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The Progressive Economics Forum

The Beauty of the Free Market in Action

by Jim Stanford

We all know that private companies are efficient, because they are forced to be by the discipline of the free market. Companies which do not operate efficiently will be driven out of business by those that do. This creative destruction will leave us all better off (abstracting from adjustment costs): higher productivity, cheaper, higher quality products and services.

I recently encountered a personal experience with this kind of efficiency. Companies, of course, do not work hard to “be efficient.” They work hard to “maximize their profits.” These two goals are not always (or even usually) identical. In the pursuit of profit, companies do all kinds of ridiculous, wasteful, utterly inefficient, and often downright destructive things. They maximize their profits. But they do not maximize or enhance welfare.

I have my long distance phone service in Toronto with Rogers. I joined them one day when I got sucked in my a telephone solicitor who promised much bigger savings than I actually ever got (I have a Ph.D. in economics, but even we get sucked in from time to time).

Recently I left Toronto for a one-year sabbattical in Melbourne. We rented our house, and I set up all our utility bills (including phone bills) for automatic payment while we are gone. But last week our tenant e-mailed me to say the phone had been cut off (gulp!).
Rogers says I wasn’t paying my bill.Turns out the expiry date on my credit card rolled over for another 3 years, one month after I left Toronto.

Rogers actually has one of those fully automatic phone-in systems to change details like this on your account, which I utilized before I left town. But somehow it didn’t work. When the automatic credit card payment didn’t process, Rogers waited three weeks (during which time their notices to me were still en route to Australia) then cut off the phone.

Then the fun really started. I tried getting in touch with Rogers by e-mail. But you can’t even send their customer service people a query without the 9-digit account number (not your phone number). I didn’t bring this with me to Australia. Then I tried phoning from
Australia. I went through a several-minute automatic menu process (the long-distance charges ticking up all the while). Then, when I got to the right area, I heard this message: “Our customer service office is closed. Please call back during normal business hours.” Why didn’t they tell me that at the beginning of the call? Assuming their office is open from 9 to 5 Toronto time, I will have to call at about 3 am Melbourne time.

Then I e-mailed my neighbour who is collecting my mail to ask if there was any record of my Rogers account number. There was, but it’s not a 9-digit number — it’s got 11 digits and one letter. I tried this to send the e-mail, but again it wouldn’t go. So tonight I will stay up late to see if I can get through by phone again.

At the end of the day, this failure in Rogers‘ (profit-maximizing) automatic customer service and payment systems will cost me dozens of dollars, and considerable inconvenience and embarassment. My “exit option” in the free market system is to go to another supplier. But I have no reason to believe that I will get better service anywhere else — since the logic of market competition (which has produced over-capacity and huge piles of red ink in the phone business, especially long distance services) enforces all companies to similarly cut costs and hence the genuine quality of service.

My experience with Rogers has been more infuriating, and left me feeling more like a powerless little cog in the wheels of a huge, unaccountable machine, than any dealings I have ever had with any government agency. Yet as we all know, “business does it better.”

This is a trivial example of the flaws of markets. But it happens millions of times every day in Canada. Why doesn’t a good left-wing think tank like the CCPA make it a sustained long-term project to systematically categorize the failures of the private sector to deliver quality, reliable, efficient services to Canadians? I think this could be a long-run ideological weapon for the left, in the same way that the Fraser Institute’s critiques of public service delivery are a weapon for the right.

If it makes you feel any better, you should know that the (recently privatized) Australian phone company, Telstra, with whom I have my cell and home phone service in Melbourne, is no better at all. I spent 30 minutes this morning sorting out their screw up on my bill (where I discovered I was being billed $3.50 every 10 days for some text-message subscription that I somehow inherited from the person who had my cell phone number before me). Their automatic phone and customer service systems are no better than
Rogers‘ (I guess that’s globalization in action).

What is your favourite story of how private companies are not just greedy and heartless — they are downright inefficient, wasteful, and destructive? Let me know!

Enjoy and share:

Comments

Comment from Marc
Time: August 21, 2006, 1:28 am

I went to school with Ed Rogers, the CEO of Rogers Cable. Not that I have any pull or anything like that, Jim, but an interesting aside is that the company that is afflicting you behaves internally more like a feudal feifdom than a “competitive” enterprise.

I saw Ed praised a year ago, on the cover of some insert magazine, for “rising up the ranks”. Gimme a break: Ed was born with a platinum spoon in his mouth, never had to submit a resume in his life, and got to party his way through school with scant concern for grades (academic “competition”).

If heirs inherit the thrones of major corporate empires, this cannot be good. In fact several years ago a couple economists published a paper calling this growth-reducing tendency “the Canadian disease” (http://www.nber.org/papers/W6814).

So Jim, your problem could just be feudalism.

Then again, I have discovered that Telus has absolutely awful customer service, and as a result avoid giving them business as much as possible. It’s outrageous what they charge for long distance, so we switched to Yak. Their internet service kept crapping out on us, so we switched to Shaw.

At work, we also had horrible Internet connectivity starting one day (some switch on their end but they kept blaming us) and we eventually had to change providers out of sheer frustration (everything worked again, instantly), but not before one of the staff nearly pulled her hair out trying to deal with Telus’s customer “service”. And this despite the fact that they were about to lose an annual business revenue stream worth several thousand dollars.

Some pointy-headed economist should figure out how much time we spend dealing with this kind of nonsense. What are the transaction costs associated with competition? What day of the year is Customer Service Freedom Day?

The problem Jim describes also seems endemic to the large telco/cableco monopolies. While there is some competition now these days, it is ususally from other cableco/telcos, who have great marketing budgets but no decent customer service.

Interestingly, if they are using call centres internationally, the person Jim eventually speaks to could be in India or the Philippines; that is, closer to Jim in Australia than either is to Toronto.

It’s late and I’m rambling. I like the idea of a corporate misdeeds blog where everyone can share their horror stories. In the meantime, best of luck, Jim.

Comment from brianpef
Time: August 21, 2006, 7:00 pm

Hi Jim and Marc,
What a cozy place this is — just the three of us … or so it seems.

Jim’s story reminds me that a few years back when my credit card expiry date came around I failed to send the new number to my internet service provider immediately, and in no time at all they issued a curt notice informing me that my service had been cut off.

But somehow I could still connect to the internet. I figured I was just picking up the signal of my neighbour — this was back in the days when unencrypted signals were more common.

About a year and $500 of foregone revenue later, the internet service provider sent me a notice to say that they had made a mistake and hadn’t cut off my service as they intended. They said I could continue service with them if I paid them for the year of “free” service.

I replied that if I switched providers, I would not have to pay the $500 or so, but that I was willing to stick with them and left them profit from my business as a way of compensating them. But their rules wouldn’t allow that. So I switched providers.

Private-sector bureaucracies, I think, sometimes operate in ways that do not even maximize their profits.

Brian

Comment from Cindy wiggins
Time: April 3, 2009, 3:05 pm

Hi Jim

Hope your sabbatical is otherwise enjoyable. When my partner’s mother died a few years ago, we paid all outstanding bills, Rogers included and cancelled services, Rogers included. For months Rogers kept sending a notice ordering payment of an outstanding balance of about $68.00 which was not owed. They had not cancelled the service until a month after notice of cancellation had been given. It was a long battle. they rectified it just as we had decided to get $68 in pennies and take it to the office and dump them. I’ve always been sorry it got resolved before we had a chance to do that.
Best
Cindy

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