Ritchie has just proved that markets cannot work:
This is an argument I have made here, often.
Markets can only work when there is choice. By definition that means there needs to be excess capacity. Unless there are vacant spaces in all schools there is no choice. But excess spaces are wasteful in terms of productivity. We can’t afford that waste.
There is no reason at all for this logic not to apply to all things. Markets require choice, choice requires surplus capacity, surplus capacity is wasteful and thus we shouldn\’t have markets in anything.
There\’s nothing special or specific about schools or education in this logic chain you might note.
Yet we do know that markets are, at times, more efficient than not markets. Thus we know that, at least at certain times and places, this logic chain is not in fact correct. So what is the fault in it?
It\’s in that word \”productivity\”. In an entirely static society, one static in terms of the technology of production and one static in the desires of the consumers, one where productivity itself is static, then the waste of resources by the creation of spare capacity can indeed be something which makes us worse off.
But is society static? Are either the technologies of production or the desires of consumers static? No, most certainly not.
Which is where markets do start to show their value. For what a market does is allow producers to vary their technology of production and also their items produced. And consumers can also pick and choose not only among these varieties but can also express their own changing desires.
We still have this \”waste\” of spare capacity of course: but we also have that continual increase in productivity as solutions to desires get ever better.
Just as an example. I\’ve heard it said that Gorbachov gave a speech in the late 80s, just as he gained power. In which he said that productivity per head had not increased in the Soviet Union since 1913. Yes, there were more people, there was greater capital accumulation and there was more resource extraction. But the actual efficiency with which those things were used had not changed over all of those years.
That\’s why the place was shit poor of course.
For over the same time period productivity in the market economies had been rising by 1-2 % a year, year after year. 70 years of cumulative 1% improvements is, given the joys of compounding, a 100% improvement. 2% over the same period is 300% (ie, at the end of the period production from the same resources is 200% or 400% of starting production from those same resources.).
That\’s one of the things about markets. They are discovery mechanisms as to what is the better way of doing things. And over time, the discoveries of what are those better ways completely swamp any of the inefficiencies of having surplus capacity in which markets can work.
Bonus point: you\’ll have noted those various attempts at measuring the increase in productivity in the provision of public services? You know, the NHS stuff and so on. Recall the fact that productivity hasn\’t in fact been increasing, rather regressing? At the same time that private industry was increasing productivity by some 25% or so over 15 years?
Quite, that\’s markets for you…..even though they do have spare capacity.