Wednesday, 6 April 2011

Are you a market fetishist?

In these atomised days, about the only certainty that you will find is a political consensus that the "market" is in some way an end in itself.  There's something faintly creepy about the market apologists who resemble the fundamentalist evangelicals in their fervour that every transaction should be open to competition and preferably regulated by a team of self-appointed technical experts who are there, in fact, because their religious system is founded upon fallacy.

Reading Robert Skidelsky's excellent Keynes: the return of the master was an extremely helpful reminder as to why, precisely, economists have become quite so out of touch with the world.  Their constructions in the form of a supremely rational economic man, operating with perfect information in all dimensions, past, present and future, and with full awareness of the impact that their choices have upon the wider world would be risible were it not so dangerous.  Nowadays there remains a trend to elevate econmetricians as their mathematical posturing (with uncanny resemblances to the financial instruments that have brought us into a Great Depression), and to sneer at any economist who attempts to use the discipline to promote wider public good.

Labour were far worse than the Tories in their ability to swallow this whole, and to invent and promote marketisation across the board.  The amount of money thrown at health and education since 1997 has largely been diluted by the attempts to mimic a free-market world within services that are, by their very nature, most efficiently provided as a public utility through general taxation.  More and more complex theories are developed and implemented as each attempt to impose markets results in layer upon layer of pseudo-commercial transactions, and at every stage each party takes a healthy percentage profit margin to satisfy shareholders - usually investment banks and fund managers in thrall to the same false gods. 

Hardly surprising, therefore, that the public service bill goes up while quality at best flatlines - if every stage of health care, or transport, or defence procurement, or prisons, or indeed any of the myriad of government activities, has a contract and a profit attached to it.  The Tories believed that the private sector would open up efficiency gains in nationalised industries - the only unalloyed success has been telecommunications where the technology moved beyond the state monopoly that other utilities required. 

This isn't a rant about the private sector, but the misapplication of basic economic theory. 

Take a simple example: the Underground in London.  When Gordon Brown's idiotic Public-Private Partnership went through the Northern Line, for example, was operated by London Underground Ltd, using trains owned and maintained by Alstom, and over tracks and through stations operated and maintained by Tube Lines.  Tube Lines itself was a consortium of civil engineers, consultants and others - with its own internal trading.  So instead of "command and control" where LUL could manage on a day-to-day basis and take decisions that affected its running of the service, it had contracts and limited ability to vary them - and each contract was designed to provide a healthy profit - more or less guaranteed as if the private sector fouled up it could still gouge LUL for more money.

Added to the heady mix of illogicality was the fact that the Tube was crumbling away, and so each party needed firstly to be indeminified against catastrophic risk - and also priced into its margins its own view as to how much more it could get away with.  So the risk still lay with the public, but the private sector was still taking a cut anyway.  Hardly logical, the total cost and flexibility to respond to emerging situations would have been (and now is) much less in a classic public-sector model.

The real problem is the continued "something for nothing" mentality that we're peddled day-in, day-out.  Low taxes mean sleight of hand, as declining public services are not part of the narrative.  Unfortunately, as many individuals are now discovering, this means that once the credit card is cut off, then the world looks a much less friendly place. 

There is a case for high taxes, but only with good public services.  Britain can't work out whether it wants a European model or the American one, and pretends it can be low-tax, high-quality and marketised. 

Outsourcing, privatisation and "partnerships" are all weasel words for pseudo-markets, presided over by regulators and other bodies whose interests are several stages removed from the public. It's much harder to find a third-party, outsourced contractor that can be held to account than a national or local service governed by elected politcians.  That's one reason the politicians like it - not just because the parasites then offer them places on the board!  But leaking tax revenue into the private sector through unnecessary layers of transactions requires so much faith in untenable economic theories it's hardly surprising it continues, as the economists baffle the generalists with jargon and theory.  Common sense doesn't have a hope.

When the Coalition came to power, I had some optimism that the Whitehall mania for unproven waffle might wind back - but no such luck.  The Tories are probably too much in hock to the consultancy firms and the neo-con policy wonks - and it's too much to expect the Lib Dems to construct a principled opposition despite the best efforts of Dr Vince.

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