Sunday, October 17, 2004

The Fallacy of For-Profit Efficiency

It is an article of faith for the right wing that for-profit entities are inherently more efficient and effective than their non-profit and governmental counterparts. The wonders of the free market, they believe, will work to enhance productivity and improve the results to the consumer.

It simply is not true. In today's Kansas City Star, a disturbing article details the safety and health violations at local nursing homes, and a sidebar points out that for-profit had 40% more violations than their nonprofit and governmental counterparts.
Nonprofit facilities have a mission somewhat different from for-profits, which must make money for their shareholders, said John Grace, president of the Kansas Association of Homes and Services for the Aging.

“In our organizations, we never have that tension,” he said.

Denise Clemonds, executive director of the Missouri Association of Homes for the Aging, said any additional revenue goes back into the facility and helps pay for higher staffing.

As part of a study, University of Kansas researchers interviewed inspectors who told them for-profit homes were “more driven” and on “tighter budgets” than nonprofit homes.

“For-profit homes were described as more likely to beautify the building and forget about the staff,” according to the study, which was commissioned by the state's Department on Aging and released in December 2003.

Inspectors also told researchers that for-profit homes had greater staff turnover, which they said led to more deficiencies.

Indeed, researchers found that the administrators in for-profit facilities were seven times more likely to change jobs than those in nonprofit facilities, said Sarah Thompson, the study's leader. She speculated that for-profit homes were more likely to change top managers when one of their facilities receives a bad inspection. Thompson said turnover in top positions could contribute to other workers leaving.
The next time some free-market absolutist rails on about how privatization is always superior to nonprofit or government involvement, have him or her read The Case for Bureaucracy. Or have him or her talk to a neglected nursing home resident.

11 Comments:

Blogger whirlingvortex said...

This post might be used in a logics class as an example of numerous logical fallacies. First, you appear to conclude that for profit entities are not more efficient than not-for-profits and governmental entities (ignoring the vast differences between a not-for-profit and governmental entity, for a moment). As evidence, you identify one heavily regulated industry and correctl note that the for-profit members of that industry have more violations of regulations than the not-for-profit members. This has absolutely nothing to do with whether for-profit entities are more "efficient." This might support an argument for (1) regulation of for-profit nursing homes or (2) banning for-profit nursing homes. It sure doesn't support your conclusion, though.

And, as an ardent free market supporter (who works for a governmental regulatory agency), I would never, ever claim that all for-profit entities are more efficient than all not-for-profits. I also fully agree that some industries need to be more heavily regulated; especially industries that involve persons who are unable to fully make rational decisions to care for themselves. This is why, incidentally, nursing homes are regulated.

As an aside, I have spent a significant amount of time in both the private for-profit sector and as a government regulator and the differences in efficiency between the two are enormous and, frankly, embarrassing. I'm sure there are exceptions to what I've seen as the general rule, also, though.

7/27/2006 1:26 PM  
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