The Porter Zone

Philosophical musings and more

Monthly Archives: June 2015

Why the state should not be a service provider

It is often observed that private enterprise must, inevitably provide higher qualities of service than the state.  It is also observed that for the private sector to provide basic services is somehow immoral, because to profit from serving people is wrong in some way.  It is also observed that, though all of this may be true in theory, in general public-private partnerships succeed no better than purely public-sector services.

It turns out that the problem lying behind all of these contradictory positions lies in the fact that they all miss the point.  What matters is not what is right or wrong, or whether or not the state is irredeemably inept: the underlying issue is a simple economic argument, which we outline below.

The argument

Any business is dependent, for its continued existence, on its paymaster, that is to say the individual(s) who provide the money that it needs to keep operating.  Therefore, the prime responsibility of any business is to guarantee that its paymaster will continue to give it money.  The success of a business therefore depends on the paymaster’s criteria for choosing to do so.

For a conventional business, existing in the private sector, the paymaster is, in effect, the consumers, that is to say the individual(s) who purchase products or services from the business.  Their criteria for continued consumption will, essentially be, that they like the services or products, and want to continue purchasing them.

For a state-financed business, on the other hand, the paymaster is the treasury.  Its criterion is very different and much simpler: it has no interest in the quality or otherwise of the business’ products, or of its consumer’s attitude towards it.  Rather, its sole criterion is this: has the business spent all of its allocated budget?

This means that, whereas a purely private-sector business has to do everything it can to make its consumers like it, all that a state-funded business has to do is to continue to spend at least as much money as it is allocated by the treasury.  Quality of performance, as measured by its consumers (if there are any) is if no importance.


Observe that this argument says nothing about the quality of civil servants as opposed to private-sector workers, their moral qualities or their competence.  It says nothing about the moral qualities of the state as an institution.  It is based purely on the observation that if a business’ paymaster is disconnected from its consumers, then it has no reason to concern itself with meeting its consumers’ expectations.

This means that any business which adopts this model is bound to provide poor consumer service, providing a neat explanation of the well-known effect that private businesses that are entirely capable of providing how quality services or products in the private sector, when co-opted into working on contract to the state, end up producing work of the same low quality as that done by civil servants.  The state funding mechanism acts as a weight that drags all engaged with it down to the same level.

On the other hand, it is notable that in situations where the state does not provide direct funding to institutions, but instead provides consumers with vouchers, or acts as their underwriter of last resort, then private enterprise is capable of providing services of the high level one would expect.  This is because the natural link between paymaster and consumer has been restored.


It turns out, interestingly, that the argument relating to the morality, or otherwise, of profiting from service provision comes closest to the truth, in observing that the issue is about how services are funded.  However, morality is not, and should not be an issue, save perhaps for the question (often ignored, for some reason) of the morality of choosing to place ideology above the quality of service provided to citizens of the country.

What do the protestors want?

I write a day after a massive protest in the Centre of London at which, in addition to causing considerable disruption and unpleasantness for those of us who merely live here, anything up to a quarter of a million people gathered to protest against – what?  And here we run into problems that are the cause of my deciding to write this piece.  Though I suspect the genuine motivation, as captured in the phrase ‘kick the Tories out’ that seemed to be making the rounds, is the dismay of those who had deluded themselves into to thinking themselves political leaders, at discovering, when the people of the UK spoke, that actually they were political irrelevances, it is still of interest, I think, to consider their ostensible cause.

What do they want?

Essentially, it would seem that they do not like a situation in which it is possible for some people to become much richer than others, in which business (which is always ‘big’, and therefore, apparently, bad) is free to exploit people by selling them products that they want (but that their self-appointed guardians assert are bad for them), or in which any form of private enterprise be permitted to provide any form of service to society.  This can be summed up, pretty well, by saying that they object to being expected to live in an open society with a free economy, whose composition is determined based supply on demand, as opposed to centralised planning.

What they would prefer instead is less clear, and many of them, and their leaders seem to find it hard to articulated with any degree of clarity what their idea society would look like (that this may be, at least partially, caused by the undoubted fact that many of their leaders are clearly not unduly blessed with intellect, is an interesting question).  However, one can deduce a certain amount, if only by contradiction with what they don’t want.  So, the economy must be regulated, with businesses only permitted to be active in areas deemed suitable by some authority.  Likewise, business profits must be regulated, so as to ensure that income, etc differences do not exceed some defined threshold.  Moreover, innovation must be constrained, due to the unfortunate fact that it tends to close down old economic sectors as it opens up new ones, and is clear that one thing the protestors do believe in very strongly is that no business should be allowed to fold simply because it is no longer profitable.  All services should be state-delivered, and no effort should be made to cater to the needs or desires of their consumers, for that way lies the crime of elitism.

Simultaneously with this apparent embrace of the state, however, is a strand of strong distrust of the state.  Thus, any form of surveillance is unacceptable, police are always heavy-handed, justice is always biased and so on and so forth.  To mention how this impacts attitudes on international relations would take us too far afield: the spectacle of hordes of more-liberal-than-thou ‘peace’ activists howling down the oppressed while cheering on their oppressors is only one of the more puzzling aspects of modern-living.

Where does this lead?

There is a curious contradiction at the heart of all this.  Let us start from the demand for what is, essentially, a command economy, where freedom to produce and consume is replaced with strict regulation of what may be consumed, what may be produced and how it may be produced.  Now, it is common to argue that this is doomed to fail for any number of sound economic reasons, but I want to take a different tack.

A command economy is dependent on being a closed cycle.  As wealth generation has been deliberately prevented, producers produce what they are permitted to, and consumers consume what they are permitted to.  Therefore money simply circulates through the system and becomes essentially irrelevant.  Therefore a truly closed command economy could become the nirvana of the more idealistic protestor, a moneyless society.  Unfortunately, for this to work the system has to be static.  Any imbalance, any change in means or production or the profile of demand, any change in employment, or productivity or profitability, throws the equilibrium of the closed cycle out.  Before you know it, either wealth generation starts happening, or else your economy crashes, or else you have to open to the outside world, to rectify the imbalance.

What this means is that therefore the state must act to completely ban the black market, or private transactions, or private business of any kind, and this ban needs to extend to ongoing detection and prevention.  Moreover, innovation must be prevented, because innovation brings new ideas, new products and changes the nature of supply and demand in unpredictable ways.  Finally, fashion, or any kind of personal taste or preference must be banned and controlled, so consumers only want that which the state sanctions the supply of.  Otherwise, consumer discontent with what is on offer will breed either innovation, or black market activity, or political unrest, with all the dangers that implies.

So what, as Lenin asked, is to be done?  The answer is very simple.  As Orwell predicted, and as the great totalitarian dictatorships of the 20th and 21st centuries have shown, a command economy can only exist if it has Thought Police.  Without total penetration into and control of every individual’s activities and thoughts, the state cannot guarantee the economic stability that is so important to its survival.  Therefore it must be a surveillance state, dedicated to removing any hint of individuality from its citizens.

In conclusion

This, then, is the paradox, the protestors in London talk constantly about liberty, and the need to end state intrusion into their private lives, and yet their ideals can only be achieved by a totalitarian police state.  I suspect that many of them would be absolutely in favour of such a thing, on the understanding that they were part of the Central Committee that told everyone else what to do, but it is in the nature of true totalitarianism that there is no Central Committee, and that everyone oppresses everyone else.  Therefore, let us hope that some effort is made to help them learn that libertarianism is not love of the state.