Saturday, 30 September 2017

Re nationalisation - people aren't as stupid as Legatum make out.

Here's the summary of Legatum's opinion poll:

Commenting on the report, the Legatum Institute’s Matthew Elliott said:

“The findings of our polling are concerning for anyone committed to the principles of free enterprise. Competition entrepreneurship and free trade are all essential to achieving prosperity, not to simply generate profit for businesses, but to extend opportunity to all...

It is clear that those of us who believe passionately in free enterprise need to up our game. We need to redouble our effort in the battle of ideas, because populist thinking has a superficial attraction and we need to better articulate the case for free enterprise, which is the most effective path to prosperity.”

He's missed the point (probably deliberately), as has Jeremy Corbyn (probably supidly) and most other commentators, right or left. The point is that people seem to realise that there is a big difference between monopolies and competitive industries, and are more likely to want to see nationalisation of monopolies. That is not a straight neo-liberal vs socialist thing, it is far more nuanced.

One the second half of the list, there's ship building, food, cars and travel agents, these are competitive industries not monopolies, so only a minority are in favour of nationalisation. I assume 'travel agents' was a trick question to identify the base level of socialist nutters who want to nationalise everything.

Mobile phone companies are very competitive (switching is easy and prices are ever cheaper for ever better services) and they pay for the value of their radio spectrum. We've tried nationalising airlines and it never works, although - unlike mobile phone companies - they do not pay for the value of their landing slot privileges.

Happily, the majority agree with this overall analysis, probably intuitively.

Going down the list of things where a majority is in favour of nationalisation, they are all monopolies in some way...

1. Mains water supply is a natural monopoly, there is simply no point laying parallels set of pipes and drains.

2. Electricity generation can be done perfectly well by private businesses and historically was. It is the national grid which is a natural monopoly, and it only exists because the UK government forced it through in the 1920s and 1930s to hook up all the existing competing electricity generators - thus enabling more competition in the first place.

3. The same sort of logic applies to gas as it does to water or the national grid.

4. People have strong views for or against rail nationalisation, it's not something I'm overly bothered about, suffice to say Transport for London does a great job, it runs the Tube network itself and co-ordinates all the private bus and train companies to provide a pretty seamless service - you can use an Oyster card on just about any mode of transport in Greater London, for example. In most other large towns, public transport is a complete mess.

5. Defence spending is largely a slush fund for a few large manufacturers, it's a heavily subsidised cartel rather than a monopoly.

6. Banking is also a cartel. Banks are brilliant at the day to day stuff, like direct debits, debit cards, online banking and so on, there is no doubt in my mind that if we had only ever had a single, government-run bank it would be really primitive in comparison. So hooray to all that. The problem is that 80% of their lending is mortgages on land so they are behind all the land price/credit bubbles and inevitable land price/credit busts.

'Nationalisation' is only one way of dealing with monopolies and is not always the best. As I said before, there are various ways of dealing with them (items 1 to 6 at the end of that post), you have to decide on a case-by-case basis what to do and try and get the best of both worlds (private provision and public rent collection) in each specific case.

This is not a 'mixed economy' approach, that is far too vague a term, but in an ideal world, the government builds the road network and private businesses make the cars (in a literal sense, but the logic applies to everything else as well). Consider the opposite - driving British Leyland cars on a network of private toll roads...?


Bayard said...

"1. Mains water supply is a natural monopoly, there is simply no point laying parallels set of pipes and drains. "

All the pipes and wires should be nationalised or renationalised, water, gas, drains, electricity, telecomms (odd that telecomms was missed from the poll). IMHO there is no reason why the supply companies shouldn't be private and pay to use the distribution network.

This model doesn't seem to work for rail travel, where we have a nationalised network on which private companies run, but that is mainly because the franchise system gives each company a virtual monopoly over certain areas and routes, thus preventing competition. There are also huge barriers to entry. OTOH there is no reason to suppose that a re-nationalised railway would not degenerate back to British Rail in fairly short order.

Mark Wadsworth said...

B, go down the list 1 - 6, is there really a need to nationalise e.g. water?

We know that the potential profit maximising price is a large multiple of actual costs - the difference is 'rent' (of one form or another). The government can divide that 'rent' three ways
- collect publicly as tax on profits
- the consumer (via price caps)
- the water companies get what's left.

Steven_L said...

I assume this was a trick question to identify the base level of socialist nutters who want to nationalise everything

23% is a lot more than I would have predicted. Would have been interesting to have put 'sandwich shops' on the list.

Steven_L said...

I forgot to add: as everyone eats sandwiches. There are a lot of folk don't have the cash for cars and foreign holidays.

Bayard said...

"B, go down the list 1 - 6, is there really a need to nationalise e.g. water?"

No, as I was saying, it's only the distribution network that needs to be nationalised. That is where the natural monopoly lies. At the moment, you have monopoly companies who are prevented from exploiting that monopoly by government regulation. They might as well be publicly owned, private ownership just makes them more expensive as there is no competition. There was a Tory minister on Question time last night going on about how there had been so much more investment in the water industry under private ownership and that was why privatisation was right. This, of course, was complete bollox. All that has happened is that the Tory and Tory-lite governments we have had since privatisation have felt much happier pushing highly regulated private companies into investing in improving their infrastructure than they would have been sanctioning the same investment out of public funds.

If the distribution network was publicly owned and the companies that did the water and sewage treatment were privately owned, you or I could buy our water and sewerage services from the company that offered the best deal, just like electricity. The monopoly element would be removed and there would be competition (in theory, at least. In practice there would be cartelisation and regulator capture, just as in the energy sector).

Steven_L said...

S**t I just noticed, 35% want to nationalise the food business. The council 'managing' the food supply is the stuff of nightmares. It'd be endless meetings about you all getting your 5 a day and not too much sugar where anyone pointing out you were all starving would be given a hacky look and ignored.

James Higham said...

" That is not a straight neo-liberal vs socialist thing, it is far more nuanced."

Yes and the devil's in the detail.

Mark Wadsworth said...

B, it's not just the pipes. There's a limited supply of aquifers, places suitable for reservoirs and places suitable for sewage treatment plants. Those places are already taken. I agree with you in principle but I don't know about the practicalities.

The model works much better with a national grid and everybody being able to devise the best way of generating electricity and hooking it up to the national grid, which the government provided (being the only body capable of getting the planning permission). It actually happened like that and it worked very well.

SL, some people are clearly bonkers, but only a minority.

JH, exactly. It is people like Legatum and Corbyn who gloss over the details to such an extent that they ignore the difference between monopolies and competitive industries. Legatum pretend there are no monopolies and Corbyn pretends there are no competitive industries.

Steven_L said...

35% is a sizeable minority. If a third of people really believe the government should take over the food industry we're on thin ice!

Dr Evil said...

We cannot live without water, safe water. it is necessary for life. These days electricity and gas are essentials too, but we can survive without them if pushed. Railways will just be a playground for unions unless strikes are not allowed in nationalised industries.

Mark Wadsworth said...

SL, a sizeable minority is still a minority. I've never met anybody who actually wants this, I wonder where they are all are?

Bayard said...

SL, MW, 35% of how many respondents, I wonder.

Lola said...

I have a well point. Just saying is all...

Mark Wadsworth said...

Dr E, we can't survive without water, sure, but food is just as important. So you have to dig a bit deeper to explain the difference in support for nationalising water supply (natural monopoly) and food supply (competing businesses).

B, of all who responded.

L, you and a few thousand others, that's no way to run a modern, capitalist economy.

Lola said...

FWIW I have touched on water supply on my engineering days.
From observation the nationalised water supply industry suffered endemic producer capture and chronic under and mis-investment. They were always interested in headline capturing projects but not on doing the nuts and bolts of upgrading old supply network and dealing with losses, aka leaks. Denationalisation improved that.
My preference is for privatised water supply with regulations by a government department - not a quango.
Then there's drains. Getting foul water out is just as important as getting clean water in. This may best organised by local authorities, but the treatment plants could well be run privately.
(FWIW I also have my own sewerage system, not being on mains drains).
What about drainage? The old IDB's worked quite well. From memory they were screwed up by becoming centrally managed by the Dept. of the Environment - central planning again - and taking the management away from engineers and giving it to quangocrats.

Bayard said...

M, but how many is that, 100, 500, 5,000, 10,000? Why didn't they say?