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Reply to Robert Henderson on Corporate Efficiency

EconomicsPosted by Lee Waaks Sun, February 26, 2017 19:06:58

The following is a reply by David McDonagh to a blog post by Robert Henderson. It has been edited by Lee Waaks.


Firms do serve the public when they seek to get customers for what they produce. But maybe Robert Henderson means providing uneconomic services, like running empty buses on a regular and frequent timetable just in case a few might need them. The fact is that this sort of "public service" is clearly very wasteful. It means there is a need for taxation to subsidise it, or a high ticket price that most people might well shun. Such "services" are intrinsically inefficient, as few want the services currently provided.

We are told that a monopoly is needed to run an uneconomic "public service", but that is not right (though it might help a bit), as competition might otherwise remove some income by cherry-picking off the parts that might be economic. But the mere monopoly would not usually bale out the universal service as a whole even with a no cherry-picking; instead it is taxation that is vital to this wasteful activity. Contrary to Henderson's claim, a monopoly cannot ensure such universal services that are often bound to be uneconomic.

We are told that "no private company would ever provide a universal one-price service without massive public subsidy", but that is false, as we can see with the usual prices of commodities, for we pay the same price for most of them whether they are in Cornwall, Warwickshire or Antrim. Most wares sell at the same price throughout the UK. The mass urban sales do allow ordinary firms to charge the same price for the same goods in largely rural areas as they do in the big cities.

The Post Office cut the second post as it wanted to cut the subsidy. Ditto, it has put the last post earlier in the day. A monopoly might ease it, but it is taxation that alone allows it to exist.

It is not clear to me what Henderson imagines is the public service aspect of the BBC. Whatever he thinks it is, he says it would ebb if the licence fee were to go and the BBC went more, or completely, state free. It would become more like the other TV channels, he says, but it looks rather like them anyway, accept that its adverts do not interrupt the programmes, but they do look abundant enough between the programmes, even if they are not commercial.

Henderson sees, or he says he sees, a clash between profit and public service in providing things like the National Health Service (NHS), but the NHS deliberately flouts economic viability in that it attempts free access paid for by taxation. A private insurance policy also might provide free access, but only for those who took such a policy out by paying for it. Such a policy might well make a profit.

If work is subcontracted out then the main contractor usually needs to see it is done to the extent that would have been the case had it not been subcontracted out. Henderson wants to deny that normality.

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