[ronimacarroni]

So I was shopping at walmart the other day (guilty, it had been a while) and it got me thinking about economies of scale.
Walmart is able to get its low prices because they can afford to purchase more supply than its competitors.
So I wondered what if the government did the same and started a government store.
The government would be able to purchase an even greater supply than walmart and return a profit, paying the initial investment and then some.
And that leads me to the conclusion that government is able to offer better prices than its free market competitors.

[Julian]

I think that there are problems associated with diseconomies of scale - walmart is good at selling simple products but not complicated services. Furthermore a monopoly retailers like the government has little incentives to mantain productivity

It is however the argument sometimes used in relation to health care and drug purchases. Large government backed health care providers may indeed be able to get better prices from drug companies than small practices (doctors)

Its leads me to another issue which is about patents awarded to drug companies. If drug companies are going to be given exclusive rights to sell drugs they have developed then we don't have a free market in drug research. Perhaps government should undertake or pay for more research into new drugs.

[ronimacarroni]

Well maybe since the government store could return the initial investment plus profit, some of the money could go to the workers in the form of bonuses solving the incentive problem and the rest would go for reinvestment.

[Julian]

In the UK we have the Cooperative which is owned by members. Anyone can join as a member whether they shop at the Co-op or not. It is about the 5th largest retailer. On general it is more ethical than other retailers - it stocks fair trade food and free range. I often shop at my local store.

[SueDeNîmes]

So I was shopping at walmart the other day (guilty, it had been a while) and it got me thinking about economies of scale.
Walmart is able to get its low prices because they can afford to purchase more supply than its competitors.
So I wondered what if the government did the same and started a government store.
The government would be able to purchase an even greater supply than walmart and return a profit, paying the initial investment and then some.
And that leads me to the conclusion that government is able to offer better prices than its free market competitors.

Yep, as we see in healthcare, for example.

But is "competitors" a fair characterisation when government's advantage derives from its unique ability to tax and print money. I don't think the capitalist groupies are entirely wrong in saying there's a risk of creating inefficient monopolies. Isn't that a big part of why the Soviet Union failed?

[jessupjonesjnr87]

Wouldn't work. Walmart employees are treated like shit. Damn public sector are used to being spoiled rotten. The staff would be constantly on strike and immune to being fired.

[SueDeNîmes]

Wouldn't work. Walmart employees are treated like shit. Damn public sector are used to being spoiled rotten. The staff would be constantly on strike and immune to being fired.

How about single payer type systems with assets in public ownership/control and private firms competing for maintenance contracts? "Private firms" could be worker owned/controlled co-ops. We see this working already in the successful mixed economies. What's not to like?

[jessupjonesjnr87]

How about single payer type systems with assets in public ownership/control and private firms competing for maintenance contracts? "Private firms" could be worker owned/controlled co-ops. We see this working already in the successful mixed economies. What's not to like?

Yes they exist and are functional but such a system could never be as successful as Walmart.

[SueDeNîmes]

How about single payer type systems with assets in public ownership/control and private firms competing for maintenance contracts? "Private firms" could be worker owned/controlled co-ops. We see this working already in the successful mixed economies. What's not to like?

Yes they exist and are functional but such a system could never be as successful as Walmart.

What does that mean? Walmart isn't a "system" in that sense. Walmart as an economy-wide system would fail because its employees eventually couldn't afford its goods. Not that there's anything particularly unsocialist about supermarkets competing to sell groceries provided working conditions are subject to democratic control.

[SueDeNîmes]

In the UK we have the Cooperative which is owned by members. Anyone can join as a member whether they shop at the Co-op or not. It is about the 5th largest retailer. On general it is more ethical than other retailers - it stocks fair trade food and free range. I often shop at my local store.

John Lewis & Waitrose (upmarket department stores and supermarkets, UK's 3rd largest private company) is also an employee-owned co-op, although they don't advertise the fact.

[jessupjonesjnr87]

I never said Walmart was a system but co-op's are. We have co-op's here and they are all poorly run and staffed by the incompitent family of it's most important members. One of the many reasons Walmart is so successful is because it's not a co-op.

[Husky]

And that leads me to the conclusion that government is able to offer better prices than its free market competitors.

To put it simply, a government cannot, by definition, be as effective as the private market. A government lacks a profit and loss mechanism, simple as that. If the government was running inefficiently, it could simply dip into its back-pocket for additional funds.

There is a fatal flaw that permeates every conceivable scheme of government enterprise and ineluctably prevents it from rational pricing and efficient allocation of resources. Because of this flaw, government enterprise can never be operated on a "business" basis, no matter what the government's intentions.


What is this fatal flaw? It is the fact that government can obtain virtually unlimited resources by means of its coercive tax power. Private businesses must obtain their funds from investors. It is this allocation of funds by investors on the basis of time preference and foresight that rations funds and resources to the most profitable and therefore the most serviceable uses. Private firms can get funds only from consumers and investors; they can get funds, in other words, only from people who value and buy their services and from investors who are willing to risk investment of their saved funds in anticipation of profit. In short, payment and service are, once again, indissolubly linked on the market. Government, on the other hand, can get as much money as it likes. The free market provides a "mechanism" for allocating funds for future and present consumption, for directing resources to their most value-productive uses for all the people. It thereby provides a means for businessmen to allocate resources and to price services to insure such optimum use. Government, however, has no checkrein on itself, i.e., no requirement for meeting a profit-and-loss test of valued service to consumers, to enable it to obtain funds. Private enterprise can get funds only from satisfied, valuing customers and from investors guided by profits and losses. Government can get funds literally at its own whim.

[SueDeNîmes]

I never said Walmart was a system but co-op's are.

And since I was talking about a system of which I said co-ops were an optional part, your response still seems rather ..oblique.

We have co-op's here and they are all poorly run and staffed by the incompitent family of it's most important members. One of the many reasons Walmart is so successful is because it's not a co-op.

Then "here" is apparently unique since everywhere else with co-ops has successful examples, including 2 big supermarket chains in Britain (as you'd know if you'd read the post immediately before yours).

[SueDeNîmes]

What is this fatal flaw? It is the fact that government can obtain virtually unlimited resources by means of its coercive tax power. Private businesses must obtain their funds from investors. It is this allocation of funds by investors on the basis of time preference and foresight that rations funds and resources to the most profitable and therefore the most serviceable uses.

Regardless of how efficient gov't is or isn't, this is hogwash. Market efficiency comes from trial and error in the market, not the time preference and foresight of investors, who are the same flawed humans as civil servants.

It's amazing how many 'free market' fundamentalists seem to have no idea how markets work.

[Husky]

I think you misunderstood that paragraph.

[Someone5]

I think that there are problems associated with diseconomies of scale - walmart is good at selling simple products but not complicated services.

And your suggestion is that they're bad at "complicated services" because they're large? I can point to a lot of small companies that are also bad at providing complicated services, if you would like. I would propose that walmart is bad at "complicated services" because that falls out of their core competency as a high volume retailer--that their corporate culture has not developed in a way that would lead them to be good at providing "complicated services."

Furthermore a monopoly retailers like the government has little incentives to mantain productivity

AFAICT, the OP said nothing about the government store being a monopoly.

It is however the argument sometimes used in relation to health care and drug purchases. Large government backed health care providers may indeed be able to get better prices from drug companies than small practices (doctors)

That's kind of the principle behind insurance. The largest risk pool will also be the least costly for each individual member, therefore a mandatory national risk pool will be the least expensive sort of insurance. Making it mandatory is viewed by some as justified because ultimately everyone is going to need health care at some point in their life. It's sort of a unique situation. It's entirely possible to live without buying car insurance, but pretty much everyone in modern society is going to make use of the medical system someday or another.

Its leads me to another issue which is about patents awarded to drug companies. If drug companies are going to be given exclusive rights to sell drugs they have developed then we don't have a free market in drug research. Perhaps government should undertake or pay for more research into new drugs.

Free markets do not, and cannot, exist. It's a nonsensical idea.

[Husky]

Free markets do not, and cannot, exist. It's a nonsensical idea.

When making claims such as these, please provide evidence. I am not saying you're wrong; just some reasoning would be nice.

[Someone5]

To put it simply, a government cannot, by definition, be as effective as the private market. A government lacks a profit and loss mechanism, simple as that.

You are manifestly incorrect in that assertion. There are numerous examples of government agencies performing services in a manner more efficient than for-profit organizations. Your argument is also flawed from a logical standpoint; your assertion about governments being less efficient "by definition" is strictly untrue. Governments are not "defined" as being less efficient than private markets. That is a questionable conclusion drawn from belief in a particular economic interpretation popular among neoliberals and anarcho-capitalists.

Evidence certainly suggests that government agencies can be highly competitive.

If the government was running inefficiently, it could simply dip into its back-pocket for additional funds.

That... is not actually how government budgeting works. I have found this misconception rather common among libertarian types who do not actually understand how governments operate. When an agency runs out of money, they are out of money until one of two things occur; they can convince whomever holds the purse strings (this varies depending on the government) to give them some more money, or they have to do without. Moreover, government agencies are highly constrained in how they spend money, since their budgets are allocated into discrete piles that cannot be mixed--if you have a budget to construct a building, you can't pull from that to make payrolls without jumping through some very difficult hoops. In the first case--getting special allocations--it's roughly analogous to a private business getting a loan to cover their expenses for awhile. In the second case, it's like a business doing belt-tightening by firing folks and cutting back the fat.

In the end, the result of both methods yields a mixed bag of results. Private businesses certainly aren't some hyper-competitive uber-organizations that make no mistakes and exercise only the most rational of choices, and government agencies aren't all a bunch of incompetent buffons who can't stick to a budget. Most businesses are run only as well as is required to maintain their own operations, and most government agencies perform only as well as they must in order not to face legislative headhunting.

Private ownership and a for-profit motive is not some magic wand you can wave and make large organizations streamline themselves to paragons of efficiency and sane reasoning. Neither is public ownership and a public-spirited motive a curse that condemns an organization to inefficiency and failure.

There is a fatal flaw that permeates every conceivable scheme of government enterprise and ineluctably prevents it from rational pricing and efficient allocation of resources. Because of this flaw, government enterprise can never be operated on a "business" basis, no matter what the government's intentions.


What is this fatal flaw? It is the fact that government can obtain virtually unlimited resources by means of its coercive tax power. Private businesses must obtain their funds from investors. It is this allocation of funds by investors on the basis of time preference and foresight that rations funds and resources to the most profitable and therefore the most serviceable uses. Private firms can get funds only from consumers and investors; they can get funds, in other words, only from people who value and buy their services and from investors who are willing to risk investment of their saved funds in anticipation of profit. In short, payment and service are, once again, indissolubly linked on the market. Government, on the other hand, can get as much money as it likes. The free market provides a "mechanism" for allocating funds for future and present consumption, for directing resources to their most value-productive uses for all the people. It thereby provides a means for businessmen to allocate resources and to price services to insure such optimum use. Government, however, has no checkrein on itself, i.e., no requirement for meeting a profit-and-loss test of valued service to consumers, to enable it to obtain funds. Private enterprise can get funds only from satisfied, valuing customers and from investors guided by profits and losses. Government can get funds literally at its own whim.

[/quote]

You do realize that Murray Rothbard had an extreme ideological viewpoint, right? His analysis was quite biased. He's certainly not telling the truth on this matter. I question his expertise in this subject anyway, since as far as I can tell he never actually had any real insight into how public agencies operate--what motivates them, how they make decisions, etc. His comments about agencies not having checks on themselves is utterly absurd and untrue. The mechanism differs, but agencies are still expected to perform.

[Someone5]

When making claims such as these, please provide evidence. I am not saying you're wrong; just some reasoning would be nice.

Well, before we get into this too deeply, could I perhaps ask you to provide me with an historical example of what you would consider to be a free market? Because I will say this--there has never been a situation in human history where any economy has operated along the lines that the Austrian School typically defines as a free market. There has never been an economy that has operated without extensive government involvement, or collective coercion, for example. I have theoretical objections to the proposal that "free markets" could exist on the terms that anarcho-capitalists define it, but before we get into that I would like to hammer out the historical issue.

Obviously you feel as if there was an historical case where a free market did exist, so please do note that so that I might reply in a more specific manner. It is my contention that no such case actually existed, and that capitalism has always utilized so-called "mixed markets."

[Husky]

You are manifestly incorrect in that assertion. There are numerous examples of government agencies performing services in a manner more efficient than for-profit organizations.

Please list the examples of government agencies out-performing the private sector, so that we (I) can assess the other variables involved.

Your argument is also flawed from a logical standpoint; your assertion about governments being less efficient "by definition" is strictly untrue. Governments are not "defined" as being less efficient than private markets.

Let us ask ourselves, What is economic efficiency?

According to Wikipedia: "...refers to the use of resources so as to maximize the production of goods and services."

Firstly, would you agree with this definition. If not, please state why, and what alternative definition you wish to use.

For this conversation, however, I think it would be better to refer to productive efficiency specifically, as it is both more relevant to the OP as well as the points you raised. I could also argue that the private sector will always reach optimal allocative efficiency (as opposed to the government) in almost every scenario, but I feel it is not as relevant to the conservation.

So, how is productive efficiency maximized (yes, by definition)? It occurs when the production of a good is achieved at the lowest resource (input) cost possible, given the level of production of other good(s). And hence, it occurs when the highest possible output of one good is produced, given the production level of the other good(s).

Now, what increases productive efficiency? How does the private sector accelerate production, drive down input costs, and simultaneously improve quality? How does the government do the same? What can the private sector do that government cannot (yes, by definition)?

Evidence certainly suggests that government agencies can be highly competitive.

But what compels a government agency to be highly competitive? What compels the private sector to be highly competitive? Think about these questions...

That... is not actually how government budgeting works. I have found this misconception rather common among libertarian types who do not actually understand how governments operate. When an agency runs out of money, they are out of money until one of two things occur; they can convince whomever holds the purse strings (this varies depending on the government) to give them some more money, or they have to do without. Moreover, government agencies are highly constrained in how they spend money, since their budgets are allocated into discrete piles that cannot be mixed--if you have a budget to construct a building, you can't pull from that to make payrolls without jumping through some very difficult hoops. In the first case--getting special allocations--it's roughly analogous to a private business getting a loan to cover their expenses for awhile. In the second case, it's like a business doing belt-tightening by firing folks and cutting back the fat.

How does a government make choices and measure its opportunity costs?

In the end, the result of both methods yields a mixed bag of results. Private businesses certainly aren't some hyper-competitive uber-organizations that make no mistakes and exercise only the most rational of choices, and government agencies aren't all a bunch of incompetent buffons who can't stick to a budget. Most businesses are run only as well as is required to maintain their own operations, and most government agencies perform only as well as they must in order not to face legislative headhunting.

Define 'mixed bag of results'.

Private ownership and a for-profit motive is not some magic wand you can wave and make large organizations streamline themselves to paragons of efficiency and sane reasoning.

How does a profit and loss system influence a businesses' decision making?

You do realize that Murray Rothbard had an extreme ideological viewpoint, right? His analysis was quite biased. 1.He's certainly not telling the truth on this matter. I question his expertise in this subject anyway, since as far as I can tell he never actually had any real insight into how public agencies operate--2.what motivates them, how they make decisions, etc. His comments about agencies not having checks on themselves is utterly absurd and untrue. The mechanism differs, but agencies are still expected to perform.

Please, explain point 1 as to how Rothbard is "not telling the truth"?

Can you please explain point 2 to myself (and Rothbard), please. Because I have no idea.