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1 September 2014 23:01 (South Africa)
Opinionista Ivo Vegter

The irony of 'services for all'

  • Ivo Vegter
There's something quite absurd in Eskom's advertising. Wherever have you heard of a company that begs customers to buy less of its product?

The argument against government-provided services goes well beyond mere details, such as the lack of delivery which regularly causes violent protest. It goes well beyond bickering about who is better at producing this or that. There's more to it than just the rankling suggestion that government bureaucrats aren't as smart as executives in the private sector, which only serves to justify over-generous pay packets for government employees and contractors, in the hope that the cushy comfort will attract equally smart people.

Eskom exemplifies the argument against a government-provided service. We're all painfully familiar with the rolling blackouts of two years ago. Then the economy took a tumble, and because we produced less, and created less wealth, we used less electricity. The country's misfortunate was for Eskom a blessing in disguise.

Now, the economy appears to be recovering – at least temporarily – and this makes Eskom's managers nervous. Its CEO, Brian Dames, has been wringing his hands about the anticipated increase in demand. He has called upon households to use less power, and upon big industrial customers to reduce power demand by 10%.

This is no exception. Shortages and rationing are the inevitable consequence of socialised services. Pick any government service, and chances are you'll be asked to use less of it. If the government provided bread, we'd all be standing in Soviet-style queues to buy low-quality bread with ration coupons before it runs out.

By contrast, private companies delight in hearing that demand for their product is rising. This permits them to grow and prosper.

You'll never see a supermarket advertisement announcing it will be charging "punitive tariffs" for orange juice, and that customers will be limited to buying only a litre every second day. (Which is how water bills work whenever there are water shortages.)

No, if the supermarket finds it cannot supply the rising demand for orange juice, its first step will be to take advantage of the high demand by raising prices. The proceeds will then be used to fund more stock.

In the short term, the higher prices will reduce demand, matching it to the available supply. Simultaneously (and provided the supermarket in question isn't just a privatised monopoly), it will favour competing retailers who had the foresight to lay in a better supply of orange juice.

In the longer term, the supermarket's response will raise the incomes of citrus farmers, who will take it as a signal that more investment into production capacity will pay handsomely. It will also attract new farmers or importers to this newly-profitable niche. As a result, more orange juice gets supplied, prices decline again, and consumer demand gets met. Meanwhile, those who over- or under-invested get pushed out of the market for failing to match their supply with consumer demand.

While the price mechanism works its balancing act on the system, the advertising will continue to say: "Buy our orange juice, please. It's healthy, and we sell only the best. Go on, you know you want to!"

Unremarked by most, and outside of the control of any one actor in the market, each player in the chain acts in their own best interest. As Adam Smith so percipiently put it, this promotes the public interest, without the need for any intention to do so. "By … directing that [labour] in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

So why is it that as soon as we spot something we believe more people should have more of, we call upon the government to provide it? Ultimately, this will have the opposite effect of what we intend.

Here's how it works. First, there are good intentions. (Dames: "Therefore, we are targeting every day a two percent improvement in output for the next two years.")

Then, the government agency proceeds to produce as much as they think citizens might need, as cheaply as possible, and aimed at the lowest common denominator. Still, the intention is not to make a profit, but to serve the public good.

Then, citizens discover they're receiving low quality, or inadequate supply. This is an inevitable consequence, whether it involves water, electricity, housing, healthcare, or indeed any service that the government takes upon itself to provide. All of those end up being subject to rationing rather than to the magic of the price mechanism.

Whenever one sees an advertisement begging customers to buy less of something, you can bet that the product or service in question is produced by the government.

The stock response is to nod sagely, muttering pious platitudes about over-extended resources and our need to conserve energy, water or whatever is being rationed. This response is as absurd as the advertisement that prompted it.

There's nothing natural about shortages. They are inevitable only when you cease to depend on individuals in a free market to act in their own best interests by meeting consumer demand for profit. They are inevitable only when government is prevailed upon to provide something for the public good.

The irony is this: populist slogans about "services for all", provided by the government, end up achieving the exact opposite of the public interest. That's why our failure to grow prosperity is, perversely, a good thing for Eskom. How can we expect a government to reduce poverty when it has every incentive to perpetuate it?

If plentiful and varied supply is what you want, let the market produce it. If rationing is what you want, give the job to government. That is the lesson of Eskom.

The question is whether the South African government will learn from this history, or maintain the illusion that it was just some detail or other that went wrong. DM

  • Ivo Vegter
IvoVegterBW

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He approaches issues from the perspective of individual liberty and free markets. He grew up in the deep south of Johannesburg, and learnt his politics reading the Weekly Mail and Vrye Weekblad at Wits University during the early years of the country's transition to democracy. He recently left the city for the lower cost of living of Knysna, where he continues to write about everything under the sun. He is always right.

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