TCS Daily


Economics in One ($90 Million) Lesson

By Tim Worstall - November 30, 2004 12:00 AM

What would you call a Government sponsored website that cost nearly $90 million, is slow, provides inaccurate information, falls over regularly, fails at its appointed task and looks set to drive its private sector competitor out of business? Dependent upon your level of cynicism you might describe it as a tragic waste of community resources, par for the course, an unusual error or even all of the above. I, in my usual contrarian manner, actually think it is a bargain.

The basic outline of the story is that in the UK the Department of Transport has been straining mightily to give birth to a mouse. One of the things we were promised those years ago when New Labour came to power was an integrated transport system, always something of a puzzle to me as you can't actually run the buses on the train tracks. Facing up to this painful reality the politicians (in the form of our redoubtable Deputy Prime Minister, John Prescott) decided that what they really meant was the above mentioned website, upon which the general public could work out how to get around the country. Which bus links to which, to what train, how long does it take to get there, not, on the face of it, a bad idea really. We're familiar with such things for car journeys, this was supposed to be for public transport with the assumption that once people saw how wonderful that public system was they would use it rather than their cars.

There are only two major problems that seem to have derailed this wondrous idea. The first is, as the site proves on those rare occasions that it works, that public transport is a great deal slower than simply getting in one's car and driving. This really isn't what it was supposed to prove at all.

The second is that the Government did it. It took them four years to get their act together (to the limited extent that they have), it simply replicates information available elsewhere, appears to send people on very odd journeys indeed... well, all the joys you would expect from a system designed by committees of people who have never actually had to work for a living.

The argument in favour of this sort of enterprise is that it is something that the free market would not provide, that there is some failure in provision of a service that only the Government can correct. This is certainly true sometimes but a great deal less often than proponents of State action like to admit. In this particular case we actually know that it is untrue. For there is a private sector competitor, one that provides a rather better service and, to the surprise of few one that cost some $1.8 million, or one fiftieth of the Government one to create.

Yes, yes, I can see the looks of puzzlement already as people read this, for how can State action that throws away $90 million on something already done better by the private sector be described as a bargain? The value lies in its future use as a cautionary tale, for just as pain is our body's way of telling us we've done something stupid, as getting wet is the universe telling us to come in out of the rain, so can this story be used as a brake upon the ambitions of all those who would spend our money they way they wish, not the way we wish.

The first and most obvious point is that the State seems to be one fiftieth as efficient as the market. Given that the UK Government currently spends around $1 trillion a year that would seem to indicate that the market could do the same job for $20 billion. A nice thought but I'm not sure that even I believe that, $40 billion maybe, but not $20, for even the most minimalist state will need a military.

Leaving such libertarian dreams to one side there are a few economic points that can be made. That the Government or the State is not subject to the cost pressures of the market and competition is shown well here. No private company would have spent $90 million on such a site and if they did they would already be bankrupt, stopping them from wasting more. So, lesson one, that if you want something done cheaply and efficiently, don't ask the State to do it.

It took them four years to do it, so lesson number two, if you want something done quickly, don't get the State to do it.

The site doesn't actually work very well, so lesson number three, perhaps the State is not to be relied upon to perform the tasks it sets itself.

Lesson four is that the site doesn't even provide accurate information, leading to the thought that perhaps the State lies to us at times. (Gosh, who would have thought that before this example?)

Lesson five is a quite glorious exposition of the idea of crowding out. Here we can see a private company whose future has been put in doubt by the State spending our money on entering the market. More normally we don't actually see this effect so vividly as the mere presence of the State in a market pushes the private sector out of the picture.

If we take the cost of this scheme, that $90 million, and allocate it per capita across the population of the UK we get something like $1.50 each. That's a once off cost, not a recurring one. Set that cost against the lessons learned, that State action is expensive, slow, inefficient, cannot be relied upon to actually achieve the tasks it sets itself, usually ends in you being told lies and in the process crowds out private companies doing a better job.

A buck and a half each to have those lessons demonstrated for us in the real world? Yup, that's a bargain. I just hope that my fellow Brits take those lessons to heart.


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