Wednesday, August 24, 2011

The Backstop Theory

A lot of the time on here, I'm ranting about the excesses of the capitalist system. This may have led some people to believe certain things about my position on economic issues. In the interests of being hated for the right reasons, let me explain where I stand: I am not a Communist (in the Marxist sense). History has proven that full-blown Marxist Communism doesn't work. It looks nice on paper, it sounds very reasonable but, like a lot of reasonable ideas, it falls apart when you try and apply it to actual people. I'm not going to bother defining it further because it's failed and only complete idiots still think there is any great support for Communism. It can work for small groups, where the emotional tie between each individual prevents exploitation of the system but it doesn't work en masse. Nor am I a socialist. Now, before we go any further, we need to define what a socialist is. Contrary to the current view of the American right, socialism doesn't mean "anyone who opposes letting the poor starve in the streets". In the urge to label every single person or idea on the left as "socialist", the word has been broadened beyond use. No, actual socialism is where the people (usually through the mechanism of the state) controls all or most of the means of production and distribution. I'm not a socialist. The full-blown socialist system is both inefficient and creates a labyrinthine beurocracy.

However, I'm also not a great lover of capitalism, especially not in the "free markets uber alles" fashion currently en vogue in the USA. Capitalism is also often inefficient but, more importantly, the capitalist system inherently creates winners and losers. And while the winners are often admired far beyond any actual talents they have, the losers are too frequently despised. We call the losers "unemployed" or, if we're conservative and wish to blame them for their misfortune, "the jobless". Capitalism creates those losers. It has to, it needs the losers because their existance keeps wages down. I don't want to turn this into yet another rant about how our culture treats the unemployed but their existance is both a necessary part of and the inherent result of capitalism.
So, I find myself a nominal supporter of capitalism but only for the same reasons Sir Winston Churchill supported democracy, it's better than the other systems we've come up with.

When it works (and is properly regulated, which people like to forget), the inherent competition of capitalism works to keep prices low and standards high. However, there are a small group of sectors which pure capitalism does not and, indeed, cannot work for. These are the essential services: Water, gas, electricity, telecoms, retail banking, mail and healthcare. I call them "essential services" because living in the modern world requires using, or at least having the option to use, those services at all times. And that's why pure free-market capitalism cannot work for them. Because you cannot remove yourself from that market sector without, at least, massive inconvienience, the companies that supply those services are able to push up prices and slash standards with little to no repercussions. You can move between the various companies but you cannot easily remove yourself, you are a "captive market". These sectors do not work like others. If the price of, say, a Big Mac gets too high, you can go to Burger King (switch supplier) or you can skip lunch (remove yourself from the market altogether) but with the essential services, you do not (realistically) have the second option. Removing yourself from those market sectors is so inconvienient or, in some cases, dangerous, that you are effectively obliged to deal with them.

Since you are effectively obliged to deal with those market sectors, I thought up what I refer to as the "Backstop Theory". The idea is that, in those sectors, the state should set up and operate it's own business. A bare bones supplier from which you can buy your essential services from at the lowest possible cost. That provides a backstop, a bottom level of price for service that private companies must then compete with either by beating the price, providing a better service or both. Maybe I'm being naive but I always thought that was the essence of capitalism. I have heard various objections to this idea but most seem to amount to either ideaological objections such as the insistence that government can't do anything right (in which case, use the private competitors, what's the problem?); deranged conspiracy theories that claim the populace will be forced to use the government service in time (as an article of faith, this is unfalsifiable) and ranting about socialism (it's not socialism because the government-run services would still have private competitors).

In some of these sectors, the US and UK already have a backstop in action. In Britain, the NHS, Royal Mail and the retail banking services offered by the Post Office act as a backstop in their respective sectors. You can still use the private alternatives but, because the public companies provide a minimum of price for service, competitors must be notably better in some way to compete. In the USA, the Post Office provides the backstop mail service but, as far as I'm aware, none of the others. Healthcare would be one of the easiest to create a backstop by simply expanding Medicare to everyone (which would also make it a de facto universal healthcare system).

So that's my idea. It's not perfect and I'll be the first to admit that I have zero training in economics. The idea just comes from a lot of reading and thought on the subject.

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