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02/25/2007

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ben

It seems to me Wes' and N.E.'s concerns about the effect of profit seeking on quality and even price are naive give the extent of precedents suggesting that profit seeking raises quality. Supermarkets, airlines, telecommunications networks, semi-conductor, manufacturing, agriculture, etc etc are all run for profit, their products reach the mass market, and quality is high. In airlines and telecommunications, large quality improvements and price reductions were achieved only after deregulation and privatisation.

Supermarkets deliver a much wider range of products than water utilities that could contain any number of harmful substances, but a combination of regulation and, probably more importantly, reputation and liability deliver strong financial incentives to get it right.

A distinction also has to be made between privatising the pipes (possibly a natural monopoly - though this is debatable) and privatising the water flowing through them. There is no reason government cannot own or regulate water distribution while competitive water retailers sell the water inside those pipes.

Jack

Ben: In many venues the construction work is subbed out to private contractors. But I think I get your drift, with the operation itself privatized there COULD be an opportunity to get rid of public employees (along with whatever bargaining unit they may have formed) drive down wages. That savings could then be used to pay the CEO vastly more than the old regulated utility would ever pay its superintendent. Hey! once a lot of 'em were private someone could consolidate them like Waste Management or "our" cable TV combines?

BTW.... M. Thatcher "deregged" electrical utilities in the UK; her minister of energy soon joined Enron and.............. utility rates began doubling and tripling. Sound familiar?

n.e.hat

ben, Your airlines and telecommuncations examples fly in the face of the facts. Even the supermarket example doesn't fly, they are constantly having to pull product and disposing it due to contamination even with FDA oversight.

As for the facts, regarding regulated public water supplies, one region has stated, "... during year 2005, a total of 724 out of 6,012 public water supplies in the state were shown to have violations of regulations. As in the past, most violations, monitoring/reporting violations (failure to provide documentation or collect samples), short in duration and the public water supply returned to compliance by the next reporting period. The overall potential risk to public health was minimal. When a potential health risk was present, the public water system was required to issue public notification to all consumers." With a deregulated/privatized system do you think that such transparency into operations and problems would exist? With private business, the first reaction is, damage control and a public relations campaign to fog the issues and allay the fears of the customer base. Don't forget when things go bad, the corporate veil comes down and the public interest be damned.

ben

N.E. Hatfield

"ben, Your airlines and telecommunications examples fly in the face of the facts. Even the supermarket example doesn't fly, they are constantly having to pull product and disposing it due to contamination even with FDA oversight."

What facts? Are you seriously disputing that the performance of the industries for consumers would be improved if they pursued some objective other than profit? Are you saying the dramatic performance improvement of telcos around the world following their privatisation is just a coincidence? Are you seriously questioning that the profit objective is in conflict with food safety at supermarkets and flight safety in airlines given the extraordinary safety record they have? You might assign that safety to regulation, but so what? Bottom line: regulated profit seeking is successful.

I think you get the accountability under privatisation exactly backwards. It is private companies competing for business which suffer most from safety lapses, not state run monopolies. Small airlines go out of business following crashes, large airlines suffer years of reduced revenues, restaurants close after food poisoning. State run monopolies on the other hand hold an inquiry and might fire the CEO. That is a fundamentally lower level of accountability.

Nutritional information on food packaging shows that profit seeking need not and does not conflict with disclosure.

n.e.hat

ben, Profit is just one objective, perhaps the most important are, protecting the public's health, safety and environment. As for the telecom. improvement, how come I can't get my phone service repaired in the house anymore or connections that seem to drop out all the time or a phone bill that actually costs more, instead of less? I won't even go into the split up and recombination of ole "Ma Bell". As for the safety of the Airline industry, that's due to the oversight provided by the FAA & the DOT. Next time you get on the plane ask the pilot when the last time the "aft cabin pressure bulk head" was checked? Another issue regards service, every time I get on a plane these days, it smells like an open air third world market, due to all the food stuffs carried by passengers or how about the disappearing luggage issue that seems to be growing? I won't even mention Jet Blue's latest meltdown or the increasing canceled flights issue or the dropping out of small town airports off the air transportation map. As for profit and food safety, just ask yourself, "How did all that contaminated lettuce get into the supermarkets across the nation in the first place? And the list goes on and on and on. Perhaps product contamination is a part and parcel of the nutrient value of the product.

As for a publically regulated utility functioning as a "state run monopoly", this only occurs in the fevered imagination of an ideologue. ;)

ben

N.E.

We can agree that privately-produced goods are less than the perfection you seem to expect, but that is not the question. The question is whether state provision is superior. I do not believe there is any controversy that state provision of goods is in general inferior on efficiency and quality grounds. Nothing presented here suggests it will be nay different for water.

Profit is just one objective, perhaps the most important are, protecting the public's health, safety and environment.

Those are highly compatable objectives. It is not generally profitable for food makers to poison their customers or airlines to kill them in air crashes. Environment is slightly different, because it involves externalities, but the accountability that reputation and regulation brings to bear is significant. The worst environmental degradation has occurred in command economies.

n.e.hat

ben, Please reread one of my earlier comments. In year 2005 there were 724 violations by publically
owned water distribution systems out of a total 6,012. This represents a 12% fault rate which the majority were simply administrative errors (late filing or improper filing). Which translates into an 88% success rate. Private industry's normal target is 80 to 85 percent. So how can privatized operations claim that they have a better record?

Perhaps Russia's or China's "command economy" has left a legacy of environmental disasters. But our mixed approach has also left a legacy of environmental problems. Off the top of my head, there are still hundreds of private industrial sites that are still waiting on the Superfund list for cleanup. All to be handled in a "command/control" (similiar to "command economy") method by the Fed. and State EPA's as directed by the Courts.

Jack

Ben I'd hope that you don't see the discussion and criticism of water and regulated utilities as evidence that the critics favor a "command economy".

I'd guess that all here embrace the free market benefits conveyed by Intel and the production and distribution of general merchandise. I'd also guess we're all LESS SURE about the near monopoly of MSFT, oil prices heavily influenced by worldwide cartels, and Nike paying more for sports hero endorsements than for Chinese slave labor to produce them.

You'll note the best examples of capitalism driving quality up and prices down are in fast moving and inherently competitive industries. (Note that an AMD or Intel motherboard with all those little parts solder together can be had, logic and all, for less than a CD and poorly written book from MSFT? Even the aging and unsupported Win98 will command most of $100)

These industries have little in common with the delivery of water. In fact one of a utilities highest costs is that of interest on new infrastructure and typically public bonding will bring that in cheaper than private borrowing or a stock offering. Others here have pointed out the other advantages of public ownership.

My last guess for the day, is that "Libertarians" would garner more respect in the political world were they to admit (discover?) there are differing tools in the box for the operation of differing aspects of our mixed economy.

BTW I'm not seeing significant resistance to the nationwide scam of heavily subsidizing ethanol, nor resistance to local pork and the maintenance of long obsolete military bases from either party. Perhaps there's more to be gained from simple honesty than in how our water pipes are owned and managed?

ben

N.E. Hatfield

Your data isn't helpful:

a) most violations don't relate to water quality

b) actual not target performance of private water providers is what matters

c) any comparison needs to be apples for apples - if private firm systematically operate in cleaner or dirtier environments, for example, then this must be controlled for. Simple aggregate comparisons won't do.

d) there is a tradeoff between cost and quality. Superiority cannot be determined by looking only at one variable (e.g. privatisation will be preferred if it achieves parity in quality at half the cost)

You cite examples of environmental degradation by private industry - but again this on its own does not inform the question of whether a state run operation would have produced more or less pollution.

There is also a wider issue of efficient pollution, that is, pollution that is worth the cost to society. I believe a profit-seeking firm that bears liability for harm from pollution is in a far superior position to identify the efficient level of pollution than a firm pursuing one or more non-profit objectives that must, presumably, decide pollution output by committee vote.

n.e.hat

ben, You've bought that old tired and wornout Libertarian economic position hook line and sinker. I've provided facts as available, you, nothing but glittering generalities, that prove nothing. Except, perhaps, exposing the fevered imagination of the ideologue. You want private industry running everything, give us the facts not that tired-boring old line, "Private operations are more efficient, and does it better hence convert everything to a private business model!" And so like the lemmings, we go mad, rush to the cliffs and plunge to our deaths in a anarcho-capitalist sea. All because of an ill concieved and applied economic ideology.

Just one question, "is it better to be dead than red, or is it better too be red than dead?" ;)

Haris

Ben
I guess I've bought the "old wornout Libertarian" line, too. I thought comparing the performance of state vs. private firms in the same setting should be a better guide of public policy than simply looking at one or the other. The fact that there are ills with one doesn't mean that the other is automatically good. The cure, after all, can be worse than the disease: individual freedom leads to greed and crime - does that mean we should strive for slavery and totalitarianism to fix that? Of course not. The Soviets tried state provision of goods - it led to shortages and black markets. But that doesn't lead me to believe that unfettered markets are automatically the answer; externalities, information asymmetries, credit market failures, etc. all warrant a little government attention. That said, clearly defined property rights usually align incentives properly. They definitely help people control their own consumption and production, and are generally more "fair," in the sense that people pay for what they use and bear the costs of their own actions. Water being a necessity, we obviously have to have provisions that ensure that everyone has access to affordable water - I am not arguing that letting people who can't afford water die would eventually balance the supply and demand [obviously more applicable to poorer nations than California]. But I don't mind that businesses who can't afford water go out of business and that water instead gets diverted to more efficient business uses. Not only does that fit my clearly ideological libertarian world view, it is also more environmentally friendly [see Collapse by Jared Diamond].

ben

N.E. and Haris

I am not advocating open slather.

It is not ideology that motivates my advocacy of private provision. It is the consistency with which the private sector has outperformed the state in producing and distributing goods and services. This is backed by mountains of evidence. On top of that, there are strong theoretical reasons to expect governments to deliver inferior services. Absent a reason to think this precedent is not relevant in water, it is presumably ideology that motivates your rejection of privatisation in spite of the improvements it has wrought elsewhere.

You have both ignored my earlier distinction between the (possible) natural monopoly of water distribution, which justifies price regulation or a universal service provision, and the supply of water into those pipes, which can be be provided competitively. There is nothing special about water that makes competitive provision any more difficult than, say, sugar cane. Water's necessity improves the case for competitive provision, not weaken it.

N.E. the facts you provide simply do not inform the case you are trying to make. I'll be more than happy to provide references to the large empirical and theoretical literature that demonstrates the advantages of private provision. Pointing out imperfections in private provision is not a test of the superiority of state provision. In fact, it is comical that you point to such imperfections given the large and ridiculous excesses of state provision of goods that has been repeated in every country. What, N.E., other than your own ideology lets you ignore such waste and think water is somehow escaping it?

ben

I think part of the confusion is caused by using the shorthand terms 'private' and 'state' without saying what those terms mean.

By 'private' provision I mean provision by

a) private firms

b) that seek profit

c) that are regulated where competition is not a significant constraint on price or quality

d) that are subject to minimum standards in the quality of water to end users, and

e) pay a positive marginal cost for water and set a positive marginal price for water

By 'state' I mean:

a) publicly-owned utilities

b) that sets zero marginal price for water

c) that is also subject to minimum water standards.

In this context, when I say I prefer private over state provision, what I mean is that I prefer the first collection of features to the second.

jack

Ben.......... never a doubt?

VA Hospitals vs. Private Sector Hospitals

Time compares hospitals in the private sector to VA hospitals and finds that VA hospitals do better than their private sector counterparts according to a variety of measures of cost and quality:

How VA Hospitals Became The Best, by Douglas Waller, Time: ...Until the early 1990s, care at VA hospitals was so substandard that Congress considered shutting down the entire system and giving ex-G.I.s vouchers for treatment at private facilities. Today it's a very different story. The VA runs the largest integrated health-care system in the country... And by a number of measures, this government-managed health-care program ... is beating the marketplace.

For the sixth year in a row, VA hospitals last year scored higher than private facilities on the University of Michigan's American Customer Satisfaction Index... Males 65 years and older receiving VA care had about a 40% lower risk of death than those enrolled in Medicare Advantage, whose care is provided through private health plans or HMOs... Harvard University just gave the VA its Innovations in American Government Award for the agency's work in computerizing patient records.

And all that was achieved at a relatively low cost. In the past 10 years, the number of veterans receiving treatment from the VA has more than doubled, from 2.5 million to 5.3 million, but the agency has cared for them with 10,000 fewer employees. The VA's cost per patient has remained steady during the past 10 years. The cost of private care has jumped about 40% in that same period.

Vets still gripe about wading through red tape for treatment. Some 11,000 have been waiting 30 days or more for their first appointment. The Iraq and Afghanistan wars could stress the system, although for the moment VA officials say the agency can accommodate the new patients. ...

The roots of the VA's reformation go back to 1994, when Bill Clinton appointed Kenneth Kizer, a hard-charging doctor and former Navy diver, as the VA's under secretary for health. Kizer decentralized the VA's cumbersome health bureaucracy and held regional managers more accountable. Patient records were transferred to a system-wide computer network, which has made its way into only 3% of private hospitals. When a veteran is treated, the doctor has the vet's complete medical history on a laptop. ...

Another innovation at the VA was a bar-code system ... for prescriptions--a system used in fewer than 5% of private hospitals. With a hand-held laser reader, a nurse scans the bar code on a patient's wristband, then the one on the bottle of pills. If the pills don't match the prescription the doctor typed into the computer, the laptop alerts the nurse. ...

Private hospitals, which make their money treating people who come to them sick, don't profit from heavy investments in preventive care... But the VA, which is funded by tax dollars, "has its patients for life," notes Kizer... So to keep government spending down, "it makes economic sense to keep them healthy and out of the hospital." Kizer eliminated more than half the system's 52,000 hospital beds and plowed the money saved into opening 300 new community clinics so vets could have easier access to family-practice-style doctors. He set strict performance standards that graded physicians on health promotion.

As the reforms produced results, veterans began "voting with their feet," says Dr. Jonathan Perlin... Hundreds of thousands abandoned private physicians and enrolled in the lower-cost and higher-quality VA care. But that created a new problem. The VA's budget from Congress (currently about $30 billion annually) couldn't cover the influx. By January 2003, with hundreds of thousands waiting six months or more for their first appointment, the VA began limiting access to only vets with service-related injuries or illness or those with low income.

Veterans' groups understandably want the health-care system expanded... Tom Bock, commander of the American Legion, has another idea: allow elderly vets not in the system who are drawing Medicare payments to spend those benefits at a VA facility instead of going to a private doctor, as is now required by Medicare. ... Medicare, which pays more than $6,500 per patient annually for care by private doctors, could save with the VA's less expensive care, which costs about $5,000 per patient. ...

But conservatives fear such an arrangement would be a Trojan horse, setting up an even larger national health-care program and taking more business from the private sector. Congress has no plans to enlarge the scope of veterans' health care--much less consider it a model for, say, a government-run system serving nonvets. But it's becoming more and more "ideologically inconvenient for some to have such a stellar health-delivery system being run by the government," says Margaret O'Kane, president of the National Committee for Quality Assurance, which rates health plans for businesses and individuals. If VA health care continues to be the industry leader, it may become more difficult to argue that the market can do better.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Health Care Confidential, by Paul Krugman, On Health Care Commentary, NY Times: American health care is desperately in need of reform. But what form should change take? Are there any useful examples we can turn to for guidance? Well, I know about a health care system that has been highly successful in containing costs, yet provides excellent care. And the story of this system's success provides a helpful corrective to anti-government ideology. For the government doesn't just pay the bills ... it runs the hospitals and clinics.

No, I'm not talking about some faraway country. The system in question is our very own Veterans Health Administration, whose success story is one of the best-kept secrets in the American policy debate. In the 1980's and early 1990's, says ... The American Journal of Managed Care, the V.H.A. "had a tarnished reputation of bureaucracy, inefficiency and mediocre care." But reforms beginning in the mid-1990's transformed the system, and ... "have allowed it to emerge as an increasingly recognized leader in health care." Last year customer satisfaction with the veterans' health system ... exceeded that for private health care for the sixth year in a row. This high level of quality (which is also verified by objective measures ...) was achieved without big budget increases. ... How does the V.H.A. do it?

The secret of its success is the fact that it's a universal, integrated system. Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage and demand payment from their insurance companies. Because it's integrated, ... it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors.

Moreover, the V.H.A., as Phillip Longman put it in The Washington Monthly, "has nearly a lifetime relationship with its patients." As a result, it "actually has an incentive to invest in prevention and more effective disease management. ..." Oh, and one more thing: the veterans health system bargains hard with medical suppliers, and pays far less for drugs than most private insurers.

I don't want to idealize the veterans' system. In fact, there's reason to be concerned about its future: will it be given the resources it needs to cope with the ... wounded and traumatized veterans from Iraq? But the ... V.H.A. is clearly the most encouraging health policy story of the past decade. So why haven't you heard about it?

The answer, I believe, is that pundits and policy makers ... can't handle the cognitive dissonance. (One prominent commentator started yelling at me when I tried to describe the system's successes in a private conversation.) For the lesson of the V.H.A.'s success story ... runs completely counter to the pro-privatization, anti-government conventional wisdom that dominates today's Washington.

The dissonance ... is one reason the Medicare drug legislation looks as if someone went down a checklist of things the veterans' system does right, and in each case did the opposite. For example, the V.H.A. avoids dealing with insurance companies; the drug bill shoehorns insurance companies into the program... The V.H.A. bargains effectively on drug prices; the drug bill forbids Medicare from doing the same.

Still, ideology can't hold out against reality forever. Cries of "socialized medicine" didn't, in the end, succeed in blocking the creation of Medicare. And farsighted thinkers are already suggesting that the Veterans Health Administration, not President Bush's unrealistic vision of a system in which people go "comparative shopping" for medical care the way they do when buying tile, represents the true future of American health care.

n.e.hat

Jack, Save your breath and time. What I think we've got here is one Hoffer's "True Believers". ;)

ben

N.E. Hatfield

I don't know why you're feeling so smug, it's not as if producing two numbers wins an argument when they don't inform your point. You argue for the superiority of public ownership without bothering to say what makes water exempt from the endless waste that has gone on elsewhere, and indeed goes on right now in water distribution right now. You argue against private ownership by pointing out examples of imperfection. Again I ask, if it is not ideology that motivates your belief in public provision, what is it that allows you to ignore the wastefulness of government provision both in water and elsewhere?

Jack

Ben often private exists along side public. For example here in Anchorage one company takes water from the very lake that feeds the public water utility and sells it in, landfill clogging, plastic bottles.

Another? Takes its "glacier-fed" water for bottling from the tap in a house where the public water supply does indeed come from snow and glacier melt.

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