Saturday, 30 July 2011

Private or public ownership 2

A response from John Medway (MSc Econ), together with a chat, have made things somewhat clearer. He draws attention to the big thing I’d missed out, the market.

John kindly allows me to quote his email:

No, there isn't a simple answer. However...:-

1) In a well-functioning free market a Darwinian process operates. Efficient companies evolve through natural selection - the inefficient ones go to the wall. This doesn't automatically happen in the public sector, though governments can intervene to rectify the grossest inefficiencies by replacing staff etc.

2) In any organisation there is a "client-agent problem". How do you get your staff to perform well and in furtherance of the aims of the organisation? This was Jim Hacker's problem with Sir Humphrey, who was usually able to bend decisions in favour of his own and fellow mandarins' interest. I think this happens in the private as well as the public sector but the Darwinian process in the private sector keeps it in check.

Perhaps we there have the makings of a simple answer. By allowing a private sector to flourish, we allow a process of evolution to take place to ensure that producers become ever more efficient.

However where there are natural monopolies this Darwinian process can't work effectively. Furthermore, if we try and create artificial competition (eg through bidding for railway franchises) we may gain something but we may lose something along the way. It is said that Switzerland runs its public services very well as purely public operations and in doing so has created a public service ethos in its workforce that others envy. The French experience is less clear cut. French railways seem very good by our standards but are also reputed to be overmanned and very heavily subsidised. No simple answer there.

And poor service on French railways, I’d add -- offhand officials, terrible at communications when there’s a holdup. Contrast DeutscheBahn, in my experience (never been on a train in Switzerland).

As John added when we talked, a considerable and critical slice of British organisations is natural monopolies to which market forces can’t readily apply.

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