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
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