The difference is private companies that accumulate too much waste and useless things can fail and be replaced. The exception is companies propped up by government regulation. The problem with modern big companies is that the exception has become the rule.
Regulation is so pervasive it's become a "what the hell is water" situation. People don't even recognize that the dysfunctional companies are protected from failure by the government. Seemingly beneficial regulations create barriers to entry that prevent dysfunctional companies from being replaced. IP law, even copyright (in its current, out-of-control practically perpetual form) is regulation that protects large incumbents in media and tech and other sectors from competition.
The difference is private companies that accumulate too much waste and useless things can fail and be replaced.
Even if that is true, in some areas companies' interests strongly misalign with that of citizens. An insurance company earns more by rejecting customer declarations. An ISP earns more by giving customers less bandwidth for a higher price. A toll road company earns more by doing as little maintenance they can get away with, while keeping prices high.
Yes, in a perfect market, customers will flock to competitors that are better for them. However, in many cases a perfect market is not attainable for various reasons. E.g. because the cost of entry is too high (e.g. making a competing ISP would require you to put your own fiber in the ground) or because there are network effects that are nearly impossible to break.
This is why certain markets need strong regulation or government monopolies -- to protect people from pure profit seeking. Health care is a good example. Health care in Western Europe is much better, while less money is spent on health care. This is because health care is strongly regulated and insurance companies cannot f*ck over customers. The objective function of maximizing profits becomes a constrained optimization problem, which generally leads to other ways to increase profits, like pressuring pharmaceutical companies to lower prices of medicines.
Natural monopolies exist, for sure. Your insurance example is odd though - insurance markets are generally highly competitive. The recent cases where we’ve seen a loss of competition in the market (CA home insurance, for example) have been driven by regulators imposing price controls.
The issue with healthcare is that providers have leverage over insurers, not that there is a lack of competition for insurance.
No, the problem with insurance is not that providers have leverage over insurers. The problem is that people buying insurance have imperfect information about what that insurance will and won't cover when they buy it. Even after you get insurance trying to find a list of things that are covered if impossible. Even if you call the insurance company, they won't tell you.
How is a discerning buyer supposed to choose insurance based on anything but price when that is the only information available?
Then there's the entire bureaucracy that is medical billing. You have to know which obscure codes for diagnosis can be used with which, similarly obscure, codes for treatment. None of those codes ever exactly match what is happening to the patient, so you have to choose one that is close enough and hope the insurance agrees.
You ever wonder why it takes 6+ months to get a medical bill? That's why. It has to be processed by the medical billing bureaucracy until it bears only the slightest resemblance to reality and then shuttled back and forth between the provider, the insurance filing system, and the insurance underwriter. Only once that is done can they send you a bill.
How much cheaper could providers offer service if they didn't have to pay dedicated staff to play some perverse game of telephone with the insurance company?
The theory of capitalism leading to efficient markets makes a great deal of assumptions that are simply not true in the real world. Even for elastic goods that nobody needs to participate in at all, let alone an inelastic good like healthcare where people will pay pretty much anything for themselves or their family members to continue living.
The concept of perfect competition describes what capitalism in its purest, most ideal form should be, and everything after that is a description of what happens when humans get involved.
Capitalism just means private people control the capital, rather than the state. Beyond that and you’re in different forms of capitalism. There’s no requirement of competition.
> The difference is private companies that accumulate too much waste and useless things can fail and be replaced.
Have we really already forgotten "Too big to fail"? It wasn't that long ago that those words were uttered and the US gov't bailed out failing private companies with taxpayer money.
And on the topic of profitability that pops up in these discussions, what about public transport? Healhcare? Power plants? Nuclear weapons maintenance? Should these be "profitable"? Is profit supposed to be the be-all-end-all state for everything? Because from where I'm standing, profit incentives make the world an actively worse place when it's free from oversight and regulation. If it were up to Nestle, the entire planet would be a giant reservoir only they could draw water from in order to produce soda. If it were up to Chiquita, all of South America would be a giant banana plantation to the point where they funded actual paramilitary organizations to achieve that goal.
The most profitable route for most companies is the route that is objectively worse for everyone involved minus the shareholders that reap the profits from their antisocial, short-term-minded destructive behaviors.
A company that makes birthday party banners that fails can be replaced. If your electric company runs itself into the ground, there is no replacement without government assistance. So why add the overhead of a for profit company?
The last mile might be monopolized, but you are oversimplifying it. When implemented well, there are markets for generation, transmission, distribution, and retail, implying alternatives and resiliency. Every system has bottlenecks. This does not mean they are all equally resilient. To give a familiar example, your having one brain does not negate the benefit of having limbs in pairs.
I live in CT where most of the power is supplied by Eversource. Whenever there is a big storm that knocks out power (happens every few years) to most of the state they are never prepared even though they are mandated every time to prepare more than the last time. And after they restore the power the delivery charge goes up. At this point the delivery charge is more than half the cost and our electricity is north of $0.30 per kWh and keeps going up. Even if you switch generation companies your cost doesn’t actually go down significantly overall due to the delivery charges.
Moreover, Eversource has their hands in any solar projects. They drag out the process to approve any installations and fight you tooth and nail to make sure you can’t install a big enough system because they are mandated to buy electricity at the same rate as they sell it. They fully captured the market and are essential to the state’s functioning so whenever there is an issue the government backs them. When there isn’t, they post billions in profits.
Here's the important part. Regulatory capture and monopolies don't want or need things to be implemented well, because that leads to alternative options.
That is true of any complex endeavor. People have to do their jobs properly, and the system should be set up with consideration. There are no shortcuts to success. Policy needs to be bulwarked against the problems you mentioned.
There are partial markets at best. There is generally a single owner of the physical infrastructure for transmission and distribution. Also, don’t forget that the FCC forced utilities into in the 70s to allow telecoms to hang cable off of their poles; the utilities certainly had no incentive to do so at a fair rate.
> there are markets for generation, transmission, distribution, and retail, implying alternatives and resiliency.
No, there are not. You can't have 15 different companies running 15 different cables over 15 different sets of electric poles into a house, each competing on delivery of electricity (or water, or sewage, or...).
Well, you can, but there's nothing good or efficient about it.
> The last mile might be monopolized, but you are oversimplifying it. When implemented well, there are markets for generation, transmission, distribution, and retail, implying alternatives and resiliency.
First you claim oversimplification and then you write a sentence that feels like a "but when implemented well".
Tell me how this is a market in a reasonably sized city, and how many parallel electric lines, water and sewer pipes you can run for the market to be well implemented?
Bonus question: how many competing power lines can be run from a single power plant? 1? 2? 10?
Because a million things can be replaced. An electricity company can use private contractors (either individual or with lots of small regional companies) for maintenance, build, diagnosing, private power plants, ... and these can fail and be replaced independently, even if the power company as a whole cannot.
Each one of those “independent” points that can potentially fail is just added dependencies that increases inefficiency due do increased oversight, adds more red tape, and slows down production.
A municipal electric company can use private contractors just the same. The difference is that the municipal electric company is accountable to the captive residents they serve, while a privately-owned monopoly escapes most accountability.
And the whole issue is that this accountability is generally used by a group of people that make it serve different issues. Municipalities use it like a way to raise taxes to do what they want to do (like a work program, a way to pay pensions for municipal workers, ...)
Of course a privately-owned one doesn't work either, because there's no competition.
Private companies are funded by willing participants and have economic incentives to be efficient. The incentives for your electric company and other government programs for efficiency are not nearly so clear. It seems reasonable to favor efficiency wherever possible.
Private companies have economic incentives to charge as much as they can get away with and pass that excess to the owners of the company. This includes participating in collusion with peers and regulatory capture to artificially raise the rate in the market far beyond what efficiency would dictate.
Private companies are inefficient by definition when individuals are able to extract millions to billions of dollars from the market.
Is efficiency of the company the wrong metric in this case? Wouldn’t we rather have a market and prices reflect what it can bare rather than an open tab?
I agree, except with your last sentence. There are many examples of efficient organizations that extract billions from the market from willing participants.
Computational complexity theorists hate this one simple trick! NP hard is a lie! You just have to assert that a given problem has been optimally computed. We all know that physics obeys the whims of politics. </s>
It's especially ironic because if markets actually worked the way the "free market" dogma supposes they do, central planning would also work.
I'd argue the difference between private companies and government is that in government that spending is public.
Spend a few mil on something of marginal utility, politicaly controversial, or funding a study for something that seems obvious? Congratulations! Fox News found it on USASpending.gov (maybe not now that 18F is dead), and is drumming up outrage. Now your fielding phone calls from senators who are looking to grandstand by reducing your budget.
Waste a few million on a Salesforce implementation that never works, never does what it promised and never gains adoption and is finally quietly abandoned? Doesn't even make the Shareholder meeting and the exec in question gets even more influence for his ability to lead large projects.
Honestly it's hard to guess what your talking about here. As far as things the administration has used as examples they are pretty much all incorrect (e.x. condoms for Hamas) or wildly distorted so I wouldn't call it a win for transparency, or revealing something "essentially hidden".
If your talking things like their "org chart"* maybe, sort of. There's nothing there that wasn't already available pretty easily via OPM, but one could argue it's a nicer interface. To the extent that it's actually revealed anything to anyone is argue that it has more to do with it being the trending news so people actually bother to look, rather than it being "hidden" before.
If you think the US healthcare system is a good example of something that isn't driven by pervasive regulation, this is exactly the kind of "what the hell is water" problem I was talking about.
> In a not for profit healthcare insurance system, every dollar not spent on patient care is considered waste, and we work to decrease it.
That’s cute. But the reality is often closer to this version:
In a not for profit healthcare insurance system, every dollar not spent on patient care is considered waste, so we give it to ourselves and find a way to call it patient care.
> In a not for profit healthcare insurance system, every dollar not spent on patient care is considered waste, so we give it to ourselves and find a way to call it patient care.
Can you share some significant real-world examples of this happening?
Sure. In many parts of the United States, regional hospital systems have captured their local markets through consolidation and exploitation of their non-profit status. They then offer their own health insurance plans to provide access their own hospital systems, sometimes even denying access to other insurance plans. So when these insurance plans spend on patient care, they are, in effect, paying themselves at rates they have strong influence over.
For example, in western Pennsylvania, there is UPMC. According to court documents, UPMC acquired 28 competitors between 1996 and 2018. According to the Pennsylvania Attorney General's office, in 2011 UPMC announced it would stop accepting patients insured by its competitor, Highmark. This prompted the PA government to "enter into consent decrees with both UPMC and Highmark to protect access to care." Which, again according to the Pennsylvania Attorney General's office, UPMC continued to violate. This has lead to, among other things, a recent antitrust lawsuit supported by the US Justice Dept. [1] [2]
Yes, that is corruption. However, it is being punished!
If a for-profit insurance/hospital group does this in the USA, taking money from patient care to profit... there is no punishment. Instead, it is encouraged. Correct?
The point is that both for- and not-for-profit systems can be exploitative and often are. And not-for-profits have extra avenues for exploitation.
> Yes, that is corruption. However, it is being punished!
In the example I shared, the evidence suggests that the punishment, as you call it, has not been adequate to solve the problem. And that problem has been ongoing for a decade and a half. And still continues.
That's not how it works in countries with fully subsidized healtcare. It seems you are biased towards some intents that have been done in USA to subsidize some part, in a perverse, privatized and corrupt system.
In Spain it is the privatization of the healthcare that is "given to themselves and call it patient care", making politician friends (and politicians themselves) richer and corrupt, and selling it as a way to "fix the healthcare" that they are breaking.
In technology we see this is not true. Windows blue screens and brings the economy to a halt. Azure and windows is riddled with security gaffes. But everyone looks the other way.
Google search is nothing but ads but the majority still use it.
A clue to why this dysfunctional market exists is all the tech CEOs pay homage to the Oval Office and shove monies into untraceable PACs thanks to Citizens United.
See, this is exactly the "what the hell is water" problem. You think Microsoft's monopoly on Windows is a result of the "free market", and simply take it for granted when the government literally, explicitly, intentionally grants Microsoft their monopoly on Windows via copyright.
What about things that no private company could do or would at least find profitable? I’m think of ‘free’ healthcare or even keeping the nukes in working condition.
Are either of those endeavors necessary? Are they profitable? Should they be profitable?
I agree with everything in your comment about regulation.
However, if you are implying that only companies, and not nations, can fail and be replaced, I'd disagree. This has happened many times in the past.
I really liked this history video on the topic, which is rooted in how the founders of the USA were very familiar with a theory about how that happens called anacyclosis and they had originally designed the constitution to avoid that, where the theory proposes that democracies tend to dissolve when a populist demagogue takes over: https://www.youtube.com/watch?v=uqsBx58GxYY
James Madison and Alexander Hamilton both very much feared that allowing the public to vote for more than members of the House of Representatives would eventually lead to the "uninformed, overly emotional public" to elect a demagogue.
With private companies there's a lot of inefficiency that comes from having to have competition. Without competition you'll have monopolies, and combined with the profit motive those are a disaster. But to enable competition you need to have multiple organizations doing exactly the same thing. That's a lot of unnecessary "overhead cost" that you get by having duplicate products, duplicate management, duplicate HR, duplicate everything. You also have to build a brand, do marketing and other competition related things that don't actually contribute to the product itself and which would be mostly unnecessary without competition. Add to all that the overhead cost that is profit and the amount of waste in a public organization whose goal is not profit and that doesn't need to compete doesn't sound so bad.
This can be true, but also many of these companies are themselves essentially monopolies that also don't face market pressure - such as Visa, Comcast, etc.
You can say this is due to corporatism, which is often true as well, but gov't regulation is required for natural monopolies.
This is to avoid issues like the early railroad boom where they hugely overbuilt, a lot of them went under and/or eventually coalesced into a few monopolies, which needed regulation to prevent them squeezing their customers to death.
The best markets are sensibly regulated. It's a balance, not a binary.
Private companies don't always just fail and get replaced. They find other ways of making profits, like selling user data, externalizing risk, or your run-of-the-mill enshitification.
> The difference is private companies that accumulate too much waste and useless things can fail and be replaced
Maybe they can, but they just as often don't. How much 'waste and useless things' do you think is at Microsoft or Google, yet is financially insulated due to their outrageous success elsewhere.
So why haven't we replaced Boeing? UHG? the "too big to fail" banks?
I would argue that replacing a private company that performs a critical government function poorly is actually more difficult than eliminating and reforming an agency like USAID or ICE.
I can't wait until highways and roads are carved up and sold to oligarchs. Every mile driven is a microtransaction (or maybe not so micro, if it's a monopoly). Maintenance is a major cost center, so they'll minimize that in a race to the bottom. Companies in disaster areas will simply fail, because insurance is expensive! It's such a beautiful system. I can't wait for this tax-free utopia.
Canada and Mexico will be happy to buy some of your failed states.
All the new HOV lanes around DC are public-private partnerships with flex tolls that are paid by the mile. And have revenue protection for the private entity built in.
State highways are well maintained because the federal government demands it in exchange for significant funding derived from federal gas tax. You've had a taste of utopia, but you haven't bathed in it.
The same thing can be done in bureaucracies with auditing/inspector offices. What DOGE should be rather than Leon and Dump's revenge tour. I don't think people are against an auditing office with a lot of power; they're against a billionaire who will only be enriched by it and a President who is using it to get revenge on imagined slights. That's why we're angry at the clown circus that is DOGE. Also they are doing things that only Congress has the power to do. The only thing saving them is the blitzkrieg tactics. All of it will be undone by courts, but a lot of damage will be have been done already by Big Bawlz
We have antitrust law for that. But antitrust law today is simply overwhelmed by the huge number of monopolies and oligopolies the government has created in almost every sector. And courts don't have the power to correct the problem by reducing the regulations that protected the monopolies in the first place, making their remedies temporary.
I agree with the first part of your statement but disagree quite strongly with the idea that the government created them. Monopolies and oligopolies are the natural product of unchecked capitalism. Without government activily enforcing antitrust and breaking up monopolies you naturally end up with companies having a stranglehold on their sector.
Even if that were true, by definition not every company reaches monopoly status, so all others can fail too, unlike the government, so this argument against the GP's claim does not hold.
> The difference is private companies that accumulate too much waste and useless things can fail and be replaced.
Unfortunately, there isn't enough competition for this to be true. In many markets the largest incumbents are able to build a moat to stop smaller, smarter companies from competing. Sometimes this is regulatory capture, but it can also be that the market is a natural winner-take-all market, and in that case well-thought-out regulation can be necessary to enforce competition.
Venture capitalists shy away from funding companies that want to compete in a well established market. They view it as a race to the bottom with no huge payout.
Once a company is large and well established, it can be as bloated and inefficient as any government, and it will extract rent with it's IP, real-estate, and means-of-production for decades before it has to worry about failure.
Reality at least in Europe is big companies come from big burguesse families and they know how to masquerade themselves in order to keep being attached to government (no matter the color). Like oligarchy in disguise.
Regulation is so pervasive it's become a "what the hell is water" situation. People don't even recognize that the dysfunctional companies are protected from failure by the government. Seemingly beneficial regulations create barriers to entry that prevent dysfunctional companies from being replaced. IP law, even copyright (in its current, out-of-control practically perpetual form) is regulation that protects large incumbents in media and tech and other sectors from competition.