Governments determined to combine worst of all worlds

Posted by – January 23, 2009

Bill Clinton and Tony Blair used to talk about a “Third Way”, meaning the combination of efficient markets with some wealth and opportunity redistribution. You don’t have to like it, but as a guideline for a capitalist economy it was probably better than most of what had gone before. Now Finland’s prime minister is evoking the Third Way as a total opposite: spending untold billions in projects for his rural constituency that are essentially guaranteed to be inefficient.

Economics stupidity is pretty much a requirement in politicians; without it they seem dispassionate, cold and, well, apolitical. If someone suggests that a change would be beneficial whether you’re a socialist or a free marketeer, nobody believes him. Thus in this country, for instance, the state-owned rail monopoly does its best to negate the benefits of rail transport with its pricing structure.

State monopolies are expected to service both profitable and unprofitable connections, and to do this they typically choose to make large profits on the profitable connections to pay for the unprofitable ones. In theory it sounds workable, but in practice it means that the whole point of rail travel disappears; mass transit is supposed to be cheap, whereas now it’s cheaper for two people to pay for petrol and drive to, say, Tampere from Helsinki. If train tickets were priced at running costs (or to some realistic traffic capacity) and the unprofitable connections were directly subsidised (rail maintenance gets subsidised already, by the way), the whole venture would make a lot more sense with a large increase in system usage and potentially even the profitability of the profitable lines.

Private rail systems have been discovered to be able to have even worse problems, but this is one thing they do get right. If you’re not considering what people want when you’re pricing and designing the system, you’re doing it wrong. For the state to get a hard-on for building “mining infrastructure” and motorways wherever the most electorally profitable place is doing it wrong. Buying up billions of pounds of failing investment banks or billions of dollars of failing car manufacturers is doing it very wrong. It’s combining the inequities and inequalities of capitalism with the idiot cronyism and inefficiencies of 20th century socialism. Why take only the downside of the market?

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