Monopoly empowers unions

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One of the merits of competition is that it limits the power of producers. Most people focus on how firms have to compete with each other if consumers have a choice, but competition also limits the power of organized labour. The degree to which it can impose uneconomic terms on employers is severely limited if customers can move elsewhere and cause their employer to go under. Where competition is introduced into a state monopoly, it also limits the power of the unions to put political pressure on government by interrupting the service.

When the UK featured many state-owned monopolies, strikes were a common feature as unions exploited the power which monopoly gave them. But it was not only privatization and the competition which usually accompanied it which undermined their power; technology played an important role. The Post Office provides a classic example.

The fax machine (if anyone remembers it!) spread rapidly because the monopoly post service could not be relied upon. Motor and pedal cycle couriers spread through our cities to exploit a loophole that allowed expensive alternatives to the Royal Mail. What unions do not seem to grasp is that it is their exploitation and abuse of monopoly power that speeds the adoption of alternative technologies. If the service were reliable and good value, many of these technologies would develop more slowly or not at all.

It is easy to predict the consequences of yet another impending postal strike. People will rapidly get into the habit of using technological alternatives to the Royal Mail, and will not return when the service resumes. They will use such alternative methods of conveyance as are allowed, and many will not return from those, either. The Royal Mail itself will find its business diminished and will need to cut its cost further… At the bottom of that vortex is a plug-hole.

Meanwhile, Lord Mandelson could earn a load of brownie points by empowering the Boy Scouts to deliver Christmas mail, and allowing charitable organizations to oversee its collection, transport and distribution…

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."

Obama wins Nobel Peace Prize

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Really?

The Irish referendum

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Ireland's Lisbon Treaty vote puts the spotlight on the Czech Republic's ratification and David Cameron's UK referendum promise

Well, it just goes to show that the European Union has no problem getting people to vote for it, as long as they are bankrupt. When Ireland was looking OK, it voted No. Wrong answer, so it had to vote again. Now it's bust, it has fallen sobbing into the arms of the subsidy providers. Britain joined in 1973, and the East European states twenty years later, for just the same reasons. They were suffering a deep economic malady and thought it might be cured, like scrofula, simply by touching.

Now it's down to the Czech Republic. I cannot imagine that its robustly free-market and Euro-sceptic President, Vaclav Klaus, will be in any hurry for his country to ratify the Lisbon Treaty. He's already taken a stand against it. If he can hold out until May 2010, he knows that there will probably be a change in government in the UK, and that the Conservatives have promised a referendum if the Czechs haven't already decided. So he can let the UK take all the flack that will surely come from Brussels (and Paris). I think both of us could live happily with that.

Dr Butler's book The Rotten State of Britain is now in paperback.

The purpose of profits

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There's still a desperate and really rather sad misunderstanding of the purpose of profits out there. Our first example is about rubbish and recycling:

It is far more profitable and much less labour intensive to dump unsorted garbage in a landfill than it is to separate it for compost or recycling.

Quite contrary to the imputation of the author this means that we should indeed be throwing the garbage into a hole in the ground. It isn't just that time is one of the things we are all short of, that three score and ten passing by much too quickly to want to spend unnecessary time sorting rubbish. Here profit is showing that we are using fewer resources by dumping unsorted than by sorting. This is a good thing, profit is telling us that we are being more efficient: and more efficient with our scarce resources means that we get more out of whatever resources are scarce. In short, profit is showing us what makes us richer.

Our second example is about schools (and cries of "rubbish!" in regard of the UK educational system will be ignored, however true they might be):

The Conservatives, however, are planning to keep their "Swedish schools" profit-free and rely on charities, voluntary groups and other philanthropic types.

Ignorance of the purpose of profit is not limited to foolish environmentalists of course: it seems to be a failing of our next Prime Minister as well. For he and his sidekick are missing the second point of profits: the hunger for being allowed to keep them. It is this, the idea that we might individually get rich by making profits which leads to the society as a whole getting richer as we struggle (and the successful succeed in) to find newer and better ways to be efficient with those scarce resources.

Profits are both a signal that we're doing something right and a temptation, an incentive, for people to do those right things: look for and find ways to be more economical with the resources available.

No surprise in an environmentalist not quite getting it but if a Tory PM in waiting can't understand it, what is the world coming to?

Let us be

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The party conferences, with all their policy announcements, pledges and sniping, raise the issue of what the public wants and expects from their government. They also bring about discussion on who exactly a particular government would favour. Segments of society are seized upon left right and centre by every party, and are either demonised or showered with promises of a better life.

Brown has stated that Labour sets out to satisfy the "values of the mainstream majority." This though is wherer governments are going wrong; they shouldn’t embody the views or values of the majority; they shouldn’t embody the values of anyone. By taking a normative stand, no matter how populist it may be, a minority will be punished or sidelined. Vilify the bankers and they might stop creating taxable wealth so quickly. Cast bored youths as feral animals and they will bite back. Introduce supervising housing for young mums, and all stigmatisation of them seems justified.

In truth, the neglected but vital role of government is to protect the liberty of those governed by it. A government should uphold a legal system that allows individuals to live peacefully and safely, with their lives and property protected from the harmful actions of others. It can also have an important role providing public goods such as roads and national defence. Evidently, it is important that a government is not against the people. However, when governments try and act for some people, they are acting against others.

The UK is a network of communities, and people have different values, priorities and cultures. One of humanities' great skills is our ability to work productively with one another, while new technology increasingly allows us to connect with each other and create solutions to problems in a way never before seen. Cameron talks sense when he speaks of the importance of Burke’s ‘little platoons’, and the way in which communities and groups are able to achieve their own goals and solve their own problems. While as a country we expect the governments to take up crusades and hand out solutions on a platter, there is much that could be done without requiring the values and priorities of one group, regardless of how large it is, becoming forced on another.

If governments stopped looking to change the course and values of people’s lives, we might just be that little bit happier, productive and more successful.

Ain't no party like a nanny state party

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May 1st 2010 will mark the launch of an annual celebration of all things New Labour: The 'Nanny State' Party. It will be a raucous affair where everyone can let their hair down and party like it's 1997.

Every party needs something to make it go with a bang, and this party will be no different. There will plenty of Nanny State ale to consume, and for those who prefer the grape, over the hop, bottles of Recession Red, to help celebrate the end of "boom and bust" economics. (Alcoholic drinks vouchers will be handed out at the door on entry, limiting people to the correct daily amount). Both will be served in recycled plastic glasses. Catering will be provided by our 'Five-a-day" officers who will be serving a wholly nutritional platter of organic fruits and vegetables. Nibbles will be in the form of organic pulses, beans and muesli. For guests who wish to smoke, there will be a controlled outside environment where we will allow 'electronic' cigarettes. For those who wish to consume nicotine in the old fashioned way you will be handed a nicotine patch and signed up to an intensive six week NHS Smoking Cessation course.

"Things Can Only Get Better" by D:Ream will be the only song available on the jukebox. And Harriet Harman is to be the spokesperson of choice, giving her view of the past 12 years. So please RSVP for your ticket soon to ensure your place at what's going to be the party of next year. We also want to ensure that we record your details on our 'entertainment' database which will of course allow us to issue you with your party ID card. John Prescott will be on the door and enforcing a no ID card, no entry policy.

The event will be powered by renewable energy and there will be ample bicycle and electrical car parking. An OFSTED licensed creche will also be available. Tickets only cost £13,000 (roughly equivalent to your share of the national debt). RSVP now and we'll even pay for your CRB check.

Cameron’s revolution

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There is little to be garnered from David Cameron’s interview with Fraser Nelson of the Spectator. However, despite his deafening silence on policy of late, the excellent Fraser Nelson does pursue two interesting lines of discussion that elicit rather telling responses.

Firstly, Cameron claims that: “the sort of tax system that I believe in is one that’s effective in raising revenue — rather than one that is trying to make a particular point". Thus, the Conservative's are not going to soak the rich without just cause. The problem is that with all matters political, the truth is easily manipulated – thus, this is no insurance at all. The principal reason the rich should not be taxed at a higher rate than others is that it is morally wrong to do so. A Conservative government should drop the 50% rate and institute a flat tax for this reason alone.

This point is connected to his second interesting utterance:

There is an easy radicalism, whereby you take the latest idea that comes out of the Institute of Economic Affairs or wherever and just say, “well, that’s it",’ he says. ‘Proper radicalism is thinking through how you are going to get from A to B to C to D. I think that’s what we’re doing.’

As we all know, the IEA releases many excellent reports every year that should and could be turned into government policy in whole or in part. It might be easy radicalism, but it is at least innovative policy as distinct from New Labour. The problem with Cameron’s position is inability to stand up and state whether or not he in fact radical. He alludes to the fact that we should tacitly accept that he would get to “D" in the end, but a position is so unprincipled is not worthy of respect and hardly worth getting excited about.

Cameron's thoughtful revolution is no revolution at all. The state of the nation demands cool hard policies, yet Cameron is still coasting on autopilot. Victory is not watching Brown crash and burn, but instead to come to the country with the policies upon which this country can thrive.

Lions led by donkeys

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One wonders sometimes whether the British Government is entirely worthless, not least when they are leaving valiant men and women to fight without protection and inadequate support, and then retreating behind a curtain of lies and half truths to defend their own actions and behaviour.

The government is piling pressure downwards through the Ministry of Defence to prevent the truth about what is actually happening in Afghanistan reaching us. But we are nonetheless all aware of the inadequate equipment and the shortage of helicopters that exemplify the poor treatment of the armed forces by their political leaders. One is reminded of the phrase 'lions led by donkeys'.

This article by Michael Yon makes a compelling case that unless politicians’ attitudes to the troops, to the public, and to reporters changes, meaningful progress in Afghanistan will be impossible. Not only does it outline his own poor treatment at the hands of puppets of the Ministry of Defence, it also explains how troops on the ground are routinely lied to by the politicians back home. This is a war that is fast becoming a political quagmire. The UK government desperately needs to rethink it's attitude towards the armed forces.

Could Labour split?

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The results of Germany's elections are not just interesting because they produced a centre-right majority and saw the tax-cutting FDP increase their share of the vote. They are also worth noting for the fact that, even following an economic crisis for which 'capitalism' has taken much of the blame, the main party of the left, the SDP, had its worst election since World War II.

Obviously, the reasons for this could well be particular to Germany, and have no wider relevance. The fact that the SDP have for the past four years been in an uncomfortable coalition with the centre-right CDU certainly makes one wary of generalising.

But there may be implications for the UK in Germany's election, even if they should be taken with a pinch of salt. One is in the way Germany's political left has fractured, with the Greens and the socialist Left Party getting 11 and 12 percent of the vote respectively, compared with the SDP's 23 percent. Could the same thing happen in Britain?

Perhaps not while our first-past-the-post voting system endures. But there could still be a damaging split on the horizon for the UK's Labour Party. As William Rees-Mogg wrote in the Mail yesterday, many Blairites already feel closer to the Social Democrat wing of the Lib Dems than to their party leadership. If Labour reacts to electoral defeat by swinging back to the left – as seems likely given the financial and constitutional power of the unions – it is not inconceivable that they would jump ship.

For what it's worth, I think the German results also indicate how different British party politics would be if we had proportional representation. It's unlikely that Labour or the Lib Dems would survive such a change in their current forms. We would probably end up with the Conservatives and UKIP to the right, a (very) small liberal party in the centre, and a new 'Social Democrat Party' and a hard-line Old Labour–Green alliance on the left.

P.S. I'm not advocating proportional representation. I'm just suggesting one of the ways it would change things.

It was all those greedy bankers, wasn't it?

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It's the cry of the day: the financial system was brought to its knees by the greed of he bankers! This leads to the simple thought that if we stop the bankers from being able to be greedy then we'll have solved the problem.

The problem with this simple thought is, well, apart from the fact that it is simple minded, is that there appears to be no empirical evidence whatsoever that it is in fact true. Jeffrey Friedman pointed this out last week. Given that Richard Fulds of Lehman lost a billion dollars (yes, $1,000,000,000) when the firm went belly up it's difficult to accuse him of risking the shareholders' gelt for his own gain by knowingly taking excessive risk. In fact, the research shows that those banks where the senior executives held more stock did worse than those where they held less.

Further, about those toxic assets: the banks were holding the higher rated (and thus less profitable) AAA tranches rather than the AA ones. They were deliberately, at least as far as they understood matters, eschewing both risk and potential profit.

These studies suggest that bank executives were simply ignorant of the risks their institutions were taking—not that they were deliberately courting disaster because of their pay packages.

If that is true (and no one has as yet offered any proof that it isn't: nothing beyond the "well, everyone knows, don't they?" level at least) then the concentration upon bankers' pay and bonuses is simply Naomi Klein's "Shock Doctrine" as it usually works rather than as she described it. A crisis is when those who would extend State power extend it: when the politicians gather more power to themselves rather than dispersing it to you and I in the markets.

But much more importantly, if that is true then changing the mode of bankers' remuneration will not reduce the risk of it all happening again for it was not the cause this time around. That's much more dangerous than any shortfall at a Chelsea Bentley dealership: the thought that by misidentifying the causes of the problem we assuage populist anger than actually solving the problem itself.

Perhaps instead of the bankers' pay it was indeed cock-eyed regulation? Shouldn't it be more important to fix that, perhaps the real cause of the problem, than please the baying mob?