Sunday, 4 February 2018

Public vs private sector, the same tedious arguments (Part III)

I am finding it difficult to have a sensible debate about where the optimum dividing line between 'government' and 'private sector' is. To my mind, it is fairly clear cut. It is not so much a question of one being better or worse, it is a question of each having things which is does better, and woe betide us if the line is crossed in either direction.

For some reason, people don't want to have the debate. They would rather choose examples where either side has clearly crossed the line (and inevitably messed up) and say "Yah boo sucks! That proves that the government/private sector is better at running things!" Nope. These examples merely illustrate where the line is (or should be drawn).

This applies to right wing as well as left wing commenters, they are both deaf in one ear. To pick a couple of examples from my previous post:

From the right:

Sobers: Nonsense [during the Golden Age of Capitalism] the State owned pretty much the entire 'commanding heights of the economy' during that period (Mines, steel mills, railways, road transport, docks, shipbuilding, power generation and distribution, telecoms etc etc). There was no way the State was merely sticking to building the infrastructure allowing the private sector to grow, it controlled the majority of the economy. And as for doing their best, we all know what happened to the mines, the steel mills, the railways, the shipbuilders etc.

From the left:

DBC Reed: Then there was the brilliant fire fighting system: you insured with one of several companies. They turned out in their falling to bits machines (a feature of privatised bus services too btw) but if the fire spread to non insured houses next door ,the whole row burnt down. Much amusement was to be had when rival crews turned up to adjacent buildings and then fought each other over the fire hydrant (who provided that?) The houses burnt down while they finished each other off.

Bayard does his best to steer a middle path in the comments - to little avail.

AFAIC, Sobers and DBC, despite thinking they are taking opposing points of view are doing no such thing. They are, inadvertently, merely illustrating where the dividing line is (or should be drawn).

Taking Sobers' list:

Stuff like mines, steel mills, ship building, electricity generation and telecoms belong in the private sector. So of course the government messed it all up. There are UK specific reasons why the government got so heavily involved in these (mainly hangovers from WW2).

Transport infrastructure i.e. the actual railways (as distinct from the trains), roads, docks and electricity distribution are not ends in themselves. They are there to facilitate interactions between people, between suppliers and consumers.

The government should either provide them for the benefit of everybody (the private sector), or at least keep its beady eye on private providers because there is too much opportunity for private rent seeking.

These things are run by the state in most countries, and by and large, they lead to better outcomes than the government just shrugging its shoulders and saying that if there's demand for these things then the private sector will sort it out.

DBC gives the example of private fire brigades.

Clearly, the fire brigade is a public service. As I have explained to him half a dozen times, the fire brigade is not there for the benefit of the idiot who sets fire to his own house; it is there for the benefit of his neighbours. Which is why, in most countries, the government runs the fire brigade.

So the fire brigade example does not prove that 'the private sector is bad at running things', it is merely an illustration of something that should be run by the government.


Lola said...

The railways thing is intriguing.
Without any doubt the railway boom in the uk was paid for by private investors backing the then 'new technology'. And yes, I accept the point that this was only possible because each company had to obtain an Act of Parliament to empower it to acquire the land. In the UK pretty well all of these railways were built for commercial reasons.
To avoid the exploitation of passengers and to capture the land value windfalls surely the simple answer is LVT.
In other words there is no reason to have the state monopolise the trackway. (Recent experience of the West Coast main line seems to indicate that this is bad). I also dispute that foreign nationalised railways are mostly better than the UK's. Except the Swiss system which is utterly brilliant and the best 'train set' on the planet. And that is operated by over 70 private companies. (If you have the time I highly recommend taking the Bernina Express from Davos to Tirano. Have lunch. And then come back).

OTH I can see that the fire service is most easily provided by government as essentially it is protecting your neighbour. And again LVT funds that most equitably.

Oops must stop being told to make dinner..

Mark Wadsworth said...

L, as I said in reply to PC156, I am agnostic on who should run railways.

Both sides of the debate can find examples of…

- the government messing it up (British Rail) or the government doing a brilliant job (London Underground) or
- private companies messing it up (rent and subsidy seeking by various UK franchises and shit service by Southern Rail) or doing a brilliant job (UK and elsewhere, whereby UK 'privatised' rail companies are largely state owned - by foreign states!

Of course LVT sorts a lot of this out, but we still need to know where the public-private divide should be i.e. what LVT should be spent on.

Lola said...

Southern Rail is not privatised. It's state owned and the contract went to Southern Rail to operate it. Possibly the very worst of all worlds.

Personally, my jaundiced opinion that governments are all pretty useless at running anything. And that they make the private sector worse by subsidy, cronyism, bad tax policy and so on. If you look at the numbers the traffic on the UK rail system has increased markedly since (being badly) privatisation, the accident rate is lower and investment has massively increased.

This article is quite interesting:-
Perhaps the Continentals have always been better as 'central planning' than us Brits?

My preference is to properly privatise the UK railways and at the same time apply LVT.

Sobers said...

Its very simple - competition. Its what drives any organisation (private or State run) to focus on the consumers need rather than make their own life easier. Every business wishes that they could tell the consumer a) what the price will be and b) what level of service they will get for the price. In the absence of competition and the ability of the consumer to go 'F*ck you, I'm taking my money elsewhere' then the consumer gets shafted and and the producer makes out like a bandit. That may mean excess profits for private monopolies or excess wages and poor service in State run ones. Both are equally bad.

There are a very few cases where it is better to have total State control - this basically boils down to roads. Power transmission and rail networks are best run by private monopolies strictly regulated by the State in terms of the prices they may charge and the level of service they must provide. It was noticeable how the regulators of things like telecoms forced prices down over time for quasi monopolies such as BT when compared to no such outside pressure ever being applied to State owned and run monopolies.

The State regulator system is by far the best way to control natural monopolies - history shows us that when the State owns and runs them they get run for the benefit of the producer rather than the consumer. The State will act on the side of the consumer when the producer is private in a way it will never do when the provider is State owned and run. As a thought experiment, try to imagine a NHS regulator who had statutory powers to control the level of service the NHS must provide. It just wouldn't work, couldn't work, because the ultimate provider of funds to the NHS is the same entity controlling the NHS regulator. There can be no independence of action in that scenario. When the telecoms regulator demands private companies reduce prices, they have to, end of story. The how is down to them, but it must be done.

Thats the basic issue - not that State = bad, private = good, but that consumer choice is greater in the private sector and this has positive effects that are totally lacking in the State sector. Introduce genuine competition in the State sector by some means or somehow have regulation of the State sector that transcends political control, then you might get the same effect. But neither of the latter two ideas have ever been successfully introduced. So private provision with competition remains the only sensible game in town.

Physiocrat said...

Leon Maclaren discussed this subject in "The Nature of Society". There are core functions of a society which can be done only by government. These give rise to a set of government duties, and a set of corresponding duties of the householder. Examples of government duties include defence of the realm, implementation of justice, making land available and collection of the rent of land. Corresponding household duties include paying the rent of land and supporting himself and his family, if able.

Provision of infrastructure is part of making land available. At which point government hands the task over to a commercial provider is always going to be an open question.

British Rail was plagued by a layer of incompetent middle managers of whom the question arises of how they came to be appointed in the first place and how they could keep their jobs once appointed, despite demonstration of their incompetence. The same applies still to many public sector organisations. It seems as if there is some kind of buddies' network which slots incompetents into jobs they cannot do properly.

Bayard said...

"The State regulator system is by far the best way to control natural monopolies"

In theory, yes, I would agree with you. In practice, however, we get "regulator capture" and the "revolving door".

Apart from that, which is a peculiar private sector problem, and the public sector problem of political interference, most other ills are suffered by both private and public sectors: corruption (cronyism, special deals, businesses being run for the benefit of their management, jobs for the boys) and Parkinsonian bureaucracy, so you can't point the finger at one side or the other and say that it alone is prone to these ills.

Basically, there are only so many good managers in the country. If they are working in the public sector, that bit of the public sector performs well. If they are working in the private sector, then ditto for the private sector. Where you have crap management, you get badly run firms, regardless of the sector that they are in.

jack ketch said...

I'm not sure, to get all esoteric about things, that there is a dividing line between the two sectors, that there are even two distinct sectors. Perhaps instead of 'public' and 'private' we should think in terms of the 'direct' and 'indirect' application of power.

*i'll shut up now and take some more codeine.

Lola said...

B. The difference is that in the private market failures brought on by bad management are punished by bankruptcy - in the absence of crony subsidy seeking from government. Whereas in the government market failure is not punished at all. Often it results in expansion of the same failures - from my own experience see the transmogrification of the Financial Shambles Authority in the Financial Catastrophe Authority. The FS bureaucrats all went home on Friday and came back on Monday as the FCA, a lot of them to new job titles and....more pay.

DBC Reed said...

Meanwhile in reality, so different from some of the comments above,The Times has been lambasting the Tories in ferocious editorials and continuous Housing Crisis features .31.i.18 ( Editorial (Headed)31.i.18 " Political suicide
Conservative efforts to solve the housing crisis by tinkering have failed. Without bolder policies the party will cede the issue and power to Labour"
This ends " 'I believe in free markets,' says Ruth Davidson, the Scottish Tory leader'but I also believe in having a framework under which markets operate and that framework is laid by governments'.

It is time for government to intervene boldly where the market has failed."
So is itoverwhelmed by an end to half arsed Tory destruction of the British Post-war (Macmillanite) state in a death by a thousand cuts of public sector services and utilities all in the name of market freedom.
As an update to Times : the Tory Party has undergone a fake suicide and ditched its identity as the party of popular homeownership because nobody can now afford houses (or rents) and has re-emerged as UKIP hoping to take people's minds off £900 + rents (Times figures) etc with endless Brexit chatter.
MacMillan could organise post war reconstruction, New Towns natioanalised industries,a motorway network, collective bargaining , demand management of economy, full employment. The Fake Conservatives have given up, overwhelmed by the land value hyperinflation they created.

Lola said...


The 'housing' aka 'land' market has not failed. Extortionate House/Land prices are the result of government (by all parties, left and right) and bureaucratic failure - bad money, excess credit expansion, taxing production while subsidising rents, The Town and Country Planning Acts etc etc. All government and bureaucratic failures.

The actions lauded in your last paragraph precipitated the bust of the late 1970's. In any event there is absolutely no need for 'demand management' that is just punk Keynesian claptrappery.

The issue we have is the governments of all hue have not worked this out. Or more likely refuse to believe the facts as they effectively make them all largely redundant. The alternative is communism, which has not only failed everywhere it has been tried it, across the 20th century, murdered its own and other peoples citizens at the rate of 8500 people a day.

Going back to the public v private meme, I agree with MW that the Fire and Rescue Service is best provided by the state as part of its general duty to protect property. The downside is that it then becomes a hot bed of producer capture and special pleading and so forth. That's why they used to have considerable quasi military discipline. I have a son-in-law who is a fireperson. Listening to him a lot of his colleagues are juvenile prima donnas with a huge sense of entitlement.

Overall though, the less the government does, the better.

Mike W said...

'The railways thing is intriguing.
Without any doubt the railway boom in the uk was paid for by private investors backing the then 'new technology'. And yes, I accept the point that this was only possible because each company had to obtain an Act of Parliament to empower it to acquire the land. In the UK pretty well all of these railways were built for commercial reasons.'


As it happens I am planning a Swiss trip one day too :)

Moving on.

I notice you use the Victorian birth which was a 'railway mania'. It soon sorted itself out to be a couple of large companies (pre 1914) which were nationalized after the war. As it happens, nationalized BR units were run along these lines with each region (SR, LMS, LNER, GWR) keeping its own identiy for years. A great friend of mine (long gone), started in the office next door to Bullied in SR, Waterloo office as a lad, and ended up in the same place under nationalized BR (not CME though!). Bayard has a point, I suspect they are the same managers to a large degree.Managers are a British problem too.

In the spirit of Wadsworth's thesis (which most here agree with I suspect) I propose a fun case study. That is start with the problem and see how it worked out in the real world. MW already suggests two examples.How about testing your and Sober's purported failure of nationalized BR with the failure of the Pennsy, PRR, in free market USA? My broad brush of this is that both railway systems were completely exhausted after the war.Cannot repeat that often enough. The PRR is also a good model, as at one time the company held the world record for dividend payments to share holders, over 100 years I recall.

I argue that certain failures were common among both private and nationalised raiways in this BR v PRR case study.The argument is that BR/ British Guv did better than PPR/ American regulators post 1945.I'll start with three basics:

1.BR handled 1945 to the end of steam better than PRR. In the end BR had a fleet of Riddles designed locos that were completed in 1960 and would have served, if necessary, until 1978-80.Free market PRR screwed up the fleet of modern steam it built,advanced and over complex steam locomotives were scrapped and re-replaced by the old 1930's locomotives they had been designed to take over from!BR win.
2. Both rushed into dieselisation. In a seemingly blind panic both BR and PRR bought every type of diesel loco going. In this rush, both purchased lots of failures,costing both huge amounts of money. Call that a draw.
3.The free market solution for PRR and New York Central, NYC, called Conrail was a disaster. The merger was put together quickly and failed at most levels.Destroying two great companies in the process.BR really didn't 'merge' until 1970's and this went quite well.BR win.

Lola said...


Four main railways were nationalised, and some smaller ones.

Yes, they were all knackered at the end of WW2 (because of their contribution to the war effort), but why nationalise? The state, AKA the taxpayer, AKA a grateful nation could have paid compensation to the owners for the sacrifice of their capital.

And why keep them going? If they'd gone into receivership someone would have likely bought them.

Turning to the USA, the railways were outcompeted by air travel for long distance passengers and cars for short distances and road haulage (more flexible). Maybe they should not have been saved either?

Physiocrat said...

British Railway at its inception was a mixed outfit. There were some incompetent middle managers. At mechanical engineering level, the LMS was way ahead, LNER seems to have been ahead on electrification, SR was using an antiquated system which is still perfectly adequate 100 years on. There was a rash of unnecessary marshalling yards built which were quickly not required. The fleet of freight wagons was antiquated but with low running speeds it was probably energy efficient.

The Modernisation Scheme got off to a good start with a pilot scheme of prototype diesels. For some reason which is not clear, the prototypes became production series and entire fleets went into service without testing. Some classes where scrapped within a few years.

The original intention was for steam to continue until the mid-1980s, so that recently built classes would work out their service life, but the rush to build the large number of diesels meant that they were scrapped prematurely. By the mid-1970s there were important improvements in steam locomotive technology with better control of combustion, water treatment and waste handling. Had steam remained until then, these might have been applied to some of the BR fleet. Since steam locomotives are capable of being repaired and kept in service almost indefinitely, they might still be around on secondary routes, branch lines, etc, and also for infrastructure trains and peak period backup.

Bad decision by private sector pressuring the public sector, getting the worst of both worlds.

Mike W said...

Just reread above. I should have said, Penn Central, of course, not Conrail. One gets carried away!

Physio 'There was a rash of unnecessary marshalling yards built which were quickly not required. The fleet of freight wagons was antiquated but with low running speeds it was probably energy efficient.'

I did not know that bit.I would add the problem was also, once in the system, BR did not actually know where your goods were or when they might arrive at the destination yard. But in contrast, looking at the early BR Freightliner services they seem very modern in concept and rolling stock.

'Since steam locomotives are capable of being repaired and kept in service almost indefinitely, they might still be around on secondary routes, branch lines, etc, and also for infrastructure trains and peak period backup.'

Or as they are, running longer on preserved lines than they actually did for BR! Pretty strange thought.

Physiocrat said...

There were important advances in steam locomotive development in the 1970s, by Porta in Argentina and Wardale in South Africa, then again in the 1980s by Waller in Switzerland, and more recently by Koopmans. Waller was responsible for the construction by the Swiss company Sulzer, of a fleet of replacement steam locomotives for Swiss and Austrian mountain railways which entered service in 1993, using light oil as fuel. What nobody expected was that they would be more fuel-efficient than the diesels which they were sharing duties with, and were then set aside. This was discovered when the operators realised they were putting less fuel in the tanks, and led to an energy audit to discover the reasons. They also meet emission standards more easily, use alternative fuels including biomass, and can be 100% "green".

Waller has produced a series of designs of locomotive for secondary and tourist routes and given an order of twenty or more units, can deliver at one-third of the cost of the equivalent diesel. But he has had no takers in twenty years as they are perceived as obsolete technology. Which says quite a lot about management.

Some of the preserved railways have upgraded their locomotives to make them easier to maintain and use less fuel.

Lola said...

Physiocrat. Steam traction delivers pretty well full torque at zero revs, which aught to be good for freight. I did not know that modern steam locos are approaching/exceeding the fuel efficiency of diesel. That's astonishing. I do know that fireless steam locos used where there is already a source of steam are more efficient for shunting than diesels, which latter spend 90% of their time idling.

Physiocrat said...

@Lola, it astonished Roger Waller who designed and built the locomotives. His firm has been busy overhauling industrial fireless steam locomotives which were built in East Germany. They are pollution free at the point of use and there is no fire risk.

As those who have been building replica steam locomotives have discovered, manufacturing costs have come down due to the use of cad-cam and 3D printing of casting patterns. A set of frames which would have required labour-intensive hand finishing after being flame cut now come out clean from plasma or water-jet cutting robots produced straight from the digitised CAD drawings.

Unfortunately railway managers are not interested. There are here in Sweden thousands of miles of electrified railways carrying just a few trains a day, with overhead lines which require maintenance and are liable to fail in icy weather. Given the amount of timber waste available, these electrifications should be scrapped and not replaced when they have come to the end of their life.

Lola said...

Physiocrat. yes. The upkeep of the permanent way is very costly. Trains have very low fault tolerances. Anything that reduces that upkeep cost and hence faults must be good.

DBC Reed said...

This thread seems to have gone entirely off subject and turned into Fun Railway Facts for Grown-ups.
I thought we were discussing what should be in the public and private sectors (in an ideal world, apparently unaffected by past arrangements in the form of existing systems).
I was selected for ridicule in the introduction because I ridiculed the old system of fire brigades , all rather gratuitous because nobody is actually suggesting returning to the wonders of the market with urban conflagrations.
L closes down discussion by starting from the position that the less the government does the better.And continues with a trail of destruction through modern politics and administration, starting of with saying there is no market failure in housing, with swipes at the Town and Country Planning acts which are somehow responsible for the market failure that does not really exist.(We have previously had sneers with zero supporting evidence that the NHS is eugenicist in origin).
We then have a serious self contradiction: Lola contends that all the achievements of Macmillan: full employment,new towns ,motorways, never had it so good, just precipitated the bust of the late 70's.
He has previously adduced the Nixon shock and the raising of world oil prices as the precipitating factors (which was remarkable in itself:to his credit Lola is the only controversialist of any description in my experience to have heard of the Nixon shock).
Keynes is dismissed out of hand (no evidence)then we get the original Project Fear reference to the Communist Menace without which a completely nihilist destruction of all administrative ideas is incomplete .We end up with the complaint that the Fire Brigade (which started off with me and MW as bang-on public sector )is a hotbed of producer capture .You what?
From our point of view , accepting that there is housing crisis (which spills over Henry George-wise into the whole economy because high rents and mortgages reduce people's spending in the shops), it is noticeable that the old system of economic management concentrated on people being provided with jobs from which people had to work (often with long hours and terrible conditions back then); since then the system has been to provide unearned capital gains in house prices.
It is remarkable that the pro-LVT movement can encompass such wildly divergent views and that Lola's comments are always worth reading (to keep up with the latest fashionable errors!)

ThomasBHall said...

@DBC Reed- "It is remarkable that the pro-LVT movement can encompass such wildly divergent views"
Yes- because there are so many varies reasons why it is a good idea!

Bayard said...

(which spills over Henry George-wise into the whole economy because high rents and mortgages reduce people's spending in the shops)

There is historical evidence that this is not so. One of the reasons that rents are so high is that other essentials, like food, are much cheaper. The total spend on essentials has remained roughly the same.

Physiocrat said...

An examination of the nuts and bolts, whilst fun, can also yield insights into the bigger issues that contain them. Incompetent managers make bad decisions and demoralise those working under them. The history of British Rail is mixed. There were some first rate engineers who were allowed to develop their work unobstructed and came up with excellent products, such as the Train Protection and Warning System. There was also a lot of indifferent stuff, in particular, 1970s suburban rolling stock. The James Cousins period of the late 1960s, was undistinguished. British Rail Engineering Ltd, by the 1980s spun off as an autonomous unit, had a first rate team of engineers and designers. Inter-City had an indifferent top manager who failed to take advantage of what BREL had to offer. Network South East had the brilliant and flamboyant Chris Green in charge. On the other hand, BR was permeated by a layer of poor middle managers - one wonders how they got their jobs in the first place and why they were kept on, since it would have been advantageous to pay them to stay at home.

My own experience working in London boroughs was that there were normally enthusiastic and committed staff at the bottom who would perform well if well led. At the top were some excellent chiefs and some dreadful ones. In the middle was often a layer of deadwood, usually careerists who had been promoted beyond their level of competence, with pushy wives behind them who would get them to keep on climbing up the grade scale.

Direct Labour works organisations were prone to idleness and corruption. However, they would normally do what was asked without looking to see if it was in a contract specification. Some of the worst skivers often took a pride in turning out in all weather conditions and at all times to keep systems up and running.
There might be a pattern there somewhere but it is not immediately apparent.

DBC Reed said...

Some kind of objective correlative to this debate is provided by the You Gov: Nationalisation vs Privatisation poll (on Net) held before the last election. As can be seen this was overwhelmingly/surprisingly pro nationalisation. Only banks,airlines and telephone providers escaped the antipathy of the British public to private enterprise.
The Conservatives should have taken the hint that Corbyn's resurrection of old fashioned nationalisation would play well but preferred to stick to the latest right-wing gimmick,all bells and whistles Brexit, because it was so on trend.The Kinks' Celebrated Follower(s) of Fashion comes to mind.

DBC Reed said...

Dedicated follower of fashion.

Bayard said...

"Only banks,airlines and telephone providers escaped the antipathy of the British public to private enterprise."

Surprising, really, because it's hard to imagine that a national bank could do worse than the current private ones. However, a nationalised bank would combine the worst of both worlds.