Monday, August 9, 2010

Feedback Controls.

Strategypage on trouble brewing in China. In short corruption breeds unrest, unrest breeds revolution.

Here's what happens when there's endemic corruption and a total lack of trust.

The corruption is everywhere. University degrees, and other education credentials, for example, cannot be taken at face value. There's simply too much cheating. So employers have to carefully examine job candidates. This often includes administering lots of tests, and making sure there is no cheating, or that the test monitors are not bribed. In effect, the most honest aspect of the country is business. You can't run any kind of profitable company without a fair degree of
honesty and dependability.
There is cheating going on (like the contaminated baby formula that actually killed a few babies), but that sort of thing puts you out of business (and got some of the baby food executives executed). Thus market pressures keep a lot of Chinese honest, but not so government officials.

Emphasis added.

Funny that. The only way you can ensure quality is by giving the "consumers" a method of choosing to forgo paying for the service. If the provider's funds are cut off then they cannot continue.

This is what is so troubling about government bailouts of banks, automakers, and newspapers. It makes them immune to customer power, and beholden to governmental power. The feedback system of quality being ensured by customer buy-out fails, and is replaced by a feedback system of pleasing governmental paymasters. This way they'll get money from the the public (via taxes), no mater what they produce.

"Whoever pays the piper chooses the tune." When you bailout a company, they stop selling products and airtime, and start selling governmental-approval. They make money by towing Policy, whether by donating to the "right" causes or producing the "right" products.

Profits be damned, because they're not making their money by moving product, they're making their money by ensuring the tap from Uncle Sugar doesn't run dry.

Another example of how the feedback system is subverted.

With military equipment, lax standards are an even greater problem. That's because military equipment doesn't really get put to the test unless there's a war, and China has not been at war since 1979 (where outnumbered, but experienced, Vietnamese troops beat the crap out of
the Chinese invaders). So second rate military equipment is all the rage. Manufacturers make more money, a lot of which is used to bribe purchasing officers to buy the flawed gear. The Chinese leadership, or most of them, are aware of this, and this leads them to make military
threats, with the realization that actual military action could be disastrous for China. The best stuff is often exported, because foreign users are less likely to tolerate shoddy standards, and will not order more stuff.
Emphasis added.

Here's a prime example of what happens when the government becomes your customer. This is especially acute on military procurement, as the product can only be purchased by government. Hence bloated programs, schedule slip, and feature creep. As we've seen the only way out is if the Defense Contractor can sell to a different nation-state, one that can choose where they buy their weapons. This requires the approval of the host nation, but one can see how consumer choice is what ensures quality.

The ability of a customer to take their money elsewhere is what forces a company to fight for that money. Take that away, and they've got no reason to maintain quality or service, because they'll get your money anyway.

But don't worry, making healthcare a government procurement program will be different. They'll get it right this time.

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