Friday, June 24, 2011

Welfare Impact of the British Privatizations 1979-1997

Review of The Great Divestiture. Evaluating the Welfare Impact of the British Privatizations 1979-1997 by Massimo Florio. MIT Press 2004, $39

Professor Florio appears to have proven that Thatcherism, or at least that aspect of Thatcherism covered in his book, namely the privatisation of state-owned firms, signally failed to increase productivity, which was its main battle-cry. Its principal effect was to divert a stream of income from the poorest 20% to the richest 10% of the British population. This occurred in three ways: firstly by selling off the gasworks, coal mines, water systems, etc. at very low prices to investors, many of whom were rich; secondly by freeing these firms from the politically imposed constraint of subsidized rates for pensioners, the unemployed, etc. On the contrary, the new owners sometimes imposed regressive rates, so that the poor paid more per unit than the rich! Thirdly, privatisation allowed top management to raise its own salaries.

One of the calamities brought about by Thatcher’s privatisation was a dramatic rise in the rates of the water utilities. However Professor Florio does not condemn this phenomenon out of hand, as a consequence of mere greed. Rather he points out that most of these rate increases were the consequence of investments either long-overdue or that had become necessary to bring Britain up to the new EU standards.

One of his conclusions is that private ownership of large utilities offers no advantages over public ownership, since in Britain the government officials who ran the companies were competent and devoted and their successors, while competent, were grasping and self-centred (often they were the same people, who remained at their posts but altered their behaviour!). Furthermore the companies remained subject to government regulation, since they were mostly monopolies, and ownership was dispersed among many small stockholders, so that the latter were unable to impose their interests, leaving effective power with the managers.

This conclusion appears to contradict studies that indicate that public utilities are generally less efficient that private ones (except for power companies)[*]. Nonetheless these studies are mostly of small local utilities, where private ownership really means effective control by the capitalist, thus assuring the benefits that private ownership theoretically confers. We must conclude, especially in view of the desirability of a progressive rate structure, that large utilities are best left in state hands, with the proviso that the bureaucracy be neither incompetent nor venal. Unfortunately this condition is not fulfilled in much of the underdeveloped and “transitional” worlds. On the other hand the corruption of public officials there is often matched by the corruption of capitalists, as seen in the expropriation of small shareholders by large ones in many Russian firms.

The notable and sustained improvement in the efficiency of Canadian National railways likewise seems to indicate that inefficiency of large state firms is a curable disease, given the political will to reform.

The cited efficiency studies appear, however, to suffer from a notable defect: they disregard the welfare losses attendant upon privatisation, the greatest of which is that labour tends to become degraded and precarious under the untrammelled tutelage of the profit motive. Barbara Ehrenreich worked incognito in various jobs while gathering material for her revealing book on blue-collar work conditions Nickel and Dimed -- On (Not) Getting by in America. Her experiences included a stint as a sales clerk at Wal-Mart. She discloses that that great paragon of American free enterprise prohibits its employees from conversing on the job! When a large military hospital in Washington, DC privatised its cafeteria operation a few years ago, the scullery crew, consisting of mentally handicapped people, was summarily dismissed.

Is this the kind of efficiency we want?

October 2005

[*] See Charles Wolf, Jr.: Markets or Governments. Choosing between Imperfect Alternatives, MIT Press 1988, pp. 202-210.

Thursday, June 16, 2011


Big-Government Man

by Tequila Kid

I'm  a big-government man. Not that I want to maximize the size of government come hell or high water, but I do believe that the size of government should never be allowed to sink beneath a certain proportion of the economy -- say 30 or 40 per cent. Furthermore I think large utilities like big power companies, ports, railroads, airports, electrical grids, highways and schools, post office. etc. should be state-owned.

Furthermore I believe that there are sound reasons of economic efficiency to support a hefty government sector of the economy. This is a well-established thesis that the right has done  its utmost to efface, but in vain, alas! Every economist knows that in an economic slump, private businesses reduce expenses and the state’s expenses grow because it must now pay unemployment compensation, etc. Thus the government willy nilly has to increased its own demand in response to a fall in demand by the  private  sector.

So that a considerable government role in the economy is desirable from the get-go, for reasons of macroeconomic stability. In order for these  so called automatic stabilizers to be effective in making up for lack of private investment, the government has to be fairly chunky.

I think that utilities should be nationalized and run by the state.  Mexico is an inspiring example of how the  life of the very poorest can be greatly improved  by electrical power (1). The Mexican state-owned  electrical power monopoly CFE plans investment in new power lines according to demographic forecasts, not according to  income projections.

You may object that then many lines will serve people that lack the money to pay!

And I reply that’s the beauty of it, the CFE charges the poor only 3% of what they charge the rich.  CFE makes a profit anyway. So in Mexico everybody has electricity, even very poor people. Compare that with South Africa, where private utilities have ceased serving certain neighborhoods because of no payments. South African poor have suffered greatly for years because they were unable to pay their bills to the  privately owned utilities.

That’s why I think utilities should be government-owned. That way the rich pay a higher price than the poor. For example in Britain, when the electrical power companies were privatized in the 1980s, the private  companies altered the fee scales and did away with  rebates for pensioners and other low-income people. So that Margaret Thatcher’s privatization  made the rich  richer and the poor poorer. This is a recurring pattern.

Furthermore in the case of very large enterprises like CFE, government ownership is not a factor that reduces efficiency very much, as opposed to small businesses. After the Brtitish privatization, no increase was registered in the newly private companies’ efficiency.  This naturally reflects the high standards of British civil servants, who of course received none of the profits.

An additional reason I love big government is that  government is capable of compensating for and counteracting  market failures.

This is a bit of a sore point. Libertarians denounce market failure theory because existence and admission of market failures don't  fit their plans for society. They must keep alive the illusion that an individual decision maker is at work.  But contrary to popular belief, existence of market failure does not automatically imply government intervention. Various sorts of government measures can be considered, but the option of the government doing nothing at all should always remain available. Then there is the option of public non-government entities conducting economic policy instead of government. I haven’t looked into this issue at all, so I'll just keep quiet about it.

I don't know to what extent there are non-governmental solutions to certain sorts of market failure.

Also, to a great extent, Government has the power to structure the business environment so that people behave ethically. Who put ingredient labels on grocery cans? Was it the private sector or the public sector?

Since private returns from investment  in human capital formation are low, people don't like to spend money on education. However the social returns are much higher. So there are excellent reasons for government to make up for the private citizen’s stinginess when it comes to education. 

 (1)  My description of Mexico reflects the 1980s. I cannot vouch for the current situation.

Monday, May 16, 2011

Ayn Rand & the Random Anus Society

The Spiritus Rectum of the 
parasitical  financial oligarchy 

What does “Ayn Rand” mean in Russian?

“Ayn Rand” means “random anus”, in other words “any asshole”.

Thursday, April 7, 2011

The second death of Giacomo Matteotti

The Italian Socialist Party still uses the hammer and sickle emblem of 19th-century socialism. Outside of Italy this traditional icon of peasant-worker unity is used only by  communists.

The second death of Giacomo Matteotti

Review of Mr. Jonah Goldberg's Friendly Fascism: bla bla bla bla bla  

Category: 1/3 fiction, 2/3 non-fiction

At this stage I must defend Jonah Goldberg against the charge, so often leveled at the wacko right, of irrationalism. Goldberg is obviously  a clear-headed thinker. He knew what he was doing when he decided to write the political story of Italian Fascism without once mentioning Fascism’s and Mussolini’s fiercest and most celebrated opponent – the deputy whom for motives of prudence I shall refer to only as “Mr X “

To an orthodox historian Goldberg's approach might seem alarmingly eccentric.

But there is no escaping the fact that from a pragmatic standpoint, when writing Friendly Fascism, Goldberg had no choice but to keep silent as the grave about Mr. X, one of the most celebrated historical figures in 20th century Italy,  a man who gave his name to  hundreds of Italian streets and squares. To permit readers to suspect of Mr. X’ existence would have meant utter failure for the Goldbergian educational project.  

"It would have meant," Mr. Goldberg explains, "in popular parlance, 'to spill the beans', an idea that also appears in the vernacular as 'letting the cat out of the bag'”. These are two activities  in which Mr. Goldberg is exceedingly loath to engage. No wonder, in view of the trade he plies. “And what trade might that be?” asks the inquisitive reader.

“A swindler. A lying scumbag”

The grounds for Goldberg’s hush-hush approach: Mr. X, whose name can now be disclosed, as Giacomo Matteotti,  was the utter and unanswerable refutation of Goldberg’s main thesis in his boog, i.e. Matteotti flatly contradicted the right-wing cliché that socialism and Fascism are the same flabby thing.

So a ex-post analysis clearly indicates that Matteotti  was dead meat practically from the instant Goldberg decided to perpetrate Friendly Fascism on an unsuspecting public.  

The only thing that remained to be decided was how Matteotti would get  done in.

I can imagine Goldberg, working feverishly through the night while listening to Rush Limbaugh for inspiration, plotting accidental deaths for Matteotti, having Macedonian terrorists kill him after confusing him with the Yugoslav ambassador. There must have been so many dodges.

But Goldberg is evidently a prudent man and he did not fall into the temptation of creating a “synthetic” incident ( I hate using that horrid word “phony”) that would safely remove Matteotti from the political scene without causing too much of a ruckus, while simultaneously preventing the reader from finding out that shortly after Matteotti’s murder Mussolini shed all false modesty, relinquished his parliamentary costume and openly assumed dictatorial powers.

Too tricky. That's what callow shoplifters promptly discover when in police custody: the moment the cops get you talking, they’ll seize on any apparent contradiction in your story, disconcert you, make you nervous and hesitant, until you start stuttering. Eventually they're  able to pin something on you. Especially if you make a really stupid  mistake.  Something about Goldberg’s clueless demeanor in the mugshot suggests that he is capable of making REALLY stupid mistakes.

It was much simpler just to keep mum about Matteotti altogether, Goldberg decided.  Nobody in the US had ever heard of Matteotti anyway, and the boog was principally addressed to American ballot booth fodder. There would be no awkward questions. And Goldberg made extra sure no Italian editions were authorized, so the Italians didn't cotton on to Goldberg’s refined historiographical  modus operandi when dealing with the  past of their notoriously boot-shaped peninsula. Those Italians  would never understand the need for these theoretically advanced approaches to contemporary history, characterized by what can only be called "blind counter-factuals", whose principal raison d'être is that their exisentce is never disclosed to the reader.  . 
Sometimes I wonder in which historical school we should classify Jonah Goldberg. I must say that as far as conservatives go, Goldberg is a far sight less discerning than, Edmund Burke, say.  And I also note that he is a pathological liar, like most people who write for National Review. Really nothing but a political hack, a penny - a - liner. Not the same class as Burke at all, I'm afraid.

Perhaps Mr. Goldberg belongs to what has been called the "useless mouths  school". Useless mouths are members of a criminal organization, who, when the chips are down, suddenly become expendable and are blithely abandoned to their  fate.

Monday, April 4, 2011

Comparative advantage once again: Ricardo, List and Krugman

In chapter 7 of his Principles of Political Economy and Taxation (1821), David Ricardo expounds his celebrated theory of comparative advantage in international trade. He creates a two-country model and calls the two countries England and Portugal. Furthermore the wares traded between the two countries are historically accurate: in Ricardo’s time England exported cloth to Portugal and imported wine therefrom, and these are the two wares traded in Ricardo’s model.

Ricardo’s theory of comparative advantage states that even if English cloth is dearer than Portuguese cloth, if Portugal can produce wine cheaply enough, Portugal will import English cloth, since Portugal would find it to its advantage to remove capital from the cloth industry and invest it in the wine industry.

So far so good.

Ricardo does not enquire into the historical operation of the factors that brought about this division of labour. This is not surprising, since Ricardo belonged to the Classical School, which was averse to most historical discussion and preferred to reason using static models in equilibrium.

Friedrich List belonged to the German Historical School. His method differed from Ricardo’s in that List was best described as an economic historian.

List tells the tale of Portugal’s textile industry in his work Das nationale System der Politischen Ökonomie (1841). List produces persuasive evidence that Portugal’s cloth industry flourished until it was undermined by the removal of the tariff that protected it from English cloth. Furthermore he shows that the English ambassador in Lisbon, Methuen, was instrumental in encouraging this reduction in tariffs.

Paul Krugman, in Ricardo’s difficult idea, accuses List of not understanding Ricardo’s comparative advantage theory. Nonetheless even if Krugman is right (and I suppose he is) this in no way detracts from List’s narrative.

List contradicts Ricardo, up to a point.

List’s tale seems to show that England’s trade advantage vis-à-vis Portugal was not comparative, but absolute. If England’s cloth had been dearer than Portugal’s, removal of the Portuguese tariff against English cloth would not have appreciably increased Portuguese cloth imports from England in the short term . Ricardo’s comparative advantage would operate only in the long term, as Portuguese capitalists discovered they could make larger profits by divesting from cloth manufacture and investing in vineyards. Portugal’s cloth production would then decline for lack of investment, and to make up for the missing cloth, Portugal would start importing English cloth.

Another matter altogether is whether the Portuguese economy in the  18th century provided channels for the transfer of productive capital from cloth-making to wine-making.

Sunday, February 13, 2011

Becoming a conservative isn't as easy as it looks!

A review of Richard Bernstein's Duped America.  

Gentle reader:

I am that ignoble creature, a flaming pinko, nothing but a wretched liberal socialist dweeb, but I have seen the light! I am now repentant for my Bolshy ways, and consequently I seek betterment from conservative sources. Thus, with firm tread I go to the CONSERVATISM GROUP in Perhaps here I will learn which are my grievous errors.
And I'm in luck!
Because a lady has just posted an all points bulletin asking which the best books are to persuade a liberal friend of hers that she has been hornswoggled and that the True Path is that of Conservatism!
And several people have suggested a number of books with promising titles.
Mah-velous! What a stroke of luck! Pretty soon I'll find out how all those snarling Lefties were misleading me all along.
I eventually spot a book that looks promising, called Duped America, by Richard Bernstein. I flip to a chapter about the Iraq war.
Ah, yes the WMDs. In letters of fire Bernstein admonishes us: “He lies who denies that chemical weapons were found in Iraq.” p 36 As a matter of fact a total of 53 “chemical weapons” was found. (He neglects to provide a description of these fiendish devices. Perhaps he does not want to alarm us with the prowess of Iraq’s military research!). On the other hand perhaps they were Molotov cocktails. And the author hurriedly adds “Perhaps there were thousands more that went uncounted, because the 53 were from only a small sample of the 10,000s of weapons caches in Iraq.”
Yeah, that makes sense, the US invaded Iraq under the motto “WMDs”, so after their easy victory, the Americans set about searching for the WMDs. But according to  Mr Bernstein, who is obviously very well informed, apparently they didn't search very hard.
These conservative facts are somewhat disconcerting. They appear to be part of a conservative theme park, a conservative  Wonderland perhaps.
At this point I ask the gentle reader: What is the likelihood -- after all the Bush régime’s ballyhoo about WMDs in Iraq – that the US failed to make a proper search for WMDs?
The answer is NONE! If all they found were 53 and they don't even tell us what kind of weapons they were, this man is obviously lying through his elbows.
Consequently we can calmly assume that for all practical purposes, no WMDs were found in Iraq. (Making a sound spot to make the Bush régime look good is NOT a practical purpose.)
Then it seem that Generalissimo Bush had the right idea after all!  According to Mr Bernstein, thanks to the Surge and our heroic fighting people, we won over the Sunnis and thus triumphed over Al Qaida and brought peace. 
I hate to be a spoilsport, but that narrative does not match what I have read by a noted academic Middle East specialist writing in a scholarly journal. I can look it up some other time. What really happened was that first, in 2003, Bush tried to cut the Sunni community [who had been the top dogs during the Saddam régime] out from power altogether. So he disbanded the army, the bureaucracy, etc. to undermine Sunni power. But the Sunnis fought back.
So Generalissimo Bush hit on a bold stratagem: Just surrender to the Sunni demands! And it worked like a charm!  Caving in to the demands of Saddam Hussein's lackeys was a brilliant tactical move on the part of Bush régime, prevented much bloodshed and preserved the US from the indignity of getting its butt kicked good and proper. The surge was not decisive.
Page 41: ”Democrats lied when they denied all links between AlQaida and Iraq.“
Richard Clark (a Democrat, by the way), in In Search of Enemies, states clearly with his rocket strike against the Shifa plant in Khartoum, President Clinton foiled military collaboration between al Qaida and Iraq in the manufacture of chemical weapons.
However that very same Dick Clark explains that that prior incident did not make it likely that cooperation had continued thereafter. 
In the opinion of US intelligence experts (i.e., Dick Clark) military collaboration had taken place in 1998. And furthermore in his opinion and everyone else’s, in the year 2001  that prior episode was completely irrelevant! So it was a good thing we didn't get an earful of the Al-Shifa escapade. It would have been a complete waste of time. 
I've only read a few pages of this book, and it's full of lies!  Demonstrable lies.
It seems my plan for salvation from the dread limbo of socio-progre-liberalism -- that is my bane – will be  more arduous than I thought. Maybe if I join the Aryan Nations …