Tough Choices, a series…Part One: One Way to Go

Foreword: Tough Choices is a deliberately well-researched and argued series of articles on a variety of issues. Its name derives from Gordon Brown’s oft-used assertion that “tough choices” have to be made in the current climate. The crux, then, is arguing what tough choices should be made. Here, I give my suggestions from a reforming, classically liberal perspective- no doubt different to what will happen in many countries around the world.

Part One:

One Way to Go

“I thought I’d woken up in France”. Those were the words of one Republican Senator about the conservatorship of Fannie Mae and Freddie Mac, two US-government created and sponsored mortgage companies. The seemingly unthinkable is happening- citizens in modernising free-marketeering countries are associating privatisation with greed and nationalisation with accountability and sound business. Then again, who could blame the average man who, seeing the massive failure of the gigantic financial industry, equates that failure with the previously record profits with an almost anti-clerical, corrupt, greed?

There are extremely few people who want to see us return to coal boards, completely national rail, nationalised utilities and Royally chartered and Government-owned publishers. Instead, there is an increasing call for a much more mixed economy- an almost Leibniz-esque rationale: that we must have the best of all possible worlds. But Leibniz was contemplating the Problem of evil- i.e., how evil and suffering can exist in a God-created world. However, this came with the proviso that God had given us freedom and liberty, and that is why evil existed. Nowhere did it suggest that evil exists or is curtailed because God intervenes in the universe, it simply came with the proviso that God chose the world we live in out of all the possibilities, and this is the best one. So too does the idea of a mixed economy depend on the idea that Government has chosen out of all the best possibilities. But not only is this fatalistic, philosophical nonsense, it is also economically and historically nonsense.

Take the example of the rail industry. The very reason it was nationalised and taken over was because of the Second World War- the infrastructure needed to be directed nationally for the total war effort. However, why did we not simply give back the railway at the end of the conflict? Because government could not afford the compensation, but also the Labour-lust of the time demanded it be nationalised along with our energy and other such formerly private sectors.

However, as we know, when it came to Thatcher the Keynesian ideas had fallen out of fashion because of the stagflation crisis of the Seventies. Thus, British Telecom, British Gas and British Coal were all privatised, and to a near-universal positive effect. However, it took much longer for British Rail to be privatised, and when it was, it was ridiculously complex.

In-fact, it was so complex that although passenger uptake increased by 30% under Railtrack, the infrastructure and signals operator before Network Rail, it led to overcrowding. The mixed-solution of short-term franchises, and infrastructure separation (for example, the same persons who own the track do not and did not maintain it), led to a complete lack of investment. Indeed, the number of employed by the railways fell from 85,000 in 1996 to 52,000 in 2007, and private investment barely rose in a 3-4 year period from £4.241billions in 2002/03 to £4.456billions in 05/06, whilst local and central government investment dramatically rose from £3.254billions to £4.762billions in the same period (source: Transport Statistics Great Britain 2007 Edition, Department for Transport). This points to a greater imbalance, with private investors being scared away, leading to more taxpayer intervention. Now, as taxpayers, we must demand that we have to pay as little as possible for the best solution- and in an industry with its greatest customer numbers in almost half a century, it would be logical to assume that it was bustling with private individuals wanting to invest their money, reduce over-crowding and build and improve infrastructure, all for the good of their pockets, and to the incidental good of our pockets and schedules.

The central problem here, is that there is far too much government intervention. There is an unjustified fear that by completely setting the industry adrift in the market it will lead to its very destruction. However, this has not happened in the case of energy or telecommunications, and it will not happen to rail. Rail was built almost completely by private initiative, the only help from government being quickly passed and implemented legislation to allow the industry to build around the country. It is what turned Britain from a mixed industrial-rural economy into a truly industrial one, factories no longer having to crowd around canals or ports, and instead being able to be built where it was best. There is absolutely no rationale behind the idea that those who maintain the track should not own it, and those who use the track should not own it. Indeed, the reason why British Rail worked (and that is a fragile usage) was because it was able to stamp its authority everywhere; however, that is certainly why it was privatised- because the monopoly was bad for customers, and it was ultimately bad for the railways. Instead of ripping up the fringe routes, Beeching should have instead in hindsight privatised the entire system, just as Japan has done, and merely subsidised the outlying regions. I say this, because Japan- by any standards- has the finest rail system in the world- and it is completely private, completely free market, and 1/3 of all the world’s rail journeys are taken in Japan.

The reason why the idea behind nationalisation simply doesn’t work isn’t just one of economics, it is one of logic. When one describes a nationalised company, it is described as publically owned, however, this is simply not what nationalisation is. Northern Rock, a troubled mortgage lender rescued by the British government, isn’t owned by the public- it is owned by the Treasury. If it was publically owned, we would by definition have property rights over it and its assets. Indeed, even if it was based on a stock market system, we would be able as citizens to do what we like with our shares, and have all the rights shareholders do. Therefore, nationalisation means- to be owned by the Treasury, which has the power to forcibly take from our earnings- i.e. tax us. The Treasury does not operate democratically- we do not vote on if we want a cut in taxes. We vote for whichever representative promises to do what we wish, and we know that it is the rare politician who doesn’t hush up his policies and promises when he finally gets his seat. And that’s because, just as how business runs, politics is fundamentally run by self-interest, and it is in the self-interest of the Treasury, and therefore the Chancellor and the Cabinet, to keep industries so that they can be taxed and controlled. It rarely leads to improvement, and indeed even when it does it is often swallowed up by the corruption and inefficiency caused elsewhere. The crux of the paradox is that a company is simply a legal framework for a group of individuals to run their affairs and ventures. A publically-owned company, such as Northern Rock, does not just answer to the market, but it also answers to its owners- the Treasury, who appoint its board and executives. Instead of delivering maximum profit and efficiency, they can use government funds to undercut privately-owned companies, leading essentially to price-fixing, they can eliminate competition by means of the legislature through their political masters and owners, and all to the detriment of us, the customers. For example, Lysander Spooner, the individualist anarchist businessman and legal philosopher, in the Nineteenth Century set up his rival to the US Post Office- the American Letter Mail Company. The US Post Office, by constitution, has a monopoly on all letter delivery- and Spooner’s company justly out-competed with the US Post Office by responding and setting prices by the market and by the customer, that is until government forced him out of business through legal means. The US Post Office had its place in the constitution to ensure that such an important instrument was available to all; yet, the competing enterprise delivered a better (and arguably more socially just) service. The fact is, that Big Government always loses sight of the original aim, and like the greedy thing it is will not be able to think clearly or reasonably, as shown in the USPO’s incompetence over its central mission when compared to the ALMC.

The current banking crisis was even caused by government. In 1977, President Carter forced US mortgage lenders to give out risky loans to those they would not dare lend to before- thus the creation of the sub-Prime market. When this nearly destroyed the market in the Eighties because of defaulting and other results of bad business, the Government didn’t say ‘that did not work, it simply created poverty. Our mission to force the market to provision and help provide housing failed’, they took on the bad debt, consolidated it, and forced the market to start again. This made banks and mortgagers, in the words of the Adam Smith Institute, the free market think tank, “too big to fail”, which is a rather familiar phrase, isn’t it? Thus why the west in the next decade will enter a painful era of government debt and even heavier taxes. This will be explored more in a forthcoming article.

In every case where there has been an industry, government is the side which has failed, been out-foxed, and been the greedy pig at the trough. But because of the place government holds in a democratic system, it won’t just be wished away, and it will always have an excuse until the monopolies have been broken down by the will of the customer and the voter. It is time to completely cut the apron strings, give up on this Georgist experiment, sell the rail and the infrastructure to the franchises, and let them establish themselves as sound, long-term companies. Indeed, the logic is undeniable- give them enough time for their choices to come back and bite them, and they will not be so risky; furthermore, they will be able to deliver strategy steadily and in their interest alone- that is why rail infrastructure isn’t improving, because the franchisees have zero incentive to improve it, as they may be forced out of business by the red tape, or they may even be forced out of business because they can’t satisfy the demand which would make them profitable. For example, Crossrail- a major public rail project in London- has been dogged with problems for decades in varying forms, all because of the ridiculously complex system of planning permission in this country. The answer here, clearly is to abolish the Local Planning Authorities, and replace them with a simple piece of legislation which requires a privately-done feasibility report. It is a violation of property rights that one should not be able to build what one wants on their land, and the feasibility report would cover ecological concerns. Furthermore, in an illustration of how green rail is, a mere 0.4% of the UK’s carbon dioxide emissions in 2005 were Rail-derived, whilst 0.7% were from Coaches and Buses, and a much more massive 3.4% on Road freight (statistics by economic sector). If we want to ween people off cars, it’s time to allow the alternative to be provided, just as in Japan.

Privatisation and economic freedom makes sense, whilst the half-way-houses-ideologies of regulation and government-created markets have clearly not worked in the case of rail, or indeed in terms of mortgages (to the effect of the near-destruction of the world banking system), or in the case of mail delivery (thus why the letter-monopoly Royal Mail and Post Office is a sadly ailing, failing, venture)- the alternative thus proposed creates the best of all possible worlds. After all, it is government which is the God that has resoundingly failed. There’s clearly only one way to go.