Could Ms. Coppola please report for economics re-education?

Sigh:

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.

72 comments on “Could Ms. Coppola please report for economics re-education?

  1. A Private investor invests his own money for his own benefit. He is only paid whatever the investment returns.
    A state investor invests somebody else’s money for somebody else’s benefit (we hope). He is paid regardless of results.
    The state investor will be far less diligent.
    And that’s assuming that the returns are to the taxpayer- pork is not unheaard of.

  2. It’s even simpler than that. People are more careful spending their own money than they are spending other people’s money. Especially if other people’s money is gushing infinitely out of a firehose.

    Whether the same contractors are used – which Ms.Coppola seems to think makes a critical difference – is neither here nor there. The risk proposition is entirely different.

    Remember folks, Ms.Coppola represents the “intellectual” end of Twitter – where no one has ever got poorer or more obscure by arguing for a larger state or higher taxes.

  3. The real point is one that is made by Tim very often:
    – the state is very large and can force its decisions onto all of us regardless of whether they are right or wrong
    – the “private sector” is not one organisation but a myriad of organisation. No one of these organisations can force the other organisations or their customers to use their same solution.

    Therefore:
    – in the private sector we get lots of different proposals and solutions that we can compare in terms of effectiveness and appeal (a “market”) and they will compete with each other and learn from each other leading to incremental innnovation
    – in the public sector we get one solution which may or may not be the best one and then we’re stuck with it

    Ergo:
    – the state may not be more “unable to assess risk properly or make rational investment decisions” than a single private organisation …
    – … but since the “private sector” is made up of a myriad of such organisations the combined outcome will be much better for the “private sector”

    BTW: anyone who speaks of the “private sector” or any other large heterogenous group of actors (e.g. the “workers” or the “capitalists”) as a single entity should be disqualified from commenting on economics forever.

  4. Yeah, that’s the theory.

    In reality an executive at a corporation deciding where to invest doesn’t get paid in proportion to how much money the corporation makes. Even bonuses are aligned towards ‘retaining talent’ rather than profit.

    Yeah, he might lose his job if the firm goes bust, but that’s roughly equivalent as an incentive to losing his job if he screws up the management of a public sector organisation.

    The just-so story about private sector incentives relies on a largely imaginary proprietorial system that simply doesn’t exist in 2014.

  5. Emil,

    if you think “the state” is one homogenous organisation you know absolutely nothing about it. It’s every bit as diverse as the private sector.

    In a democracy, state organisations have coercive power only until the next election – whereas large private near-monopolies have coercive power indefinitely if they are selling something regarded (by people and/or politicians) as near-essential. I mentioned management consultancies for a reason – the Big 4 are a fine example of private sector organisations with enormous coercive power.

    I will respond formally in another post to Tim’s point about private sector organisations being driven by profit motives whereas public sector ones being driven by social motives. I don’t agree that profit motives necessarily mean more efficient use of resources than social motives. I think size matters, though: large private sector organisations are far more like large public bureaucracies than they are like small companies living on a knife-edge and trying desperately to make some money. The distinction between “private” and “public” sector is nowhere near as clear-cut as Tim suggests. Really that was the point I was making in the post, but I didn’t develop it enough.

  6. Francis:

    a) agree that public sector is also very diverse but the NHS e.g. still has the power to coerce all hospitals and GPs in the UK to e.g. use a specific system
    b) please note that there is an internal conflict in your statement that “private near-monopolies have coercive power indefinitely if they are selling something regarded (by people and/or politicians) as near-essential”. That is they only remain near-monopolies as long as they continue to provide something that is regarded by someone – as long as the barriers to entry into a market are sufficiently low (which they typically are as long as the government doesn’t get involved) they still need to be on their edge (Microsoft is of course the obvious example for this)

    Also,
    1) please provide a list of private companies that are near-monopolies indefinitely (ideally without government involvement)
    2) as someone working in mgmt consultancy (not in one of the big-4) I can assure you that it is an extremely competitive and diverse sector and that the big-4 have nowhere near near-monopoly of this sector (not to mention that the statement that four organisations have monopoly on the same market is a bit strange…). The big-4 have a very strong position, I guess someone could even make describe it as joint dominance or oligopoly, in accounting and auditing (which are very boring services that have a very limited impact on strategy of companies) and are also strong players in various different mgmt consulting segments (IT implementation, organisation, economic modelling, strategy for specific sectors, etc, etc) but each of those segments are very competitive and the list of players (specialised or diversified) participating in each one of them is very long

  7. “In a democracy, state organisations have coercive power only until the next election ”

    No, the state’s institutions have far longer lifespans than that, even placemen do – think about the fuss when an Ofsted leftie isn’t re-hired. The state actually continues, failure upon failure, overspend after overspend, regardless of democracy. We don’t replace the civil service and the quangocrats every election, though it would be better if we did.

  8. Coppola: Tripe

    Govt has a lot of “functions” because it has stuck its thieving, arrogant and violent nose into almost every aspect of our lives. It usually only has one bunch of clowns charged with meddling in any one area.

    Lets take an example of the state in action: HMRC

    First–this is a non-business that would not exist in a free world–no one would pay voluntarily to be robbed by scum who then use that money to lord it over them and turn society into the prize and worsening mess that it is.
    That to the side,the clowns used to have a system where you could go into or telephone a local office to sort your problems out. Now most parts of the sticks have nowhere to go and the telephone service is staffed by people with little knowledge who are treated like shit and are on timetables to get rid of your call double quick. The internet branch is piss poor as well . To achieve this transition the system has suffered from one moronic scheme after another from the 70’s –when there were to be 5 giant offices for the whole UK and all staff would have had to move to one of them and live next door to their fellow workers(as in Brazilia–some Senior Civil Service dickhead prob had the idea after a junket there)– to Brown’s useless Revenue/Customs merger and subsequent de-merger Border Force farce.

    In short the useless scum of the state have messed up everything and fucked everybody, taxpayers (both as customers of the “service” and the mugs who paid for the nonsense)and employees. The scum of the Senior Civil Service have done very nicely tho’ both in terms of cash, pensions, and “honours” heaped on them by their scummy political “masters”. The entire Senior CS should be sacked instantly without compensation and their pensions confiscated.

    As for your other point about big private companies–well they have grown big not by serving the public but by sucking up to political/bureaucratic scum and receiving both huge amounts of stolen state cash and all manner of legal privilege. This is not a free market society but a corporate socialist one (some might call it fascist but so-called fascism is merely socialist heresy). In the case of HMRC billions have been paid to private companies to produce shite IT systems that, in private industry, would have seen the companies in court the day after they switched them on for the customer. No such problem in HMRC of course because then the boss class would have had to admit what useless bastards they are. “Burning our Money” is the blog to see for details of our lovely state’s history of bungled contracts and waste. The “Simple Shopper” indeed.

    In fairness at least you had the guts to appear here in defence of your leftist lies.

  9. Emil,

    “As someone working in management consultancy…..”

    Of course you defend it. It’s in your interests to do so. But I was specifically talking about the Big 4.

    “As long as the government doesn’t get involved…..”

    The government is ALWAYS involved. Show me a business that doesn’t require government regulation and licensing somewhere in its operation. Go on, show me.

    Patent laws are widely used to create and preserve private sector monopolies. And they have been used in that way for a very long time. For example, Alcoa in the early 20th century was a monopoly. Friedman argued that this was because it was simply a better company, so competitors failed. But an examination of the facts shows that in fact it was protected by US patent law. Patent laws are a way of eliminating imitators and therefore competitors.

    Government has the ability to coerce private sector actors to use the same system, too. Railway companies for example. Bus companies. They can’t start building their own rail tracks and roads. They have to use the ones the government says they can.

    Enforcing use of the same system – or at least common standards – can actually improve both efficiency and customer outcomes. Hence the current debate about whether bank account numbers should be portable. This would, of course, be government enforcing a common system among private sector operators.

    As I said, the boundaries between private and public are very blurred. There isn’t really any such thing as “capitalism red in tooth and claw” in Western democracies. And we don’t much like countries that do have it. Generally they are countries where government has collapsed: Russia after the fall of communism, for example. Do you really want to live like that?

  10. Mr Eck

    I appreciate that this is a blog where free speech is acceptable, but have you not learned that “ad hominem” attacks don’t advance your argument?

    Actually I am not a “lefty”. I am merely pointing out that it is not as simple as “if only the government got out of the way everything would be fine”. That is every bit as illogical as “if only the state took over all private business everything would be fine”. All you have done is display your priors.

  11. Francis:

    a) I’m not defending mgmt consultancy. As with almost every industry, it’s a mixture of good and bad (I tend to see myself and the company I work for doing mainly good work but others might disagree but then we are not forcing anyone to buy our services). I’m merely pointing out that it’s not in any way dominated by the Big4, I note that you are no longer claiming this

    b) So no examples of near-monopolies without government backing?

    c) You are of course factually correct on patents, railways and roads but I can’t for the live of me see what that has to do with efficient investment of the private vs. the public sector. Can you please explain?

    d) The portability of bank account numbers: ok, this might be more efficient for the consumer but enforcing common systems is not an investment decision, the private banks will still need to decide how to invest to get there

    e) “Generally they are countries where government has collapsed: Russia after the fall of communism, for example. Do you really want to live like that?” Ah, the old Nigeria argument again. No, we do not want to live like that but it does not mean that the state is a more efficient investor than “the private sector”.

    [For the record, I would like to live in a country where the state sets and enforces clear and stable rules that protect private property and performs a limited set of functions as efficiently as possible. These could include: justice, defence, policing, funding of education and some emergency health-care, time-limited benefits for people deep in the shit, funding (but not the actual execution or ownership) of things such as garbage collection, street cleaning, some infrastructure (such as roads) and very little else.]

  12. You defend the state–the number one cause of serious problems (that need not exist) in the world today–and you defend its evil and the power by which that evil is enabled. Worse than that you claim that evil is in fact good. You are supporter of and an apologist for thieves and tinpot dictatorial scum. I do not care what your political stance is–you are still on, and acting as a publicist for, the dark side.

  13. Mr Eck,

    Ok, so we aren’t talking about economics or business at all, we are talking the battle between good and evil. Trouble is that your view of “evil” is of course your personal opinion, and I may not agree with you. You are entitled to your opinion, but that is all it is – opinion.

  14. The state is about violence–that is what it does after all the BS and tinsel is stripped away. I think violence and how it is used against ordinary people–to take their money and impose on them circumstances they do not want and would not seek thro’ choice- is a matter of morality–good and evil as you say–that effects every area of life. Economics and business more than most.Your own line:

    “The government is ALWAYS involved. Show me a business that doesn’t require government regulation and licensing somewhere in its operation. Go on, show me.”

    –says it. The violent scum of the state have stuck their nose in everywhere and made a mess out of almost everything. My opinion is that this must stop. The state’s opinion is otherwise. But they have all the thugs and the guns. And lots of apologists such as yourself.

  15. Emil,

    I did not say that the state is a “more efficient” investor than the private sector. I am saying that the distinction between public and private sector is by no means clear, so any assumption that private sector investment is necessarily more efficient than public sector fails on the sheer impossibility of separating them out. My patent argument is to do with the fact that monopolies created as a consequence of patent law and licensing are arguably not really private sector companies at all, since they depend for their competitive advantage on state protection.

    In the bank account argument, are you seriously going to argue that any investment Barclays makes to comply with this requirement would de facto be more efficient than investment made by RBS, simply because Barclays is in the private sector and RBS is currently in the public sector? Really? I think I could make a strong case that all banks are public sector institutions really, because of the extent of regulation and the price effect of implicit public sector guarantees. In which case we have a problem with counterfactuals, don’t we?

  16. Allow me to comment as someone who has grown up in an economy dominated by direct and indirect state ownership and control (Austria until the 1980s).

    If there were a ‘state’ in Plato terms (i. e. objective; above special interests; etc.), I would not say this. However, our democracies stipulate a ‘state’ which is run by parties which parties, naturally, defend their own interests. And party interests rarely have anything to do with sound economics and/or business principles. I emigrated from Austria at age 18 because I was fed up with a country which was pervaded from top to bottom by politics.

    Theoretically, it could work differently but this hardly ever happens. I had the opportunity to observe one situation where it did happen, Chile in the late 1970s/early 1980s. There, the ‘state’ was not political parties (because Pinochet did not like opposition…) but the economic management was in the hands of the Chicago-Boys and those Chicago-Boys ran all state enterprises the same way as private equity investors would do it today. That, however, was clearly a very unique situation.

  17. Does public choice theory apply to large companies where (as Jon points out) managers are spending other people’s money just as much as bureaucrats?

    Tim adds: We generally call it the agent/principal problem in this case but it’s very clearly related, yes.

  18. You truly must be joking.

    What the hell is the state going to do about a burglary?.
    If I was out I’d get to talk to some bored bluebottle to get a crime number.
    If I was in and kicked the shit out of said burglar(and I am ready for any such) what I’d get is arrested by the costumed thugs for daring to defend myself and my family/home.

    PS–If you so keen on the Police as a govt “service” I recommend you to this blog
    http://freedominourtime.blogspot.co.uk/
    It is American and not 100% applicable to the UK yet but it should serve as an education in the type of “protection” offered by modern western bluebottles.

  19. @Frances

    I am rarely qualified to comment here, but on this occasion will as I am in the process of creating my own management company. Apart from the need to pay the government tax, and an obligation to keep myself safe if I decide to become an employee as well as an owner, the government currently has no licensing or regulatory impact on me.

    As Emil said, management consultancy is by no means dominated by the big companies. My research shows management consultancy world-wide is turning over more than £300billion a year, and the top 4 are less than 10% of that. The top 4 stay where they are for 2 big reasons: 1) No-one ever gets fired for hiring them; 2) They have the scale to buy up medium size companies that have found niche positions that they want to expand into. (The second reason is often the strategic outcome most sought after by said medium size companies)

    So whilst not disagreeing that government is always involved, there are some places where the involvement is minimal and a free market with minimal regulation is possible. Hard to regulate ideas really, though I do know many would like to be able to do so.

  20. What she is saying is that state investment is, or can be when successful, run on the same terms as entrepreneurial. While experience says otherwise, this is an admission that, at best, government spending will not be more efficient than entrepreneurial.

  21. @ Frances Coppola

    I appreciate that this is a blog where free speech is acceptable

    Of course your comment was tongue in cheek (in the particular context), but it might easily be misinterpreted…

  22. The problem here, such as it is a problem, is that those “social motives” that define the objectives of state investment are ill-defined. For sure, we can look at the NHS and describe its objective as improving the health of the population, we can even quantify that objective (increased life expectancy, for example) but there is no incentive to see that objective as paramount. The result is mission creep.

    Bradford University has spent an enormous amount of money on becoming the ‘greenest’ university in the UK. The work is interesting, creative and innovative. And has not contributed one iota to the objective of the university (which I assume is providing a first class education).

    Within the public sector decisions are compromised by this mission creep – be it environmental, ‘equalities’ or some other ‘social purpose’ that really has nothing at all to do with the real purpose of the institution. The classic examples is jobs – I was castigated at one meeting for saying that if we could run Bradford Council’s services without needing to employ a single person then, ceteris paribus, this would be a good thing – for the service and for the taxpayers who fund the service.

    I recall the then Labour Leader of Kirklees Council setting out why the ‘public sector’ soiuld, in effect, be used as an employment sump.

    This is why the public sector is not as good at stuff. Not bureaucracy.

  23. Frances:

    “In the bank account argument, are you seriously going to argue that any investment Barclays makes to comply with this requirement would de facto be more efficient than investment made by RBS, simply because Barclays is in the private sector and RBS is currently in the public sector? ”

    Err no, you didn’t read what I said. If you compare one private and one public organisation then the public one could make a better investment decision but there are more private organisations than there are public ones (as only public ones really have a monopoly) so there is more experimentation in the “private sector” which is what leads us to finding the best solutions (not planning). Furthermore, private organisations are rewarded for good decisions and punished for bad ones whereas public organisations are rewarded for bad decisions as their budget for next year is based on how much they spent this year and not on whether anyone wants what they produce.

  24. @ Frances Coppola

    “The government is ALWAYS involved. Show me a business that doesn’t require government regulation and licensing somewhere in its operation. Go on, show me.”

    Pretty much what RobW inferred re regulation. Clients decide with their wallets. Generally most dislike regulation as much as the next person – except for example where they might see it as raising barriers to entry and stifling competition.

    btw.. re large suppliers – don’t forget the increasing impact of PSLs (and particularly in the public sector) which simply pushes smaller suppliers out of the supply chain.

  25. Frances argues that the distinction between public and private sector is by no means clear and it’s hard not to agree with her that large private sector companies – like state-run operations – are not very fleet of foot.

    That said, private sector companies of whatever size tend to be sensitive to costs in a way that public sector operations are not. Consider for a moment the inveterate and chronic shambles that is government procurement in areas like defence or IT.

    No manager at, say, Barclaycard could squander £100m on a project in the way that the BBC has where, moreover, the absence of even deputy heads rolling is a wondrous thing to behold.

    The knack of yoking lessons being learned together with nobody being blameworthy seems to me a uniquely public sector phenomenon.

  26. Oh and by the way, speaking as someone who is involved in project with both public and private sector organisation, I would strongly contest Frances’ original claim that the bureaucracy in large private organisations is similar to that in the “public sector”. It’s just not compliant with my experience and the Obamacare debacle should have made all of this very clear to those who believe otherwise

  27. “if you think “the state” is one homogenous organisation you know absolutely nothing about it. It’s every bit as diverse as the private sector. 2
    Sorry Ms Coppola. You really can’t have that. The criterion most public spending is judged by is:
    “My party will spend more on x than the other party.”
    “His party have cut spending on y.”
    If you give a public sector organisation a budget, it will spend it. And demand more. They even have a principle.
    Always spend this years budget in full or you might be cut next year.
    And what Simon Cooke says.
    No doubt there’s corners of the private sector behave this way. But not for long.

  28. The Meissen Bison

    Good god, have you ever WORKED for a large bank? The most waste I’ve ever seen in my life was in the finance departments of, respectively, Midland/HSBC and NatWest/RBS. They could throw good money after bad better than any public servant. And no-one EVER got canned for it.

    How on earth do you think banks are managing to cut costs so dramatically as they are at the moment? Could it be because they were WASTING huge amounts, employing people they didn’t need to do things that were neither beneficial to customers nor profitable for the owners – but helped middle managers build huge internal empires?

    Since Tim is talking about incentives, it is worth remembering that in many remuneration schemes people are rewarded according to the size of the team they manage. There is a clear incentive for managers to create work in order to increase the size of their teams and therefore justify promotion (and pay rises).

    I’m not saying that the public sector can’t be extremely inefficient and make very poor investment decisions. The NHS IT disaster speaks volumes. But so can large private sector organisations.

  29. Those who say that large private sector organisations are more careful with costs than public sector organisations “because it is their own money” are talking nonsense. It isn’t their own money, it’s their shareholders’ money. And managers can be pretty good at pulling the wool over shareholders’ eyes. It’s a classic principal/agent problem.

  30. Frances Coppola: Good god, have you ever WORKED for a large bank?

    Yes. Have you ever bought an aircraft carrier?

    FC: The NHS IT disaster speaks volumes.

    12bn volumes and continues unreformed and unscathed.

  31. Frances-

    Good god, have you ever WORKED for a large bank? Etc…

    But then as us crazy free market extremist Austrian Schoolers are constantly pointing out, they aren’t private sector organisations. Here’s the clue: Mark Carney.

  32. SImon,

    Yes, I agree that treating the public sector as a dumping ground for unneeded labour is inherently inefficient. But aren’t you implicitly assuming that public sector organisations always have a socialist bias?

    I do agree about “scope creep”. But how about private sector organisations who support charitable foundations that are nothing to do with their primary business? Scope creep can apply anywhere, and profit-making organisations aren’t necessarily entirely motivated by profit.

  33. Ian B,

    Indeed, I could make a case that banks are not private sector organisations. But the Bison used Barclays as an example, so I responded accordingly.

    I think I could argue that pretty much ALL very large “private sector” organisations actually depend to a considerable extent on government support and protection.

  34. Bloke in spain

    Have you ever participated in a budgetary cycle in a large private sector organisation? Guess what, if you don’t spend your budget, it gets cut – so you spend it. Exactly the same as in a public sector organisation.

  35. RobW,

    I refer you to my comment about large private and public sector organisations being much more like each other than like small players in either sector. You are a one-man-band – as am I, actually. The burden of regulation undoubtedly is much less on you, as it is on me in my writing. But just try employing someone, and see what happens to your regulation. Or try working in a field where there IS regulation, as I do – my teaching is bound by child protection legislation, and I am obliged to hold public liability insurance. Regulation is everywhere and affects nearly everything.

  36. @ Frances Coppola
    “every bit as diverse as the private sector”
    Hyperbole to the point where I object
    There are 4.9m private sector businesses compared to a total of 5.6m people employed in the public sector (over 3m of the former are sole traders) and 1.2 million employ people other than the owners/partners).
    “the State uses the same management consultancies to advise it on investment projects as the private sector does,”
    “Bureaucratic inefficiency is certainly not a public sector specialism.” Actually it is: I think that you mean it is not restricted the public sector, in which case I should agree.
    Most firms do *not* use management consultancies to advise them on investment projects because most firms know more about their business than management.
    consultants.
    “state organisations have coercive power only until the next election” No, no, no – politicians have coercive power until the next election – most state organisations have coercive power *indefinitely* and the Victorian reform of the civil service protected UK civil servants from being dismissed on political grounds (unlike the USA where the dismal state of the postal service is due to political appointments at quite a low level changing every time power switches in Washington). It is actually just as well that we don’t have the US system as there are not enough Conservatives who want to work in the public sector to staff it (18.8% of the workforce would be well over 40% of Conservatives below pension age)..

  37. “Have you ever participated in a budgetary cycle in a large private sector organisation? Guess what, if you don’t spend your budget, it gets cut – so you spend it. Exactly the same as in a public sector organisation.”
    Most private sector organisations are small and that did not apply when I worked in a relatively large one.

  38. I think it has to be said that Frances has a point, at least to some degree. That point being as I see it that, particularly since the 1980s, there has been a great unification of the class of people who manage the “private”, “public” and “3rd” sectors and their methodologies, which has rendered old stereotypes of the rugged individualist capitalist and the Stalinist bureaucrat at his desk (and indeed the noble, selfless social crusader) basically obsolete.

    I am myself sceptical that there was ever as great a distinction between these groups as we like to believe, but nowadays there is very little. “Management” has been overtly skimmed off as a distinct skill, independent of the particulars of that which is being managed, and thus we see the same “management” occurring in all 3 sectors. That is, if you choose to believe that there even are 3 distinguishable sectors, rather than just a big homogenous spodge of corporatocracy, or whatever you want to call it.

  39. FC: But the Bison used Barclays as an example

    To be fair, I used Barclaycard as an example of a large IT intensive business where a £100m IT blunder would be pretty unthinkable. I sought to contrast this with the BBC and the catastrophic Digital Media Initiative, now abandoned, for which nobody is taking responsibility.

  40. john77

    I was, of course, comparing like with like – large private sector organisations with large public sector organisations. If you compare small organisations with large organisations you find substantial differences regardless of the sector. “Budgetary cycles” are a feature of large bureaucracies in both the public and private sectors, but I’d guess they are largely absent from smaller organisations.

  41. Meissen Bison,

    There is never an excuse for bad project management. Unfortunately it is all too prevalent in both the public and private sectors. Public sector projects tend to be extremely large, so when they go wrong they lose a spectacular amount of money, and we are also far more likely to hear about them precisely because they are in the public sector. We don’t hear about spectacular failures in the private sector, but that doesn’t mean they don’t exist. They definitely do, and I speak from bitter experience. The private sector is just as capable of fouling up projects as the public sector.

    Personally I am no fan of vast projects – they always cost far more than planned and never do what is really needed.

  42. john77

    1) Number of people employed is not a measure of diversity

    2) The public sector also uses a vast number of people, businesses and not-for-profit organisations that don’t count as “public sector” but are working with or for it. I am one of them, actually.

  43. IanB: Correct–these turds migrate from one pan to the next with ease–but that does not make any of them efficient. State patronised “businesses” may be nearly as useless as the state itself (the dead-loss IT companies that have cost the taxpayer the best part of 20 odd billion in the last 2 decades spring to mind) but Francis Coppola is not criticising any of them: indeed, the nature of the scam eludes her. She thinks to compare the state favourably with its poisonous offspring.
    These 3″sectors”are not a tripod–the other two would vanish like ghosts at dawn were not our taxes on hand to keep the show on the road.

  44. “There is never an excuse for bad project management. Unfortunately it is all too prevalent in both the public and private sectors. Public sector projects tend to be extremely large, so when they go wrong they lose a spectacular amount of money, and we are also far more likely to hear about them precisely because they are in the public sector.”

    But that’s just the point. The public organisations very often choose to do large projects which is one of the reasons they mess them up. That is a reason why the public sector is bad at investments, not an excuse

    “We don’t hear about spectacular failures in the private sector, but that doesn’t mean they don’t exist. They definitely do, and I speak from bitter experience. The private sector is just as capable of fouling up projects as the public sector.”

    Ah yes, but that is not the entire point. The point is that when the public organisations foul up they persist, private organisations to a larger extent, find another way or go bust (which again is back to my point from before, that we, on aggregate, get experiementation from the private sector and planning in the public sector.)

  45. Generally they are countries where government has collapsed: Russia after the fall of communism, for example.

    That wasn’t capitalism, that was outright thuggery.

  46. Frances is correct in saying that the behaviour of large private companies is little different from that of the public sector: my experience of oil companies has shown me that. In fact, private companies can often act like the governments of banana republics, let alone functioning liberal democracies.

    And the private sector can balls up projects spectacularly, and little changes afterwards. In my industry it’s pretty much the norm nowadays.

  47. When I can withdraw my custom from the public sector in favour of an alternative in the same way I can withdraw my custom from any private sector supplier of goods or services, or indeed when I can withdraw my investment (in the form of taxes paid) from the State in the same way I can divest myself of Tesco shares if I think the management thereof are on the rob, then I’ll accept there is little to choose between the public and private sector.

    While the State extracts money from me under duress, and I have no say in how that money is spent, and can in no way prevent it being spent in manners of which I disapprove, the Public sector can go p*ss up a rope.

  48. Frances Coppola,

    I mentioned management consultancies for a reason – the Big 4 are a fine example of private sector organisations with enormous coercive power.

    There’s lots of companies (including both very large and small) out there that don’t use them, so what coercive power do you think that they have?

  49. @ Frances Coppola
    “1) Number of people employed is not a measure of diversity” Quite – so *I did not use* the number of people employed. I mentioned the number of *separate* businesses.
    The 4.4 million UK self-employed are far, far more diverse than the aggregate of the public sectors of Britain France and Germany combined.
    “2) The public sector also uses a vast number of people, businesses and not-for-profit organisations that don’t count as “public sector” but are working with or for it. I am one of them, actually.”
    Yes, we’ve noticed.
    ““Budgetary cycles” are a feature of large bureaucracies in both the public and private sectors, but I’d guess they are largely absent from smaller organisations.”
    Budgetary cycles apply in public sector organisations significantly smaller than the private sector one for which I used to work. But my point was that our departmental budget was based on what we needed to spend, *not* on what we had spent the previous year.

  50. @ Tim Newman
    The ability of private sector managers to screw it up depends on the amount of capital that they have inherited from competent predecessors. Allegedly 15% of high street shops are vacant or occupied by charity shops but there are very few schools or hospitals closed and empty.

  51. @ Frances Coppola
    “But just try employing someone, and see what happens to your regulation.”
    Yes: I should have to keep the documents showing that I had employer’s liability insurance for forty years after I ceased employing anyone so I could not be cremated. Are you trying to defend civil service bureaucracy or condemn it? That was one of the most obviously ludicrous pieces of regulation that it has been my misfortune to be threatened by: no way am I ever going to employ someone again.

  52. @ Frances

    I do not disagree that government regulation is everywhere and touches everything, but I was pointing out there are degrees of it and if you are inventive you can be lightly touched by it. I do see you were much more explicit about ‘the big 4’ in a further comment, but I was also pointing out the work is not done in the main by them.

    I will not be engaging employees exactly because of said regulations, as there are many alternatives to getting work done by using independent contractors. My point really was that it is not necessarily a choice between either big ‘private’ enterprises or the state and I do accept that it is difficult to draw the line between them. Just that management consultancy as a whole, rather than ‘the big 4’, is much more of a free market and subject to little regulation, which was one of the challenges you made in your comments.

  53. Tim,
    The main similarity between the oil business and govt is a seemingly unending revenue stream. Why even worry about efficiency if your rolling in the dough anyway. This is the reason most private companies are inefficient.

    Certainly is the case for my current employer, a Cable company in North America with an effective monopoly – rolling in the cash and extremely inneficient. Along comes Netflix et al, the telco starts offering TV and suddenly, the monopoly isn’t there and the cash ain’t rolling in. Guess what, we just had a significant review of projects and a lot have been cut as they would never have made/saved a single cent.

    Revenue certainty is the major cause of inneficient management, from a personal level all the way to government.

  54. John77

    “Yes, we’ve noticed”.

    No, you haven’t. You don’t know what I do, and you don’t know on what basis I do it. I am registered self-employed and have been for many years. So I am one of the 4.4m small businesses that you think are part of the private sector. But more than half of my work is actually in the public sector. That is not a deliberate choice, it is simply that that is where the work is. The fact is that measuring “employment” in the public sector tells you absolutely nothing about the actual size or scale of public sector activity, since much of its work is delivered by PRIVATE sector actors. You don’t seem to understand how close the relationship between the public and private sectors is. The overlap is immense – and growing.

  55. @ Frances Coppola
    I was referring to your irrational enthusiasm for the public sector.
    “In a past life I worked for banks…now I write about them, and about finance and economics generally. I’m an alumnus of Cass Business School, where I did an MBA with a specialism in finance and risk management. I spent 17 years working for various banks, from large to small, retail and investment banks, and even a charity (yes, there is a charity that is a bank!). I’m a singer and musician as well, and left banking 10 years ago to concentrate on singing and teaching. But in the last couple of years I’ve found myself talking and, now, writing about the industry I thought I had left behind”
    I am only too aware how close the relationship between the public and *pseudo-private* sector is since the poor quality of the outsourced services is one of my wife chief bugbears.
    However my personal experience dealing with public sector workers, pseudo-private contractors who only work for the public sector and private sector workers who only occasionally work for the public sector does little to change my views

  56. John77

    “Pseudo-private sector”…..if by that you mean those parts of the public sector that have been outsourced to the private sector, so they are off the books but still doing the same work – no, I’m not part of that. You really haven’t a bloody clue.

    My “irrational enthusiasm for the public sector”? All I have done is point out that the distinction between the public and private sectors is by no means clear, so being asked to believe that investment is somehow innately better just because it is done by something that calls itself the “private sector” but is otherwise indistinguishable from a public sector bureaucracy is absurd.

  57. Steve,

    Wholly agree with you about the effects of a seemingly endless supply of money – whether in the public sector or the private sector.

    Indeed, those who insist that the public sector is inherently wasteful and inefficient are providing a useful public service, since their attitude provides the discipline to the public sector that might otherwise be missing due to the lack of a competitive market.

  58. I think I could argue that pretty much ALL very large “private sector” organisations actually depend to a considerable extent on government support and protection.

    That’s the problem. Once embedded we can’t get rid of them like we could with, say, a Woolworth, by not shopping there.

    Well done Frances for engaging so wholeheartedly.

  59. @ Frances Coppola
    I certainly did *not* imply that you were part of the “pseudo-private* sector and I trust no-one misinferred that from my post

  60. “Oh, and I can show you a closed and empty school. ”
    No picture on that wiki page but the link tells us that
    “Strood Academy was formed in September 2010 from the merger of Chapter School and Temple School, and today the school is located on the former site of Chapter School. However the school moved into new buildings on the site in September 2012, which were designed in partnership with Nicholas Hare Architects and built by BAM as the main contractor at a cost of £26 million. [2]”
    The school was not summarily closed: it was merged with another and the LEA spent £26m on new buildings for a failed school. Not quite the risk-reward ratio for little shops on my local High Street.

  61. The main similarity between the oil business and govt is a seemingly unending revenue stream. Why even worry about efficiency if your rolling in the dough anyway. This is the reason most private companies are inefficient.

    Exactly.

  62. Looks like Ms Coppola did just as the heading instructed..

    I do hope those of you who benefited have the manners and good grace to thank her… and also thanks to our host for inviting her 😀

  63. John77

    No, the school was closed, and the site now has an empty and boarded-up school building. But boys in Strood still had to be educated, so they were transferred to a neighbouring girls’ school which was delivering much better results. I’d say this was an excellent example of a competitive market in the public sector delivering good outcomes for its customers, wouldn’t you?

  64. Pingback: Incentive matter in resource allocation | Credit Writedowns

  65. Pingback: Incentives matter in resource allocation | Credit Writedowns

  66. Pingback: ノア・スミス「削減すれば政府は効率的になるか?」 — 経済学101

Leave a Reply

Name and email are required. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.