Saturday, 17 January 2015

Markets or Government - Which is More Efficient?

Everyone has an opinion whether certain sectors of a society should be operated by markets or by the state. There are three viewpoints. Everything should be run by the state, the market or the so called 'mixed' economy. The majority of people hold the latter viewpoint with their love/hate relationship of Capitalism. The problem I find with the mixed economy view is its inherent contradiction. Why are some aspects of society better run by State monopolies yet people with such views generally accept that markets lower costs and supply more consumer goods for us all in other segments. I may disagree with Socialists who believe all sectors of an economy should be managed by the State but at least they are consistent. The march of markets, freedom and capitalism will not stop and people will actively vote for them where it is given the correct conditions. So are markets more efficient? This point can be debated forever. I have a deeper problem with Governments and centralised monopolies.

People mistake Libertarians, Anarcho-Capitalists, Crypto-Anarchists - people who favor free markets - as believing that growth is important. In fact the contrary is true, people with such philosophic views don't care. They don't care if economies contract or if people become poorer. What they care about is that individuals are empowered to make decisions for themselves on a personal level. If people in society wish to work shorter hours or decide to do things contrary to economic growth, then that is fine. They believe when the freedom of the individual is unleashed economies will grow indefinitely and people will get richer; but this is just a by product and not a direct aim. Ironically its people who despise Capitalism and markets who worship growth. The Keynesians, the Government officials, the Socialists. They use growth as a measure of success or failure of a society or a particular policy.

To illustrate a typical debate of free choice vs state coercion lets take a software developer who decides to move job. First there is the downtime in getting up to speed with the new systems they will be working on. These are usually non-trivial so can take months to get up to speed on and this may just be a subsystem of the entire application. Then there are the associated recruitment fees as people constantly move to different companies. This costs the economy millions. There is a loss of domain knowledge when an experienced team member leaves, often leading to their successor taking more time to make changes. Then there can be issues with morale, if many people leave it can cause dejection among a company who suffers attrition. With all the above and no doubt other issues you could argue for the sake of economic efficiency that we should make people work the same job forever and remove the choice from the individual. Similar polices are enacted in Cuba, where people choose a job for life mandated by the State. 

There is however another side to all this. When people move jobs it spreads knowledge from people working with different colleagues with different experiences. These new ideas can help improve an application. People avoid becoming bored and unproductive and have the opportunity to move to what they perceive as more fruitful work.

We could argue both cases are an illustration of the superiority of free markets or Centralized coercion in the general form of a Government. In my mind its markets that are more efficient but I will be happy for someone to take the opposite view. If we just look at morality then the answer is surely markets. Only markets put the individual at the center, the State takes decisions away from the individual. For example if people want to use vetted medical drugs or "Quacks" or have medical procedures that do not comply with regulation A, B and C, then they should be free to choose; currently they can not (for the misgivings of regulation see this post as detailed it is tyranny). If we mandate services we loose out on all the unseen innovation. Who could argue against freedom? Isn't this what we all want as individuals. 

We can take a look at another example, Software Technology. Why have multiple programming languages? Why have multiple database applications? Not just dozens but hundreds. Many cover the same uses and offer no real difference thus there is a duplication in effort. Many fail, wasting time and resources. Again the other side to the coin is the failures build the successes. The competition creates better products for consumers. The multiple platforms ensures diversity and resilience. Whats more efficient or compatible with economic growth? We really shouldn't use this metric to decide, instead freedom; people should be free to do as they please. If someone wants to create their own programming language just for the fun of it then they should be free to do so, despite it not contributing to the GDP figures.

Would we think its right to mandate a dictate where people can and can't live in their country of birth? What job they could take? What food they could buy? Many Westerners may think the preceding list as absurd, but that's exactly what liberties some Governments take away from their citizens. Markets are right because they represent the freedoms of individuals to make choices for their own needs. Not because they are more efficient or contribute to increases in GDP, but because they disperse and decentralize power.

We should all be free to do as we please, even if that means we make bad choices. If we choose the wrong job, house, car or say things we regret; we should be grateful that we had the choice in the first place, many others don't have such freedoms. Happiness metrics are all wrong. People can have all the freedom in the world but still be unhappy at the time they are surveyed, but at another time may feel euphoric. Human beings are emotional creatures who experience happy/sad swings all the time. As Frank Sinatra said "Thats Life". He also sung "I did it my Way". That is true equality. Liberty, not State coercion. The right to live life by our own decisions. Regardless of if those decisions do not contribute to the GDP statistics.