Reflections

Cost of Efficiencies

Governments are inefficient and wasteful.

This is no surprise to pretty much anyone, which is why so many people call for many of their services to be moved to private and corporate business instead. What is a surprise perhaps is that in some cases, I am in support of the inefficiency and wastefulness of governments, in the current economy - at least in Finland. And this was a surprise to a good friend of mine who knows I am not a fan of governments.

We were together a couple days ago and he was talking about how some government workers were on strike or complaining about missing out on a holiday or something similar, and it made him angry because it would be normal in business for people to just have to suck it up. He was saying that our tax money is being wasted and that most of the jobs in the public sector should be moved to the corporate sector to improve efficiency and lower tax burden.

Sounds great, right?

However, I am not sure the results would be as good as what most people believe, because businesses will be more efficient and as a result, the country will suffer. It already is. You see, because while the government takes tax money and wastes it, this is done internally. People are hired locally, paid locally, and taxed locally. A corporation would be able to be more efficient, but they will find ways to maximise the wealth of their shareholders by employing less people, reducing employee costs by hiring abroad, and reducing their tax burden by incorporating in a tax haven and through creative accounting. This means that more money would go out of the country and less people will have work in the country.

In a closed economy where privatisation would mean hiring locals and paying taxes locally, it could work. But in a global economy where corporations can maximise their wealth by taking money out of the country, privatisation will increase the wealth of the already wealthy investors, widening the gap to everyone else, and leaving the country with less resources for state and population. This is already happening around the world and has been for a long time, which is what has created the rapidly widening wealth gap.

For example, a Finnish company can pay an engineer 100K in Finland, or 50K in India. If they believe they can get the job done for cheaper, they will make the shift. The company saves 50K, making more profit, which it will distribute to shareholders. However, the previously in-country employee has now lost 100K in salary, which now doesn't get taxed, and the remainder doesn't get spent on groceries, rent, or buying goods. And on top of that, because they are unemployed, they get social support, which let's say is 30K a year, plus the cost of services to provide that support, which through government inefficiency we can say is another 20k. That means for the company to save 50K to give to shareholders, the country will lose 150K.

That is a simplification.

But the process is sound. And this is why that wealth gap keeps increasing, because the corporations are able to use their efficiencies to milk the public through governments and reducing costs. As I might have mentioned recently, there are often arguments about "foreigners stealing jobs" from native citizens. However, what the people making these arguments have missed is that no foreigner stole a job, they were hired. In order to maximise profits to distribute to shareholders, the company chose to hire a foreigner for less money than they would have to pay a local. The foreigner isn't to blame, the company is. And that company isn't only replacing locals with foreigners (usually out of country anyway), they are also automating jobs away to increase profits, and finding ways to reduce their tax obligations as much as possible (the average paid by fortune 500 is 11.3%), so they can give more to shareholders.

Reducing tax on corporations doesn't lead to them hiring more people because they have more money, it just means that they can increase their profits for shareholders, which is the only point of corporations. They don't care about the country or the effects that their maximisation practices have on citizens, they only care about handing as much as possible to investors. They are efficient in doing this and won't hire people they do not need. They won't pay taxes if they aren't forced. They will not invest locally if they can make more money elsewhere.

We can see an indicator of shareholder appetite for screwing over employees.

CEO-to-worker pay ratio

Looking at the average S&P 500, what that means is that the the CEO earns 312 times average compensation compared to the median compensation of the employees. Shareholders are happy to pay a CEO very large amounts, even if the employees are not being compensated well. And looking at the last line, it is 614 times the average. This is compared to the median - so fifty percent of employees have a worse comparative ratio.

Corporations in their current form are not the answer.

The other day, Elon Musk vowed to give every child a share in SpaceX. Good move, but it is not enough. Instead, I think that every corporation should have to give every citizen a percentage share in their company, that will be distributed like a dividend to all shareholders each year. For instance, let's say that 20% of their shares are owned by all citizens. This means that if they maximise profits by moving jobs off-shore and reducing taxes, citizens still benefit. The more money they make, the more the citizens earn too, which offsets some of the harm from maximising profits. This percentage can't be sold by the citizen, it is a guarantee of whatever is earned. If the company moves its accounting overseas to avoid this, there will be additional penalties and the tax rate will move up significantly - and that tax change difference will be paid directly to citizens.

This way, while government wastage might be replaced by privatisation, the citizens will not suffer the consequences of profit maximisation, money will still flow into the country and into the pockets of all citizens, and they will be able to spend as they choose, driving demand on products that matter. In this way, the health of the economy is not just a metric that says business is booming, because it is also attached directly to the lives of citizens. A strong economy will again mean that all citizens are benefiting.

As a result, the wealth gap will close, governments will become more efficient, businesses will be part of improving all lives and the economy would start to be healthier, as will people.

It might not be perfect, but it is far better.

There is nothing wrong with efficiency, when it is used to increase human wellbeing.

Taraz [ Gen1: Hive ]

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Comments · 7

@bozz(83)· 20h
I'm pretty old school when it comes to stuff like this. For example, we have training that we have to do at the beginning of each school year. The salary staff just has to do it, the hourly staff had their union demand they get paid for the two or three hours they have to spend doing the training. In my opinion, the fact that they get to keep their job should be incentive enough for them to do the training. You don't do the training, you start kicking rocks. That's probably also part of the reason the union doesn't like me too much...
@aussieninja(71)· 22h
Hahaha, I'm glad you were able to surprise your friend.

'Governments are inefficient' is such an oversimplification. Governments should not have the luxury of moving fast and breaking things. Governments affect everything, and unintended consequences can be devastating, so we really do want them taking the time to consider all the options and potential impacts before decisions are made.

I think there is an assumption that companies become profitable because they're more efficient than competitors, which is again a massive oversimplification. I've worked for some wildly inefficient companies, who almost make money despite themselves, because of a bunch of other factors.
@seattlea(78)· 1d
Governments are inefficient are somewhat of a stereotype. Some parts of US government have always been more efficient than most corporations. I know that IT part of non-federal governments are more efficient and advanced right now than the best of the IT corporations. Where the problem with government comes is the governance, it is too influenced by corporate interests in US... If we could replace the governance of the governments with AI that is not influenced by outside interest groups that would be a perfect solution...
@mortezayousefi(69)· 1d
So basically the world is a giant game of "who can outsource the most" and we're all just the pieces
@duskobgd(75)· 1d
All this is OK as long as the government works in the interest of its citizens. And imagine a situation where the government of a country (unfortunately, the one where I live) gives subsidies to foreign investors, so much so that foreign investors, in addition to taking profits from the country, do not have any costs towards the employees, and all with the aim of the false appearance of reducing the unemployed and cheap political points, but expensive for the citizens...

It is precisely because of this kind of government that the protests in Serbia continue. Parliamentary elections await us tomorrow. If nothing changes, maybe I will become one of those foreigners who will look for a job in your country...

I gave one example, asked Gemini to summarize for me, because there are many facts.

"The most stark example of a foreign investor profiting at the expense of Serbian taxpayers—only to pack up and leave as soon as the mandatory period expired—is the Italian footwear manufacturer Geox in Vranje. The Numbers & Facts Direct Cash Subsidies: The Serbian government granted Geox between €11.2 million and €12 million in direct subsidies to open a shoe factory and hire roughly 1,200 workers. Free Infrastructure: On top of the cash, the local government and state provided free land in the industrial zone and fully funded the ground leveling and utility connections. Contractual Obligation: Geox was required to keep the factory open and maintain employment levels for a minimum of 5 years. The Exit: In August 2021—immediately after the 5-year obligation period expired—Geox declared liquidation, shut down the plant overnight, and left Serbia, leaving over 1,200 workers jobless. Why Is This an Economic Absurdity? The State Covered Their Payroll: With a subsidy of around €10,000 per job created, and workers receiving near-minimum wage (around €3,500–€4,000 net annually at the time), taxpayers effectively paid full salaries for all 1,200 employees for almost 3 out of the 5 years they worked there. Zero Financial Risk for the Investor: The private owner bore almost no operational risk. The state provided the land, paid for the infrastructure, and subsidized most of the labor costs, while Geox kept all profits from selling the footwear abroad. Total Loss for Taxpayers: Once the contractual period ended and no more free money was available, Geox moved on to cheaper locations. Serbian taxpayers lost over €12 million, the city of Vranje was hit with a major unemployment shock, and no lasting industry was built."
@videoaddiction(72)· 1d
I think a healthy economy should be measured not just by corporate profits, but by whether ordinary people are actually better off.
@fieryfootprints(75)· 1d

Governments are inefficient and wasteful.

Maybe a week ago I saw an interesting question being asked on the news.

If a house or apartment would be destroyed by a drone should Lithuanian Government pay for damages?

My answer would be yes because such situation would mean that Government has failed to protect that person and his wealth. Most people chose yes as well. But a few percentages still picked that Government should not pay for damages...This idea is very strange to me. In fact I don't understand it at all.