Monday, February 11, 2013

The Beauty of the Market

Last spring, I went to put a set of summer tires on my vintage BMW alloy wheels, but this routine operation did not turn out as planned. The e-mail below gives a fairly complete account of the event. I sent the e-mail to this tire company to describe my experience with their service.

Dear Manager,

I went to the Victoria St. (Kitchener) shop yesterday to install and rotate four tires on BBS wheels (off a BMW E30 series). When I picked up the wheels in the afternoon, I noticed that one of the center caps was broken. The employee had the chance to let me know about this before I noticed, but he didn't. When I asked him what happened, he said that the plastic is old and brittle and this is why the center cap broke. I have had those wheels for eight years now, and the caps, if handled properly, would come off quite nicely. However, I can't prove that your worker handled them improperly. That is not the purpose of this e-mail anyway. I was insulted by your employee's conduct. The broken center cap may not be expensive, but that's not the point. The lack of professionalism, honesty and respect is what bothers me. I was too upset to say anything to the manager who, I hope, did not know about this. Now I am informing you in hope that some of your other customers won't have similar experiences. I am considering not using the services of this shop and maybe even the entire chain any more if I don't get some sort of reassurance that something like this won't happen again.

To make sure they receive this message, I sent the same message both through the company’s official online contact form and to the company’s official e-mail address. More than six months have passed since then, but I have not received any response. Thus, it is safe to assume that the manager did not find it beneficial to do anything about my complaint. I am assuming he took into account the negative impact his non-response could have had on the business and concluded that this effect is not large enough to warrant any action. This is a large company and if they don’t get too many complaints like mine, they probably won’t bother addressing them.

Of course, I followed through my promise, and I have not returned to this shop. Instead, this winter I went to install my winter tires at a small shop just across the road. The price was even lower, and the service was excellent. I didn’t even have to leave my car at the shop. They mounted the tires on the rims the same day and called me to let me know when they were ready for installation. I am never going back to my former tire shop. 

This is the beauty of the market. Even though losing a customer once in a while may have been calculated into the bottom line of this large company, and even though my switch may not have affected them at all, I still had an opportunity to find someone who showed better respect for my person and property. I could still find someone who cares even about the “little” things. Ultimately, I received better service for less money. 

This is the true meaning of competition, and this is why freer market access is important. The market constantly works to make you happier. If one service provider cannot or won’t meet your needs, this opens a profit opportunity for some other provider. This other provider will do his or her best to meet your needs and at the same time make profit. This is the win-win outcome that the market creates. 

Now imagine having a complaint at your local medical emergency room, or at your child’s school or any government provided service. If they ignore your complaint the first time, you will probably not insist on being heard because this requires significant portions of your time and effort. Most of us would generally rather use this time and effort for other, more productive and fulfilling activities like spending time with family, cleaning our house, or doing homework with our children. Not many people would bother complaining to the higher levels of government, which is generally the only way something could ever be done about these complaints. 

If your complaint was about long wait times in hospital emergency rooms, lack of critical thinking training in our children’s curriculum, or about the chronic lack of respectful discourse by the Ministry of Transportation employees, there is no better alternative “just across the road” like in my tire story. Not only is there no “guy across the road” that would provide better service, but there is no alternative for this sort of services in the entire country. These services are provided by legally instituted monopolies. Thus, competition is either completely outlawed or extremely limited by the current laws. 

I will put aside any discussion of the possibility of private provision of healthcare, education or transportation regulation services. This is not the purpose of this post. For now, let us just be grateful for the freedom of choice that the market provides. Let us stop for a moment and appreciate the existence of the “guy across the road” that is constantly looking for ways to provide a better and cheaper service for us. 

Let us also note that “across the road” is just a metaphor. It could be across the river, mountain, sea, or ocean. The principle is the same. If there is someone somewhere that can help you, this is a win-win situation for both of you. Thus, whenever you consider voting for “protecting industry X” from foreign competition, imagine someone voting on whether you should be stopped from going to another store after discovering that you don’t really like the products or services of store X. Imagine someone deciding you are not allowed to go to the “guy across the road” for better service because that someone wants to protect the guy that does not care if he damages your property or not.

Some may say these are trivial complaints. Some might say: Who cares about a broken 30-year-old wheel center cap! I am fine with these remarks, but let us note that if we want to use this line of reasoning, we have to accept that someone could label as trivial something you consider extremely dear and important. Someone could, for example say to you; you don’t really need a car with air conditioning and air bags. An old 1985 LADA will do for you just fine. Someone could say: Who cares if your child eats oranges, bananas, or kiwis in the winter. Old apples from this fall stored in my basement will do just fine. 

We could go further with these hypothetical cases, but what is important is the underlying principle. Value is subjective and what one considers important others may consider trivial. However, using the force of the law to limit our ability to determine which of our needs are trivial and which are essential, involves giving moral superiority to the subjective preferences of some people over the equally subjective preferences of other people. 

After considering all this, maybe you still want to vote for an interventionist policy that prevents “the guy across the road” to satisfy the needs of your fellow citizens. But if you at least stop for a moment and think about the implications of your vote, I will consider my task accomplished.

3 comments:

  1. You're right, on a small scale the free market offers fair competition, which leads to quality goods and better customer service that consumers demand.

    However, the free market cannot and has not provided everything for "us." Why do people want cars? Because they choose four wheels and an engine as their method of transport. Its not mandatory to buy and own a car, its your choice. Before cars, people were mobile beyond their own two feet. Horses, for example, were and still are a great method of transit.

    Tires go on wheels that have center caps that make sure your car moves effectively (Horses just have iron shoes to make them more effective). Its great that we can choose where to buy these products, however, we cannot choose where to drive them (within reason). The free market does not pave our roads, though it provides our "pavers". Why? Because we demand it the government to do so and are willing to pay taxes for that reason, amongst other goods and services with considerable risk attached to them. Risky goods/services that we "trust" the government to provide.

    Can you imagine a pure-market based infrastructure for our cars to travel? This market would be controlled by the big guy with the big dollars and not mom and pop. Toll routes are an exception and are market driven. But they only improve market activity for those that can and are willing to pay.

    Why does the government pay for roads and transit infrastructure? Because "we" have cars and demand safe, effective and risk free transit routes. I think the big word here is RISK. And I can draw similarities with public health care systems and even education systems. Private health care and schooling exist for those who can afford it, driven by market demand. We trust in the government to provide public health care and schools because we place high risk/reward on our physical and mental well-being and on our children's education. Imagine a world with small, mom and pop, health care clinics and schools. What would our future look like? Probably not good. Last night, President Obama suggest that kindergarten education should be provided at no cost to all US citizens. Implying that the income gap created at the age of 5 should no longer exist. In theory, this is great. In practice, do you think the wealthy and elite paying $1000 a week for finger painting and dance competitions (Complimented by Mandarin, violin and proper posture classes on weekends) would allow their children to co-educate with children that play in alley ways and streets of low-income neighbourhoods? Yeah, right.

    I know you put aside these arguments, but only after you brought them up.

    As for free markets across borders. That means you have complete faith in humans. A statement that we all have learned since 1944 just isn't true though we trusted in it, yet before 1944, we never thought twice about mis-trusting "the guy across the road/pond/ocean/border." With due cause.

    I believe trust is organic and starts within your community. Only when communities grow and blend does trust and a circle of trust become larger. Absorbing all those who abide by its culture. However, it takes one member of a community to speak out and a second to start a movement against the culture. That is why rules and governance are necessary. Two things that have ruled the world since before the word "government" was "dictionaried" (a word I just created, that is above all else - just a word). Words are words, don't let them misguide you. Trust is a big word with a lot of meaning that is globally understood and demanded and spelled using many characters and letters beyond t-r-u-s-t. Trust holds significant weight, similar to health care and education, which go beyond words. Can the free-market sell trust? No, but neither can the government. Only through communication, understanding and negotiation do we earn/gain/buy in trust one another.

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  2. "Can you imagine a pure-market based infrastructure for our cars to travel?"

    Yes, I can, and there is no reason to think a monopoly solution would be the only possible solution.

    "Why does the government pay for roads and transit infrastructure?"

    The government doesn't pay for the roads. You do. Why does the government want to control the roads? I can think of many reasons, and most of them have nothing to do with safe traffic. Why do most people want state owned roads and health care facilities? A few hundred years ago most people wanted women who keep black cats to be burnt in the city square. Does that mean burning people was a good idea?

    "That means you have complete faith in humans."

    No, that means I think there is no conceptual difference between two people exchanging goods within and across country borders.

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  3. "Only when communities grow and blend does trust and a circle of trust become larger. Absorbing all those who abide by its culture. However, it takes one member of a community to speak out and a second to start a movement against the culture. That is why rules and governance are necessary."

    Voluntary trade mitigates this tribalistic tendency. When you go to a restaurant pretty much anywhere, you feel safe eating the food even though you have never met the cook, wait staff, or restaurant owner. The profit motive is protecting you, and you take it for granted. Mutually beneficial exchange trumps race, sex, national origins, and virtually every other tribal identifier. As the old saying goes, "If goods don't cross borders, armies will." This aphorism beautifully illustrates the civilizing nature of trade, even among complete strangers.

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