It was clear last Sunday that I was experiencing some sort of Marxian existential moment. But it was not clear whether the Marx in question was Karl or Groucho.
I was trying to buy that quintessential fast food meal — two hamburgers, fries and a Coke. I headed to an establishment I’ll call “Burger Queen” to protect the guilty.
Alas, it was not meant to be. The joint was like something out of a Marx Brothers movie. Pandemonium reigned behind the counter. Employees milled around, getting in each other’s way. The cashier studiously avoided eye contact with customers. The shift manager raced about, trying in vain to keep the place running.
Edgy customers stood at the end of the counter, waiting. And waiting. Finally, I decided enough was enough.
I stepped up to the register and asked for my money back. My cash register receipt was issued at 1:58 p.m.; when I got back in my car, the clock read 2:26. I had discovered a fast food outlet that could not get a customer two burgers and fries in 28 minutes.
This is where Karl Marx enters in. Karl made many intellectual errors, but the greatest was his assumption that “the production question” had been solved.
The old German thinker spent most of his adult life in Industrial Revolution Britain. Despite the grinding poverty so poignantly depicted by Dickens and other writers, output was growing by leaps and bounds and living standards were rising for many. Machine technology, fossil fuel power and modern business organization seemed to have solved the problem of how to produce mass quantities of goods for society.
The principal question that remained, according to Marx, was how to distribute the bounty of modern industrial society fairly. Communism was his answer. Control of the economy would have to pass from a small elite of capitalists to the broad mass of workers.
But he was terribly wrong. Organizing production so that resources are efficiently transformed into goods and services is a challenge that never goes away. Structuring economic and political systems that motivate productive use of resources while equitably meeting the basic needs of most members of society is a feat that has been accomplished by only 30 or so of the 170-plus nations in the world. And none of these successful societies are communist or socialist in a sense that Karl Marx would recognize.
My ill-fated attempt to buy a quick meal is an example of management failure in microcosm. But other local examples of enterprises that fail at “the production problem” abound.
Qwest directors finally ousted CEO Joseph Nacchio this week after two years of declining service quality, low morale among employees and stock prices declines. And a small heart valve manufacturer, ATS Medical Inc., announced it is laying off half its employees even though its founder and chairman, Manny Villafana, is a legendary entrepreneur.
“Wait a minute,” some critics of market economies may protest. “Don’t these examples prove Marx right? Didn’t he argue that the unbridled competition in capitalism led to instability and waste? Aren’t the chronic problems of “Burger Queen” and Qwest or the spectacular implosions of Enron and Arthur Andersen proof of market economies’ chronic instability and inefficiency?”
That argument might have some weight if production had been conducted efficiently anywhere in the score of countries that tried to achieve “true socialism” over periods of 40 to 70 years. But a decade after the fall of the Berlin Wall and the oldest communist regimes, all the evidence is that production of goods and services under communism was at best Groucho-esque.
Anyone who has visited Eastern Europe has heard the same tales. “We pretended to work and they pretended to pay us.” “The workers on this collective farm had to sleep in its fields by day because they were exhausted by stealing from it by night.”
All of the world’s wealthy countries have essentially market economies. In some, such as Sweden or France, levels of government social services or state control of business may be higher than in others such as the United States or the United Kingdom. But state regulation and ownership do not predominate in any.
While some communist nations such as Cuba made admirable advances in broad-based education and public health, none was ever able to solve “the production problem” as well as Belgium, New Zealand or Denmark, much less the United States or Germany.
The battle isn’t over in market economies. The spectacular problems of Vivendi, Enron and Qwest all show that motivating managers to act in the long-run best interests of shareholders is difficult. The fact that Enron executives were paid hundreds of millions in bonuses as the firm imploded demonstrates that such principal-agent problems can still run rampant.
But in the long run, market forces discipline bad management.
If the poor service I got at “Burger Queen” is repeated too frequently across its other franchised stores, eventually it will go bust. The incentives that possibility brings are beneficial for society as a whole, and those incentives never existed in communist economies.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.