to “equity” once those factories were under DOT’s management.

The Cost of Politics: The Racketeering Margin

A few weeks ago I detailed how the rinky-dink highway department I worked for over 20 years was grossly mismanaged. Labor did everything it could to turn its employment into “high-class welfare” (i.e., good pay for little to no work), and management did everything it could to exact tribute from favor-seekers (primarily employees and contractors) and funnel that tribute to the local Republican Party. The end result of all this “politics,” in my estimation, was that the taxpayers got roughly 50 cents of service for every dollar in taxes they surrendered to my rinky-dink highway department.

Now suppose for a moment that my estimated cost of politics—my rinky-dink highway department’s racketeering margin, if you will—was indeed 50 percent. This means the taxpayers paid double for what the service we actually provided was worth. And if we supposed further that our 50 percent racketeering margin is the norm for every government entity, the cost of a base Model 3 under DOT’s management would be far closer to $80,000 rather than $40,000.

But all of this is conjecture, of course. The racketeering margin may do less to elevate the final cost of a good or service than the operating margin, and it may make sense for society to shift as much production as possible into government hands.

The only way to tell is to have a proper competition between the public and private sectors. And here’s how that can be arranged.

Competition Equality

First, a proper competition between the public and private sectors can only exist in those consumer arenas where private production is lawful. A private company, for instance, can’t start a police department in New York City and then compete against the NYPD by encouraging New Yorkers to call, say, 711 for help rather than 911. But a private company, though, can build and manage a high school, a college, a hospital, or a rental apartment complex.

Second, a proper competition between the public and private sectors can only exist under one condition: competition equality—the government doesn’t get any cost-reducing breaks or revenue-enhancing rules that its private-sector competitors don’t get.

For instance, under the banner of competition equality, the government would no longer have exclusive rights to the following goodies:

• Preferential subsidies. If the DOT’s car operation got, say, a $10,000 subsidy per domestic assembly job annually, GM and Ford would also be entitled to that subsidy as well. Likewise, if anyone who bought a DOT car received a $10,000 tax credit, anyone who bought a GM or Ford car would also receive a $10,000 tax credit. Competition equality means the absence of favoritism. Private-sector producers get whatever subsidy their public-sector counterpart gets.
• Mandated customers. This is the biggest advantage public-sector producers have over their private-sector counterparts. Public-sector producers have mandated customers—they get taxpayer dollars whether or not the taxpayers consume their product or service. A great example of this is public education. Parents who send their kids to private school aren’t freed from the burden of public school taxes. Under competition equality, public-sector producers would no longer be entitled to mandated customers. Public education, for instance, would have to follow the food-stamp model. Students rather than the public schools would get the subsidy, and students could take their “school stamps” and purchase education from any public or private school they desire.
• Freedom from sales and property taxes. This is another big advantage public-sector producers have over their private-sector counterparts. Public-sector producers don’t pay sales and property taxes. For competition equality to be truly meaningful, the private-sector competitors of public-sector producers would have to be relieved of this burden as well.

By removing the exclusive rights to the above three goodies, we would go a long way toward ensuring a just competition between the public and private sectors. And by having a just competition between the public and private sectors, we would finally get to see what bakes more into the final cost of a product or service: the racketeering margin or the operating margin. If the racketeering margin were less burdensome than the operating margin, government would grow naturally. If on the other hand, the racketeering margin were more burdensome than the operating margin, government would recede naturally.

A Partial Answer to The Question

In the post about the grossly mismanaged highway department I worked for, I suggested that the most important question we had to answer regarding government was as follows:

When it comes to government, one of our biggest priorities should be answering this fundamental question: how do you get a government to make the needs of its customers paramount when said government doesn’t have to compete for said customers? In other words, how do you get government officials to pursue operational excellence—which is damn hard—when their livelihoods don’t depend on pursuing operational excellence?

Well, competition equality is one way to make government officials more concerned about pursuing operational excellence. If the racketeering margin becomes too large in a government entity with private-sector competitors, that government entity will lose customers to its private-sector competitors. And if the excessive racketeering margin isn’t addressed and the bleeding of customers continues unabated, that government entity will eventually cease to exist.

Final Thoughts

Okay, groovy freedomist, that’s all I got. What say you? I say the cost of profits baked into the price of privately-produced goods and services is way less (on a percentage basis) than the cost of politics baked into the price of publicly-produced goods and services. I also say that competition equality between the private and public sectors is the only definitive way to prove the hypothesis expressed in the previous sentence. Let me know what you think when you get a chance. Cheers.