By Philip Cross, August 19, 2022
The Ontario NDP framed its latest attack on the private provision of some health-care services by claiming it would raise costs by layering profits on top of other input costs. This reflects a fundamental misunderstanding of the role profits play in our economy, something that is endemic to the public sector from which the left primarily draws its misguided understanding of how the economy works.
Profits are the reward earned for satisfying customer demands while keeping costs — and therefore prices — as low as possible. Market competition ensures that, even with a profit margin, the efficiencies achieved by the private sector lower overall costs while delivering a wide range of new products. In his book The Dawn of Innovation, Charles Morris recounts how the so-called “robber barons” in the 19th-century U.S. made their fortunes by lowering the costs and prices of products for consumers. John Rockefeller “won his markets by concentrating fanatically on reducing costs and increasing efficiency.” Cornelius Vanderbilt built his fortune by slashing the cost of ocean steamships running from New York to Nicaragua and then to the California Gold Rush. Andrew Carnegie undercut competitors by masterfully accounting for the internal costs of steel-making. Matt Ridley in How Innovation Works describes how Henry Ford “had a relentless genius for cost control” that allowed him to dramatically lower the cost of automobiles.
Business firms have a focus on lowering costs that governments do not understand let alone replicate. One sawmill operator boasted that “we can use every bit of the tree except for the smell,” just as meatpackers use “every bit of the pig except the squeal.” Robert Kraft, owner of the New England Patriots, sometimes drops by the team weight room to turn off TVs not being used or to flick off the building lights when the team practises outdoors. The public sector not only does not have this mentality, it is contemptuous of such frugality because it is able to pass on higher costs to the taxpayer.