Mr. Dan Mitchell quotes part of a Wall Street Journal article which I cannot read, looking at the trap of state monopolies.[1] This trap is not unique to state monopolies, though it is likely most severe there. The trap is a rather neat one: the state monopoly has no real need to be efficient. Funded on tax payer dollars, it quite likely has no concept of "profit" the way a private sector company would. This gives it greater flexibility in meeting its worker's demands. Thus, when workers go on strike, or agitate via the political process for greater benefits, there is no point beyond which the management cannot go. You want an extra few days of leave each year? Sure, why not, your leave does not cost the company anything. This process can be slowed if the state legislature keeps tight bounds on the amount of money allocated to a given function, but as the workers become more numerous, and/or better organized, they form more powerful lobbies to influence the legislature to relax that control. The legislature can always deficit spend or raise taxes after all.
A similar process happens with unions even in very large private sector companies. The easy current example of this is United Airlines. Considered too big and too important to be allowed to fail, United is ensured of a governmental bailout if its credit ever falls through. Banks, knowing this, and also happy with their (still very high) minimum monthly payments, are more willing to grant loans than they would be to smaller companies. Thus faced with union difficulties, United is more likely to cave, granting higher benefits, higher pensions, than it can actually support. For a time this appeared to work: United had the bulk of the flights, lots of people were flying, it looked like it could afford to continue this, could continue to make its (relatively) minimal payments indefinitely. Then came a scare, and the number of passengers dropped for at least a while. Now United is basically at the mercy of the bankruptcy court, waiting for the next bailout to continue business as usual.
The state monopoly is clearly worse though. It will never face the shame and hassle of a bankruptcy court. It will never have even the nominal obligation to appear profitable. Its corruption can thus go much further, making it that much harder to undo. The quoted segment of the Wall Street Journal article makes this explicit.
The case of the state monopoly, EDF (Electricité de France) is instructive, and explains why any reform is so politically difficult. Employees of this vast organization work 32 hours per week; their meals are subsidized to the tune of 50%, their electricity and gas bills by 90%; they can retire at 55; they have the right to holidays at a fifth of their market value, and on average work the equivalent of eight months per year; and when their mother-in-law dies, they can take three days' paid leave to celebrate. These are not all their privileges, only some; so it is hardly surprising that when the government proposed the privatization of EDF, they went on strike. (The government caved in.) They did so in the name of "the defense of public service" -- and the French call the Anglo-Saxons hypocrites! When a certain critical mass of such subsidy and special privilege for important sectors of the economy is reached, reform becomes impossible without explosion. The government has created an economic monster that it cannot tame, and that is now its master. ...there is an underlying anxiety (the French take more tranquillizers than any other nation).[2]
- Mr. Dan Mitchell. "A case study of French decline" Dan Mitchell's C-Log 2006-02-11. http://www.townhall.com/blogs/c-log/Dan%20Mitchell/story/2006/02/11/186096.html
- Unviewable Wall Street Journal Article quoted by the above source, and re-quoted here. http://online.wsj.com/article/SB113962625985271568.html?mod=opinion&ojcontent=otep