It is often stated that the State is unable to assess risk properly or make rational investment decisions, and that therefore any investments the State makes are likely to be inefficient relative to private sector investments. Frankly I think this is questionable: after all, the State uses the same management consultancies to advise it on investment projects as the private sector does, engages the same contractors as the private sector uses and recruits people from the private sector. Admittedly, bureaucracy can have a deadening effect, but the same is true of large organisations in the private sector. Bureaucratic inefficiency is certainly not a public sector specialism.
Rule number one in economics: incentives matter.
And politicians and bureaucracies face different incentives than profit mad capitalist bastards.
Thus decisions will be different and so will outcomes.
To take just one obvious example. We can all see various politicians insisting that their plans will “create jobs”. Whether it’s the insulating of every house in the country with the aid of a lentil knitten yurt or the building of a fast railway through areas of great natural beauty. All of these plans are touted as being good because they will create hundreds of thousands of jobs. Well paid jobs at that.
I, profit mad capitalist bastard that I am, know that jobs are in fact a cost of whatever it is that we’re going to try and do. Thus we try to minimise the number of people that we employ to do anything: the aim is not to maximise jobs but to minimise the amount of human labour that has to go into the production of anything at all.
Further, we’d all prefer whatever labour used to be low paid labour, not well paid, for this again minimises the cost of whatever it is that we’re doing.
As at the top: politicians and bureaucracies face different incentives than the profit mad capitalist bastards and incentives matter. Therefore decisions and outcomes will be different dependent upon who you get to do whatever it is.