Wednesday 9 October 2013

How to turn (some) Governmental costs into profits?

falling backwards

I want to start this reflection article by two quotes which I find important for this article and the first one is from: 1 Corinthians 13:11 which says that "When I was a child, I spoke like a child, I thought like a child. When I became a man, I gave up childish ways."

The second quote concerns Richard Feynman's problem solving algorithm.

"1. Write down the problem.
  2. Think hard about the problem
  3. Write down the solution to the problem."

The first quote is pretty obvious! When we leave our childhood behind us we also start to see things with different eyes and realise that the first thing we see is not always the only answer.

When it comes to the second quote then well, well, well, doesn´t that sound as easy as it can get and yes it is! It is easy! So how come things are so difficult then? It is hard because people mess up already point #1. They don´t have the capacity, skill, stamina or interest to even figure out what is the real problem. If they did then I am sure the world would be very different!

In many cases it is both funny as well as sad when you start to think about how things in life can be turned around completely by only adjusting the way you calculate and think about it. In most cases this comes from using your brain for two seconds, think a little and then make a proper calculation instead of a meaningless calculation that was first made and could have been done by a 6 year old that had just recently learned how to add and subtract.

Most calculations in life do not need more then adding, subtracting, multiplying and dividing. But there is one important aspect and that is to realise what is of importance and how should the calculation be made and for what reason?

If you put a child in front of the problem then you also receive the answer that they are able to handle with their knowledge. As an example we can look at how a government decide to get their taxes. The country have X amount of workers and companies paying Y amount of taxes. The government needs to bring in more money and then the easy approach would be to say we increase taxes by 5% because then we are guaranteed to get the money we need. A more complicated calculation would maybe have resulted in that if we spend 2.5% on the infrastructure then people will spend less hours on the roads and more at work which leads to a productivity increase of Z% and the construction companies will keep the employees which will then pay Y amount in taxes back to the government etc. more complicated calculation which demands that people think about the problem and not only see two values and calculate like a child.

If we continue down that lane then we also must take a look at healthcare. Show me one country in the world today that look upon the hospitals and the healthcare sector as being profitable?! Is it a profitable organization?

If you are able to count correctly then yes it is. If we take a look at Sweden then everything that has to do with healthcare is only considered to be a big lump of costs that are eating up tax payers money. It is baked into the general tax which means that the government later on hand out money and give budgets according to how they see fit for the following year. If I look at Germany then this is different.

No one looks upon the hospitals as costing something but they are also not being looked upon as a profit. The reason for this is due to that people directly from their salary are paying money to the social security system. When they go to the hospital they are treated and the social security system (Krankenkasse) gets a bill that must be paid to the hospital.

All of a sudden the hospitals become no longer a cost but a non-profit organisation and what costs money is the social security system which is a separated or maybe better put is a dedicated "tax". By very easy means we managed to bring the hospitals from being costs to being a non-profit organisation.

How do we then make it into the profitable organisation that it actually is for society?
The calculation is very easy because we must only add the benefit of being able to bring people back to work and the faster they get back to work the more bonus is calculated and given to the hospitals. Every health problem that is cured one day faster means that that individual is able to work and contribute to society and pay taxes for that one extra day. In many cases with many accidents etc. we are not talking about days but even years and decades that people are able to come back and contribute to society by being able to work and going back 50-100 years in time those people would not have been able to contribute at all. Healthcare is a profitable organisation for every country! Do not allow the easy calculation to be made which only shows costs.

This stretches into so many fields. For instance the education in a country. Which country do not look upon that as a cost when they actually should look upon it as the only way to secure the future of the country which is the correct we to look upon it and the correct way to calculate it. The infrastructure was mentioned previously and that is another one of those idiotic calculations that politicians and economists very often do.

My guess would be that the only real costs are the people that sits around and turn papers and make the insane calculations which only shows costs and clever ways of how to cut those costs. That is were we should be cutting with the clever.

If we leave the government and move over to companies... one of those idiotic calculations many times involves research & development, maintenance & workforce. When things are tough lets fire 5% of the workforce only to realise one year later that they now have no competent people that are able to perform the tasks at hand which forces them to hire some new people that we must first educate and maybe even paid more.

Research costs money and since I see no new products today it serves no function. Who cares about in 5 to 10 years from now? I have then already moved on to somewhere else! Exactly the same goes for maintenance it is very easy to be in charge of a plant and show good results by performing zero maintenance and who cares when the entire factory must be torn down 4 years later because it is such a hazard. As shareholders we must push the companies we own to make sane decisions that are not based on an instant satisfaction but that are based on the creation of value over years.

More people need to leave their childish ways, think hard and write down the solution!

How can we as shareholders make sure that the upper management has such bonus incentives that they force the employees to go for value?


Anonymous said...

I like your blog Paulus!

Fredrik von Oberhausen said...

Hi Paulus,

I am glad to hear that you like my blog! Thank you!