Government action and price control

Hugh Stretton has been a persuasive advocate for the competition-enhancing role of government agencies in the private sector. His example was the South Australian Housing Trust which apparently operated on a commercial basis to provide alternative accommodation in the marketplace. Keeping the private sector honest, so to speak. Can people provide other examples of this kind of government function? General insurance in NSW?

This is not a rheteorical question, I am open-minded about the role of government agencies (and for that reason I think privatisation and regulation/deregulation need to be treated on a case by case basis).

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Jason Soon
Jason Soon
15 years ago

If there are genuine ‘missing markets’ then government may have to step in. Where there aren’t then the government shouldn’t be involved at all because institutionally it is less likely to be operated efficiently in a liberal democracy where lobby groups abound. Worse still, it could be able to compete effectively only because it has various privileges which the non government enterprises don’t have and could end up making them less viable. Since you’re talking about government competing with private enterprises presumably you’re not referring to the case of missing markets. But why on earth would you want to introduce such a crazy situation into a market where private enterprise is viable?

I find it hard to reconcile your opposition to a welfare state of any kind (where there are actual ‘missing markets’) with your belief that governments should create these Frankenstein monsters to compete with private enterprise where there is no market failure.

15 years ago

Paul Krugman has claimed on a number of occasions that the US government Veterans Health Administration has the potential to do this for the private health funds in the US. Here’s one:

He wrote in 2006:

Last year customer satisfaction with the veterans’ health system, as measured by an annual survey conducted by the National Quality Research Center, exceeded that for private health care for the sixth year in a row. This high level of quality (which is also verified by objective measures of performance) was achieved without big budget increases. In fact, the veterans’ system has managed to avoid much of the huge cost surge that has plagued the rest of U.S. medicine.

How does the V.H.A. do it?

The secret of its success is the fact that it’s a universal, integrated system. Because it covers all veterans, the system doesn’t need to employ legions of administrative staff to check patients’ coverage and demand payment from their insurance companies. Because it’s integrated, providing all forms of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors….

Contrary to Jason Soon’s claim this is not a case of ‘missing markets’ but a case of where there is a large but dysfunctional non-government market.

Although Australian private health funds are in a different market from Medicare, it would be interesting to know whether there are valid comparisons and whether Medicare does play a role in keeping the non-government (and increasingly commercial) sector honest.

As a completely different example, I had something to do with the Australian TAB industry in the 1970s, when the institutions were all state government enterprises. Their charter was, unofficially, to wipe the private enterprise illegal SP bookmakers off the face of the earth, which they did pretty effectively.

They faced all sorts of restrictions that private enterprises didn’t have to put up with, like prohibitions in opening branches near a pub (which is where SP bookmakers tended to congregate) or school, prohibition on providing chairs for customers (so that they would not loiter), constant attack from the wowser element in state parliaments who thought that wagering was immoral… and so on. The one benefit that they had was that they did not have to bribe the police.

Now of course they have all corporatised, floated and become part of the corporate section with varying degrees of success.

15 years ago

Straying from the topic, it’s a shame that nobody has written a comprehensive history of the Australasian TAB movement, which began in New Zealand in the early 1950s. The institutions tended to have a lean management structure and, because of the SP competition, were limited in the margins that they could skim – and a substantial proportion of their gross margin went to the racing industry.

They were probably the first organisations of any sort in the country to become so dependent on real-time computer technology that there was no possibility of manual backup. If the computer failed, the doors shut.

The first fault-tolerant computer in the country was built by the systems staff at NSWTAB, by lashing together two IBM System/360 Model 44 machines and writing their own operating system. The original of the now-ubiquitous mark-sense card and readers was pioneered by WATAB, who bullied IBM Canada into building readers basically to their design. The Myers Inquiry into Technological Change in Australia used SATAB as one of its case studies, examining the effects of (from memory) a 70% reduction in total staffing in going directly from manual operation with adding machines and telephones to an online computer system.

Reading the news from Wall Street this week gives me little confidence that private enterprise necessarily does better than government enterprises that are well run.