Why state enterprises are so bad
From CroziervisionWiki
| Author: Patrick Crozier |
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State ownership isn't very good. Why this is I'm not quite sure. Here are some possibilities:
- the lack of the right sorts of incentives. A big one is one is where the money is coming from. If you are an ordinary business then if you don't provide the goods and services your customers want you go out of business. That's a hell of an incentive. But if you are a state business you just ask for a higher subsidy. Incompetence pays.
- the lack of price signals
Contents |
Q&A
...price signals?
- The idea here is that prices signal things (actually, I think it is transactions that signal things but this is not the time to go against orthodox economic theory). High prices indicate things in demand and low prices indicate things that are not in demand. They indicate what people want doing and what they don't want doing. For instance, readers of a certain age will remember when mobile phones cost a fortune. That was a pretty good indicator of demand and guess what, lot's of people got involved in that market. The result is that nowadays almost everyone has a mobile phone. The problem for a nationalised industry - especially one that doesn't charge is that it doesn't have that supply of information. It doesn't know what it is supposed to be doing. Ultimately, the only supply of information it gets is from elections and whatever becomes a matter of political controversy. This may help to explain why British Rail improved in the 1980s. It did have a supply of price signals and it had the "advantage" of a hostile government. It wasn't going to be bailed out - or, at least, it wasn't going to be bailed out to a greater extent than it would be normally.
But you're not quite sure about this?
- Well, take for example the world of the coffee mug. Some readers will be able to remember the days when the insides got so stained that it didn't matter what you did to them. Nowadays, they don't. I find it difficult to see how price signals and the free market in general have made this happen. It is not, after all, the first thing or, indeed the last thing, I ask when I buy a coffee mug. There is no "What Mug?" consumer magazine showing us how to avoid the pitfalls of buying stainable mugs but yet this thing still happened. Similar micro-improvements have happened in all sorts of other, rather more important, areas such as digital cameras, cars and personal computers.
- The only thing I can imagine is that at the back of every commercial buyer's mind is the thought that "if we offer the customer an inferior product he'll go elsewhere" and that as stainless mugs first became available this fear made those same commercial buyers buy them in huge quantities, to the extent that economies of scale meant that it was actually more expensive to produce the stainable ones. But even so, I find it hard to believe.
Further Reading
Brian Micklethwait, How hockey sticks explain the relative attractions of statism and of free markets, Samizdata, 2004
Further Listening
Stefan Molyneux Putting a man on the moon - the initial successes of state programs - he thinks a lot of it boils down to the culture inherited from the free market.
Comments
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