Hidden Costs - The Parable of the Broken Window

By Lorraine McInerney

Often business ventures will contain hidden costs, an action that seemed beneficial and profitable can sometimes turn out to cost the businessman money rather than making it for him. "The Parable of the Broken Window" was conceptualized by Frederic Bastiat and it is a fable cited by economists to portray unintended consequences. In the parable a shopkeeper's window is broken by a small boy, initially there is sympathy for the shopkeeper but soon people see how the broken window makes work for the glazier, who buys bread with the money benefiting the baker, who buys shoes with the money benefiting the cobbler and so on. The fallacy lies in the fact that expense is still made for the shopkeeper who has to pay for the window.

There are differing interpretations of the parable, however, it gives us a basic illustration of how things can turn out to be different from how they initially appeared. A study in the UK earlier this year reported how companies are facing hidden costs because of staff behaviour when accessing the internet in the office. The survey by Vodafone showed that many members of staff admitted to visiting social networking sites or watching videos online. The survey reveals the incompetence of companies' security policies and how it could expose their corporate networks to viruses and malware. Hence, the use of the internet at work might seem beneficial to employers as it provides a wide range of resources for staff, but it may in fact prove detrimental and eventually create more cost for the business.

For those in the process of Company formationwho are considering incorporating internet use for workers into the structure of their business, these kind of hidden costs should be given serious consideration. Here in Ireland, a survey carried out by employment law consultancy firm Peninsula Ireland claimed Irish workers spend nearly two and a half hours checking and sending personal emails and surfing the net instead of doing the work they are paid for.

Lorraine McInerney is currently working as a Freelance Web Content Article Writer. She has an Arts Degree in English Literature and Ancient Classics, and she is currently a post-graduate student of English, specializing in Post-Colonial Literatures. She will be writing her thesis this summer on "Liminality in Post-Colonial Women's Writing".
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