June 19, 2007

The False God of the Private

Chris Dillow rightly points out on his blog that the solutions to the failures of the public sector are to introduce competition (where possible) and not merely to create, as successive British governments have, massive private monopolies to replace public ones. Creating such private monopolies tends to create firstly a vast regulatory structure to enforce standards and secondly a branch of administration between the monopoly and the public sector. Chris has grasped I think one of the major problems of the last twenty years- that every so often ministers have simply assumed that the word private is a synonym for good and public for bad. Actually of course the world is more complicated than that- both private companies and public administrations can perform well- but the better results tend to be produced in competitive environments- it is competition that needs to be embraced therefore and privatisation only as a means to that end- not the other way round.

The problem though arises in the fact that there are some areas of the civil service where competition is impossible- the army would be a great example- how you therefore deal with those areas is a post for another day...


Matthew Sinclair said...

The state creating private monopolies is a bad thing. However, that doesn't mean there's no important difference between public and private.

The private sector doesn't have the corrupting influence of a taxpayer who can be called upon to foot the bill. Attempts to create competition within the public sector are rarely successful. Equally, there are inefficiencies within the public sector even without monopolies. Clearly the nationalised industries were often not monopolies, as they competed with foreign firms, but that didn't make them efficient.

Gracchi said...

Again I'd say that those were due to distortions created by the state in the market not the fact taht x is publically owned. Afterall the rail companies are also performing incredibly badly and having to be bailed out as have many PFI projects by the government- being bailed out and relying on the taxpayer is not a public only vice.

youdontknowme said...

You can create a bit of competition in the state sector just by the employees.

What I would like to see in the public sector is this:

Every 1-3 years 20% least productive of the workforce lose their jobs and have to reapply like every single other person. Outsiders will also be able to apply too to create a bit of competition. However, not all those jobs will be filled. You only fill 15% of the jobs instead of the 20% because the workforce will hopefully become more productive so they can keep their jobs so you won't need those extra jobs.

Gracchi said...

The problem Wayne is what is productivity- I'm also not sure that you could sack the workers in that way- for instance you couldn't run a school with fewer and fewer teachers. In a way that's what has happened in academia- which has really suffered from the fact that the number of students has expanded and number of lecturers stayed constant in many places. It actually damages the service in some parts of teh public service.

youdontknowme said...

I see your point but I was thinking more along the lines of civil servants.

Gracchi said...

Yeah I see what you mean I'd still be cautious- I don't know civil service work very well- but can imagine situations like clerks of House of Commons committees you couldn't really reduce withotu reducing the number of commitees- or embassy staff for example.

edmund said...

I think your exceptions

the rail companes have next to no power over thier own operations and also are govne paid. Ditto in large measure with PFI projects.

In other words though in some methapysucal sense "private" they include the two elenments of central control and govent funding (there'sn ot the same risk of going bust ie there's not the same incentives ) which unlike with enforced monoply are the three main problems with the public sector

i disagree totaly the govenment belives in market operations- they've moved against them on so many fields -rather they worship buienssmaen not realsing it's the enviroment buisnessmen operate in that makes them more effecitve in some ways-not some organic quality

and in fariness to the rail companies they've got

ON youdontknowme's comments i really think it's a bad idea-how can you measure productivity in te public sector? and how do you know an arbityery % is right?

Frankly I think this shares some of the poential problems of the t. Thinking the efficenty problems of htep ublic sector due to people being uselss rather than the fundmeal incentives and that's it's possible to have central direction.

Gracchi said...

Edmund I think we actually agree- the issue is that governments don't beleive in markets they beleive in businessmen- that's exactly my argument.

Anonymous said...

The failure of imagination sits mostly with people like matthew sinclair and probably gracchi too.

1) We don't measure the costs of private failures. Companies go bust all the time, but we don't actually measure the costs of that. Hence, in a public situation when services must be maintained, a "private competition" solution involves costs that we repeatedly have refused to quantify.

2) The corrupting influence is (for example) that we commit to treating sick people in the NHS. If the private treatment centre goes bust, we prop it up, or we pay to have it go through bankruptcy, then pay to have someone private set up a new one, and they largely hire on the same staff anyway. There is no market solution to this problem that doesn't involve consigning people to not having treatment. When in doubt remember (with apologies to Amartya Sen): "Famine is the market's short solution to food production productivity issues."

3) There are vast regions of UK private industry that are not particularly competitive. Most private markets are so far from "perfect competition" that any assumption that the average British private sector worker is harder working/more competent than the average British public sector worker founders on a complete lack of evidence. Most people on the right of the UK political scene don't like this fact, so they ignore it, but it remains as true as ever, sort of like hooliganism and binge drinking, the Brits are just a bit ineffectual at running organisations outside of Empire.

edmund said...

Grachi i agree we agree!

annoymous yes of course there is dplion in the private sector- but the idea the costs are not calcued is wrong- eg 0.1% or 1% (i forget which) of private schools go under every year in the UK- i look forwa4d to your sube post epan how sttae schools provide better education on average ! -@

Your point about recompense is correct of ocurse (that's in large part my point- governemtn paying and bailing out undermiens the advantages and incentives of private industry) , you're in a snese right about dential of treatment- but this is true under any system of care even if 80% of GDP was governmetn expenditue on helath there would still be a point where peole would be denied treatmetn due to lack of resources that's inevitable-human biengs are mortal so there are practical limits to healthcare expenditure under any system.

3) i agree direct comparisions are very hard. I do think that when things have changed from state to genuine private companies there has been a massive rise in productivity- as can be seen post priviazaiton in telocoms, steel , road haluage ect ect this suggests that this might be a general pattern after all these insitions were all managed separately under state ownership/managment