The Efficient Society Quotes

“As Hobbes saw clearly, people don’t have to be evil to get into collective action problems. They just have to be human.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Economists sometimes distinguish between three types of goods: private goods, which can be purchased by individuals through the market; club goods, which can only be purchased by a group through some organization like a corporation; and public goods, which can only be purchased by whole communities through the state. This is a very helpful terminological distinction, but it should not be allowed to obscure one very important point. As the example of security guards shows, in many cases the good that is purchased is identical; it’s just that the way it is purchased differs. Rich people pay their security guards personally. Condo owners pay fees to a condo association, which then pays security guards. Citizens pay taxes to the state, which then pays the police. Exactly the same economic transaction is taking place, but it is organized in a different way. So if you ask whether security should be a private good, a club good, or a public good, the answer will be—it depends. Sometimes it is more efficient to deliver security services through the market; sometimes it will be more efficient to deliver them through the state. From the standpoint of society, the goal should be to choose the delivery system that works best in each case.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Similarly, the extra three cents per litre for unleaded fuel reflects the cost to society of having to use more intensive refinement techniques. We can now calculate the efficiency gain realized from switching to unleaded—seven cents for every litre of gas consumed. Since Canadians buy about thirty-five billion litres of gasoline every year, this gives us annual savings in the range of $2.45 billion. Unfortunately, we don’t actually save $2.45 billion. When we eliminate atmospheric lead, it gives us a benefit that is worth $3.5 billion to us. But we don’t get this in the form of money, we get it in the form of clean air. And so all the calculations are hypothetical. Because the “market” for air doesn’t exist, we can only guess how much it is worth. Unfortunately, there is a market for gasoline, and so the $1.05 billion cost of additional refinement is quantifiable. This means that the regulation may appear to be costing us money, imposing a drag on the economy even when it isn’t. It just happens to be imposing a drag on that portion of the economy that is organized through private markets. We could remedy this by trying to create an “air” market. Then we would know exactly how much we gain by eliminating leaded gasoline. But what would be the point? The outcome that we want is simply cleaner air. The same gain is realized, regardless of whether this outcome is achieved through the market or through government”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“HMOs have been so successful that they now occupy a dominant position in the market for health care in the United States. Approximately forty-five million Americans are uninsured. Of the remainder, about half are enrolled in some type of HMO. Most others receive some sort of managed care plan. Less than 10 per cent of Americans still have classic fee-for-service private health insurance (down from more than 70 per cent in the late ’80s). So even though many people equate HMOs with private health care, these sorts of corporations exist only because of the failure of private markets to supply appropriate health care. HMOs succeed precisely because they are more efficient than insurance markets. There should be no illusions about the character of these organizations—they are giant bureaucracies. The largest of them, Kaiser Permanente, employs over eleven thousand physicians and has more than six million subscribers in the state of California alone. This makes Kaiser larger than most of the government-run health care systems in Canada. And while the Canadian system is extremely decentralized, Kaiser Permanente is a single, vertically integrated corporation.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“But insurance is nothing more than a name we give to risk-pooling arrangements that are organized through private markets. When these markets fail, it is possible to pool risks in other ways. The corporation provides a perfect example of how people can arrange to share risks without the mediation of explicit market mechanisms. For example, there are many types of production processes that call for very specialized skills. The division of labour is itself an enormous source of efficiency gains. Unfortunately, acquiring highly specialized skills can be extremely risky for an individual, because the future is uncertain. While I may know that there is adequate demand for my skills now, I have no idea what things will be like five years down the road. As a result, no one may be willing to invest the time and energy needed to acquire specialized skills, because it is too risky. This efficiency loss could be avoided if it were possible to buy some kind of insurance that would compensate people when there was some fluctuation in the demand for their skills. Unfortunately, no one would ever want to sell this type of insurance because of obvious moral-hazard problems—people would lose all incentive to market or upgrade their skills. So private markets will simply fail to provide this type of insurance. Corporations, however, are able to provide such insurance to workers through bureaucratic means.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Faced with the task of building a strong, cohesive corporate culture, many software companies have borrowed heavily from other organizations. Trilogy Software made headlines by sending its new recruits to a training “boot camp” for three months—with classes running from 8:00 a.m. to midnight, seven days a week, for the first month. Other companies, such as Scient, subject their new recruits to intense pep rallies, with constant repetition of the company slogan— “I’m on fire!” The popularity of these tactics has even led to some hand-wringing about the cult-like character of many business initiation rituals. One writer for Shift magazine captured the dilemma quite well in a brilliant article entitled “Why Your Fabulous Job Sucks.” “Work is a blast. Your colleagues are cool and they dig having your dog around. But something evil lures you to the company beer fridge. Ever wonder why you’re never home?” The observation here is quite astute. Creating a cool work environment, holding fabulous office parties with great bands, letting people wear whatever they want, setting up the LAN for multiplayer gaming— this may all seem like corporate generosity. But it also has a sound economic rationale. All these devices help to build among young employees allegiance, loyalty, and a willingness to work. The easiest way to persuade people to pull an all-nighter is to make being at the office more fun than being at home.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“In 1982, economists at the Brookings Institute estimated that about 62 per cent of the value of a typical American firm stemmed from its physical assets—everything from tables and chairs to factories and inventories. Everything else consisted of more intangible “knowledge assets.” By 1992, the balance had completely reversed. They calculated that only 38 per cent of the average firm’s value came from its physical assets. With the shift towards more knowledge-intensive production processes, it is natural that firms should start to worry much more about employee loyalty. It is relatively easy to stop employees from making off with company property—just post guards at the gate. But when employees leave, they generally take with them all the knowledge and experience they have acquired, and there is no way to stop them. So the best way for a firm to retain control of its assets is to build a strong organizational culture, one that will inspire loyalty and allegiance from its employees. From this perspective, it is entirely predictable that the firms that depend most heavily on the knowledge of their workers will also be the firms that put the most effort into employee retention. Software companies in particular are famous for their efforts to create a corporate culture that will secure employee allegiance.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“The Hobbesian state of nature is really just a state of total market failure. Out of this state of nature, we have been able to build up a set of institutions that promote co-operation and therefore improve efficiency. Markets are one institution of this type. But they are extremely limited in their range, since property rights apply only to a tiny fraction of the ingredients we require for successful living.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“What are some other goods with significant positive externalities? One extremely important example is education. Being able to read obviously generates significant benefits for the person doing the reading. But it also generates huge benefits for others. Being literate means that people don’t have to tell you in person what to do, they can just put up a sign. The fact that we live in a society with a high general education level generates huge benefits for us all. However, because we are unable to charge people for all the benefits that our education confers upon them, individuals do not always have an incentive to choose an education level that is socially optimal. Even with massively subsidized education, plenty of people still drop out of high school. This may be individually rational, but it imposes significant costs upon society— decreased productivity being the most obvious.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“The goal of an efficient society, and of our economy generally, is to satisfy people’s needs, or to satisfy as many needs as possible given the available resources. The advantage of the price system is that it produces an observable “image” of these needs. Again, recall the example of the infrared camera, which detects frequencies that are normally invisible to the eye and converts them to the visible spectrum. The system of needs, like infrared radiation, is invisible. The market takes these needs and converts them into something that is observable—prices. But whenever there are externalities, the image gets a bit skewed. Some of the needs get missed. As a result, the picture that emerges will be distorted; it may even be missing entire sections. Since this picture is what we use to determine what to produce, flaws in the image will lead us into systematic inefficiencies. We will waste resources producing stuff that we don’t really want, instead of other stuff that we do want.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“The truth is that our market economy is a finely tuned legal and moral system that has evolved over hundreds of years. It is not a natural condition, but an extremely sophisticated institutional construction, one that requires constant monitoring and enforcement. The system of property rights alone requires a massive legal-bureaucratic apparatus just to keep track of who owns what and who owes what to whom. Consumer protection laws, which establish the basic rules designed to ensure that competition remains “healthy,” are also an enormous legal apparatus. (It was estimated, for instance, that after the “velvet revolution,” the Czech Republic needed to pass eighty thousand pages of law in order to get its product standards up to minimum European Union levels.) Furthermore, the number of regulations must increase every time someone finds a more ingenious way of circumventing the old ones (in the same way that the number of rules governing sport increases every time someone finds a new way of cheating).”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“The so-called “Goulash capitalism” episode in Hungary clearly illustrated the problem. In 1994, shortly after the privatization of agriculture and food production, the country was swept by an epidemic of lead poisoning. After searching far and wide for the cause, doctors and scientists finally tracked down the source of the problem. Manufacturers of paprika—a staple of Hungarian cuisine—had been grinding up old paint, much of it lead-based, and adding it to the spice in order to improve its colour. The practice was so widespread that Hungarian officials were forced to order all the paprika in the country removed from store shelves and destroyed. At the time, no laws were in place to prevent such a catastrophe, simply because it had not occurred to anyone that this kind of thing would happen. Under communism, in which firms had no competition, no one had any incentive to poison their customers, and so consumer protection laws were unnecessary. In making the transition to the market, policy-makers assumed that producers would compete with one another to produce the best-quality paprika. They didn’t realize that producers would compete only to produce the best-looking paprika.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“In any case, Locke argued that we all have a natural set of property rights and can happily go about our business trading with each other and creating all sorts of prosperity. Only much later do we get together and form governments in order to eliminate certain “inconveniences” associated with the state of nature. This sets up the basic contrasts: economy = natural; government = artificial. The impact of this type of thinking can be truly disastrous. No one knows this better than economic planners in Eastern Europe, who were unlucky enough to ask a bunch of American economists for advice on how to make the transition from communism to capitalism. Naturally, the Americans had no experience in these matters, but they did have an overarching ideology that stipulated that markets are nothing more than the expression of our natural “propensity to truck and barter.” So their advice to the East Europeans was quite simple— don’t do anything. Just destroy all your existing public institutions and markets will magically pop up and take their place. Nothing could be easier. Any country foolish enough to take this advice quickly found that when it scaled back the government’s role, what it wound up with was rampant criminality, not orderly markets.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Ironically, it is often the most tough-minded, no-nonsense right-wingers who go all soft when it comes to economic competition. People who would never be so naïve as to suggest that athletes might “voluntarily” refrain from taking steroids will turn around and push for “industry self-regulation” over government intervention, as if corporations might just choose to stop polluting or refrain from producing false advertising. It’s difficult to imagine a more total misunderstanding of the underlying dynamic of capitalism. Part of the problem involves the familiar failure to distinguish between the virtues of the market and the virtues of particular firms in the market. When the competition is staged just right, corporations will deliver unparalleled levels of efficiency. But it is almost never in a particular firm’s interest to produce at a level that will generate efficient outcomes for society as a whole. Companies are forced to operate efficiently by the rules of the competition. If they can find any way around these rules, they will naturally go for it.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“The key concept is efficiency. The primary function of the Canadian welfare state is not to redistribute wealth— it does almost none of that. Government is involved in the economy because, in many cases, the state is able to deliver goods and services more efficiently than the market. From highways and pest control to health insurance and pensions, government is able to get the job done better. Thus the welfare state, far from being an unstable compromise between capitalism and socialism, is a perfectly logical arrangement—one that is designed to promote the overall efficiency of our economy.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“No discussion of this pattern would be complete without mentioning one fateful little tweak we have introduced into the set of rules that governs these types of organizations. This tweak is what makes the difference between a simple hierarchy and a bureaucracy. Whereas a traditional hierarchy appoints individuals from outside the organization to the various leadership roles, a classic bureaucracy relies upon internal promotion. It allows its members to move up through the ranks as a reward for successful completion of their assigned duties within the organization. This small innovation, which is generally credited to the Chinese, can generate significant improvements in organizational efficiency. A traditional hierarchy relies quite heavily upon negative sanctions in order to keep members “in line” at every tier. These sanctions tend to accumulate in force as one moves downward through the hierarchy, so that those at the very bottom often get “dumped on.” As a result, the overall quality of life of subordinates generally deteriorates as one moves down the organizational hierarchy. As they say in the corporate world, “Shit rolls downhill.” Bureaucratic forms of organization, however, turn this into a virtue. The prospect of moving up is used as an incentive to improve performance at every level. There is something vaguely diabolical about the incentive structure that is offered to subordinates, of course, because it organizes things in such a way that the only chance to reduce the amount that you get “dumped on” in the long term is to let people dump on you for now. But there can be no doubt that this incentive structure works.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Morality, in this view, is a kind of internal control system that helps us avoid prisoner’s dilemmas. Kant’s supreme principle of morality— “Don’t make an exception of yourself”—amounts to a moral prohibition against free-riding. If you can improve your own situation only by making others worse off, then this is not something that you could will to be a “universal law.” You are clearly hoping to make an exception of yourself. And so morality prohibits that course of action.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets

“Each consumer who holds off on a purchase in order to wait for a sale generates a slight benefit for all other consumers in the form of increased pressure on suppliers to lower the price. Similarly, each supplier who delays putting things on sale produces a benefit for other suppliers in the form of increased pressure on consumers to buy at that price. In both cases, this generates a free-rider incentive—consumers may break ranks and buy at full price, or suppliers may break ranks and have a sale. The consequence of these two collective action problems will be downward pressure on the price of plentiful goods and upward pressure on the price of scarce goods. The only equilibrium will be the point at which the amount of each good exchanged is just right. Inventories will clear, and the resulting allocation will be maximally efficient.”
― Joseph Heath, The Efficient Society: Why Canada Is As Close To Utopia As It Gets