In this blog I will address what is perhaps the greatest misunderstanding of contemporary politics – the role of profit in society.
It has often been assumed by many of those in on the left, and plenty in the National Party too for that matter, that the attainment of profit is somehow both dishonest and at odds with the public interest. This over-riding assumption recurred throughout the respomses to my last blog. One commentator put it into a simple equation: ‘Health objective= betterment of the people. Firm= profit max.’
However, this belief is based – whether known by the holder or not – on a Marxist conception of commerce that is both outdated and largely discredited. The ideology behind the assumption profit vs. people argument rests on several fallacies.
First it is assumed that the process of attaining profit is somehow separate from the public betterment. That is, that my attaining wealth is not a product of public betterment.
Furthermore, it is assumed by such an argument that the amount of wealth around us is fixed. If there is X wealth, then for every winner there must be a loser. To the Marxist, if I engage in a profit-making exercise I do so by exploiting another for the difference between cost and sale price – I give to them my good or service only at a higher value than that which it cost me to produce. In taking profit I have sacrificed the public interest for my own.
The reality is considerably removed from this proposal however. Prosperity rests upon us each maximising our potential, and profit is the foremost driver and reward of achievement. I quote Jeffrey Sachs, who says:
"the world is not a zero-sum struggle in which on country’s gain is another’s loss, but is rather a positive-sum opportunity in which improving technologies and skills can raise living standards around the world." ('The End of Poverty, p.16)
The question I pose to the holder of the profit vs. people argument is: What if the public betterment, far from resting in conflict with profit, was in fact a product of that profit? That is, no profit = no public betterment.
It is my argument that the primary requirement of profit is the betterment of others. I argue that capitalism is, ironically by its competitive nature, a state of affairs conducive to the maximization of co-operation and thus achievement.
How? You see, when I receive profitable payment I do it not because I have exploited someone or used them just for my gain. I receive it because I have helped them. I have provided them with a good or service requiring my co-operation that they could either not provide for themselves or could not do so as well as me. That they took greater pleasure in the acquisition of that good or service, or at least expected to, than they did in having the resources forgone to pay me is certain because otherwise they would not have bought it. Thus, when I make a capitalist transaction I am both helping people and expanding wealth. There is nothing wrong with doing something purely for profit, because regardless of intent I am helping others. Far from exploiting my customer for the difference between cost and sale price, I have offered a good or to service to them at a price equal or less than the satisfaction they gained from its consumption. A good or service that without the incentive of profit to produce, I would not first have created!
This reality is brought about by the competitive nature of capitalism. When I compete with someone else I must outdo or at least equal them. I must be equally or more efficient than them. I must offer an equal or better quality than them, in the same or less time. The necessary consequence of being uncompetitive is failure. And herein lays the beauty of it. In the market, it is the consumer, not the producer – the profiteer – that is king. The profiteer must offer the consumer the greatest help for the smallest relative price, or the consumer will not allow them profit.
Tuesday, August 14, 2007
The Poor Fitness of New Zealand's Health System
With Michael Moore’s new documentary ‘Sicko’ being released not long ago, I must say, it is of great disappointment to hear it discussed and defended. We need to identify Moore’s dribble for the propaganda it is. Sadly, his idea’s are consistent with those of many New Zealanders inside parliament and out.The practicalities of providing a public health system for 300 million Americans are, well, non-existent. New Zealand remains a case in point as to why we need a much higher private sector involvement in the health system.
I particularly like the point made by Rodney Hide in his new book, with regard to his travels in Eastern Europe in the late '70s. Discussing a meal he had enjoyed with some local citizens:
"The food was pretty shocking but in their eyes it was a meal fit for a king. After I had eaten, Anna asked me if I would like an apple and I said that sounded good. She brought me the apple on a plate so proudly. It was a small, half rotten thing and I was shocked that I was expected to eat it. In New Zealand, we would throw such an apple out. But Claude and Anna were looking so pleased with themselves that I had no option but to eat it... I know exactly what happens if the state takes over the production, transportation and provision of food: big queues, shortages and rotten apples! I'm always amazed that we run our health system like the Romanians ran their food production and distribution, and then wonder why it doesn't work." (p. 97)
I looked at that paragraph and thought bloody hell, he's right. Every year the government says they'll put more into health to fix the problems with it, and they do, and every year the waiting lists get longer. And you start to think, when the public health system takes up 40% of the govt. budget as it does - 17% of our entire GDP - maybe lack of funding isn't the problem. We’re not operating our health service as a market system, and not surprisingly the result is that the state owns a poor quality monopoly.
People say 'but at least everyone has access' - but they don't! You have to wait months sometimes years to get the most simple of things done! Many people die before they get treatment. People say, 'but if we had private hospitals they might cut corners on quality to make extra profit'. But what quality do you get in the public system!?!? And how many people have you heard complain about the service if they've been to a private hospital?!
The truth is, it’s all about competition – in a private system if a firm fails to deliver the goods, you take your business elsewhere and they don’t make a profit, the result is that only firms who deliver can stay in the market. In a monopoly however, and the state provision of health is just a publicly owned monopoly, you don’t have the choice, and the staff make the same no matter how they treat you. Only a market system can respond to the health needs of New Zealanders.
We don't even have to fully de-centralize our health system to make it more effective, even just sending the public into private hospitals and picking up the tab would make a huge difference. It would have to be gradually changed for infrastructural reasons of course, but entirely possible over the space on 10-20 years. It wouldn't even cost as much to do. The average cost per minute to the taxpayer of a public hospital operation is $42. Forty-two dollars! In the private system it's less than twenty-five. That figure could increase by 30% and yet still we'd have a better service at a lower price. But still no traction from Government, only ACT has this as their policy. And this is the so-called rich man's party!
Milton Friedman's ideas really ring true here; That when I spend my money on me, I want good quality for a good price, when I spend my money on someone else I want a good price but care little for the quality and vice versa, and when I spend someone else’s money on someone else, I care neither for the price nor the quality.
I particularly like the point made by Rodney Hide in his new book, with regard to his travels in Eastern Europe in the late '70s. Discussing a meal he had enjoyed with some local citizens:
"The food was pretty shocking but in their eyes it was a meal fit for a king. After I had eaten, Anna asked me if I would like an apple and I said that sounded good. She brought me the apple on a plate so proudly. It was a small, half rotten thing and I was shocked that I was expected to eat it. In New Zealand, we would throw such an apple out. But Claude and Anna were looking so pleased with themselves that I had no option but to eat it... I know exactly what happens if the state takes over the production, transportation and provision of food: big queues, shortages and rotten apples! I'm always amazed that we run our health system like the Romanians ran their food production and distribution, and then wonder why it doesn't work." (p. 97)
I looked at that paragraph and thought bloody hell, he's right. Every year the government says they'll put more into health to fix the problems with it, and they do, and every year the waiting lists get longer. And you start to think, when the public health system takes up 40% of the govt. budget as it does - 17% of our entire GDP - maybe lack of funding isn't the problem. We’re not operating our health service as a market system, and not surprisingly the result is that the state owns a poor quality monopoly.
People say 'but at least everyone has access' - but they don't! You have to wait months sometimes years to get the most simple of things done! Many people die before they get treatment. People say, 'but if we had private hospitals they might cut corners on quality to make extra profit'. But what quality do you get in the public system!?!? And how many people have you heard complain about the service if they've been to a private hospital?!
The truth is, it’s all about competition – in a private system if a firm fails to deliver the goods, you take your business elsewhere and they don’t make a profit, the result is that only firms who deliver can stay in the market. In a monopoly however, and the state provision of health is just a publicly owned monopoly, you don’t have the choice, and the staff make the same no matter how they treat you. Only a market system can respond to the health needs of New Zealanders.
We don't even have to fully de-centralize our health system to make it more effective, even just sending the public into private hospitals and picking up the tab would make a huge difference. It would have to be gradually changed for infrastructural reasons of course, but entirely possible over the space on 10-20 years. It wouldn't even cost as much to do. The average cost per minute to the taxpayer of a public hospital operation is $42. Forty-two dollars! In the private system it's less than twenty-five. That figure could increase by 30% and yet still we'd have a better service at a lower price. But still no traction from Government, only ACT has this as their policy. And this is the so-called rich man's party!
Milton Friedman's ideas really ring true here; That when I spend my money on me, I want good quality for a good price, when I spend my money on someone else I want a good price but care little for the quality and vice versa, and when I spend someone else’s money on someone else, I care neither for the price nor the quality.
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