How Big Business Makes Everything LESS Efficient

Eclipse of the Sun by George Grosz

The great argument for the destruction of public services is that ‘business is more efficient’. But this is a mathematical lie, even within the lying domain of economics.

Figure 1. Monopolistic Competition, Entry, and Exit. (a) At P0 and Q0, the monopolistically competitive firm in this figure is making a positive economic profit. This is clear because if you follow the dotted line above Q0, you can see that price is above average cost. Positive economic profits attract competing firms to the industry, driving the original firm’s demand down to D1. At the new equilibrium quantity (P1, Q1), the original firm is earning zero economic profits, and entry into the industry ceases. In (b) the opposite occurs. At P0 and Q0, the firm is losing money. If you follow the dotted line above Q0, you can see that average cost is above price. Losses induce firms to leave the industry. When they do, demand for the original firm rises to D1, where once again the firm is earning zero economic profit. (Lumen Learning, or any Economics 101)

One of the first things you learn in Economics 101 is these supply/demand curves, which might as well be tea leaves or entrails. They don’t predict shit in the real economy, but I’ll go on. The broad theory is that supply (how much it costs to make a widget) and demand (how much people are willing to pay for a widget) should meet. They meet ‘in the marketplace’, through competition.

For example, if you’re willing to pay $10 for a widget and it costs me $5 to make it, I’ll happily sell it to you for $10. I’m making $5 profit, which is an inefficiency. Competitive forces are supposed to iron this out. A competitor should get the same machinery and starts selling widgets for $9 undercutting me. So I sell it for $8, and so on. Eventually, the market reaches ‘equilibrium’, where every firm is operating efficiently and earning zero economic profit*. Supply meets demand. All is right with the world. Praise Moneta.

That asterisk next to economic profit is an important one. It’s important to understand that economic profit is not accounting profit, as in “I made $1 million last year.” If I spent $10 million to make $11 million that’s great, unless interest rates are 20% and I could have made $12 million by just keeping it in the bank. My business would have made accounting profits but economic losses. Much of Donald Trump’s fortune is like this. He inherited a bunch of money and made a big show of activity, but he actually lost money compared to more boring investments.

That asterisk also shows you how intimately connected government is to business even in abstract ‘free markets’. When I was pitching my startup, I always had to include something called a Net Present Value. How much my startup would compared to just putting the money in a fixed deposit with interest. When I was doing it interest rates were like 15% (in Sri Lanka) so we had to use Excel-Fu to show much greater returns. Every activity of private investment is still suckling the money supply teat in this way.

You have to ask, where do those interest rates come from? Interest rates come from Central Banks giving free money to oligarch banks at a certain rate, which they then re-lend at a markup. And countries in Sri Lanka are ultimately contained by the American imperial bank, because everybody still buys essentials in imperial coin (the Petrodollar).

Why not just give people Central Bank accounts directly, or invest in productive economic activity without all the middlemen? The big bankers obviously take home big bonuses, speculate wildly, crash everything, and then require public bailouts. Couldn’t we cut their obvious inefficiency out? These are questions we’re not supposed to ask. The greatest market inefficiency of all is hidden behind that little asterisk. The foundation of all investment activity, the difference between accounting profit and economic, which is fundamentally a dependence on the public purse.

When neoliberals say business is more efficient they’re just lying, both theoretically and practically. Theoretically, profit is inefficiency. Their reasoning is that competition will magically lower prices, but that’s just demonstrably false. Privatized healthcare in the United States delivers high profits and declining life expectancy. Privatized education delivers high profits and a nation of debt-slaves that aren’t very productive. Privatized energy delivers record profits while people freeze in their homes.Privatization is wildly inefficient precisely because it is so wildly profitable.And that’s what this is all about.

Neoliberalism vs socialism is not a struggle in economics class. It is a class struggle. Neoliberals think the rich should get priority access to the public purse, and socialists think it should be the poor. Hence you get the relentless cannibalization of public services. The dismembering of basic needs like transport, health, housing, and education into private fiefdoms, ruled over by capitalist lords. Extracting labor and rents from us poor serfs, and telling us it’s for our own good. That it’s more efficient this way.

In the European past, serfs were told this was because a hierarchical god willed it, but any reading of the actually anarchist Jesus turned that lie on its head. But yet that lie persisted for centuries, in its brazenness and brute power. In the same way, even Economics 101 recognizes that economic profits should reduce to zero, yet brazenness calls the complete absence of this behavior a ‘free market’, governed able by an invisible hand. It’s really just the hand of rich people in your pocket once again, using another inscrutable excuse—backed up by violence, starvation, and coercion—to take your shit and act like they’re doing you a favor.

All that has happened in terms of ‘economic freedom’ over the past few centuries is that a ruling merchant class has replaced the landed nobility. We have decentralized fiefdoms into corporations, which people now depend on for housing, food, and health just as they were bound to the nobles of yore. This new merchant class occasionally doles out capitalist oblige as the old nobility did noblesse oblige sometimes, but it’s just window dressing on a stolen house. Public goods can only trickle down, the public can never just sit at the table and drink what they need and want. That’s just inefficient.

Efficiency is arms dealers buying fancy mansions around DC while the US military simultaneously kills lots of people and loses lots of war. Efficiency is Elon Musk making paper money off the idea of self-driving, electric cars, while starving and actively attacking financing for much more efficient transport like fucking trains and buses. Efficiency is Bill Gates making a big show about vaccinating African children personally, while blocking patent-free vaccines that would enable the Global Majority to vaccinate ourselves.

The truth that anyone in business will tell you is that the only thing business is good at, the only thing a business is contractually supposed to be good at, is maximizing profit. Not efficiency, not providing goods, certainly not doing good. I’m on the board of a public company and that’s my only duty, protecting the fiduciary interest of the shareholder. I’m interested in health and safety only so much as it’s regulated or a risk to the business. If I said, “hey we’re making profits while people are poor, let’s give it away” I would be removed for simply not doing my job. Companies are artificial beings organized around a profit motive as much as we are organized around feeding. Hence we either eat the rich or they eat us.

Now look around. Hear the sharpening of silver knives and forks. See all the public services being led up to the chopping block, saying we just can’t afford them anymore. When they talk about ‘business being so much more efficient that government’ think about what that really means. Efficient for whom?Efficient for what? The performance of actual economies is a complete contradiction to even bougie economics, daily life is a walking contradiction of deprivation, and the planet itself is going up in smoke. Big business is making everything less efficient, even the whole earthly ecosystem (not to mention the wrath of the gods, who consistently told us not to worship money). The whole basis of neoliberal cannibalization of public services is just wrong, by their own textbooks, by the evidence of our eyes, and by the holy books above.