The policy that dare not speak its name

Buses. Buses and markets. Markets for buses. It’s not a topic I have spent much time thinking about. But it’s been on my mind. And it’s my own fault.

Last week I ran a session with some students discussing the economic critique of government and its consequences, mostly privatisation. One point we explore is that an understanding of why an activity is in the public sector in the first place can be helpful in anticipating what will happen when it is transferred to the private sector. If we’re talking lame duck industry nationalised to stop it going under then we’d expect one sort of outcome from privatisation. If we are privatising the production of a good subject to one of the classic technical market failures – public goods, externalities, information failures, failures of competition – then if we’re not careful with regulation it is likely that the problems of inadequate coverage, undersupply, or whatever will reassert themselves pretty quickly. There is a need to descend from abstract pronouncements about the benefits of private markets to thinking about the characteristics of specific markets and industries. It’s not rocket science, in the context. [Read more…]