April 9, 2012

Business can have unintended consequences too

Not quite what I had in mind.

Government typically doesn't do too many things right. This we know. From the military overpaying suppliers for hammers, to 46 million people on foods stamps clearly making visible the fact that the welfare state model is worse than broken, the government gets an enormous amount wrong. But they are not alone. Business makes an awful lot of mistakes too. Business decisions from off shoring jobs without a full impact assessment to tightening credit requirements are often made in knee jerk fashion focused on short term thinking. I'll give you a personal example and then explain why it's not sour grapes on my part. The anecdote itself is not the point of my argument in any case.

My telecom company has inadvertently triggered some unintended consequences for itself. It has decided in its infinite wisdom this past weekend to cut off my cable, internet and home phone for late payment. Yes, I was behind (late) but I was paying. The reason I fell behind was actually because of their decisioning. It relates to my wireless line, which I had recently cancelled. Last year in an effort to reduce my expenses I cancelled some of the features on my wireless phone. What I didn't know, and what they didn't tell me, was that by cancelling those features I was supposedly agreeing to a three year extension on my wireless contract.

Earlier this year I decided to outright cancel the cell phone, again in an effort to cut expenses. They told me there was an early cancellation fee of $400 and an early cancellation fee for the data plan of $200. Plus I could only cancel in 30 days time at the end of my billing cycle. After about an hour of discussing the fact that I was not informed of the contract extension (I had less than a year left on my contract at the time they extended it) and would never have agreed to it, I finally gave up. I talked to the client care representative and then their manager and they would not budge.

I even went through the concept of life time value of a customer for the manager to no avail. For $600 in fees for a service I didn't want from them, they risked losing my business for their three other products which I was fine with keeping. Those other services were about $200 per month combined. If I cancelled those, in three months they would forfeit what I would pay them ($600) for those services - an amount equal to their early cancellation charges. If I kept those other services, in a year they'd get $2,400 from me. Over my lifetime, say another 30 years, they could lose about $72,000 in revenue, not to mention the negative goodwill they would have garnered by me telling everyone I know about their less than amicable and transparent business practices.

I didn't cancel right away, but when a bill comes in for over $800 I certainly can't pay it right away either. So I paid a portion of it. They decided to start restricting my service - slower internet, no long distance calling, the basiic cable package for television. I even understood that move. Once I got caught up, then I could go back to my previous service levels.

But apparently that still wasn't good enough and now I have no service from them for any products. . They've lost a customer for life, they've certainly gained some negative goodwill and I'm happy to share the details with anyone asking for opinions on telecom choices. And they've even lost their leverage with payments from me. They will eventually get their money but they are no longer an urgent payment for me. They can wait in line.

Smart move for $600 that they demanded for an account change they made for me without fully disclosing the implications. Don't feel sorry for me - it's just business on their part. It's bad business, but business nonetheless. They just went through a round of executive layoffs. They are in a bit of a decline right now. You would think that they can't afford to be turning customers into entrenched social media detractors for life.

I said this wasn't about me, this was just an example in order to make a point. It is about the following argument that liberals might make. "If both the government and business make bad decisions, at least government does so with good intentions. We can't leave it to business because they will screw over customers in a heartbeat for a buck". Wrong.

Firstly, government is far bigger than a business and the consequences - intended or unintended - are far more far-reaching than those of a business. For a business to make a mistake, the greatest impact is to itself, even above it's customers. The government, to make a mistake is typically much closer to colossal than local. Everyone can be impacted by the unintended consequences even those who are not directly linked to the issue at hand. A government can decide to raise income taxes to pay for highway improvements, and even those who do not use the highways end up on the hook for those increased taxes.

'But it's for the common good', big government liberals would argue. That's true to a certain extent, but how far can that argument go? We need to ensure that end of life decisions are cost-centric because we can't afford to pay for health care for the elderly for too many years so we are going to have to set up death panels. We'll decide when grandma gets thrown off a cliff, not Paul Ryan, not you. Far-fetched? Maybe today, but the possibility exists down the road. And when the government is so big that it cannot be stopped, whether they use it or not, they'll have that power. And when they have that power over your day-to-day life, you aren't really free any more. For that matter in that health care example, you aren't even safe.

The second reason that the liberal argument about business mistakes are less dangerous than government mistakes is that a business, in order to survive, needs customers. You can only survive so long by being predatory towards consumers. That is particularly true in a society with Facebook and Twitter. You need to treat your customers well to keep them. The free market will eliminate you if you do not. That is not true for government. It does not face competition and the level of accountability is minimized only by an electoral system that favors incumbents. There is no virtually accountability for the bureaucratic departments that govern everything from pollution to commerce.

As a result, the companies that behave in a predatory manner, will eventually be ferreted out by the Invisible Hand, but government has only the hands of self serving politicians and bureaucrats guiding it, and no check or balance on it's ability to over-reach.

It's okay for businesses to make mistakes - they either learn from them or perish. Governments are required to do neither. That lack of consequence for unintended consequences of it's actions makes government far the worse actor in the world.

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