The Myth of Market Efficiency

Joe touched on an issue in his post on our health care system that I’d like to expand on. There is a libertarian viewpoint, endorsed by many Republicans, that private enterprises tend to be more efficient than publicly operated ones. These folks are correct while also being very very wrong.

Businesses in a free market are efficient, but not at providing a service. The purpose of a business is to extract surplus value at the greatest possible rate. They are highly efficient by this measure. Exxon Mobile, for instance, creates surplus value at an incredible pace. Health insurance companies also generate profit quite efficiently. What they do not do efficiently, in many cases, is provide the service they offer.

Health insurance providers are a particularly good example. They make huge profits and probably will continue to despite market trends that will likely hurt most industries. They also are very expensive, so expensive that many people, over 46 million in fact, are left with no health insurance at all. At the same time we spend extraordinary amounts on health care, an issue I’m sure we’ll return to soon. Where is that efficiency? If we’re spending more on health care than most industrial nations and by all measures the health care we receive is worse, how can we claim efficiency?

What’s worse, as our unregulated free markets mature we eventually find that companies come to dominate their industries, pushing out competitors and creating the same anti-progress trends that free markets are supposed to solve. When monopolies are the norm, there is no competition and the free market might as well not exist.

Sure, there is a place for market economies but they aren’t a universal good. When it comes to vital services, availability and efficiency and quality are more important than any private organization’s profits.