Monday, 11 February 2008

The 'free' market and competition

A lot of people naively think that economics is simple, and that markets are either free or not free, and this is the only thing that affects the overall output of the system. The naive also tend to see competition as only a good thing, while any regulation or protectionism can only be bad.

This kind of noddy economics is deeply flawed and the government is arguably guilty on relying upon this noddy level understanding in building a lot of its useless ideological reforms.

If one looks a bit harder then some rather gaping flaws in this masterplan become rather obvious. Competition can be good and bad, and the same is true of regulation and protectionism; it all depends on the complex context in which these nuts and bolds are assembled.

For example no regulation can lead to anarchy, and if the consumers are also poorly informed then market forces can lead to poorer services and lower quality goods succeeding in a way that is not in the best interests of the general population. Competition in certain contexts is markedly counter productive, for example in areas that are natural monopolies such as the railway and water networks. Protectionism is also rather important as many markets that the naive claim were 'free' were actually rather well protected and managed.

The NHS and this Labour government's privatisation of it is a case in point, as the ideology of free markets and competition have been shown to be rather lacking in their real world application. The competition is so unrealistic and stage-managed that no benefits are gained, while massive inefficiency is caused by the bureaucracy needed to maintain the artificial market. This can be seen in the way in which primary care contracts are being preferentially dished out the private sector. PCTs are also not well informed enough to judge who can deliver the best service for the money put on the table, meaning that the fruits of competition are never harvested. Hence the government has managed to waste money on more bureaucracy while making the service worse, pure genius.

There is some truth in saying that competition could be better exploited to improve the overall standard of health care in this country, however the lack of improvement is really down to bad management and bad regulation, not a lack of competition and a market that is not 'free' enough. Better regulation and better more minimal top down intervention is what is needed to improve the NHS. The US has already shown us that a more 'free market' style system can lead to useless junk being peddled for big money, as the ill informed rich are convinced to needlessly part with their hard earned cash. There is a happier medium out there somewhere I feel.


Anonymous said...

"The NHS and this Labour government's privatisation of it is a case in point, as the ideology of free markets and competition have been shown to be rather lacking in their real world application."

If the government had actually privatised the NHS, you might have a point. However, they continue to run the NHS as a nationalised industry and just farm out work to their cronies in private business; that has nothing to do with 'free markets' or 'privatisation'.

When Thatcher privatised BT, she didn't just hire private companies to run the telephone exchanges while leaving the company under the control of the government, paid for out of taxes. She, you know, privatised it; sold the whole damn thing off and let it live or die on its own merits.

If you want to see the benefits of a free market in medicine, first you need a free market in medicine... Britain has nothing even remotely resembling one. That means either closing down the NHS or selling it off as a private medical business that will have to compete with every other private medical business; not bringing in private cleaning companies who hire unskilled immigrants to work for below minimum wage while raking in cash from the taxpayers who would rather have clean hospitals.

You make a lot of good points on your site, but please don't blame the free market for problems created by socialism (or, more accurately in the case of NuLab, fascism).

Garth Marenghi said...

I'm not blaming the free market!

I'm just pointing out the problems with sytems, all of them have their flaws, there is no perfect solution.

The US 'free market' shows us how badly markets can work if not managed sensibly.