Friday, 22 February 2008

What does "the public" actually own? (updated)

While nationalisation of children, seabedinfrastructure and private property is still firmly on the New Zealand agenda -- and always sells well at Grey Lynn cocktail parties -- privatisation is supposedly so frightening for New Zealanders that politicians run from the 'P' word like they do from Owen Glenn when there are cameras around.  Despite failing schools, hospitals and roads (to name but three very public disasters) "public ownership" is still a sacred cow too scary to slaughter.

It makes no sense.

There is no value whatsoever in either the concept or the reality of "public ownership."  The "public" -- you and I -- has no more control over Capital Coast Health or Transpower, for example, than we do over Smith and Caughey or the corner dairy, substantially less in fact. As Madsen Pirie points out,

The public actually has more influence, via its choices and purchasing decisions, on private sector businesses than it can ever have over state industries and services.

If we don't like what the corner dairy or Smith and Caughey are selling, we can stop buying there or even sell off our shares, if we own some.   But if we don't like Transpower's bumbling with the Cook Strait cable or Capital Coast Health killing people then we've got no more control over that than the citizens of Soviet Poland had over "their" shipyards.

The point is that there is no reason at all to favour "public ownership" of infrastructure or businesses -- and in the final analysis, no reason at all to even consider "public ownership" as ownership at all since, as Pirie argues, none of the important attributes or rights of ownership inhere in the "ownership" we supposedly enjoy of our "public assets":

The state sector may have the name of the public filled in on the dotted line, but the public do not own it in any meaningful sense of the word. All of the attributes of ownership, such as control, the right to determine what use is made of it and under what conditions, is determined by the bureaucracy in command of it.

Read Pirie's account of the "public ownership" fallacy here at the Adam Smith Institute blog, and Paul Walker's discussion of his account here.

UPDATE: "It is in the very nature of government management (bureaucracy) that it will be inefficient, and prone to corruption," says today's article at the Mises Daily.  It was Ludwig von Mises in his book Bureaucracy who drew the important distinction between between "bureaucratic management" and "profit management," and who explained why the latter necessarily fails: "In public administration, there is no connection between revenue and expenditure … there is no market price for achievements."  Says John Chapman:

[Mises] explained that neither incentives nor exploitation of useful information are optimal under bureaucratic management, and by definition there could be no rational calculation via profit and loss...

Conversely, after privatization, operations and cost efficiencies improve because once incentives are in place and aligned, and people are empowered and incited (by the lure of profit) to utilize "particular knowledge" of markets, methods, competitive conditions, et al., performance improves.

Much more important even than this loss of "efficiency" is Mises warning of "a byproduct of bureaucratic management": the gradual vanishing of the "critical sense."

When one sees ministers in charge of hospitals that kill and schools that spit out illiterates having no sense of shame at the failure, what we're looking at is exactly what Mises warned about.


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  1. If we don't like the price Smith & Caughey charge we can always shop elsewhere. If we don't like the taxes that we pay to maintain the roads we can always vote out the government. If we don't like the tolls that private companies charge for private roads what do we do? Perhaps competing companies can bury the country under multiple roading systems to ensure true competition.

  2. I think the reason public ownership 'sells' so well at Grey Lynn dinner parties is due to what is being smoked and snorted on the 'menu'...(if you know what I mean?)

    The reason they hate privatisation is because Grey Lynn people are little more than shallow, vacant 'Remora Fish'.

    They sail along in the wake of rich and successful people attending dinner parties in Parnell, Epsom and Remmers, and because those are circles (quite rightly) firmly and eternally closed to Grey Lynn wannabe's and never will's, envy comes into play and the *shock* *horror* thought their 'betters' will make *gasp* profits after privatisation.

    (..and some people still do not believe we have a Class System)

  3. Anonynonymouse

    What is you point exactly?



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