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Freer is better but I don’t know why.
Brian Micklethwait (probably drawing on the work of von Mises and von Hayek) thinks it is all to do with price signals. The argument is that in a free market prices (and balance sheets) act as signals. If a price goes up that signals greater demand, so people start to enter the market. If it goes down it indicates less demand, so people start to leave the market. But with a nationalised industry these signals rarely operate. It may be the case, as with the NHS and state education, that (being free at the point of use ie having no prices) they don’t exist at all. Or, it may be the case, as with British Leyland, that although they exist, the government of the day is so desperate to keep the enterprise going that it will forever bail it out. In other words, the bottom line is not the bottom line.
It’s a good explanation but I think he leaves out the issue of knowledge. Knowledge is dispersed. Obviously, only I know what I want. The same applies to you and everyone else. And equally, only I know what I am prepared to do. That essential knowledge is contained all over the place and governments, try as they might, just can’t get their hands on it, or, if they do, it’s too late to be of any use. Markets are knowledgeable because they have prices which leads on to what Brian says about price signals.
As an alternative the best I can do is to observe that whereas in the free market failure gets punished, in the state sector failure tends to get rewarded. What seems to happen is that politicians come along and claim that such and such an activity whether it be health, education or ensuring that all children have booster seats, is “essential” and then when they fail to provide whatever activity it is, because it is deemed “essential” their only option is either to spend more money or introduce more regulation.
Permalink • Economics • General • Last Updated: 14 November 2006Nothing yet but you never know...