It constantly amazes me
that there are still so many people in the UK
Despite many compelling arguments, one
area that neither Mr Butler nor Mr Booth considered is the area of opportunity
cost, which is what we consider when we factor in what isn’t done as well as
what is. I'll explain. There's a well known comment
by economist Milton Friedman who wanted to rebut the idea that if soldiers
enlisted in the army for money rather than duty they would be mercenaries,
because to join the forces for money casts an aspersion over their commitment
and patriotism. Friedman refuted the idea that a paid volunteer in the army
would be worse than a conscripted member by pointing out that compulsory conscription
isn't impassioned patriotism either, as forced servitude also does not contain
the volitional incentives for serving one's country with impassioned
patriotism. Friedman said the following:
“In the course of his [General Westmoreland’s]
testimony, he made the statement that he did not want to command an army of
mercenaries. I [Milton Friedman] stopped him and said, ‘General, would you
rather command an army of slaves?’ He drew himself up and said, ‘I don’t like
to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like
to hear our patriotic volunteers referred to as mercenaries.’ But I went on to
say, ‘If they are mercenaries, then I, sir, am a mercenary professor, and you,
sir, are a mercenary general; we are served by mercenary physicians, we use a
mercenary lawyer, and we get our meat from a mercenary butcher.’ That was the
last that we heard from the general about mercenaries.”
This kind of wisdom is the kind
needed to show why proponents of government-run services overestimate the
benefits and underestimate the costs. To show where they've gone wrong we need
to see why the question of whether voluntarily paid soldiers or conscripted
soldiers cost the nation more. Friedman showed that conscripted soldiers cost
more by showing that costs are not the same as expenditure.
The expenditure of an army soldier
is what he is paid in salary, whereas the cost of an army soldier is how much
his being in the army robs society of the skills and abilities he could
otherwise put in. Those who've chosen the armed forces are those who are
getting paid for their chosen vocation; those who are conscripted are those who
are now not free to do what they'd otherwise be doing.
When Elvis Presley was
conscripted in the army, the cost of that conscription was whatever he didn't
record or film whilst in there. If he'd been denied the reported $200,000 he
was paid for shooting the film GI Blues
then his conscription cost would have been $200,000, and the expenditure would
have been whatever his military salary was (Muhammad Ali on the other hand
refused to be conscripted on grounds of religious beliefs, which cost him
personally his boxing title).
Alas, the politicians like Corbyn
who are calling for re-nationalisation of the railways would do well to become
mindful of the difference between costs and expenditure regarding
government-run services. Not only do we see greater inefficiency and waste in
government-run services due to the credit-guarantee that comes in the form of
taxpayers, we see that government expenditure can't be considered without also
considering cost too. The expenditure for nationalised railways is evident -
although the extra costs, like pension contributions, sick pay, holiday pay,
human resources costs, and so forth are usually overlooked, as are labour costs
by being treated as beneficial jobs rather than expenditure (which is what they
actually are). It's the costs that really bring about the inefficiency.
The cost of having 'conscripted'
private sector employees in the railway is the cost of what they would be doing
if they weren't being paid by the taxpayers. It's true some might be working in
the rail industry, but they would be being paid by private company expenditure
not taxpayers expenditure. So to put the analogy to effect in a more general
sense, the cost of being nationalised is the cost borne by what those workers
would otherwise be doing were they not funded by the taxpayer.
The other reality check
pro-nationalisers need is over the issue of why the railways system is as it
is. Train tickets are not priced as they are because there are private
operators - they are priced as they are because the subsidies that used to keep
the prices lower have been reduced. Whether the subsidy is increased or not, it
is not an argument for re-nationalisation, which means running at a loss for
the taxpayer, and more inefficiency too.
It's true
that rail fares have crept up, and it's true that trains are delayed, they
break down, tracks get damaged, and carriages get overcrowded, but to think
that these problems are caused by not having the government in charge of the
railways is really quite ludicrous. Consider prices – everyone’s favourite
complaint. The complaint the rail fares are hugely overpriced, and that a
government-run service would bring this back in check is overinflated, because the
current profit margin for train operating companies is only between 3% and 5%.
Ignore the fact that if the government makes no margin it becomes a very
precariously run (and costly) enterprise – at 5% profit margins, a reduction of
up to 4% on your train ticket is hardly going to amount to the kind of huge
saving many imagine.
As for the
issue of over-crowding (another favourite from people who think the trains run
inefficiently), they may have missed the fact that the railway network is,
actually, nationalised, it is only the train services operations that are
tendered out privately. Given the limit on how many trains can viably enter a
station at any one time, it is foolish to blame the private franchises for
over-crowding. If anything, the sensible pricing that offers cheaper off-peak
fares for people who are less price-sensitive or able to travel more leisurely
under fewer time constrictions is exactly the kind of competition customers
ought to value.
Consider that the
government runs a comprehensive school monopoly and there is a shortage of
teachers, but that shortage hasn't hiked up teachers' pay. Doctors, surgeons,
lawyers and accountants all work in a prolonged qualification-based arena in
which it is hard for competing forces to challenge, and that is not due to
privatisation, it is due to scarcity. Also, scarcity power (which is what makes
prices high) is not absent in government monopolies any more than private
monopolies.
The paradox of competitive private
industry is that it often starts as a nationalised company (as all the
providers in the UK did - electricity, gas, telephones, water, etc), because
otherwise there are few providers able to build the initial infrastructure to
get their business off the ground. Generally, without governments'
anti-monopoly policies one firm would rule because it costs so much to start a
business that competition ends up costing too much to compete. For example,
suppose no one was providing any large-scale water supplies around the UK.
Thinking of economies of scale - to produce tap water, an aspiring water
company had to invest in a huge network of water pipes stretching throughout
the country. The fixed cost of this investment is very high. However, once in
place any company that can distribute water to tens of millions of households
brings the average cost down. Yet it often would not be worth another water
company building another network of water pipes to compete with the existing
company, because if they only got a small share of the market, the average cost
would be very high and they would go out of business This is an example of a
natural monopoly – but these largely occur when the goods or services provided
are not fungible (see below).
That's why it's not always bad when
the government first owns the means of production and then gets to the stage
where it can sell off the rights of provision to competing companies, whilst
stipulating a rule that they must compete for shares in the existing
infrastructure.
What conditions this process is
whether or not the good or service is a fungible one – by which we mean whether
or not that good or service is easily replaceable in competition. The trouble
with rail is that it is not a fungible good in the same way that food, clothes
or cars are. If you need to take the train to London to Norwich you can't suddenly
decide to purchase a vacuum cleaner instead and still get to Norwich, whereas
if you're hungry and on arrival you find that sausage rolls at the station are
too expensive you can buy some fruit from the nearby supermarket. Similarly, if
the price of BMWs or leather jackets become undesirable, there are plenty of
other alternatives you can seek, like Fords, Vauxhalls, wool or denim.
With trains things are not quite the
same. The only competition for your train fare is other transport alternatives
– driving, getting the bus, or occasionally cycling. But the competition in the
railway services is not fungible: if you’re at Norwich station looking to get
the 7:20am to London, you will not have a choice of trains like you will a
choice of snacks and drinks in the nearby shops. A private monopoly or cartel that
provides a service (like trains to 25 million people) is very hard to break, as
competition for such a service is hard to generate. It's very costly to start
up a rival firm to provide 25 million rail customers, and any small firm can be
swallowed by being bought out by offering shareholders bigger shares in the
larger company, as SKY TV did. Moreover, the fact that profit margins are under
5% shows that rail travellers are not getting ripped off - it is just simply
the case that railway services are very expensive to run, they require lots of
investment, and are large scale operations - and as such, they need to be run
with the kind of efficiency that only the private sector is going to deliver.
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