Overheard in the Office (Or, the Anti-Logic of Profit-Phobia)

A more statist-aligned co-worker was going on about how the Virgin Atlantic space ship crash was proof that the free market would be unable to provide for our space travel and exploration needs.  He argued that the motivation of profiting from space travel was a bad driver for space R&D, because it would drive companies to “cut corners” in an effort to save money and drive up profit margins. 

Because noting drives up profits like dead employees and
wrecking mutli-million dollar spaceships, amirite?

As I pointed out in support of his argument, government run, not-for-profit space exploration efforts have been 100% safe and never once resulted in an accident where people ended up dying. 

Except for that one time

And that other time

And that other time

And, well, hell, never mind. 

But those were just accidents. They cut corners.  Not even once! 

Except for that one time, with those o-rings that were sub-standard...

Or that other time, with those broken heat shields that would “probably be fine” after the poorly-designed and reinforced insulation broke off...

The overriding point that I want to make here is that this is a very common argument against free markets that statists love to tout – the perceived tendency of free markets to “cut corners” and provide bad service, or bad products, in return for cost savings. 

Because no person has ever purposely paid more for a quality product, right?  No one would ever choose to spend more on something that is better, more durable, and of higher quality than it’s cheaper, corner-cutting competition? 

I'll just leave this here...

Then why don’t Kia and Yugo have 100% of the market share for automobiles in the US?  Why does Mercedes Benz even exist here?  Rationally speaking, a Mercedes Benz won’t do anything that a Kia won’t, on a strict, utilitarian basis.  The purpose of a car is to get you from point A to point B.  A Kia will do that, just like a Mercedes will. 

But people buy Mercedes Benz cars, because they are willing to pay the price premium to get a superior product, along with the other accoutrements such a purchase will bring to the buyer.  The argument that a company operating in the free market will only have one driver, and one driver only (to cut costs) is an ametuerish argument brought on by willing ignorance to the world around you. 

This is the reasons Macys can continue to exist in a world of Wal-Marts, and why Harbor Freight Tools hasn’t driven Husky, Kobalt, and Craftsman out of business (or even taken much of their market share, at all). 

The thing that these simpletons cannot comprehend is that the free market brings with it this little thing called “competition.”  You have to stand out from your competition in order to succeed.  Yes, one of the ways to stand out from your competition is to offer a less expensive product than they do, but that, in and of itself, will not cause you to succeed. 

Otherwise, Yugo would not have gone out of business in the US, and Kia would not be undergoing a massive re-branding and re-evalutation of their product line, pushing to become a brand more closely aligned with luxury than cheapness. 

Seriously, have you looked at one of the new Kia's?

Valujet was the cheapest airline out there, but went out of business because it’s perceived cost-cutting efforts made the public wary of the airline’s safety.  They stopped buying tickets, and they stopped existing.

"Valuejet - We Probably Won't Kill You!" TM

In this way, the public votes on what they want, based on what they buy, and the market will adjust to accommodate that. 

If Virgin makes a habit of cutting corners to save costs, I can promise you that their market share will suffer.  The investigation will expose any unsafe cost-cutting measures, and as people see the crashes and the lack of safety, they will choose to do business with a company that won’t be so apt to kill them (assuming that there is demand for the space tourist market at all, which I’m not so sure of).  The businessmen at Virgin are absolutely aware of this.  So aware, in fact, that I’d hazard a guess that their safety regimen is more strict even than NASA’s.  When NASA blows up a rocket full of men and women, they create new heroes.  When Virgin does it, they lose their jobs and their fortunes. 

On the flip side, I want to analyze the results of government-run programs that were designed to produce goods and services for the public. 

I’ve already examined NASA’s safety record, which is not that good.  But what about other government run manned space programs?  We only have the Soviet and Russian programs to look at, since they are the only other manned programs out there.  Upon closer inspection, their track record is, well…

…it’s pretty dismal.

So let’s look at my other examples.  Cars.

I found a very good example of free market versus government-run car production.  If you look at Cold-War era Germany, partitioned into the western and eastern blocs, you can get a very good example of what I’m talking about.  Remember, these are essentially the same people – the same knowledge base, the same everything, except one group was operating under the pressures of free market conditions, and one was operating under government direction.

First, the free-market example:

The 1991 Mercedes Benz 560 SEC

And now, the government-directed example:

The "every model, every year" Trabant 2-stroke

The trabant is still considered one of the worst cars ever made.  It was horribly polluting, dangerously underpowered, unreliable, prone to breaking, and almost completely beyond the reach of most East Germans, to boot. 

They were two-stroke, which means you have to pre-mix the oil in the
gas like a weed whacker.  And they smell just as bad and pollute worse.

The stupidity of people saying that the free market won’t be able to handle the pressures of space travel is astounding.  I suppose that had they lived in the 1920’s, they would have been arguing that air travel could never be privatized, too, since the motivation to cut costs would lead to flying being inherently unsafe.

Flying is by far the safest form of travel nowadays.  Safer even than walking. And commercial air traffic is almost entirely, 100% private companies.

And every one of those companies is motivated by profit.  By the logic above, they should be cutting corners and killing people left and right, but that logic forgets the first rule of capitalism:

Killing your customers is really, really bad for business.    

"As you can see, Mr. Perkins, here is a chart of all of our customers we haven't killed yet.
Yes, we're screwed..."