When Government Runs Business

I happen to have an acquaintance who runs a very successful strip club in downtown Montreal and before you make assumptions about the type of company I keep, I'd remind readers that I know an awful lot of politicians and lawyers and I can assure you that he is more reputable and honest then most.

When I say 'successful' strip club, it's a bit of an inside joke, as there is almost no such thing as an unsuccessful strip club. My friend, the strip club owner, has joked that he could probably open a strip club on the Moon and it would make money, that's how good the optics are.

Probably the only way a strip club could lose money, is if the government ran it.
As you may have noticed the only businesses that the government gets into are those that are wildly profitable and ones where they can create a monopoly to compensate for their incompetence.  Without competition, prices can be raised to the point that despite management waste and union largess, profits still roll in.

No, if the government wanted to run a strip club successfully, they'd have to eliminate all the competition and double the price of lap dances before they could make money.

Now all this is inspired by a story that I read recently reporting that the Loto-Quebec's new online gambling site is losing money.  
LOSING MONEY!!!!!!  

How can Espacejeux.com lose money, while a site like Poker Stars made a $1.7 billion profit last year.

"Government gambling sites fail to attract enough paying customers. Their design is less attractive, their features not comparable with those of private sites and the "atmosphere", less glamorous." LINK{FR}

 The sad truth is that when the government has to compete in the real world, with bone fide competitors, they cannot make money.

Loto-Quebec successfully sells all manners of lottery tickets, because there's no one else selling tickets in Quebec, but Espacejex is forced to compete in the online world where the government can't enforce its monopoly and where gambling sites around the world offer gamblers a better experience.

Back in the day before Loto-Quebec, several mob outfits used to sell lottery tickets (a variation of the 'numbers game') and the competition was robust with the payout percentage actually better than what Loto-Quebec pays out now. I remember my dad buying me a very popular lottery ticket that paid out based on the time of a penalty or goal in the Canadiens Saturday night hockey game. If a goal or penalty occurred on the time on your ticket, or a second before or after, you won a pretty good cash prize, delivered Monday by your friendly mob runner. Of course the mob didn't have plush offices and  hundreds of employees to reduce profits, nor did it have expensive promotions and advertising. The actual tickets were tiny pieces of cardboard folded over and stapled shut with the number inside written by hand. The runner who sold you the ticket recorded the number for security reasons. How's that for keeping expenses down!
Very lucrative!
The only trouble was that the Mafia being what the Mafia is, they couldn't content themselves to the normal profits the lottery business brought in. The whole lotto scheme collapsed when it was revealed that the mob had fixed it with the Habs time keeper to stop the clock  on even numbers only, while all the tickets were sold with odd numbers!! Haha!
But I digress....

The government follows a simple business plan, one inspired by organized crime, which is based on eliminating competition.
While the liquor monopoly (SAQ) rakes in a billion dollars in profits, it is calculated that by getting out of the booze business and privatizing the lot, the government would double their profits  through various forms of increased taxation, while the industry would remain profitable through economies made on operations and the elimination of wasteful management practices.

The same goes for Hydro-Quebec. It's estimated that the government power generating monopoly has twice as many employees as necessary and pays them 30% more than private competitors. A typical generating dam costs double to build than in the private industry! Yet Hydro-Quebec is looked upon by Quebeckers as a great success and testament to Quebec business acumen because it generates over three billion dollars in profit a year.
Lost in all this is that 1.7 billion dollars of that profit comes from reselling cheap Newfoundland power which it 'buys' for pennies and sells for dollars!
Again, it is estimated that the Quebec government could double it's profit by privatizing Hydro.

All this of course is just idle day dreams, it can never happen. The Quebec 'model' is just too ingrained and the idea of privatization an anathema to the vast majority of Quebeckers who view public corporate ownership as a source of pride, a sacred trust.

Here's a suggestion which I made in semi-jest to the ex-director of the SAQ (the liquor monopoly) at a convivial dinner we shared, a couple of years back. He laughed mighty hard at my suggestion.

Instead of privatizing cash cows like the SAQ, Hydro-Quebec  and Loto-Quebec, the government could open rivals, also owned by the government!
These companies would operate as competitors with managers rewarded if they outperformed their state-owned competitors!

Two different casinos, two different liquor stores and two different power generating companies, forced to take heed of what the other is doing or face losing market share!
Managers would finally have inspiration to cut costs, their jobs would depend on it!

Would market forces of as free market would apply, even on a limited basis! You betcha!
We could finally justify those performance bonuses that are rife in these monopolies presently that actually make no sense without competition.

My acquaintance from the SAQ assured me that he could increase profits if he wanted to, by 50%, but had no incentive to do so!
This would include buying up and operating vineyards in Europe and South America to  eliminate middlemen and reducing retail locations to cut costs. Suppliers would be squeezed with threats of having their product pulled from SAQ shelves, something that never happens now. Stores would be sub-contracted to franchisees which would cut labour costs by 40%.
It was an interesting exercise in 'What if"
These type of economies would occur in all government agencies if a whiff of competition would be introduced.

Too bad it will never happen!