Ill Fares the Land (19 page)

How, in the face of this powerful negative myth, are we to describe the proper role of the state? We should begin by acknowledging, more than the Left has been disposed to concede, the real harm that was done and could still be done by over-mighty sovereigns. There are two legitimate concerns.

Coercion is the first. Political freedom does not primarily consist in being left alone by the state: no modern administration can or should ignore its subjects altogether. Freedom, rather, consists in retaining our right to disagree with the state’s purposes and express our own objections and goals without fear of retribution. This is more complicated than it may sound: even well-intentioned states and governments may not be pleased to encounter firms, communities or individuals recalcitrant in the face of majority desires. Efficiency should not be adduced to justify gross inequality; nor may it be invoked to suppress dissent in the name of social justice. It is better to be free than to live in an efficient state of any political colour if efficiency comes at such a price.

The second objection to activist states is that they can get things wrong. And when the state errs, it is likely to do so on a dramatic scale: the history of English secondary education since the 1960s is a case in point. The American sociologist James Scott has written wisely of the benefits of what he calls ‘local knowledge’. The more variegated and complicated a society, the greater the chance that those at the top will be ignorant of the realities at the bottom. There are limits, he writes, “. . . in principle of what we are likely to know about a complex functioning order.”
³¹
The benefits of state intervention on the public behalf must always be weighed against this simple truth.

This objection is different from that of Hayek and his Aus-trian colleagues, who opposed all top-down planning on general principles. But planning may or may not be the most efficient means to achieve economic objectives: the benefits of public action must be weighed against the risks of suppressing individual knowledge and initiative. The answers will vary by circumstance and should not be dogmatically pre-ordained.

We have freed ourselves of the mid-20th century assumption—never universal but certainly widespread—that the state is likely to be the
best
solution to any given problem. We now need to liberate ourselves from the opposite notion: that the state is—by definition and always—the
worst
available option.

The idea that there are certain areas in which the state not only may but
should
intervene was by no means anathema to conservatives: Hayek himself saw no incompatibility between economic competition (by which he meant the market) and “. . . an extensive system of social services—so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.”
³²

But just what is it about state services that, if poorly designed, renders competition ‘ineffective’? There is no general answer: it depends on the service in question and on just how effective we require competition to be. Michael Oakeshott, who regarded inefficient or distorted competition as the worst of all possible outcomes, proposed that “[u]ndertakings in which competition cannot be made to work as the agency of control must be transferred to public operation.”
³³
The place of the state in economic life was an essentially pragmatic question.

Keynes, characteristically, went further. The chief task of economists, he wrote in 1926, is “. . . to distinguish afresh the
Agenda
of Government from the
Non-Agenda
. . .”
³⁴
Obviously the agenda in question varies with the politics of those pursuing it. Liberals might confine themselves to the alleviation of poverty, extreme inequality and disadvantage. Conservatives would restrict the agenda to legislation favoring a well-regulated competitive market. But that the state needs an agenda and a way of carrying it out is uncontentious.

What, then, of the contemporary belief that we can either have benevolent social service states or efficient, growth-generating free markets but not both? On this, Karl Popper, Hayek’s fellow Austrian, had something to say: “[a] free market is paradoxical. If the state does not interfere, then other semi-political organizations, such as monopolies, trusts, unions, etc. may interfere, reducing the freedom of the market to a fiction.”
³⁵
This paradox is crucial. The market is always at risk of being distorted by over-mighty participants, whose behavior eventually constrains the government to interfere in order to protect its workings.

The market, over time, is its own worst enemy. Indeed, the valiant and ultimately successful efforts of New Dealers to set American capitalism back on its feet were most vigorously opposed by many of their eventual beneficiaries. But although market failure may be catastrophic, market
success
is just as politically dangerous. The task of the state is not just to pick up the pieces when an under-regulated economy bursts. It is also to contain the effects of immoderate gains. After all, many Western industrial countries were doing extraordinarily well in the era of Edwardian social reform: in the aggregate, they were growing fast and wealth was multiplying. But the proceeds were ill-distributed and it was this more than anything which led to calls for reform and regulation.

There are things that the state can accomplish that no one person or group could do alone. Thus while a man can build a path around his garden by his own efforts, he can hardly build a freeway to the next city—nor would he go to the expense of doing so, since he would never recoup the benefits. This is not news. It will be familiar to readers of Adam Smith’s
Wealth of Nations
, where he writes that there are certain public institutions a society needs and of which “. . . the profit could never repay the expense to any individual or small number of individuals”.
³⁶

Even the most altruistic among us cannot act alone. Nor can we pursue public goods by voluntary association: ‘faith-based initiatives’. Suppose that a group of people got together and agreed to build and maintain a playing field, for their own use above all but in the middle of their village and open to everyone. Even if these great-hearted volunteers could raise among themselves sufficient funds to do the work, problems arise.

How do they keep other people—free riders—from benefiting from their efforts without making any contribution? By fencing the field and keeping it exclusively for their own use? By charging others a fee to rent it? But in that case the field becomes private. Public goods—if they are to remain public—need to be provided at public expense. Could the market do the job better? Why should someone not build a private playing field and charge for it? With enough takers, he could reduce his fees to the point where almost everyone could afford to benefit from the facility. The problem here is that the market cannot cater to every case of what economists call ‘option demand’: the amount that any one individual would be willing to pay to have a facility to hand for those infrequent occasions when he wants to use it.

We would all like a nice playing field in our village, just as we would all like a good rail service to the nearest town, a range of shops carrying the goods we need, a conveniently-sited post office and so forth. But the only way we can be made to pay for such things—including the free riders among us—is by general taxation. No one has come up with a better way of aggregating individual desires to collective advantage.

It would seem to follow that the ‘invisible hand’ is not much help when it comes to practical legislation. There are too many areas of life where we cannot be relied upon to advance our collective interests merely by doing what we think is best for each of us. Today, when the market and the free play of private interests so obviously do
not
come together to collective advantage, we need to know when to intervene.

—MARCEL PROUST

 

 

 

 

I
magine a classic railway station: Waterloo Station in London, for example, or the Gare de l’Est in Paris—Mumbai’s dramatic Victoria Terminus, or Berlin’s magnificent new Hauptbahnhof. In these cathedrals of modern life, the private sector has its place: there is no reason why newsstands or coffee bars should be run by the state. Anyone who can recall the desiccated, plastic-wrapped sandwiches of British Railway’s cafés will readily concede that competition in this arena is to be encouraged.

But you cannot run trains competitively. Railways—like agriculture or the mails—are at one and the same time an economic activity and an essential public good. Moreover, you cannot render a railway system more efficient by placing two trains on a track and waiting to see which performs better, like two brands of butter on a supermarket shelf. Passengers do not choose which of two simultaneous trains to board, based on appearance, comfort or price. They take the train that comes. Railways are a natural monopoly.

This is not to say that railways cannot be privatized. They have been in many places. But the consequences are usually perverse. Let us suppose that the government authorized Safeway to exercise a five-year monopoly on supermarket sales for the region extending from Boston to Providence, or London to Bristol. Allow further that the government guaranteed Safeway against a loss on its business. Finally, Safeway are issued with copious written instructions on what to sell, the price range within which they could sell it and the times and days when they were to be open for business.

Obviously, no self-respecting supermarket chain would take up the offer—nor would any sane politician make it. But these, in effect, are the terms under which private companies have been operating trains in the UK since the mid-1990s: combining the very worst of monopolistic market control, state interference and moral hazard. The reason we find the supermarket analogy absurd, of course, is that competition among grocery stores makes good economic sense. But competition among rail companies along one set of existing tracks is simply not possible. In that case, the monopoly should be maintained in public hands.

Arguments from efficiency, conventionally invoked to justify private enterprise over public service, do not apply in the case of public transportation. The paradox of public transport is quite simply that the better it does its job, the less ‘efficient’ it may be. Thus, a private company that offers an express bus service for those who can afford it and avoids remote villages where it would be boarded only by the occasional pensioner will make more money for its owner. In this sense it is efficient. But someone—the state or the local municipality—must still provide the unprofitable, ‘inefficient’ local service to those pensioners.

In the absence of such a service, there may certainly be short-term economic benefits. But these will be offset by long-term damage to the community at large—difficult to quantify but unquestionably real: the example of privatization in British bus services may be taken as a case in point. Predictably, the consequences of ‘competitive’ buses—except in London, where there is a superfluity of demand—have been a reduction in services; an increase in costs assigned to the public sector; a sharp rise in fares to the level that the market can bear—and attractive profits for the express bus companies.

Trains, like buses, are above all a
social
service. Almost anyone could run a profitable rail line if all they had to do was shunt busy expresses back and forth from London to Edinburgh, Paris to Marseilles, Boston to Washington. But what of rail links to and from places where people take the train only occasionally? No single person is going to set aside sufficient funds to pay the economic cost of supporting such a service for the rare moments when she uses it. Only the collectivity—the state, the government, the local authorities—can do this. The subsidy required will always appear inefficient in the eyes of a certain sort of economist: would it not be cheaper to rip up the tracks and let everyone use their car?

In 1996, the last year before Britain’s railways were privatized, British Rail boasted the lowest public subsidy for a railway in Europe. In that year the French were planning for their railways an investment rate of £21 per head of population; the Italians £33; the British just £9. Moreover, in those same years the UK Treasury was demanding a 10% return on its investment in the electrification of England’s East Coast Main Line—a far higher rate than was mandated for freeway construction. These contrasts were accurately reflected in the quality of the service provided by the respective national systems.

They also explain why the British rail network could be privatized only at great loss, so shoddy was its infrastructure: very few buyers were willing to take the risk except when offered expensive guarantees. The parsimonious investments of the British Treasury in its nationalized rail network—or of the US administration in state-owned Amtrak—suggest (correctly) that state ownership per se is no guarantee of a well-managed transportation system. Conversely, while some traditionally private rail systems are well-financed and provide (indeed, are required to provide) a first-rate public service—the regional railways of Switzerland come to mind—most do not.

The investment contrast between the US and the UK on the one hand and most of continental Europe on the other illustrates my point. The French and the Italians have long treated their railways as a
social
provision. Running a train to a remote region, however cost-ineffective, sustains local communities. It reduces environmental damage by offering an alternative to road transport. The railway station and the facilities it provides to even the smallest of communities are both a symptom and a symbol of society as a shared aspiration.