Monday, June 20, 2011

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!

19 comments:

  1. 1 of 2:

    Most lost opportunity at profits, especially in government organizations, occurs because of what your SAQ friend said: There are NO INCENTIVES to do better.

    My own brother was fortunate enough to get a job in the parapublic sector of the Quebec government. He started at a low level, working in group homes under the Department of Social Affairs, but was smart enough to get promotions, working his way up to coordinator of several group homes. He was offered directorships, the highest achievable level, but he refused them because he didn't want to report directly to the government (because that's a colossal headache!)

    Sadly, while he was indeed working his way up, he finally started working against himself. He'd put in 12-14 hour days constantly, a large part of that fixing the wrong done by underlings. He was a perfectionist, and that too caused him plenty of stress and strain, to the point where he finally suffered a major burnout and had to go on leave for about three months to recover. Fortunately for him, the Quebec government has a lucrative benefit where those who go on sick leave can collect 80% of their base salary for up to two years, a salary insurance.

    This nervous breakdown of sorts caused my brother to change his work strategy. Once he returned to work, he decided he'll put in his eight hours a day, and whatever was left to do waited until the next day. It cost him a nervous breakdown to learn there was NO INCENTIVE to put in more than a normal days work; furthermore, he want to a special orientation seminar (away from work three days, yet paid) on how RREGOP, the lucrative pension plan for Quebec government workers, works and how he could maximize his benefits, i.e., how soon it was he could quit his job for full pension.

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  2. 2 of 2:

    Actually, he figured he'd get about 90% of his RREGOP entitlement by caculating his date on his own, but the seminar taught him by working just three months more, he'd get 100% of his entitlement. He actually downloaded a countdown clock on his computer, and he celebrated the countdown further when tearing a page off his calendar, indicating he's one month closer to retirement.

    Simply put, for the last eight of his 32 year career in Social Affairs, he did his 9-to-5 and then pulled out for the day. Hey, why not? There were employees who made a scheme out of that two-year salary insurance. How? They'd go on sick leave for two years, collecting the insurance for the whole time, come back to work for a few days, and then take off another two years "vacation" at 80% of their pay. Too, while employees are on that lucrative sick leave, THE QUEBEC GOVERNMENT PAYS THE EMPLOYEE'S PORTION OF THE RREGOP! That's a savings of up to 6% of their paycheque, so they're really getting 86% of their take-home pay. Factor in their lucrative salaries, bringing many of them to the 50% tax bracket, so take into account what they're NOT paying in tax on that "lost" portion of their base pay, and it works out to taking home about 93% of their base pay! Hell, there's NO INCENTIVE TO WORK, let alone make "profits", or make government more efficient.

    It's this type of atmosphere that has put Greece into the fiscal fix it's in, and Quebec is sixth in indebtedness in the world by their own finance department statistics. Greece is again on the cusp of hitting the wall, mostly because the Germans, the strongest country supporting the Euro, are tired of seeing the Greeks retiring on average at age 52 while the Germans retire on average at age 67. When I heard back in 2000 that the Olympic deficit of those games was $12 billion, I KNEW back then that would come back to haunt them. Remember Montreal's billion dollar games? THAT took 30 years to pay off! Does that mean at 12 times the cost the Athens games will take 360 years to pay off? Their grandchildren's great grandchildren will be paying it off!

    Between Quebec government largess and the amount of welfare paid to those not wanting or unable to work (I think it's more the former than the latter), how long will it be before Quebec hits that fiscal wall? Spain and Portugal are sure in trouble, so once they hit the wall, when will it be Quebec's turn? What's worse is, if they hit the wall, the Real Canada will feel the impact! Quebec can't produce its own currency, unless they separate. At least if they separate, or Real Canadians decide to throw them out of confederation, Quebec will cause a fiscal drag on the rest of us. Why should the rest of us suffer for Quebec's renegade largess?

    It's time for a federal political party to hold Quebec accountable for the grief and aggravation thay have caused and cost the Real Canada!

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  3. Weaning QC off of it's own Gouvernemama has to happen, all polls suggest the majority are sick of all the govt corruption - even Bazoo joked on her show and Radio that it was very funny to see LotoQC's justification for entering the Online Casino market, as a method to reduce the influence of organised crime on that industry :)

    The editor is right, there are sooo many people employed by the govt, we need a revolution and I think the ADQ is the only party trying to push for this change the way it needs to happen.

    It will happen, (if/when) once there is one part of the govt that succeeds in doing so, then the others will follow suit. Just need to set the trend, then eventually our taxes may lower (oh, wait, Fin. Min. Bachand will find another way to justify stealing more(!), just like he got away with kicking us all while we were down during the recession already.

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  4. Mr. Sauga said...
    "type of atmosphere that has put Greece into the fiscal fix it's in, and Quebec"

    Same problem, a political/elite more interested
    in "feathering its' own nest" - by mortgaging
    the populations future, than actually governing.


    Hugo Shebbeare said...
    "It will happen, (if/when) once there is one part of the govt that succeeds in doing so"

    Change is forced upon a bureaucracy, the
    machine never changes by choice.

    DD

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  5. ...to Hugo: Didn't Quebec already have a revolution a half century ago? How many revolutions can a place endure over a century?

    Most political parties have a founder, and after he leaves the party, it flounders! Uh-oh-it's-Mario led his party to opposition one election ago, then what? Watch the same happen to Layton before the next four years is finished! Before this "NDP revolution", Quebec elected members twice. Mulcair last time, who promoted a separatist agenda that seemed to take and usher in the NDP THIS time, and Phil Edmondston one prior time, and he only lasted two years.

    Mario learned the hard way he couldn't suck and blow at the same time, and now Jack and Uncle Tom are going to learn the same.

    The only reason you're fighting your exercise in futility, I imagine, is because you love your current environs. Yes, Montreal is a nice city, and while I still believe that, I also KNOW I wouldn't want to live there.

    Sadly, Montreal's best are gone. In the 40s and 50s, it was thee place to be in Canada. It had the highest population, the English community was affluent and flourished, and it was a fun, sin city.

    Jean Drapeau then came in, cleaned it up and then almost bankrupted it with the Olympics. In came Bill 63, and some people left. In came Bourassa's answer, Bill 22 and more people left. In came Levesque's Bill 101, and I left, along with a huge slew of others. Admittedly though, my mind was made up when Bourassa tabled 22.

    Bourassa, in his miraculous return, then put the icing on the cake with Bill 178. I was already happily in my Ontario world, but I was just as furious about it. Like I've always said, Bourassa screwed the English 100% x 2: 178 + 22 = 200; 100% x 2 = 200%. See what I'm getting at?

    Bou-bou called this "linguistic peace". I have an assortment of other labels for what it was, but I speak French in Mississauga, and I feel much more secure speaking it here than I ever would in Quebec.

    Incidentally, you can live in Ottawa or thereabout and still go to Montreal whenever you wish. In Ottawa, it's no Quebec government, but Montreal is just around the corner, and your in-demand professional skills would be most welcome here in Ontario, at about 30% less tax. Is it really worth fighting the anti-English sentiment internalized by the Quebec government and its people? If so, that fight should have taken place 40 years ago before a big chunk of the English population left. Now it's too little too late.

    Quebec is just too leftist for the ADQ. The electorate knows what the ADQ would do if elected, and they know they won't like it, so while the fiscal brick wall lays ahead for Quebec, they'll worry about it when the time comes.

    This in part is why a federal political party is needed that will put Quebec in its place before the rest of us have to pay for their mess.

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  6. ““We don’t want the party to end, the “free” trips, expense accounts…perks, gold plated pensions, free this, free that…Yes indeed, see we in government, are all entitled to our entitlements folks and we can’t stop that, at least not until we retire. Our unions say so, it’s ours and we want it now...$$$” Scum bag parasitic unions, police, all government…all the same, bankrupting future generations…and they don’t give a damn.

    We now have over 3.5 million people working for government across the country. Average salary in government is 70 thousand (including benefits, pension, bonuses...) yearly and rising. Average salary in the private sector is 45 thousand yearly and dropping. Over 10% of government employees now make over 100 thousand yearly. In the private sector the number is under 2%. Look to Greece, Ireland and Quebec (all bankrupt), this is where Canada is headed if we don’t stop equalization and get spending and government growth under control. This tax and spend, union scum, socialist, big government, social engineering that has been destroying this country has got to stop. Yes, it has left Quebec and has been spreading throughout the rest of the country since the 1960”s, that’s right over 5 decades of massive government growth, massive government hiring, higher taxes, skyrocketing government salaries and more and more debt. Thanks Trudeau, Tanks kebec (original native spelling). Don’t believe me; go check the stats for yourself.

    Try to digest this scum bags. Who do you think is going to pay off all this debt you are leaving your children, your grandchildren? That’s what I thought, you don’t care!

    Watch the video, this is what government is not telling you. Its happening in Canada as well.

    http://www.youtube.com/watch?v=5CxP5clZf_g&feature=player_embedded

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  7. Anonymous said...

    "Watch the video, this is what government is not telling you. Its happening in Canada as well."

    Close, but no cigar. The current battle (in
    Greece and elsewhere) is why should taxpayers
    (in any country) pay for the fraudulent
    activites of the banks (through derivatives).

    They'd like you to believe the problem is unions are paid to much. Here's the playbook:

    http://strats4ever.wordpress.com/2011/03/08/the-globalizer-who-came-in-from-the-cold-the-imfs-four-steps-to-damnation/

    Greece is at step 1. Current derivatives bubble
    estimate, about 1.5 quadrillion - 20 times the
    global economy.

    @Mr. Sauga
    "Bourassa screwed the English 100% x 2: 178 + 22 = 200; 100% x 2 = 200%"

    That's funny, might require a t-shirt.

    DD

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  8. "That's funny, might require a t-shirt."

    A large one for DD!

    Depuis le temps que les anglos nous "crossaient" allègrement.A mon humble avis,ces lois n'étaient qu'un juste retour d'ascenseur.Toute bonne chose a une fin.

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  9. "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."

    Cher Éditeur, pouvez-vous citer vos sources s'il vous plaît ? Si elles proviennent de l'Institut économique de Montréal ou de la garce à Claude Garcia, cela ne compte pas.

    "...it is estimated that the Quebec government could double it's profit by privatizing Hydro."

    D'où croyez-vous que ces profits proviendraient ? Les Ontariens, ces crétins, ont privatisé une partie de Hydro Ontario et il semble que les seuls qui soient satisfaits sont ceux qui empochent les profits.

    Y.

    "A good Anglo in public space is an Anglo who when he hears someone speaking French he look at him and removes his hat or leans his torso slightly in lowering the head." From the book How an Anglo should behave in society.

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  10. @ Y.

    "The only good Francophone is an assimilated Francophone who speaks white instead of coarse Joual."

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  11. This comment has been removed by a blog administrator.

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  12. I can just imagine the comment from anon 2:42.

    Anon from 2:07 must have hit the solar plexus of Y or whoever.

    LOL

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  13. "A good Anglo in public space..."

    If that's the conduct expected of me, I'll be a "good Anglo" when pigs could fly!!! I'm sure that goes for the rest of the Anglo population in Quebec.

    A good Franco, therefore, should be one who comes to the border when leaving Quebec, and kneels and bows before the new territory he is entering, and extending the same courtesy to anyone who address the Franco; furthermore, the Franco should only speak after having been spoken to.

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  14. To Y.:

    "Les Ontariens, ces crétins, ont privatisé une partie de Hydro Ontario..."

    As a Quebecois, you should be more respectful of Ontarians. They supported your backwards and bankrupt province for decades. You should be kissing their asses...

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  15. "As a Quebecois, you should be more respectful of Ontarians."

    Les Québécois ne seront jamais assez crétins pour privatiser une richesse collective.C'est vrai que les ontariens n'ont pas été très brillants sur ce coup-la.

    Nous n'avons aucune leçon de respect a recevoir de quiconque au canaya et encore moins sur la façon de gérer l'énergie.

    C'est les ontariens qui vont nous baiser le cul le jour ils dépendront des Québécois en matière d'énergie hydro,comme les amerlocs.

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  16. @ Anonymous 10:28 AM

    L'Acte d'Union de 1840, qui réunissait le Bas-Canada (Québec) et le Haut-Canada (Ontario), obligeait le Bas-Canada, peu endetté et plus populeux, à éponger la dette du Haut-Canada, qui s'élevait à 1 200 000 livres sterling (environ 6 millions de dollars de l'époque).

    Lorsque le Québec formera un pays, il faudra négocier le partage des actifs et du passif. Et strictement au niveau du partage de la dette, on tiendra compte du 6 millions de dollars que les Québécois ont PRÊTÉ aux Ontariens. Ces crétins qui n'ont même pas eu la FIERTÉ de financer l'établissement de leur présence en leur pays. (En tout cas, leur attitude aide à mieux comprendre pourquoi l'économie ontarienne est une économie de succursales américaines.)

    Pour en revenir à nos moutons (Bonne Saint-Jean!), 6 millions de dollars à intérêts composés depuis 1840, je ne serais pas étonné que ton pays nous doive de l'argent lorsqu'il sera question du partage de la dette.

    Y.

    "An Anglo working with public must be always proud to serve somebody in French." From the book Ten tips to be a good Anglo in Québec.

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  17. "An Anglo working with public must be always proud to serve somebody in French." From the book Ten tips to be a good Anglo in Québec.

    Hahahahaha!Bien dit,un peu effronté mais tellement drôle!Il faudra que ce livre devienne un "best seller".Je part de ce pas en acheter un exemplaire.

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  18. @ Y. for Yahoo:

    "L'Acte d'Union de 1840, qui réunissait le Bas-Canada (Québec) et le Haut-Canada (Ontario), obligeait le Bas-Canada, peu endetté et plus populeux, à éponger la dette du Haut-Canada, qui s'élevait à 1 200 000 livres sterling (environ 6 millions de dollars de l'époque)."

    If this was the case, no doubt the bulk of the money came from Anglophone merchants and businessmen in Montreal and not from the piss poor Habitant peasant farmers with 12 kids in each family. Ontarians owe the French-speaking Quebecois absolutely nothing.

    If Quebec separates, it should have to pay back all of the transfer payments it has received from the rest of Canada over the years. This would undoubtedly surpass 100 billion dollars.

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