Who Benefits?

In Soviet Russia, there were certain rules on how one was to produce glass, factories where paid according to the amount of glass it produced, measured in square-feet. The result of this was that factories, in an attempt to get paid while providing the worst possible product, made glass that was almost paper thin. Eventually, the Soviet government realized its mistake, and started paying factories based on how much the glass weighed. Factories then started producing glass that was nearly an inch thick and nearly impossible to see through.

Can you imagine shopping at your local hardware store, and having only these two options available to you? Of course not, in a free-economy, the best glass for the best value wins; and that depends on the choices and desires of the costumer, not a government.

The very nature of a government controlled economy radically changes incentives, by changing who are awarded and who are not, and how. Even the most well intentioned controls produce these results; while it is in the nature of a free-economy that those who benefit are the ones who are the most productive and who provide the best goods and services.

Or, to put it more simply, controlled economies reward corruption, while freer economies reward virtues. This doesn’t only happen in controlled economies as extreme as Soviet Russia, but in all places where coercive power leaks into human action or benefits are obtained not through productive work, but by other means.

Imagine two hospitals, one that exists in a perfectly free economy, and one socialized. How do these hospitals stay afloat?

The free-market hospital must be paid by costumers; they achieve costumers by providing service, the better the service, the more costumers and the more money.

The socialized hospital also needs money, but how do they get it? In the end, no matter which way it is shaped, it achieves money through a coercive government. Money is achieved, not through pleasing costumers, but by pleasing bureaucrats. And just like the Soviet glass factories, the various hospitals will try to stay afloat by providing the worst possible service but appearing to provide adequate service.

Some of you might be saying, ‘but doesn’t free-market-hospital try to do the same thing?’ The answer is, No; and even if it did it wouldn’t succeed. Imagine if you went to Starbucks and you received a large coffee, but they only fill your cup up half way to save money and increase profit; most costumers would be angry at this, and take their business to Coffehut or Jamba Juice; Starbucks then loses money by not providing as much value as its competitors, any such business venture is doomed to failure.

In the same sense, free-market-hospital A must compete with free-market-hospitals B, D, and E; free competition does not allow most corruptive behavior to survive. Costumers of these hospitals will seek the best care at the cheapest price; and just like we are with coffee and automobiles, we get very picky about it.

A free-market-hospital will survive because it is one of the most productive (and by extension, makes people the happiest) while the socialized-hospital is exactly the opposite, it succeeds by virtue of how bad it is.

The socialized-hospital that is most successful is the one that is the most politically connected, that can cut the most corners on care, which can accept the most patients while providing the most inadequate care. Appearance is what matters to the socialized hospital; it prospers by its ability to deceive.

Tell me, what is the incentive of a socialized-hospital to provide the best, most time and cost effective care? Why should it try to improve itself?

But that’s not the worst of it, it becomes much more personal. The best doctors, the ones that really care and do a good job, will be the ones who achieve the least benefits; while the lazy, unscrupulous doctors will be paid according to how many patients they accept and how well they jip their service. The natural result of this is that the best doctors will quit, or be disheartened, and great minds will avoid entering the field altogether. In the end, the patients pay for it.

Any system that rewards vice and punishes virtue is immoral on its feet. There is no way to structure a controlled economy that does not face these problems, because it shifts incentives from where they should be to where they don’t belong; while the vast democracy of a free-market puts rewards precisely where they should go, to those who most deserve them.