May 25, 2013

Horse 1491 - Optimal Sharing Group
It is unfair to attribute the enervating employment shift to the federal Labor government entirely. Population ageing is boosting demand for health and aged-care services, but Labor's propensity to tax rather than cut spending has encouraged it. Both sides of politics, state and federal, will need to change their attitude to public services to save the inevitable slide down ever-greater public sector employment. ...
For a start, education and health services can be provided privately and consumers subsidised directly. Schools and hospitals would be run more efficiently by private rather than public entities, just as electricity and water utilities do, once sold. Yes, quality provision of health and education is important, but so is food, and no one is suggesting government set up restaurants.
- Adam Creighton, The Australian, 24th May 2013

I think that The Australian likes to peddle outright lies to get its point across. For a start electricity and water companies are not more efficiently by private rather than public entities and this is evidenced in the real world by the fact that Victorians currently pay far more for their electricity than their NSW or Queensland friends.
You can read through the report by the Essential Services Commission if you like. Released yesterday, the report finds that Victoria's electricity prices have gone up from between 60%-70% across the state; despite not bothering to make the same investment in electricity transmission and generation infrastructure.
Basically The Australia has lied outright and don't apologise for their deliberate untruths.


This is an aside though, what brought me to this article was a tweet from Tim Lyons, the ACTU Assistant Secretary:
The Oz wins the Oscar for False Equivalence : Govs don't run restaurants so they shouldn't run schools & hospitals.
-Tim Lyons, Twitter: @Picketer, 24th May 2013

In essence Mr Lyons is correct, so I thought I'd unpack the idea further.

The biggest difference between a restaurant and schools & hospitals from an economic perspective is something called the "Optimal Sharing Group". Think of it this way:
A Mars Bar has an optimal sharing group of 1. That is, although you can share a Mars Bar, the most efficient allocation of its use in terms of overall utility of enjoyment, is a single user. A toothbrush is another fine example of a product with an optimal sharing group of 1. Admittedly, you could share a toothbrush with someone else but I seriously don't think that any sane person would want to.
An entire block of chocolate has an optimal sharing group of several. Okay, I concede the point that a single person can eat an entire block of chocolate but it usually isn't necessarily the best allocation of it when it comes to the utility of enjoyment that it gives.
Likewise a meal at a restaurant also has an optimal sharing group of usually only one. There are examples when you could share a single meal amongst a few people but for most circumstances, a restaurant meal is generally something which an individual purchaser would enjoy.

The ownership of a restaurant though is a little different. To pay for the premises and the initial set-up costs, might require a few shareholders. A chain of restaurants might have an optimal sharing group of many and a franchise chain where the name above the door is really the thing being sold, might even have an optimal sharing group of many thousands if it is listed on the stock exchange, even if each individual restaurant in question might only have an optimal sharing group of a few.
A company like BHP, The Commonwealth Bank or even Telstra, has an optimal sharing group for its ownership of many many thousands. The question of whether or not the Government should or should not own them (since two of these has been previously owned) is a matter of political ideology.
Personally I think that the fact that Telstra had plans to build the NBN and have it completely funded and built by 2002 whilst it was still Government owned and the rather obviously glaring fact that it didn't as a privately owned firm, proves by evidence that the optimal sharing group of Telstra was all 23 million of us.

On the other side of the fence, when we talk about schools & hospitals, perhaps we should look at who they benefit and whether or not they actually are more efficiently run in the private sector.
Australian governments spent A$7,171 per student for those in public schools in 2012 and A$4,719 for those in private schools. If we were to then look at fees paid by parents in private schools, which amounted on average to $10,292 can the private system really be held up to be more "efficient" if the total amount spent per student was $7,840 more? Ideally if you really wanted to call them "independent" schools, they should not receive even so much as a single red cent from governments at any level.
When it comes to healthcare, the country with the most privatised healthcare system in the world (the United States) also has the highest costs per person in the OECD with the lowest to second lowest set of patient outcomes in the OECD. Again you could argue I supposed that there is such a thing of "quality" but after hearing stories from people in the United States about waiting to see even a GP, I seriously wonder just how "efficient" a private system actually is.

The other thing to remember about a healthcare system as opposed to a restaurant, is that the thing which is being sold is essentially a collectivisation of risk. Since the benefits of an insurance scheme come from the collective pooling of risks (insurance is a form of risk management against contingent; uncertain losses), the size of the gain of benefits in pooling risks rises in proportion to the size of the pool, there actually can be no more efficiently insurance system than having literally every single risk included in the pool. That means a single payer universal insurance scheme.
Or if you will, the second outright lie that Mr Creighton of The Australia told in just one paragraph.

Of course no one is suggesting government set up restaurants. Why even bring it up? It doesn't make any sense. However it makes perfect sense from an efficiency point of view for governments to provide schools and hospitals because of their optimal sharing group.
It could just be that Mr Creighton is confused. I think that the real issue is that he does not like sharing.

1 comment:

Anonymous said...

The OZ doesn't realise how 35yrs of having things run on your terms can suddenly turn against U. I can't help noticing how much more hostile, sometimes almost threatening! the victims they use to blame for everything have suddenly become.

But nothing beats the searing anger that is building in the States as the most vial, useless yet powerful financial institution the world has seen starts to lose its grip after 7 decades of abuse.

Post after post of "U BURN IN HELL U MONSTERS" or "U WILL ROT IN JAIL....etc". Of course we R talking about the health insurance firms. After reading so much of what sometimes I can barely believe, sometimes feel my hair start to stand on end when I come across the victims they shamelessly gutted then dumped. And now these bastards are trying to do the same thing here.