Sunday, March 25, 2007

Who Wants the State to Run Mobile Phone Services?

Pharoz (‘a weblog about Australian politics, science and religion’), 25 March, carries an article about privatisation in Australia (in 'coms', a technology far removed from industries like Coal):

“Economic fundamentalism doesn’t always work for more sophisticated systems. Adam Smith may have complained about Corn Laws in his time, and the advantages of markets, but transferring that approach straight into today’s more complex systems is akin to trying to stick a sim card into a cob of corn and expecting to be able to make calls from it.”

[Read the rest of the Pharoz article at:

Rhetoric is not a compelling argument on this occasion. The social consequences of the Corn Laws was every bit as complex as telecoms (it took long enough to achieve repeal). The issue is not complexity: it is whether a market will produce better results for society than state-run organisations. The best way to answer such questions is to experiment and compare the outcomes.

State-run organizations usually are subsidized and protected as national monopolies, and are managed by politically-appointed ‘experts’, using the capital raised by compulsory taxation and allocated by the ‘good ideas’ of politicians (aka: party policies) and by public servants. If they get it wrong they are moved from their posts with difficulty, sometimes years after they have failed and the politicians have retired, dropped out, promoted, or have been ‘honoured’ in the usual manner.

Private-run organizations attract private capital if they are, or are likely to be, successful in the separate minds of thousands of dispersed persons risking their ownership, or stewardship, of capital. Private capital is raised by judges of performance who act swiftly to correct the errors of those managers who get it wrong (they lose their jobs, and often much else besides) and to reward those who get it right (they attract more capital should they need it – on the same impersonal terms).

There is nothing invisible about the rewards and retributions of markets.

Politicians in Britain are notorious failures at ‘picking winners’ (the computer disks of the 80’s) and are predictably awful at subsidizing ‘losers’ (textiles, shipbuilding, steel, coal, utilities, motor vehicles, air travel, railways, road transport, R&D, - the list goes on and on in Britain). Smith called private investment that fails ‘misconduct’ and state investment in activities that fail is no different, except usually measured in tens of millions (WN II.iii.26: p 340-41).

The waste from both sources in terms of capital that could have been available for innovating and modernizing the British economy – a source of unproductive activity noted by Smith in Wealth of Nations (Books I to V) – slows down, sometimes eliminates, the creation of wealth from economic growth. The worst of the private practitioners of prodigality aggregated together is but a small proportion of the state sponsored prodigality to which Britain has been subjected since the 18th century, and was a world leader after the Second World War

Smith put it trenchantly:

‘It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the œconomy of private people…. They are themselves always, and without exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust people to look after theirs. If their own extravagance does not ruin the state, that of their subjects never will’ (WN II.iii.36: p 346).


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