Wednesday, January 28, 2015

Free Stuff, Public and Private

We all know about government "free stuff". It's what governments do; they keep their supporters on-side with free stuff. What could go wrong? The answer is: Greece and Argentina. At some point, governments tend to run out of other peoples' money to give away. What do they do? Generally, they lie, cheat and steal some more, through devaluation of the currency and seizure of bank accounts.

Then they return to their profligate ways. That's because the one thing that brings people out into the streets is when their government pension is cut. I am talking about government pension in general: any government benefit, from an actual pension to subsidized health care or subsidies for green energy.

If governments dangle free stuff in front of their supporters, it must be because it works, and it must be because getting something for nothing is hard-hired into the human psyche.

So what about evil corporations?  What do they do on the free-stuff front? The simple answer is: a lot. Corporations provide free TV programs that are paid for by advertisers. They publish newspapers that are partly or wholly financed by advertisers. Supermarkets have weekly specials. And airlines have their frequent flier programs.

Here's a story about corporate free stuff. Lady Marjorie and I plan to take a trip to Australia later this year, so my daughter offered us the use of four free upgrade coupons that her husband had racked up as a very-frequent flier. We made the reservations in coach and gave my daughter the confirmation number so she could access our reservation and upgrade it to business class using her husband's coupons. Only, it turned out that the coupons were only valid for certain economy fares. For our low-low fare there would be a fee!

So businesses are strategic about their free stuff. They want to service their customers and feed their appetite for free stuff. But there is still the need to make a profit. The free giveaways areneeded as sweeteners to get the customer to feel good about the corporation. But there is a limit.

You can see what is going on when you remember that the corporations call their free stuff "loyalty programs." They are playing the role of the lord of the manor handing out little presents to the peasants on the annual fete for the renters, rather like the fictional fete given by Squire Donnithorne to the people of Hayslope in Adam Bede.

Governments do the same thing for their supporters. The regular payment of free stuff to the voters is supposed to ensure their loyalty at election time.

But you can see that the whole thing needs to be carefully managed. You need to manage expectations carefully, because people get really annoyed when the squire suddenly decides to cut back on the parties because he's had to pay the young squire's "debts of honor."

For corporations there is the feedback from the constant need to turn a profit. Not enough free stuff, and the customers go buy elsewhere. Too much free stuff and the corporation goes broke.

For governments the same applies, only governments can go on much longer borrowing money than corporations can. This means that it always pays for a politician to offer free stuff now and worry about national bankruptcy later.

Politicians can always blame the greedy banker for their mistakes. Corporations, not so much.

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