Unregulated, untrammelled, unsupervised free market capitalism can end up being very similar in characteristics to its erstwhile opposite: a state controlled society where the bulk of economic life is directed by a few large public corporations. To prove my case I will call in evidence that most unromantic of vehicles the humble bus.
It was the Duchess of Westminster, and not Mrs Thatcher as is commonly believed, who was reputed to have said that any man over the age of 30 who still travelled by bus was a loser. By that criterion I’ll throw in the towel now as I’ve never learned to drive and travel everywhere by public transport, usually buses and still doing so at the age of 50; how utterly disreputable! Now, I live and work in Glasgow and like anybody who uses buses all the time anywhere in the UK, I have seen some radical changes in who runs and controls buses in the past 30 years
In 1979 buses in Glasgow were run by two public sector bodies. One was the old Glasgow Corporation buses in their distinctive green and yellow livery, controlled by the local authority: Glasgow Corporation (now Glasgow City Council). These plied routes within the city’s then boundaries (which have changed a bit since) and provided a comprehensive service throughout the city. The other was a series of companies all controlled by the state run Scottish Bus Group (SBG) which were run on a regional basis with a great deal of autonomy and went under names such as Central SMT, Western SMT, Alexander Midland etc with their own fleets, liveries and identities. The SBG companies transported people into and out of Glasgow from its surrounding areas, but were not allowed either to let people off buses within Glasgow on their way out of the city or to pick them up within the city boundaries when travelling into the city. Effectively then buses in Glasgow were a public sector duopoly and were subject to quite rigorous regulation.
This situation has changed completely. Neither Glasgow Corporation buses nor the SBG exists anymore. But what has happened since to buses in Glasgow is emblematic of what happens when you leave the market to itself with only a “light touch” of regulation. First buses were de-regulated in 1986 and then completely privatised in the 1990s. A whole new array of companies replaced the old SBG ones while Glasgow Corporation Buses was bought out by its own management and rechristened Strathclyde’s Buses. All the old regulations, including the monopoly on who could pick up and set down within the city limits, were of course scrapped.
But very quickly the new companies started to merge with each other or were bought over by larger companies (themselves often the results of earlier privatisations such as the avaricious First Group which evolved out of the old Aberdeen City bus corporation and embarked on a rapid acquisition of bus companies the length and breadth of the land). Within a short period of time there were only three bus companies that mattered in the West of Scotland: Arriva, First Group and Stagecoach. In the mid 1990s, First Bus bought over Strathclyde’s Buses and with its previous take-over of other companies which had emerged out of the old SBG fleet, ensured it had an effective monopoly of bus routes in most parts of Glasgow.
So at the tail-end of 2009 Glasgow’s buses are overwhelmingly controlled by just two companies: the cream coloured fleet of First Bus (by far the biggest) and the light blue fleet of Arriva buses. To be a sure, there are a plethora of small mini-bus companies that have emerged but these are tiny by comparison with the big two and, most importantly, none of them operate buses after 7pm on weekday evenings or on Sundays: their service is less than comprehensive. In the space of 30 years, therefore, a public sector duopoly has been replaced by a private sector duopoly. Same difference? Yes, but with one important exception.
The old local authority and state run bus companies were obliged to run buses to all areas of the communities through most of the day, even routes which by any commercial criteria were not economical. Thus the old, the frail, the unemployed, no matter where they lived in the Glasgow area, could get access to a bus service at (usually) subsidised prices. No so today; not only are fares no longer subsidised but routes have to be economically viable.
I work a good deal of the time in the Royston/Provanmill area of Glasgow, an area which has large pockets of deprivation, a population affected by ill-health, unemployment, poor higher education attainment and, not least, low levels of car ownership. Indeed, on almost any indicator relating to quality of life, this area rates amongst the worst in the UK. One would expect, therefore, to be a large level of demand in such an area for public transport. There is but the bus service is appalling and the entire district is serviced by only company. What explains this paradox? Last week I made a point of travelling on the local buses during the day for various meetings in the area. Over a three-day period I must have witnessed at least dozens of people boarding the buses but, and this is the key, very few people actually paid for their fares. The overwhelming bulk of people using the bus service in this poor part of Glasgow had ‘concession’ cards entitling them to free public transport either through disability or because they were elderly (people of pensionable age are entitled to travel free in Scotland).
In by-gone days when bus routes were heavily subsidised and the services were owned by the public sector the ‘social’ cost of providing a much needed public transport service in an area such as this would have outweighed the poor revenue to be obtained from a mainly low, or no income, population. Now the reverse obtains: revenue and paying bums on seats is the most important consideration taking priority over any social concerns. And this is only to be expected. First Bus, which operates the local bus services, is a private company run on a commercial basis. This is inevitably what you get when you de-regulate and privatise a much needed service such as public transport. Profitable bus routes and social need are not (forgive the pun) co-terminus.
This is to reinforce the point we made last week: that when it comes to meeting needs, particularly for people who have little or no money, as against supplying wants or satisfying demands, private enterprise and the free market are pretty useless. Thus, while the private bus duopoly, provide a much better standard of service with far better, comfortable, more energy efficient buses than their public sector predecessors, they do so on cherry-picked, profitable routes, contributing to serious congestion on city-centre streets, while entire areas are sparsely served or have their service withdrawn in the evening.
In effect what’s happened to buses in the UK, as exemplified by the situation in Glasgow is a microcosm of private sector capitalism left to its own devices. This comes down to two broad characteristics:
1) Through mergers, acquisitions and aggressive take-overs, a large number of small companies become grouped into a few large companies leading to a situation which economists call ‘oligopoly’ or market dominance by a few, effectively dampening competition and severely suppressing consumer ‘sovereignty’.
2) As we have just seen with regard to buses to Glasgow, private sector firms are profit making and seeking entities: If it doesn’t make a profit, by definition free market capitalism isn’t interested and thus the needs of entire sections of the population are uncatered for and have to be met by the state or the charitable sector.
Ironically, even the most advantageous aspects of capitalism wither when a few firms dominate the market. That is dynamism, innovation and efficiency, largely in response to consumer demands, competition and the imperative to make a buck become blunted within oligopoly. Think of Microsoft. Thirty years ago computing was dominated by a few giant corporations such as IBM. As a consequence of their dominance of the market, they had become quite staid and largely impervious to change. It took a bunch of geeky outsiders led by Bill Gates and Co to see the possibilities inherent in personal computers and remake the world in the process. Large companies, like large public bureaucracies, can loath change, for change is inherently risky (the vast bulk of innovations actually don’t work and, in a few cases, can have dreadful consequences for their progenitors).
So free markets left to themselves can lead to virtual monopolies inimical to change and innovation, concerned only to keep themselves in business and unresponsive to the demands of the outside world. Precisely the accusations advocates of unregulated free markets place at the door of state run economies.
To harness all that’s beneficial in the profit motive requires that there is regulation and control of the worst excesses of the free market and that the public sector is there to step in to meet needs. And that benevolent situation is best summed up in two words: a mixed economy.