On The Andrew Marr Show this morning, Shadow Chancellor John McDonnell
came out with a ludicrous analogy to try to explain the benefits of bringing
services into public ownership. Think of it like buying a house, he said - you
make the initial investment, get returns on renting it as an asset, and then
further down the line it becomes a money-maker.
Fantasist John McDonnell
has always been an intellectual lightweight, and today's analogy was no
exception. Even if we're kind to him, and ignore all the obvious problems with
the reasoning behind his analogy (which you can distil in previous blogs here,
here,
here
and here),
there's another obvious way that returning a service to public ownership is not
like buying a house as an income-generating asset, which I'll explain.
McDonnell's analogy
forgets the most important problem with bringing a service into state ownership:
it creates all the downsides of monopoly power, and denies all the benefits and
innovations of competition. Competition doesn't just keep suppliers in check in
terms of price and quality, and consumers well served in terms of lower prices
and increased efficiency, it is also the driver of new ideas and improvements
on existent ideas.
A service run under a
state monopoly has much less of an acute eye on commercial demand, and
therefore pays suboptimal regard to price and quality too. In terms of
investment, the opportunity costs of buying a house are the other forgone
investments and their concomitant returns. Given that house buying is about the
best asset-returning venture in the marketplace, the opportunity costs in terms
of a return are all-but non-existent.
On the other hand, the
opportunity costs associated with state monopolies in terms of forgone opportunities
are about as overwhelming as it gets. And this in a week when there is
indication that Labour's re-nationalisation project is going to cost an up front
sum of around £176 billion (or £6500 for every household).
This is the dangerous fantasy economics of Corbyn and McDonnell: £176 billion for more expensive, less efficient, lower quality, innovation-stifling re-nationalised services. There is almost no analogue to buying a house here - not that we should expect anyone in the Shadow Cabinet to understand this.
