Do nationalized industries have a tendency to fail?

Factual Questions
41

Again, one must define failure. It is perfectly legitimate for a government agency to run at a loss or be subsidized, if we believe that the social benefits are so great that the taxpayers should fund the service. No one argues that the police, courts, or fire departments lose money, they aren’t designed to make money. They are funded by the government to provide social goods that cannot be addressed any other way. They deliberately run at a loss.

So if the taxpayers agree that a service is essential they are perfectly entitled to fund it out of general revenues. If we decide that the transportation infrastructure is essential for national security, the government can build roads, highways or rail lines, even though we don’t expect them to make a profit. Same thing with universities, or subsidized student loans, or public schools…the benefits of an educated citizenry are deemed important enough for the taxpayers to pay for them.

So if we want the government to research, manufacture and distribute pharmaceuticals, we don’t need for the government to make a profit doing so…we could decide to distribute them for free, to anyone who wants them, and if we decide that is a social good worth paying for, then the program is not a failure.

A business is a failure when it doesn’t make a profit. But when does a government program fail? When it fails to provide the citizenry with enough social goods to justify the taxes that pay for it. The trouble is that not everyone agrees on social goods. You might think free houses for the homeless is justified, no matter what the cost. I might think that all welfare is wrong, and everyone should work or starve. So the level of funding and services become political issues.

But we also have to consider secondary effects. If homeless people get houses, everyone can agree that is good. We might not agree that it is worth the cost, but we can all agree that people getting houses is good. But then what happens to the people who already have homes? Why should I work and save to buy myself a home, or pay rent, when I can get it for free? The more the government provides, the less incentive I have to provide for myself. This can be controlled by quality…the level of housing provided by the government can be so shoddy that only the desparate would take it rather than private housing. But that doesn’t seem nearly as generous as before, does it?

In every case of government intervention, the market and people’s rational responses are going to be distorted. It might be worth it, it might not be. But here in America the presumptive answer is that it is NOT worth it…since we’ve seen so many examples of perverse side effects. It is up to the people who advocate government control to show that the benefits drastically outweigh the costs, not the other way around.

42

I have to disagree with that last paragraph. There are many ongoing government programs that work. Poverty, especially among the elderly, did drop after programs were intensively implemented in the 1960s and 1970s.

Really now, if people want to discuss the issue of national industry (and the idea that nationalization is only about no-competition is silly), they should read up on the kinds of goods that markets, governments and partnerships between them provide. Various institutional arrangements can be better or worse at certain provisions. As mentioned, many services that are needed for national growth and safety can not be provided by markets (people will tend to free-ride). In anycase, markets don’t even work with government intervention…so the whole thing just gets confusing in the end when people try to make extreme statements like the libertarians do.

There is nothing inherent in government sponsorship or management that is bad, it depends on many factors of the historical situation and the good that is being produced.

43

should read “In anycase, markets don’t even work without some government intervention…so the whole thing just gets confusing in the end when people try to make extreme statements like the libertarians do.”

44

Obviously, without protection from fraud and violence there is no such thing as a free market. If you can just walk into the market, pick something out, and demand it at the point of a gun, then what you have is not a free market.

That doesn’t mean that government supplied services are often a good idea. Government is a natural monopoly. Any entity that seriously tries to compete against a government supplied service is operating at an extreme disadvantage, since the government can manipulate the rules that create the so-called free market to favor itself. In extreme cases, they can have you arrested and shot. In typical cases, government sponsored entities can operate at a loss and outcompete for-profit suppliers no matter how inefficient they are. This is a problem. People who patronize the government business get better deals than they would from the for-profit businesses, but the losses have to be made up on the other end through taxes. There is a net loss to the economy. The lower prices have to be paid for by higher taxes. And then the businesses that cannot compete with the government go bankrupt…and the government now has a monopoly. And we all know that monopolies are terrible for consumers, even if the consumers are also the owners.

And if the government DOESN’T subsidize their non-monopoly service in some way, then what good are they? If they simply provide services comparable to what the other businesses provide, why should they be in that business? They offer nothing for the consumer, and nothing for the taxpayer, and no social benefits. If the government provides below-cost goods and services, the taxpayers are subsidizing the consumers, which might be a good thing if for-profit entities cannot or will not provide services deemed essential by the taxpayers. But if they don’t even do that, what good are they?

45

British Rail is a particularly good example.

As a public company British Rail had one of the (if not the) first working tests of tilting high-speed trains.

Then BR was privatised. The technology the public company developed was sold to an Italian company and not implemented in the UK. A decade or two later one of the private companies in the UK (Virgin Trains) decided to buy some trains from the Italian company to bring tilting high-speed trains to the UK, years after everywhere else in Europe got them. Then they discovered that the track (privately owned) was not up to standard and thus wasn’t good enough to run the trains at anywhere near the speed they are designed to.

The last I heard the UK had tilting trains, but they couldn’t go fast enough to actually need to tilt.

Also, let us not forget the terrible train crashes in the UK over the past few years, apparently caused by having a crap warning system as the better solutions were considered too expensive.

46

"Any entity that seriously tries to compete against a government supplied service is operating at an extreme disadvantage, since the government can manipulate the rules that create the so-called free market to favor itself. "

I disagree. The government is also is heavily influenced by market forces. Campaign cash is just one example. Let’s not over simplify. It depends on the terms of the evaluation, the good offered, historical situation, management structure and institutional arrangement, etc., etc., etc. The anti-government fetish is an ideological bent that has been forced into American popular culture. It’s not solid analysis.

47

revolutionarily makes some useful points on the Australian health care system, which I’m minded to agree with. Its a great system. In comparison, I just had my appendix out here in Hong Kong, and it cost me a fortune.

But we shouldn’t lose sight of the fact that to work the Australian health care system relies upon the 4th highest personal income tax rate in the world - a reason why there are so many expatriate professional Australians (like myself).

For another, and much more accessible book on why the profit motive works, read PJ O’Rourke’s Eat the Rich.

48

“Campaign cash” as market force? Ok, we’re really reaching now aren’t we? I’m gonna chalk this thread up to troll hijack, lash myself for falling for it, and stop following it. Sorry to mods if any GQ lines were crosses, but I kept expecting to be in GD. Cheers.

49

When I lived in Hong Kong, there was a public health service. Has Tung Chee Hwa closed it down to pacify the Chinese government (it’s always puzzled me why Communist China has healthcare that has to be funded by the consumer)? Obviously, for something like an appendectomy in HK I would have elected to go private, but I believe that you could get this done by the health service.

50

Another point about British Rail - The privatized rail industry in the UK is now receiving three times ( in real terms ) the government subsidy than ever the old nationalized industry ever got. This is because the present set-up consists of over 90 different companies all who have to try and make a profit when trading with each other . This includes train operating companies , train leasing companies , the company that owns the track , and the train and track repair companies.

51

Daniel: be more careful about Troll hijack accusations, they are against the rules here. And certainly I don’t see this as a case.

And yes, market institutions try to influence government action. Surprised? Don’t know why…

52

My apologies.

53

The point being that corrupt government officials running businesses are no more public spirited than corrupt private businessmen running businesses. Government officials run the business for the benefit of their masters. If you don’t feel the masters of the officials are the people, then of course the publicly run businesses are going to be disasters.

Privately run businesses can be disasters too. But the big benefit then is that the disaster carried by the shareholders of the company, not the taxpayers. If a public company is a disaster, the answer is typically to keep shoveling taxpayer money at it, rather than close it down. Private businesses can go bankrupt and they are gone. Public businesses can run at a loss until the end of time, as long as the taxpayers are coerced into paying for it.

54

When public companies fail, there can be external effects. So, it is not just about damage to the shareholders.