Since it's July 4th, I couldn't resist writing another entry about the Government vs. Free Market.
Many (if not most) people believe that the Government can provide "essential" services better than the free market. It's interesting to wonder why.
I think that the main reason is that people think that the Government is altruistic, and therefore will provide the best service because it has the people's best intentions at heart, whereas the free market is driven by profit and therefore will over-price services and cannot be trusted.
Let's take a look at this reasoning in more detail.
First: The government is not altruistic. Government officials want to be re-elected more than anything, so they will often make decisions based on pressure from lobbyists, unions, and other groups who have their sponsors rather than the ultimate consumer in mind.
Second: Consumers are ultimately served best by goods and services that provide good value for money. Would you purchase an expensive, poor quality product created by an altruistic company instead of an inexpensive, high quality product created by a for-profit enterprise? Consumers generally don't care about the motivation driving an organization as long as it provides good value for money.
Third: Altruism is no guarantee of producing good value for money. An organization can have the best intentions in the world and still produce an expensive, poor product.
Fourth: Many (if not most) people want to be rewarded for their creativity and hard work. That's why entrepreneurs and investors look for marketplaces that are inefficiently served and provide an opportunity for profit. If a marketplace can't provide a profit, enterpreneurs and investors look elsewhere. When the government grants itself a monopoly in a particular marketplace, it removes the incentive for entrepreneurs and investors to compete for profits in that area.
Fifth: A company in the free market only makes profits if it provides better value for money than its competitors. In a truly free market, large profit margins for a long period of time are relatively rare since other competitors will enter the market and drive profit margins down. If you think that the energy industry and the healthcare industries are free markets, look more closely; the government is hugely involved in these industries, with most examples of huge profit margins due to government interventions that are influenced by lobbyists from those industries.
I hope to revisit and improve this posting, but I think most of the key points are present. Flame away!