TCS Daily


The Greater of Two Evils

By Tim Worstall - December 6, 2005 12:00 AM

One of the main problems rightwing nutjobs like myself face is that we've never quite managed to get across a fundamental point about our mistrust of government action. People assume we just have a naïve faith that markets left untouched will magically make the world a better place in each and every case. People assume that our distaste for the jumped up little vote-stealers so eager to spend our money is some sort of mental aberration. Such is probably true of me, but there are quite a few thoughtful free market voices out there. Even among those as rabid as myself, none believes there ever has been or ever will be a totally free market. Markets have always been limited by laws, regulations and even by certain societal standards. Indeed, we would insist that markets and rules go hand in hand. Otherwise, without general agreement as to what property is and general rules for its ownership and transference, how could a market even exist?

Take as an example potable water and sanitation services. It's true that the vast majority of such in the world is provided by the public sector in some form or another -- perhaps the city or county, or in some places national governments. The private sector normally takes up a small fraction of the whole in terms of how water is provided. It is also the case that there are at least 1 billion of our fellow human beings who do not have access to water that's wise to imbibe, and that the waste of 2 billion plus people is left to fester in the gutters (and therefore also back to sources of drinking water). We can assume that a significant number of these people would like to change this state of affairs.

Some claim that access to such basics is a human right -- on a par with free speech or the right to life. Other more curmudgeonly types (like myself) agree that such goods or services are important -- indeed, are basic to civilized society -- but we don't quite accord them quite the exalted status of a "right." But all of us, from those writing the United Nations' Millennium Development Goals to the common bus-rider, would like there to be more of these good things: water that doesn't kill babies or sewage systems better than runnels in the street. The disagreement comes in the how we get from here to there. Consider the two basic approaches -- public and private provision.

On the one hand, we have various well-meaning folks at NGOs (like these) who say argue against private provision of water and point to countries, such as Holland, where water stewardship is in the public domain, as the best model to follow. Water and sanitation in Holland are indeed excellent. So why can't this happen the world over?

Perhaps we might first ask whether, in a properly structured privatization scheme, services actually improved and were provided at lower cost. If they didn't, public provision would be the only way to go and I would have to crawl back under my mound of Ayn Rand books for comfort.

Fortunately there was a recent paper, "Water for Life," in the Journal of Private Enterprise in which the authors investigate exactly this question. In the abstract the authors tell us that:

"In the 1990s Argentina embarked on one of the largest privatization campaigns in the world as part of a structural reform plan. The program included the privatization of local water companies covering approximately 30 percent of the country's municipalities. Since clean water and sewage treatment are critical to control the spread of infectious and parasitic diseases; access expansions, quality improvements, and tariff changes associated to privatization may have affected health outcomes. Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell 5 to 7 percent in areas that privatized their water services overall; and that the effect was largest in the poorest areas.

"In fact, we estimate that child mortality fell by 24 percent in the poorest municipalities. These results suggest that the privatization of water services prevented approximately 375 deaths of young children per year. We check the robustness of these estimates using cause specific mortality. While privatization is associated with significant reductions in deaths from infectious and parasitic diseases, it was uncorrelated with deaths from causes unrelated to water conditions."

The Berkeley economist Brad DeLong described this as an excellent paper and George Mason University's Alex Tabarrok added this coda in a recent online discussion:

"In theory, water services are not an easy thing to privatize well because of natural monopoly problems and because some of the benefits of clean water are externalities. In practice, however, governments in developing countries do such a poor job at providing water that there are large potential gains to privatization even given such problems."

Which rather takes us back to the beginning. It isn't that we uncaring, unfeeling rightwing nutjobs believe that there can be no market failures, nor even the absence of effective, competitive markets. Rather, it is simply that sometimes government does things worse.

That rather inconvenient little fact is actually what drives us rightwing nutjobs. When you describe a problem, I'm all ears. When you tell me how the world can be made a better place, I'm fascinated. And when you tell me about your desire for such improvements, I am right with you. But I do insist that your program be rather more developed than: "we'll let the Government do it." Because as we have seen time and again, such approaches can prove to be far worse than the one offered by the money-grubbing capitalists.

Alright. So I'll admit to being rabidly ideological, which brings me to that fundamental point I've always wanted to get across. With respect to the provision of any good or service: whether or not you agree with my standard "public provision is almost always a worse solution," surely you can accept "public provision is sometimes a worse solution." If you can't accept that, you're not living in the real world.

Tim Worstall is a TCS contributing writer living in Europe. His book of the best of British blogging can be ordered from Amazon.co.uk. Find more of his musings here.
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