We've been discussing various economic systems around the
world and two posts per day is proving a bit limiting,
so this is the thread to expand the debate, for those
who are interested.

Some posters have expressed admiration for the likes
of Castro of Cuba and Chavez of Venezuela. I am
quite surprised, as for me its all bleeding obvious.
I prefer to make my own decisions about my life, then
let the State decide. As a consumer, I enjoy voting
with my wallet every day and I certainly benefit
from being able to do that.

Anyhow, its election time, so for those who want to
discuss economic systems, feel free to speak your mind.

YABBY.. for me it can be simple too :)

If you "State" is lucky enough to have abundant resources and enough smart people.. then a State run economy can be the best for the most.

Otherwise.. law of the jungle.

Ok, for a start I don't think there's much useful debate to be had arguing between "Market economies" and "State run economies". My interest is examining the degree to which government involvement in a market economy is desirable.

Yabby, your statement "I'd prefer to make decisions about my own life, [rather than] let the State decide" is hard to disagree with as a principle, but it somewhat ignores the purpose of government. Many, if not most individuals aren't realistically in a position to make decisions about issues that affect the long-term future of all of society, and are happy to hand this responsibility to the government, whose job it is to make such decision. Further, a government that consistently makes decisions against the wishes of its people will get voted out - so as long as you have a stable, workable democracy, protestations about "letting the State decide" are a somewhat specious.

My main interest is in examining the assumptions that "less government involvement" is always better. This "neoliberal" ideology seems to rest on several basic tenets:

a) Free markets are always a more efficient way to allocate resources than governments

b) Government regulation and taxation stifles innovation and prevents wealth creation that can benefit all

c) Governments should never "pick winners": letting multiple private enterprises compete to bring new ideas to the market, and letting the consumers pick the winners is more democratic/efficient

Now, all these principles are fine in theory, and it makes a perfectly reasonable hypothesis, but does it measure up to reality?

a) Of course has been the motivation behind gradual privatisation of many once-Government provided services: electricity, gas, telecommunications. There have been calls for fully privatising the ABC, Australia Post, Medicare, Tertiary Education etc. etc. Extremists would even argue for privatising build all government-provided services, including sewers, roads and parklands, on the basis that they would be run more efficiently, and there would be more incentive for private-enterprise to look after them better than for governments.

Next: dissecting to what extent privatisation has actually been successful, and how this reflects on the ideology driving it.

Aside from various (and understandable) ethical concerns about having corporations whose primary concern is the bottom-line look after vital community services, what is the evidence that private enterprise has actually allowed these services to operate more efficiently and provide better customer service and/or lower costs? And is there anyone actually doing serious historical cost/benefit analysis on these operations to determine whether privatisation was the right step to take? Further, perhaps a more interesting question is would this infrastructure have ever been created in the first place if it was entirely up to private enterprise, considering the massive costs involved, the fact that the benefits don't particularly accrue to anyone in particular?

As far as the success of privatisation in Australia goes, there’s a fair bit of material available on the internet. The majority seem to take the “mixed success” conclusion, such as in http://ceda.com.au/public/research/privatisation_contracting/growth_50_summary.html
Others are more damning, such as http://homepage.mac.com/herinst/sbeder/jape.html, whereas think tanks like the IPA, unsurprisingly, have published articles describing the unmitigated success of privatization, although generally sticking to narrow examples (e.g. http://www.ipa.org.au/files/news_1353.html).

On the basis of these and many other similar articles, from a purely economic point of view, the hypothesis that privatisation is always better is on rather shaky grounds – but it’s not unreasonable to conclude that privatisation, if done well, has the ability to improve the efficiency of government-run operations.

I won’t go much into to whether it’s reasonable to make such decisions on a purely economic basis. Some have pointed to deregulation (the step-sister of privatisation) of airlines as “putting profits before human lives”, as accident rates have risen in tandem with lowered fares. OTOH, as a customer I’m prepared to pay less for a fare if it slightly increases my odds of not surviving the journey; after all, the risks are very low in the first place, and can never be completely eliminated.

Later (when I have the time): addressing b) and c) above.

Wiz, ok I’ll give you my opinion to your questions.

I don’t think that the issue is as black and white as some suggest,
but I think that there are some general trends, related to human behaviour
as much as anything.

The main problem seems to arise when any business has a monopoly.
It seems to be that without competition,/ accountability, consumers
are commonly placed last, not first. The same applies to cosy duopolies.

I had a bit to do with both Ansett and Qantas, when those two had
their cosy deal. What mainly hit me was the huge amount of waste
in their systems. Staff knew that it was virtually impossible to fire
them, so they really didn’t care, consumers were forced to pay for
the lot. Bad management seemed to have a lot to do with it,
but they did not seem to care too much either.

The same principles seemed to apply in a number of industries,
where high tariffs protected them. Innovation
and cutting waste hardly mattered, they could simply increase prices
every year, the consumer had no choice but to accept. In that sense
globalisation has done a huge amount of good, its really shaken up
those badly managed companies in many industries.

When Govts run businesses, those problems are often compounded
by additional factors. A well run business cuts waste. All those
administrative staff, looking out the windows, watching the cars go
by, have to be paid for by somebody. A well run business should
be able to fire them, if they are not required. Governments often
make political decisions in this regard, rather then hard nosed economic
ones. They might have a cosy deal with a union, they might be chasing
votes, whatever. In the end, the consumer pays for all that.

So the best deal for the consumer in most but not all situations, is when
there is active competition in an open market, amongst a number of
companies, who do not take their customers for granted. There is
an incentive to innovate and cut waste, for the consumers benefit.

tbc

So in cases where the free market is truly operating, I fail to see how Govt
could or should have a role, or could do better. There are however many
cases where the free market is not operating at all, for various reasons.

In the many cases that you list, all that Govt is doing is selling a monopoly.
Creating a free market is easier said then done and the point of risk is that
private enterprise will screw the consumer, rather then Govt. Telstra
still owns the copper wires, if its sold or not. The same applies to electricity,
gas, etc. So creating a truly free market is the obstacle here.

The ABC/SBS are for me, more like an educational service, for the public
good. They can afford to screen programmes without worrying about ratings,
unlike commercial channels. Selling the ABC would defeat what it achieves,
a market in which private enterprise is clearly not interested, so the Govt
plays a role for good reasons. PBS in the US achieves similar results based
on public donations, but we don’t have the population for that.

To cut it short, I think a role exists for Govt to provide services, where the
free market cannot truly operate or sometimes does not want to operate.

b. Yes, Govt regulation and taxation are both costs which have to be passed
on to consumers. Somebody always pays in the end. Extra regulations,
extra taxes and charges, benefit few, apart from those public servants
looking out the windows, watching the cars go by.

c. Why should Govts be better at picking winners, then private enterprise?
There is actually a big difference! When Govts pee money up against
walls, all taxpayers are forced to contribute, even if they voted against
the Govt. In private enterprise, its all voluntary. Those who disagree
with management, are free to sell their shares. Only willing volunteers
carry the risk of failure.