Sunday, 10 August 2008

Waste in the private sector

When you point out how wasteful and inefficient the State sector is, the traditional Leftie retort is "Ah yes, but there is waste and inefficiency in the private sector as well".

To which the counter-retort is "Ah yes, but the consumer doesn't pay for the waste; the consumer only pays what the goods and services are worth. Plus 17.5% VAT where appropriate. For example, 'Waterworld' may have been the most expensive film to make of all time, but the film was not that brilliant that cinemas could charge people double the normal price to see it."

In case that doesn't shut them up, or they ask "Who does pay, then?" or in the unlikely event that they say "Then the poor long-suffering shareholder must bear the cost", then is useful to look at a real life example; the Blu-Ray vs HD DVD 'war'.

Sony and Hitachi spent oodles of money in developing rival formats. If you were a shareholder in Hitachi, then you have paid an element of R&D and lost your money, and if you were a Sony shareholder, the gamble has paid off nicely*. But most sensible shareholders in Japanese electronic giants would own shares in both companies, so the only question is, do the gains (future income from licensing the Blu-Ray patents) exceed the cost of developing both formats? Almost certainly yes. So the shareholders haven't really lost out either.

So yes, superficially there is 'waste' in the private sector, but it doesn't really matter.

In any event, it pales into insignificance when you read about the NHS hospital wards crawling with vermin.

* When you think of the rival formats that Sony has developed and miserably failed to market, for example MiniDisc and ATRAC (instead of MP3) and so on, they had to get lucky sooner or later.


The Great Simpleton said...

R&D isn't waste, its a cost of doing business. Every good business leader knows you have to kiss a lot of frogs to find a prince, what you need to be able to do is find the right people to do the frog kissing.

In the case of DVD technologies it's their own fault. The industry could have got togeter and agreed a standard which would have been much cheaper and therefore better for the consumer. Instead they pitched their own technology, or more accurately IPR, in the hope of making even more money through licencing.

The answer to the left of Government waste is simple. If a business is inefficient and wasteful its prices go up or its profits come down. If the former then it opens up the market to competition. If the latter share price falls and management get sacked a lot faster than Governments.

Not only does the State not have to compete but most of those who work for it have never worked in business and faced competition. I will go even further and say that they don't beleive in competition which is why they accept waste.

Mark Wadsworth said...

GS, those are further excellent points. Perhaps I should have clarified the example and referred to it as duplicated costs rather than 'waste' per se.

James Barlow said...

One point about luck:

The harder you work, the luckier you get.

The Great Simpleton said...


Gary Player's famous quote and he worked harder than anyone of his generation of golfers.

AntiCitizenOne said...

I find calling it the extortion funded sector clears a lot of wishful thinking.