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Why States must be corrupt and inefficient

We all know the story: public services are monopolies, often mismanaged by corrupt government bureaucrats, politicians themselves are corrupt, engage in tax evasion or embezzle public funds and abuse their parliamentary immunity to never face any charges and walk away scot-free.

But what if this was a necessity? And if so, who would stand to gain from such a situation? The clear answer is: the private sector.

Any service managed by the State is automatically “removed” from the market economy: energy, telecommunications, transportation, healthcare… Taken together, these markets represent many billions in potential profits “confiscated” from the market economy. From a competition perspective also, the fact that States manage these sectors is unfair. Indeed, the State can more easily invest and stomach losses then the private sector. On the grounds that public services are often mismanaged, the private sector has successfully argued and lobbied for massive privatizations in the last decades. It is clear that there have been many examples of publicly funded services which have, from the outset, been managed inefficiently, stifled innovation and were charging citizens a higher price thanks to their monopolistic position than they would enjoy under a free market economy.

Telecommunications is one example. On the other hand, many services have been managed pretty efficiently such as public healthcare in Europe, and serves as a model for many States across the world.

So while the choice of privatization might make sense, there could have been a second option which seems never to have been considered: address the inefficiency, lack of innovation and unfair pricing through government policies (in other words, deal with the problem internally rather than delegating it to the private sector). While in a market economy people cast a vote via their purchasing decisions, in a democracy, citizens should be able to manifest their will to fix problems in the public sector via the ballot box. In the end, with the advent of neo-liberalism, it seems that choice was never offered to them.

But privatizations did not set in only because of inefficient public services. The public sector began feeling economic strain when stagflation set in around the 1970s with the oil shocks and even while the government continued to fund public services and invest in the economy, the end result was mostly inflation with little effect on growth/unemployment. At the same time, a relatively “new” political movement set in, based on the works of Friedrich Hayek arguing that States could never replace, via a centralized control, the intrinsic complexity and natural equilibrium reached by the simultaneous decisions of millions of actors in a “free market”. Thus Thatcher and Reagan launched the era of so called “neo-liberalism” which aimed at cutting back on government and focusing on the Regalian functions of the State: police, justice and security. On a side note, one cannot help but notice the irony of the proponents of neo-liberalism: the politicians applying these measures are basically cutting the branch on which they rest. How can they justify increasing their pay each year and keeping or sometimes even increasing the number of elected officials from their parties if they keep privatizing branches of government? In all logic, they should be paid less and be gradually less numerous since they should also have less work to do as the “free market” takes over!

But here is the problem: how do you manage to justify taking away a right, a public service which people enjoyed for a relatively low price or for free thanks to public subsidies coming from taxation?

In some cases, if the sector was clearly inefficient like the telecommunications sector, it was easy and could be privatized without too much public opposition. But for services which worked and were appreciated by people, it was tricky.

And thus sets in the following premise: what if the public sector had to be mismanaged to justify its later privatization?

Political parties which adhered to Hayek’s ideas might have started playing a “chicken and egg” game with public services. Public services’ budgets were slashed based on the necessity to reduce budget deficits and shrink government, and since the public services had to face increasing demand with lower financial resources, something had to give: the quality of the services deteriorated and/or the price was increased, and these effects coupled with massive protests from trade unions which were widely portrayed as economic sabotage and “taking public services users hostage” by the mass-media gradually turned a growing share of citizens into proponents of privatization, until the opposition was low enough to carry out a privatization with little to no protest from citizens. This “vicious circle” took time, year by year, in a self-reinforcing destructive spiral: less budget allocated, lower quality service, higher prices, citizens upset over mismanagement of their tax money, which was used as an excuse to cut the budget further the next year…

One very interesting propaganda fueling resentment towards public services was the strike of junior doctors in the UK in 2015. While most articles in the news talked about the “devastating effects” of the strike on “patients’ safety”, only a few news outlets pointed out that these strikes are, in the long term, about protecting patients. Focusing on the few patients who suffered during the strike as opposed to all the patients who will receive lower quality treatment due to worsening conditions in healthcare in the longer term is completely absurd[1].

Ironically, in the United States, the project of repealing and replacing Obamacare illustrates perfectly the “dangers” of public services which have a positive impact on people’s lives. While Obama faced stark opposition about Obamacare, once American citizens, previously uninsured, got to benefit from it, they massively protested the Republican’s decision to repeal it, even among Republican voters. And this despite the evident flaws and inefficiencies of Obamacare compared to European public healthcare mutualities. It also seems that the official Republican strategy, after their failed repeal of Obamacare, proves the theory exposed above: they plan to gradually strangle and purposefully mismanage Obamacare to discredit it before shutting it down[2]. In this sense, the Republican party is probably the most blatant and cynical embodiment of this strategy: build a political movement and campaigns around the inefficiency, corruption and dangers of Big Government, and once in power, run the government inefficiently and engage in vast corruption to prove your point…

While we may never ascertain that public services’ inefficiencies are solely or directly due to deliberate policies leading to a self-fulfilling prophecy, it is clear that providing quality, well designed and efficient public services is dangerous: citizens could get used and attached to them, thereby depriving the private sector of huge profits and even implanting the crazy idea that the government, from time to time, can also do something good for citizens in line with the general interest.



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