The Capitalism Conflict
Money,
originally uploaded by Thomas Hawk.
Just thinking aloud here. The measurement of money coming into a business versus how much money the business spends (expenses/revenue) is simply expressed as the Efficiency Ratio. A 1.0 ratio is bad because it means you aren’t making any profit. I would estimate most small businesses probably hover between 0.65 and 0.85 because they simply don’t have the resources to monitor and optimize every aspect of their operation. Mega-corporations, on the other hand, have a staggering amount of resources to analyze and manage their processes. They operate in a stratosphere of meta-economics where it’s not a simple matter of cost of goods or services and sales. Spin-off businesses, stock market strategies and lobbyists come into play to drive the efficiency ratio way down. It gets terribly complicated. But the goal is simple: keep the company alive and increasing the efficiency (ie: making more money). As an engineer and entrepreneur, it makes perfect sense to me why this happens. But as a working man, I don’t agree with the result.
Let’s take health care for example. It starts with insurance. The insurance providers are going to do everything in their power to collect the biggest premiums (+revenue) with a minimum of claims (-expense). The best way to do that is to own the hospital (more +revenue) drive up costs so people can only pre-finance their health care via insurance. This is why “proprietary hospitals” exist. I think a lot of people don’t consider that a lot of hospitals in the US are investor owned. These are for-profit operations that do very little charity work (+expense is baaad). Now from a pure, cold numbers standpoint- this is an excellent business. You have almost total control over the entire ecosystem except demand. And, let’s face it, the demand for professional health care is only going to increase linearly as our population numbers grow. We as consumers are literally put over the barrel. (Another thing should be noted: monopolies are not illegal. Only anti-competitive practices.)
Health care is a tricky example. But then again, all of these big financial failures in the news are tricky examples. It’s not simple goods and services. It’s exotic financial instruments and intangibles that people figured out how to game for the benefit of their own company’s efficiency ratio. I guess my overall point is I support the ideals behind the Free Market theory to a certain degree. But when corporations are operating at a level that can impact people that aren’t their investors, employees, or customers, I think the government needs to address that.
One Response to 'The Capitalism Conflict'
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I totally agree.
Dale Arthur
20 Aug 09 at 7:27 am