AN OVERVIEW - Part 14

In contrast, when I went to buy a railway ticket, pay my telephone bill, or withdraw money from my nationalized bank, I was mistreated or regarded as a nuisance, and made to wait in a long queue. The bazaar offered outstanding service because the shopkeeper knew that his existence depended on his customer. If he was courteous and offered quality products at a competitive price, his customer rewarded him. If not, his customers deserted him for the shop next door. There was no competition in the railways, telephones, or banks, and their employees could never place the customer in the center.

London's The Economist magazine likewise pointed out that in India one can “watch the tellers in a state-owned bank chat amongst themselves while the line of customers stretches on to the street.” Comparisons of government-run institutions with privately-run institutions often overlook the fact that ownership and control are not the only differences between them. Government-run institutions are almost always monopolies, while privately-run institutions usually have competitors. Competing government institutions performing the same function are referred to negatively as “needless duplication.” Whether the frustrated customers waiting in line at a government-run bank would consider an alternative bank to be needless duplication is another question. Privatization helped provide an answer to that question in India, as the Wall Street Journal reported:

The banking sector is still dominated by the giant State Bank of India but the country's growing middle class is taking most of its business to the high-tech private banks, such as HDFC Bank Ltd. and ICICI Bank Ltd. leaving the state banks with the least-profitable businesses and worst borrowers.

While some businesses can and do give poor service or cut corners on quality in a free market, they do so at the risk of their own survival. The great financial success stories in American industry have often involved companies almost fanatical about maintaining the reputation of their products, even when these products have been quite mundane and inexpensive.

McDonald's built its reputation on a standardized hamburger and maintained quality by having its own inspectors make unannounced visits to its meat suppliers in the middle of the night, to see what was being put into the meat it was buying. Colonel Sanders was notorious for showing up unexpectedly at Kentucky Fried Chicken restaurants. If he didn't like the way the chickens were being cooked, he would dump them all into a garbage can, put on an apron, and proceed to cook some chickens himself, to demonstrate how he wanted it done.

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