A blog by Barry Edelson

The Myth of the Efficient Marketplace

Business Works Better Than Government? Prove It.

As one among the legions of Americans who work in what is commonly derided as "the public sector", and who are routinely dismissed by certain politicians and unhappy taxpayers as "faceless bureaucrats," I find it irksome in the extreme that we are constantly berated for our alleged inefficiency in comparison with the purportedly superior private sector. Those who expend their labors in industry or in most of the professions are apt to chastise us this way: "If you ran a business the way you run this organization, you would go bankrupt." Or how about this charmer: "I know a much better way of doing your job." Or the increasingly popular: "I'm going to call the newspapers." As though bad publicity about government agencies were so rare that the threat of it would jolt terrified civil servants into a spasm of reform.

I have spent some of my working life in the business world and some in the not-for-profit sphere. For many years now I have worked in school districts, which, despite being governmental agencies supported by tax dollars, are the most efficient organizations I have been a part of. In my district, more than 3,000 children are picked up by school buses every day of the school year, they arrive in buildings which have been cleaned since the end of the previous day, they enter classrooms where teachers are waiting for them, they are served breakfast and lunch, and they participate in music, sports and any number of the other activities normally associated with educational life in this country. Barring natural disasters, this goes on day after day without exception.

Now, imagine if on a high percentage of mornings the school bus just didn't show up because of "mechanical failures" or "scheduling difficulties". Or if there were no lunch served in the cafeteria, but, to compensate them for the inconvenience, kids were given an apology and handed a $10 coupon towards a future purchase. Or if a parent, attempting to call the school principal, heard a recorded message that said, "The average wait time to speak to someone in the office is eleven minutes." We would be roundly castigated for such practices, and rightfully so. But corporations inflict these indignities upon their customers on a daily basis and on a vast scale, and are still held up as exemplars of capitalism's perfect engine.

I had two unpleasant encounters with corporations this summer, both related to the information technology sector which has been widely reported to have ushered in a new, hyper-efficient model of business organization. Together, these unpleasant experiences summarize effectively much of what is wrong with the corporate structure that stands behind the devices we use every day (or doesn't stand behind them, as we shall soon discover) and much else that does not work in our market-driven universe.

First, my laptop died while I was on vacation. Or to put it more precisely, my laptop had to be allowed to die because it could no longer be reliably serviced. It developed a peculiar electrical problem which made my fingertips tingle uncomfortably whenever I touched the case or keyboard. It was an excellent machine and, in my apparently worthless estimation, well worth repairing. A call to the manufacturer proved laughable. (Okay, if you really need to know, it was Apple). Because my computer was more than five years old, it was considered a "vintage" machine and therefore beyond Apple's statute of limitations, or whatever they called it. In the innocent old days when General Motors ruled the world, the notion of "built-in obsolescence" was a by-word for how American companies forced consumers to replace their cars, appliances and sundry other manufactured goods every few years, thereby guaranteeing a continuing market for products of questionable value. Now, high-tech firms have carried this to an astonishing level of audacity. Five years? Can you imagine going back to a car dealer after five years and being told that you will have to junk your car because they just don't make a muffler for that model any more? But don't worry: we have lots of nice new cars on the lot.

Of course, one has always had the junkyard option for the hard-to-find auto part. Today's computer equivalent of the junkyard is the "third-party provider", a company that finds it profitable to service equipment that the manufacturer has abandoned to posterity. I was given the name of just such a vendor about 40 miles away, only to discover that the company has actually been reduced to a single individual working out of his house.(Apparently, being a third-party provider proved not to be sufficiently profitable.) This kindly gentleman guessed at a diagnosis over the phone and suggested replacing a particular part. I would have to pay for the part in advance, and he didn't take credit cards over the telephone, which would have meant not one, but two 40-mile round trips. And, needless to say, there were no guarantees.

I called my IT guy at work. The decision about what to do with the laptop came before I had even gotten the whole story out of my mouth: garbage.

The second vexing episode concerned the purchase of an iPhone. (You may have guessed that I am a devotee of Apple products, though at this point you could reasonably ask, "Why?"). Not being one of those fanatics who is willing to camp overnight outside an Apple store, I attempted to order one over the phone. However, I was to discover that the iPhone can only be ordered in person at an Apple or AT&T store, and picked up at the same store 10 to 21 days later. So I identified an AT&T store some distance away where the crowds were likely to be smaller, and, a week after the over-hyped launch of the new version of the iPhone, I bit the bullet, stood in line and placed my order.

Out of compassion for the reader, I will now skip all of the painful details about having to upgrade the operating system on my home computer (also a "vintage" computer in the Apple lexicon of technological detritus) so it would hopefully be compatible with the new phone. And about nervously tracking the delivery of the phone to the store in the hope that it would arrive prior to my scheduled departure for vacation. And about the pre-approved credit check that got lost in the system. And...

The good news is that the phone arrived at the AT&T store as promised in just 10 days. On a cool Friday morning, I happily walked into the store and was the first person in line to get my new phone. Here's the bad news (don't say didn't I warn you): the sales rep at the desk informed me that they could not activate the phone at their location because I lived in a different area code. Wait a minute, I protested, as the oxygen drained from the building. I had been told that AT&T had a national network and that it didn't matter where the phone was activated. True, he said, but it just so happened that these two area codes were on separate and incompatible billing systems. He would be happy to activate my phone with a new number in the other area code, but that would mean giving up my existing cell phone number, which would have been an indescribably huge inconvenience. Okay, I said, the phone is right there on the counter and it's been ordered in my name with my credit card: let me take it and have it activated in a store in the area code where I live. Sorry, no (as we have already been informed): an iPhone can only be activated in the store from which it was ordered. Don't ask why; that's just the way it is.

The rest of this aggravating story can be summarized as followed: I spent much of the rest of that Friday on the phone (using my old cellphone, adding insult to injury) with various AT&T "customer service" representatives, trying to find someone, anyone, who knew how to put that phone in my hands without my having to start again from scratch at another store. I believe I spoke to seven (that's right, seven) different people who tried to convince me of the hopelessness of my quest before I found an eighth person who knew how to fix the problem.

Imagine this scenario for a moment, if you will: I am outside an AT&T store, calling AT&T for help. It reminded me of being stuck on a re-routed American Airlines plane on the tarmac in Houston last winter and having to call American Airlines from the plane to get information about my connecting flight in Dallas. (Click here to read about that example of corporate efficiency.) Like the airline employees, most of the AT&T folk were kind enough to admit that the system was crazy, but each in turn insisted there was just nothing they could do about it. I tried very hard to get one woman to say that they COULD clean up the entire mess by giving me the phone, but that they just WOULND'T give me the phone. But you can't teach poetry to people who don't speak English (and I don't mean those nice people on the other end of the line in India who are doing their best at a job that Americans apparently can't do, either).

To put an end to this annoying tale, I returned to the store later that afternoon, where a very helpful young woman spent over an hour going through the cumbersome process of getting my new phone activated with my existing number, while the manager and sales rep I had seen in the morning apologized profusely for being ignorant of their own company's procedures.

It seems to me that there is a ripe market for an area of management consulting (a field populated by what were once called "efficiency experts") to coordinate the technical, sales, marketing and consumer service tendrils of large multinational corporations. Part of the problem with AT&T is that they merged with another large wireless company some time ago. At one point during one of my long waits in the store I realized that it had the distinctly orange color scheme of its former overseer, Cingular. This may explain the incompatible billing systems. Surely these companies would have an easier time getting new customers and holding on to them if they didn't take their patronage for granted and figured out how to make their various systems appear to be part of the same organization. But it is clear that they do not think they need to.

Almost everyone has had similar experiences dealing with a phone company, cable TV company, utility company, airline, or some other provider of a service that we have decided we cannot live without. It has become a truism of modern life that most of these large companies are something like surgeons: being good at their craft has no bearing on whether or not they have any bedside manner. Another truism of modern life is that there's nothing we can do about it, so we vent our frustration by sharing the latest corporate horror story with our friends and co-workers.

Competition would seem to have little impact on this sorry state of affairs. It's a race to the bottom: we are being propelled down an increasingly rapid track of technological innovation without regard to where we are headed, let alone whether we want to go there. Of course, we are partially to blame, because if we didn't keep passing our money over the counter, and if companies didn't find this breakneck pace profitable, they wouldn't continually be changing their products and demanding that we change with them. When profits go down, whether from competition, a bad economy or any other factor, companies typically react by reducing their most expensive capital input, namely personnel. This has always been true in manufacturing but is even more so in the labor-intensive service industry, where salaries and benefits are often the single biggest expense. This is as true of school districts as it is of banks, insurance companies, and fast-food restaurants. But what is also true is that reducing staff and cutting costs may temporarily improve the bottom line and boost the share price, but they are not synonymous with becoming more efficient.

So the next time you read a story about corrupt public officials or rising property taxes, and wonder why those miserable government agencies can't get their act together, remember my three ineluctable rules of the mythical capitalist marketplace:

(1) Companies are never as efficient as they could be — they're only as efficient as they need to be.

(2) "Downsizing" is just a euphemism for getting fewer people to do more work — which includes having fewer people to answer the phone when you have a problem. (Or having 35 students in your kid's third-grade class.)

(3) Prosperity hides a multitude of sins.

I have to stop writing now. My new laptop needs charging.

August 23, 2008

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