- 20 Dec 2016 11:30
#14752395
@ Truth-To-Power
Yes and no. Since the eighties economists study the so-called principal-agent problem. By the way, this implies that museum pieces such as Karl Marx, Lev Bronstein, or Henry George did not really understand this effect. Their works are outdated. In fact at the start of the twentieth century the social democrats were still convinced that state officials are equally efficient as private entrepreneurs. They believed that human nature is formed mainly by the social morals. This was a costly mistake.
According to the principal-agent model it is in the interest of the citizens to obtain their goods and services in a cost-effective way. They are the principals. Unfortunately, the administration has her own interests, which of course she will try to carry through. So the principal must in some way incite his agent to serve him well. When the agent is a private administration, then the investors will supervise the activities. For it is in the interest of the investors to maximize the profit. When, on the other hand, the agent is a state administration, then the supervision problem is unsolvable. For who will supervise the supervisors? All supervisors will be state officials themselves, or politicians, and thus not primarily dedicated to efficiency.
You are right that the extent of this problem depends on the state. In a corrupt state the private investors will probably lose their battle for efficiency against the apparatchiks. See the referral to "Why nations fail" of TheRedBaron (did you read it?). But even a modern state with high morals can not eliminate the principal-agent conflict. Your "rent-seeking state apparatchiks" are not necessarily evil crooks, but merely humans, just like you and me, with incomplete information and opportunistic motives.
Truth-To-Power wrote:It depends on the state. If it is a reasonably accountable democracy, state administration of natural monopolies like electric power, water and sewer service, railway tracks, etc. is reliably cheaper and better than private, for-profit administration. The rent seeking opportunities are just irresistible to private managers and unaccountable state apparatchiks.
Yes and no. Since the eighties economists study the so-called principal-agent problem. By the way, this implies that museum pieces such as Karl Marx, Lev Bronstein, or Henry George did not really understand this effect. Their works are outdated. In fact at the start of the twentieth century the social democrats were still convinced that state officials are equally efficient as private entrepreneurs. They believed that human nature is formed mainly by the social morals. This was a costly mistake.
According to the principal-agent model it is in the interest of the citizens to obtain their goods and services in a cost-effective way. They are the principals. Unfortunately, the administration has her own interests, which of course she will try to carry through. So the principal must in some way incite his agent to serve him well. When the agent is a private administration, then the investors will supervise the activities. For it is in the interest of the investors to maximize the profit. When, on the other hand, the agent is a state administration, then the supervision problem is unsolvable. For who will supervise the supervisors? All supervisors will be state officials themselves, or politicians, and thus not primarily dedicated to efficiency.
You are right that the extent of this problem depends on the state. In a corrupt state the private investors will probably lose their battle for efficiency against the apparatchiks. See the referral to "Why nations fail" of TheRedBaron (did you read it?). But even a modern state with high morals can not eliminate the principal-agent conflict. Your "rent-seeking state apparatchiks" are not necessarily evil crooks, but merely humans, just like you and me, with incomplete information and opportunistic motives.