Saturday, January 15, 2011

"Thinking the unthinkable"


Over the last half century, a number of political and economic sacred cows have come to reside in the UK. Perhaps the biggest is "private good, public bad": things always go better when in the hands of private individuals and companies. We all know that, don't we? Why? Well competition is introduced, which drives down costs and encourages innovation, etc. etc.

But of course, for some industries, that "competition" looks largely notional. In the case of the railways and power companies, for example. And we all know that the government puts much more into running the railways now than it did when it was nationalized. And it had to step in when Railtrack went bust. The service remains an expensive disaster for consumers. So much for efficiency. etc.

When this ongoing disaster is pointed out, private ownership is defended on the grounds that the privatizations was mishandled, or done in the wrong sort of way, or the companies run badly, whatever. When publicly run industries don't fare well, on the other hand, well that's just because they are publicly, run, isn't it, rather than run in the wrong sort of way? That must be true, mustn't it? Because as we all know, "private good, public bad".

My question is, why has it become the case that even to raise the suggestion that, say, the railways should renationalized is now unthinkable for most people? Why, when people consider how the problems might be fixed, does that option never even get considered? Is it really because the arguments and evidence for private ownership are so very good? (if so, why are so many other successful railways either state run or primarily state owned?)

I can't see that the arguments and evidence do favour private ownership particularly (though I admit I am no expert). Yet, even within the ranks of the Labour party, renationalizing rail would typically be considered a joke. This, I suspect, has little to do with evidence and argument, and everything to do with the zeitgeist having been hijacked by those well-placed to make money out of privatization, ongoing private ownership and provision, etc.

A decade or two ago we used to be encouraged to "think the unthinkable", politically (Frank Field was asked to go away and do it, famously). Politicians were encouraged to "think outside the box", challenge the orthodoxies, etc. Invariably, this meant thinking of ways of privatizing or semi-privatizing provision of services, etc. Which was always recommended as being "more efficient" by consultancy companies.

Seems to me that so successful have free-market types been in shaping the zeitgeist that many of us self-censor when it comes to airing certain thoughts, much as we do when it comes to airing certain thoughts or questions about, say, religion (for fear of causing offence), or other cultures (because of political correctness). We bite our lips for fear of the eye-rolling ridicule and/or opprobrium we suppose will come our way: "You think the railways should nationalized? What are you, a political dinosaur? That's so ridiculous and behind the times! Everyone knows that doesn't work, for goodness sake! Public bad, private good! You twit."

I think we need to encourage a similar culture of "thinking the unthinkable" now, only in the other direction. I mean, why not nationalize the railways, actually? And the gas and electricity companies, come to that? Why is this not even worth considering as a possibility?

Any other suggestions re thinking the unthinkable? I am not necessarily saying we should nationalize these things, btw. I am just saying this: Let's ensure these ideas are at least allowed back into the public sphere. Let's not allow those with vested interests to push them out of public discourse. The only way that will happen is if individuals are brave enough to raise them.

If you suspect the Emperor might not be wearing any clothes, don't allow yourself to be pressured into not saying so.

17 comments:

Geoff said...

Dear Stephen,

Thanks for posting this. I've had similar thoughts regarding our now super-expensive railway system.

To my knowledge, there has been no public enquiry into whether privatization of the railways has brought about the results privatization was intended to achieve. Nor has there been any enquiry into whether privatization has been a success by any reasonable measure.

You know that ideology is at stake when people hide from data.

InvisibleWoman said...

"I mean, why not privatize the railways, actually?"

You mean nationalise, surely?

But yes, agree entirely. Why not provide low rent, well built social housing in areas people need to work but can't afford to live? There's revolutionary!

Stephen Law said...

oops yes, fixed it.

abetternhs said...

The recently deceased hisotorian Tony Judt has written a lot about this. The best introduction is his essay: What's living and what's dead in Social Democracy. Freely available in the nybooks online. HIs book Ill Fares the Land expands further. We're presently witnessing the privatisation of the NHS and the Universities based on neoliberal ideology.

David Ranan said...

As someone who opposed the hysterical, ideology driven privatisation by Mrs. Thatcher and her crowd, I am all for re-nationalisation. It could not have worked and it hasn't.

Sadly, this is unlikely to happen until the losses of the private companies (such as in the banks' case) will make it necessary.

hemiola said...

"Any other suggestions re thinking the unthinkable?"

- Nationalise the banks?
- Bring doctors/consultants within the NHS, rather than negotiate a contractual relationship?
- Create a NJS (National Justice Service, cf NHS) to replace the remnants of Legal Aid?
- Convert private schools into state-funded and non-selective and tell them to get on with it?
- Nationalise sources/industries of energy and power?
- Anti-monopoly/anti-trust laws that would deal with media barons?

I'm sure there's plenty more ...

Nick said...

Stephen,

I believe that no possible solutions to a problem should be off the table, unless they are clearly irrational or absurd. Even if a solution has been tried previously and demonstrated to not work very well, it might still be the best of those available, in which case it might be rational to implement it until a better solution can be found (depending upon how much this would cost, and how long it might be before a better solution would be available).

So, I agree with you that nationalisation or re- nationalisation shouldn't be dismissed out of hand. There were clearly some significant problems with nationalised industries in terms of inefficiencies, wastage, bureaucracy, and poor quality goods and services, but it is not an irrational or absurd solution to the problem at hand.

The arguments for privatisation are usually that the state lacks of the necessary omniscience and omnipotence to determine supply, demand, and pricing in the absence of market signals; and that nationalised industries suffer from a lack of competitiveness, with its consequent negative effects upon price and quality of goods. I believe that there is significant force in these arguments, but that there are still other factors that need to be taken into consideration. However, the most significant problem with many of the privatisations of previously state-owned industries or entities is that they are in effect now private monopolies. This is possibly the worst of both worlds. There is the incentive on the part of the companies to reduce costs as far as possible, as they generally are accountable to shareholders who want to make money, and need to remain generally profitable in order to stay in business at all. However, there is little corresponding incentive to balance this by improving the quality of goods or services, as they have no real competition from other companies.

This situation is often found with railways, for example, where one private train company has a monopoly on a particular route. They have a strong tendency to reduce costs where they can, but have no real incentive to provide a good service, as the ‘customers’ have little practical alternative but to continue using the service no matter how bad it is. The same thing was highlighted recently with BAA and Heathrow airport. There was a lack of investment in proper snow clearing devices, in an attempt to keep down costs, but most travellers still have little choice but to continue using Heathrow despite the poor quality of service that they and others encountered.

And when an entity is one that is of large or critical importance to the state itself, such as power companies and maybe major airports, then a private monopoly has particularly dire potential consequences. In such cases, the absolute minimum requirement should be that the state is able to set agreed levels of service and quality that the entity in question must meet, is able to impose punishments if they are not and, in extremis, can take away ownership of the entity itself. With BAA, we are in the farcical situation of having a private monopoly (in effect, as Heathrow currently has the majority of landing slots and passengers) running a fairly critical state entity, and the government apparently has little or no legal right to set minimum standards of service or impose penalties if they are not met.

When there is the realistic possibility of competition, and an entity is not critical to the continued functioning of the state, then I believe that private ownership will usually tend to provide better results for the customers (this is an empirical question, and I believe that the evidence supports my view). However, in cases where privatisation would result in a private monopoly, and particularly if the entity is critical to the state, then nationalisation may be more rational, if run efficiently.

Nick said...

Stephen,

I believe that no possible solutions to a problem should be off the table, unless they are clearly irrational or absurd. Even if a solution has been tried previously and demonstrated to not work very well, it might still be the best of those available, in which case it might be rational to implement it until a better solution can be found (depending upon how much this would cost, and how long it might be before a better solution would be available).

So, I agree with you that nationalisation or re- nationalisation shouldn't be dismissed out of hand. There were clearly some significant problems with nationalised industries in terms of inefficiencies, wastage, bureaucracy, and poor quality goods and services, but it is not an irrational or absurd solution to the problem at hand.

The arguments for privatisation are usually that the state lacks of the necessary omniscience and omnipotence to determine supply, demand, and pricing in the absence of market signals; and that nationalised industries suffer from a lack of competitiveness, with its consequent negative effects upon price and quality of goods. I believe that there is significant force in these arguments, but that there are still other factors that need to be taken into consideration. However, the most significant problem with many of the privatisations of previously state-owned industries or entities is that they are in effect now private monopolies. This is possibly the worst of both worlds. There is the incentive on the part of the companies to reduce costs as far as possible, as they generally are accountable to shareholders who want to make money, and need to remain generally profitable in order to stay in business at all. However, there is little corresponding incentive to balance this by improving the quality of goods or services, as they have no real competition from other companies.

This situation is often found with railways, for example, where one private train company has a monopoly on a particular route. They have a strong tendency to reduce costs where they can, but have no real incentive to provide a good service, as the ‘customers’ have little practical alternative but to continue using the service no matter how bad it is. The same thing was highlighted recently with BAA and Heathrow airport. There was a lack of investment in proper snow clearing devices, in an attempt to keep down costs, but most travellers still have little choice but to continue using Heathrow despite the poor quality of service that they and others encountered.

And when an entity is one that is of large or critical importance to the state itself, such as power companies and maybe major airports, then a private monopoly has particularly dire potential consequences. In such cases, the absolute minimum requirement should be that the state is able to set agreed levels of service and quality that the entity in question must meet, is able to impose punishments if they are not and, in extremis, can take away ownership of the entity itself. With BAA, we are in the farcical situation of having a private monopoly (in effect, as Heathrow currently has the majority of landing slots and passengers) running a fairly critical state entity, and the government apparently has little or no legal right to set minimum standards of service or impose penalties if they are not met.

When there is the realistic possibility of competition, and an entity is not critical to the continued functioning of the state, then I believe that private ownership will usually tend to provide better results for the customers (this is an empirical question, and I believe that the evidence supports my view). However, in cases where privatisation would result in a private monopoly, and particularly if the entity is critical to the state, then nationalisation may be more rational, if run efficiently.

Tim Stephenson said...

Stephen, Have you never read "Atlas Shrugged"? :)

Stephen Law said...

No. Have you ever been to Sweden? :)

Stephen Law said...

Also this:

http://stephenlaw.blogspot.com/2009/07/what-have-you-learnt-from-literature.html

wombat said...

Maybe neither private or public ownership will run the railways effectively because they are either fundamentally broken or because our expectation of what they can provide is simply unachievable.

FWIW I think that railways have certain areas where they do well. Urban commuter traffic e.g the subway and certain types of freight where the rail termini are equipped to handle things. They seem to do badly at high speed operations and general freight. It's the first of these thats such a problem because politicians of all stripes see it as a sort of virility symbol. Look at the amount of money they are prepared to commit to cutting the time from London to Paris (fill in major cities as desired) by a few percent. Yes its nice to get there a little quicker but is it really worth the extra?

I cant remember a policy from any party which promised something "Perfectly adequate for most people and really quite good value". It's always "World class!" or "Free!".

Perhaps the whole railway concept is the sacred cow and we'd be better off scrapping it and replacing it with motorways for public buses and freight only for the Lefties and free enterprise pay per mile for the Righties. Cycles only if the Green party wins and space-hoppers for the Monster Raving Loony Party.

Hugo said...

"Perhaps the biggest is 'private good, public bad'"

Are you kidding me?

Just look at the reaction to what's happening with the NHS at the moment. There are loads of newspaper articles condemning any involvement of private firms simply because the firms are private.

Or the plans for education at the moment. The idea that delivering education be done by private companies is frequently dismissed with horror. "Private companies? Running schools? The horror!".

Or so-called "virtual councils" that outsource everything: again, the idea is received with horror, and frequently dismissed without argument as just self-evidently bad.

In fact, it is the idea that government should pay for but not provide education/health/etc that is controversial.

By contrast, the idea that some industries should be renationalised is not at all controversial. "Question Time" panel guests are quite a good barometer of conventional opinion. I have heard guests on Question Time advocate renationalising railways at least twice. Nationalisation is mentioned regularly in the Guardian in print and on CiF.

On a wider note, it's not just nationalisation vs privatisation. Economic liberalism is accepted or advocated by barely anyone in public life. I can think of only maybe two politicians in the House of Commons who advocate laissez-faire, and virtually no one in any of the national newspapers. The political centre has moved inexorably leftwards for a hundred years. So to complain that free marketeers dominate political discourse strikes me as rather clever propagandising.

Hugo said...

"Stephen, Have you never read "Atlas Shrugged"? :)"
"No. Have you ever been to Sweden? :)"

Actually, as Tim Worstall likes documenting, Sweden is actually pretty liberal. http://timworstall.com/?s=sweden
They need to productivity that only a liberal economy can generate in order to fund their welfare state.

Also the work of Tino Sanandaji is of interest. http://super-economy.blogspot.com/
The latest post happens to be relevant: http://super-economy.blogspot.com/2011/01/breaking-matt-yglesias-heart.html

Hugo said...

In fact, politics has gone much the way that you'd expect over the 20th century: in a democracy, all successful parties will support a large welfare state, but will need a productive economy to fund it, which they will tax at the laffer maximum. Unfortunately the public oppose virtually any attempt to liberalise anything, and with an accretion of bureaucracy and regulation built up over decades (do you have any idea how hard it is to run a medium-sized business that is large enough to have to comply with regulations (say more than 5 employees) but not large enough to afford a legal department?) the economy will start to become less competitive relative to the rest of the world. Also the state will fund booms by printing money to keep the interest rate low, causing occasional financial crises. Occasional good things like privatising the telephones don't stop the inexorable increase in state spending (which increased in real terms during Mrs Thatcher's time), but even that's not enough so the state takes on vast quantities of debt to keep buying the voters.

Sound familiar?

Hugo said...

P.S. Do you think that it is possible for the state to make a profit running nationalised railways? I can believe it can't without being obliged to believe that private companies could. It may be that no one can run the railways at a profit and that they destroy value and should be closed down.

Or do you think the railways cannot be made profitable by anyone but should be subsidised to keep them going?

Buy FUT 14 Coins said...

excellent photos!!!! really nation side-effect, adore your own ensemble therefore fashionable as well as beautiful!!!


Fifa 14 Coins
elo boost