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.

Private or public ownership

I'm constantly realising basic things I don’t know about economics.

Here’s one. Why do we have private firms? Shouldn’t public organisations be better because they don’t have to make a profit so all their takings can go back into the enterprise? and because they can be run entirely for the public good and not for private profit? Just think of those cases when public/private are clear alternatives, such as utilities and railways.

Is it because public organisations are inherently inefficient (badly run) that they’re so out of favour? And that it necessarily takes the profit motive to get people to run things well?

Public companies (which aren’t of course public in the sense that the NHS is -- or was) have shareholders. The money people have paid for the shares is what the company runs on, as well as its takings. The reason people buy the shares is that their value may grow and that the company pays dividends. A public enterprise doesn’t have to pay dividends.

A public enterprise does, however, have to have money -- the equivalent of the money a company gets from the sale of its shares. The money comes, most likely, from loans on which the interest is paid out of the takings, if any (from train fares, for instance) and taxes. (A company, too, of course, may borrow money, on which interest has to be paid, but for simplicity let’s leave that out of account.)

Are companies deemed to be more efficient because the sale of shares does away with the need to borrow money and hence the cost of interest? and because the cost of paying dividends is less than that of paying interest?

If I don’t understand stuff like this, the case for economics in schools seems clear.

If someone enlightens me, I'll gladly post their corrections.

A weekend in Pembrokeshire

My sister and her husband live in north Pembrokeshire in an old farmhouse, medieval back and 18th century front, with what land was left by the MoD after taking the bulk of it for Brawdy airfield at the start of the war. That’s enough for some sheep, horses and hay, and there’s an orchard, a wood with a spring and a pond. I went down last weekend for Ali’s 60th party. The swallows had beaten me to it: half a dozen of them had been back a week, an annual event (so far!) that activates a primitive response of hope and joy. The sheer fun swallows seem to have in the air is infectious. (Is it really fun? can a bird have fun? Science - the answer, please.)

Also entering into the spirit of things, a dozen new lambs, the latest on the day of my arrival, with one or two possibly still to come. Ali and Mike don’t think they’ve lost any to foxes this year and put that down, tentatively, to their leaving the ram with the sheep rather than the usual practice of separating him for fear of his molesting the sheep before they’ve recovered from giving birth.

That’s the sort of stuff I learn on these visits. Also, that the bed of the estuary in Solva, as revealed at low tide, has changed this year; that small trailers are harder to reverse than large ones; that it’s often impossible to tell whether the ghosts whose presence mediums detect (including in Ali and Mike’s house) lived in the recent or the remote past; that small Suzuki cars can pull a caravan as well as a bigger Vauxhall and with greater fuel efficiency; that the army regiment stationed in Brawdy some time ago ‘wrecked the town’ (Haverfordwest) so that only more disciplined groups will be posted there in future; that some people have the right to collect seagulls’ eggs from the small islands (we had them for breakfast: as big as hen’s eggs and tasting exactly the same, and not of fish as I’d feared).

I don’t suppose any individual’s birthday party would gather a cross-section of the local population unless in a village and perhaps Ali’s 50-odd guests weren’t typical, though they were certainly diverse: retired people who keep some livestock or run boat trips; ex-police; military, nurses, primary teachers, artists, an archaeologist. Just in what counts as the family there were an RNLI beach lifeguard supervisor, a nurse, a bar manager and a regimental sergeant major. It struck me afterwards that I met no one who produced anything on a full-time-job scale, and a great many who worked in the public sector or were on pensions.

To me, in an affluent London suburb, it’s an unfamiliar economy in other ways too. Ali goes to a sculpture group that someone hosts in her own house, with homemade refreshments she refuses to charge for; the group decided to contribute £1 each per session, but Ali takes eggs of which her four hens often produce too many. A farmer cuts their hay in return for keeping some of it; a tree surgeon reduces his fee in return for keeping an interesting piece of timber. Big Paul paid for his lamb with fish he’d caught. The lambs were killed in the slaugherhouse but Mike and Stuart did the butchering.

The infrastructure that supports life here is cars and vans, trailers, freezers, small boats, the internet, mobiles phones, tools of all kinds. Agricultural fairs and festivals are where the healers and mediums meet potential clients -- though word of mouth is important too. (Reiki is held to work on horses and dogs as well as people.) The group that played at the party -- Angharad and John, friends of one of Ali’s daughters -- play across south Wales as far as Cardiff and make a living. Four or five individuals, couples and families came in vans in which they slept after the party, emerging at points through the morning for Stu’s bacon and black pudding rolls, the fillings bought as great deals from a butcher who’d gone independent after working in Safeways. Stuart lives in the back part of the house with Ali’s daughter Cathy, has a degree in Communication Studies (linguistics and photography), works for RNLI in the summer, does building work in the winter, cooks, shoots and reads -- but mainly lives outdoors. Would like to do more linguistics and even teach it. Marek (his parents are Polish) next door has three ice-cream vans; he and Dina (Danish) have converted their stables into holiday flats, all on lines approved by CADW, the Welsh historic buildings agency; Ditte, a chef, brought six different loaves she’d baked to the party, took over a run-down cafe in Solva and did the baking but it proved impossible to make a go of, despite the excellence and popularity of the bread.

I heard little discussion of the coming election, though a lot of talk about Wales and Welsh. X went to Welsh-language school in Llandeilo, much less English than Llandovery. Y’s teenage daughters speak to their dad in Welsh which she doesn’t understand. Stuart’s folk are first-language Welsh in Manchester; he grew up in Manchester not speaking Welsh and has moved to Wales where he’s picked up some of the language and hopes to get proficient. In a Welsh school named, maths was taught in English -- is that because too much of doesn’t work in Welsh, for lack of vocabulary?