AN OVERVIEW - Part 13

It is not superior quality or efficiency which are a problem, but inertia and inefficiency. Inertia is common to people under both capitalism and socialism, but the market exacts a price for inertia. In the early twentieth century, both Sears and Montgomery Ward were reluctant to begin operating out of stores, after decades of great success selling exclusively from their mail order catalogs. It was only when the 1920s brought competition from chain stores that cut into their profits and caused red ink to start appearing on the bottom line that they had no choice but to become chain stores themselves. In 1920, Montgomery Ward lost nearly $10 million and Sears was $44 million in debt — all this in dollars many times more valuable than today. Under socialism, Sears and Montgomery Ward could have remained mail order retailers indefinitely, and there would have been little incentive for the government to pay to set up rival chain stores to complicate everyone's life.

Socialist and capitalist economies differ not only in the quantity of output they produce but also in the quality. Everything from cars and cameras to restaurant service and airline service were of notoriously low quality in the Soviet Union. Nor was this a happenstance. The incentives are radically different when the producer has to satisfy the consumer, in order to survive financially, than when the test of survivability is carrying out production quotas set by central planners. The consumer is going to look not only at quantity but quality. But a central planning commission is too overwhelmed with the millions of products they oversee to be able to monitor much more than gross output.

That this low quality is a result of incentives, rather than being due to traits peculiar to Russians, is shown by the quality deterioration that has taken place in the United States or in Western Europe when free market prices have been replaced by rent control or by other forms of price controls and government allocation. Both excellent service and terrible service can occur in the same country, when there are different incentives, as a salesman in India found:

Every time I ate in a roadside cafe or dhaba, my rice plate would arrive in three minutes flat. If I wanted an extra roti, it would arrive in thirty seconds. In a saree shop, the shopkeeper showed me a hundred sarees even if I did not buy a single one. After I left, he would go through the laborious and thankless job of folding back each saree, one at a time, and placing it back on the shelf.

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