Sunday, 4 December 2011

The Market and the Ballot: (1)

Over the last thirty years or so, in Britain and many other countries, the areas of life controlled by market processes have expanded at the expense of those controlled by government. In many cases, of course, the governments were not democratic - East European Communist regimes or African or Latin American military dictatorships, and the replacement of these regimes has been accompanied by marketisation of many areas of life, especially in Eastern Europe.

I want to concentrate on the existing democracies and to point out some of the dangers and losses along with the undoubted benefits of the triumph of the market.

Anyone who saw the old Soviet regime with open eyes, for example, would know how an absence of market mechanisms can distort and deaden so many areas of life. The shops do not stock what people want and they have no great incentive to attract customers or to sell. The customer does not matter - only what the state says the customer should want. Even in mixed-economy, democratic Finland in the 1970s the effects of the combination of a state monopoly on the sale of alcohol with planning policies that deliberately held down the number of bars and other alcohol consumption outlets below demand, were to disadvantage small producers, reduce choice and the quality of advice and leave bars with so much demand that they could afford to offer a bad service and be rude to customers because they would still make a profit.

The market is very good at reflecting customer choice where customers or families can make individual choices and where they are well-enough-informed to do so. This has been extended into some areas of public service, for example the "personalisation" of social care in the UK. In principle, people who need help such as frail old people, instead of being offered types of help they may not want, get a budget and can spend it as they like. There are risks, particularly with vulnerable people lacking good advice, but basically this is a liberal and empowering measure. Even where services are hard to break down to an individual choice - it would be impossibly inefficient for each household to make a free choice of their refuse collector - an element of competition can be healthy, with local authority providers competing with the private sector, social enterprises and one another. The benefit here is not an extension of personal choice, but a likelihood of better value for money.

In some areas, though, the market does not work well. Consumers may not be well-informed enough to make a good choice. For example, energy provision in the UK is theoretically a free market with competing providers, but the deals are so complicated and so often look good but on exhaustive study are bad, and the companies make it so hard to swap, that there is virtually no real competition and the vast majority of people are on deals substantially worse than they could get. This may well be through collusion, and in theory at least, action by a regulator could force changes which made the competition real. But the point is worth noting - that an unregulated market does not necessarily work for the best for consumers. This may be because take-overs and aggressive business tactics result in monopoly, which the state can and often does ban. But monopoly does not necessarily mean providers understand less about customer desires than in a competitive market. Let's compare rail travel or policing with credit cards or car insurance.

Policing is a state monopoly (though I could see that changing, with state-given powers for private security forces). The police do not suffer economic pain through loss of customers if their performance is poor or their actions unpopular. But people who are dissatisfied often complain - to the police, to the media, to their elected representatives. As the police know they need the support of the community to be effective, such pressures have an impact. and the police generally know lots about what people want of them. Some rail travellers have choice if a car journey would be a credible alternative, or a flight, or a bus journey: but in the UK, many commuters have no real choice. The car journey is too stressful, too comparatively unsafe, too difficult when it comes to parking, to be attractive, the buses are too slow and the airports too far from home or place of work. So people who feel aggrieved by changes in the timetable or by cancelled services complain or even campaign. Consequently, if the rail companies don't know what people want, it's a deliberate act.

By contrast, what do you do if you find a better deal on your car insurance (a genuinely competitive market), or you're unhappy about some inefficiency at your credit card provider? You switch. There is no point in telling the company you're leaving what turned you off. You just switch. Companies may try to test customer preference through surveys, but very few people respond, and the findings are unlikely to reveal, for example, that while a change in a  service is popular with 65% of customers, 20% disliked it enough to leave - so the company will be reassured and will not consider offering two options to satisfy both groups.

Where services are provided on by local authorities, there is another thing you can do. Your experience of the service can influence your vote. Many other things influence voting behaviour, of course, but it's a safe bet that a new administration that makes services better stands a better chance of re-election than one that doesn't.

Markets also famously think short. Depletion of non-renewable resources, for example, does not have much impact on the markets until the crunch is very near. Where confidence is the issue, as with loans, ridiculously excessive confidence can drive towards a sudden collapse as in 1929 and 2008 - and then lack of confidence can be just as illogical. Markets also think narrow. If a company can save modest amounts of money by making 30% of its staff redundant, and the consequent loss of money through lost business is less than the gain through reducing the wage and energy bills, it will almost certainly make the change. The state, and through it, all taxpayers, pick up the bill in increased benefits take-up, health problems and so on. It is possible for government to disincentivise such choices, but business will use its influence effectively.

When I return to this, I'll look at situations where collective democratic choice implemented by bureaucracies is directly in competition with an atomised market approach and at how marketisation sits with the cocept of community.

Was that heavy? OK - to my post on the winter ale festival, I add high praise of Shalford's Levelly Black and Allgates' Caskablanca.

And I leave you with another learned presentation on words. Cats are kept in a cattery; bats in a battery; apes in an apiary; nurses in a nursery; and alligators in an allegory.

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