T_Bone wrote:
Once you get rid of profit, what ensures efficiency? It's the prospect of profit that forces efficiency. If there's no chance of a profit, why strive for efficiency?
All else being equal, you increase profit by increasing efficiency within your organization. However, once the consumers find out that you can now produce for less, they improve their efficiency by making you forgo your profit.
Let's say company A produces raw materials.
Company B produces parts from As materials.
Company C produces product from Bs parts.
Assume that right now no-one makes profit. It's all break even.
Company A finds a way to produce for less. Efficiency of A goes up but the efficiency of the system remains the same. The same amount of end product at C still costs the same.
B finds out that A now has margin and asks for a better deal. Since their costs are now lower B has profit (but A looses margin). C finds out about Bs lowered costs and pushes them to pass it on.
Finally, at the end of the chain, efficiency is increased when C are forced by the consumer to lower their prices.
So long as there is competition and good information flow margins will be razor thin and transient. Overall efficiency will improve.
To prevent this a certain degree of information witholding and even misrepresentation must be entered into. Ther is also collusion between competitors (not necessarilly overt, but competitors keep an eye on each other to get a feel for what they should be bidding.
Other ways of introducing inefficiencies are government regulations and futures trading. One huge inefficiency enforced by government regulation, for example, is patent protection.
