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!