Friday 23 October 2009

Proves too much

I've about a half dozen times heard various Labour Party spokespersons on National Radio arguing that allowing private competitors into things covered by ACC, the New Zealand Accident Compensation Commission, is bad because private firms have to earn profits and so they'll have to have higher cost structures than the public insurer.

But no National Radio interviewer provided the obvious retort:

If the argument were true, we'd want the government to be running everything! Why do we allow private provision of supermarkets? Woolworths just sucks out profits to send back to Australia when a government-provided supermarket wouldn't face that constraint. Heck, why do we allow private competition in property or life insurance? If the argument were true. But it isn't. And the reductio makes it obvious. And the reductio is obvious. And I didn't hear anybody suggesting it. Maybe I just wasn't listening closely enough.

Andrei Shleifer nicely lays out the conditions under which state ownership is preferable to private ownership. In short, if you're worried a lot about post contract chiseling on quality on non-contractable dimensions due to cost pressures and if you're not worried about keeping costs down and if product innovation doesn't matter much, then you might want to stick with public ownership. Shleifer figures AirForce One might fit the criteria. Workplace accident insurance? Not so much.

1 comment:

  1. Exactly my thoughts when I read about it this morning. These wackjobs are on another planet and the scary thing is that they'll eventually get voted back in.