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  • Privatizing services inside the European Union

    Posted by Ralf Goergens on August 2nd, 2007 (All posts by )

    Thanks to the European Union, things like these finally become possible:

    Deutsche Post is about to lose its monopoly on the postal service. And after that, customers will be able to choose from new green, red and blue postboxes on the street as well as old yellow.
     
    As part of a European Union move to introduce greater competition in letter delivery services, Germany on Jan. 1, 2008 will abolish Deutsche Post’s exclusive right to deliver letters under 50 grams — the last monopoly left for what used to be the only game in town.

    This is a far cry from the times when Deutsche Post wasn’t just delivering the mail, but also had a stranglehold on German telecommunications, and the whole affair was owned by the government and protected by the employees tremendously powerful trade unions. These kinds of entrenched interests could only be overcome on the European level, which is one of the reasons why I maintain that the EU offers net benefits that outstrip the costs as well as the (not inconsiderable) annoyance factor. This also isn’t the first instance something like this is happening, the EU previously made the member states privatize and liberalize their energy and telecommunications sectors, as well as take the first steps towards the privatization of postal services, which is why the delivery of letters below 50 grams (not quite two ounces) is the last monopoly left until now (although some countries are dragging their feet to preserve it for an additional year or so).

    All of these steps had been absolutely crucial for economic growth in Europe, without them the EU economy would have been even more stagnant than it was over the last 15 years or so. Just imagine what, for instance, online services would look like if telecommunications still were run and owned by the government; we would have to apply for a dial-up modem and could count ourselves lucky to get one in less than three months – no DSL or cable modems of course, the post office would want to be paid by the minute (just as they used to when the whole affair was still run publicly), and that’s easier to do with dial-up via a telephone line than with more modern alternatives. If you extrapolate this kind of arrogance and shortsighted greed to services in general it becomes easy to see how the traditional interest groups around here could have prevented Europe from evolving beyond the traditional industrial society. It shouldn’t be underestimated just how powerful our various interest groups are, some of which have been around for centuries in one form or another. As I wrote above, you have to move beyond the national level to defeat them them, and the European Union currently is the best venue to do so successfully. Should the various interest groups learn to cooperate to thwart such efforts we’d have a serious problem, but at least for the foreseeable future it looks as if they are too shortsighted and selfish to make common cause. By the time they have learned better, globalization will hopefully have eroded their respective power bases to an extent that it won’t matter anymore.

     

    19 Responses to “Privatizing services inside the European Union”

    1. John Jay Says:

      This is an interesting perspective, because as an outsider doing business in the EU, I see the other side – strangleholds of central regulations that keep the individual sttes from experimenting with different regs that better suit local conditions. the reams and reams of EU regulation in my industry are often overlaid on top of local regs, but where there is conflict, the EU generally supercedes. It hasn’t made life any easier for us, in fact in some ways just the opposite, so this is an interesting perspective on the benefits of the EU.

      Don’t you worry that witht he power the EU is amassing to itself that once it has broken the local powers, it will simply sprout a new set of power groups, special interests, and complex regulations that will once again put the brakes on progress?

    2. Pseudo-Polymath » Blog Archive » Morning Highlighs Says:

      […] EU and privatization of public services at The Chicago Boyz. […]

    3. Ralf Goergens Says:

      John,

      Europe simply is a bureaucratic place, much more so than the US, EU or not. Also don’t forget that the EU is gradually trying to replace 27 sets of regulations with a comprehensive, single one.

      As to

      strangleholds of central regulations that keep the individual sttes from experimenting with different regs that better suit local conditions

      We had these different regulations, but instead of ‘experimenting with regulations that are better suited to local conditions’, national governments and their respective bureaucracies used their regulations to make life harder for outsiders trying to do business in their country, as well as to expand their power at the expense of local citizens. And if those regulations weren’t suiting their purposes, they’d think up some new ones just for you. :)

      I don’t want too seem as being too EUphoric in waht follows below, but people complaining about the EU simply don’t know what things were like before, and so they take a lot of the EU’s benefits for granted.

      I suppose that you are familiar with the EU’s Cassis de Dijon principle, that effectively means that your product or service only has to conform to the standards of only one member state, and you then can bring it to market market anywhere else in the EU.

      Believe you me, without this principle and a certain extent of central regulations or even without any EU at all, you wouldn’t be able to do business in the European market, but rather have to conduct your business in each individual, national market separately. That wouldn’t just mean that you’d have to follow the different national regulations, you’d have to use a certain amount of local supplies in your product before you’d be allowed to sell it there, and of course your ability to move the finished product between European countries would be severely inhibited. Besides, local bureaucracies would make sure to throw up new hurdles for you whenever it looked as if you might take some business away from local competitors.

      On top of all that, imagine if the services I mentioned, such as telecommunications, energy, mail etc, etc, were still owned and run by the various governments. You’d have to pay much more for electricity, you couldn’t just walk into a store to buy a mobile phone, you’d have to apply for one at some bureaucracy, pay a bundle and wait months until they deign to grant you one. ;)

      As to experiences as an indivisual citizen: Before we had a common market, French borderguards, just as one example, would ransack our car when we went on holiday there, too look for goods we might smuggle over the border. They also would claim that we planned to sell our camera in the country to deprive French optical workers of their livelhoods. When we went back to Germany, the same process happened in reverse. Think about that the next time you cross borders, especially inside the Schengen area. If you wanted to move property from one country to another you also had to pay extortionate fees, etc, etc. Now you can move yourself and and your property across the borders almost without no or hardly any hurdles.

      The EU has its faults, especially as the common agricultural policy (CAP) is concerned, but it is vastly preferable than being at the mercy of the individual, national governments and bureaucracies. If you haven’t been here before we had a common market and common borders, you simply cannot imagine the amount of arbitrariness, pettiness and sheer malice you had to put up with before, especially when it came to anything that goes beyond any national borders. While EU regulations also often are needlessly complicated, they are like that because there is a strong demand for them from inside the individual member nations, aand often they are concessions that governments demand in echange for opening up some market segment to competition. For instance, France has so far vetoed any changes to the CAP, so that the agriculatural budget is over 50% of the whole EU budget.

      Now, you might argue that the WTO would have enforced all that even without the EU, but without the pressure from Brussels, European governments would have caved in to their local interest groups and kept borders shut for imports, just as before, WTO or not. There are several important electorates, the German, French and Italian ones included, inside the EU that would just love to close borders for goods and services from outside. Should the EU ever vanish or be severely weakened, they’ll do just that.

      I had blogged about that here, as well as what kind of EU I’d prefer.

      To sum it up, the faults and defects that the European Union is suffering from aren’t EU specific, they are *quintessentially European*.

      Don’t you worry that witht he power the EU is amassing to itself that once it has broken the local powers, it will simply sprout a new set of power groups, special interests, and complex regulations that will once again put the brakes on progress?

      I do worry about that, but as long as governments still have to be dragged kicking and screaming towards liberalization, even if by very small steps, I am more concerned with what our government might do to me. Besides, the EU is actaully very fragile – I worry that once voters realize just how fragile it is, they will elect government that ignore the EU and impose old-style protectionism.

      Just two examples from Spain:

      Exhibit A

      Exhibit B

      Both in blatant violation of EU law as well as individual rights, and there is little the EU can do about it right now.

    4. Mitch Says:

      There is a subtle difference in how the US maintains uniformity across state borders from the EU model. Industry groups, insurance companies, state regulators, and federal authorities get together to draft a uniform set of standards for the benefit of trade. The uniform code is then presented to the various states to accept or reject. It is entirely voluntary, but the states know that business dislikes ambiguity, and carving out special rules for themselves creates uncertainty and extra work. Also, whatever rules are adopted, they must apply equally to businesses in any state. No discrimination is permitted under the federal constitution’s Commerce Clause.

      Positive examples of this are the insurance industry, which is governed by a convention of state insurance commissioners. There is also a Uniform Commercial Code governing business-to-business transactions, a national electical code, etc.

      There are also negative examples where a state can exceed the federal or agreed-upon standards. One example would be California’s mileage and pollution standards for cars, and their formulation requirements for gasoline. Any state can do this, but they run the risk of having companies simply pull out of the market if it is too small to make compliance profitable. This may happen in Florida and Mississippi if some of the proposed “reforms” in homeowners’ insurance are enacted.

      It is significant that in our own “ever closer union,” at least since 1865, the individual states retain governmental powers that the EU seeks to federalize.

    5. Shannon Love Says:

      Ralph,

      You offer an unique insight to those with a libertarian perspective and I think you make a compelling case.

      I think you make a good point that people find it easier to deal with a single byzantine EU rule than they do to deal with dozens of only slightly less byzantine national rules. I also agree that matters often work out for the best when EU collective interest overwhelm local parochial interest.

      We have seen similar effects here in the states. California and a few other sates, for example, have their own individual product labeling laws, fuel emission laws and the like. That means that manufactures must provide multiple versions of their products for different states. Each state has its own labor laws in addition to the Federal laws so a company’s human resource department must have specific knowledge of the laws in each state it operates in.

      Historically, each state had its own banking laws. In southern states, the states wrote their banking laws to stop the outflow of capital from the state. They believed in a kind of financial protectionism. Of course, this meant capital didn’t flow into the state either. Changes in the Federal banking laws in the late 50’s and 60’s forced the states to open up their capital markets. Once the benefits of the free flow of capital became apparent, they tossed the rest of their protectionist laws and the great southern boom started in earnest in the late 70’s.

      So, I really think you are on to something. I really hope so. If the net effect of the EU is to liberalize the economy of Europe as a whole, then not only Europe but the whole of humanity will benefit.

    6. John Jay Says:

      Ralph – send me an email at perestrelka91-at-yahoo.com. You might find my special cases interesting, but I don’t want to talk about them publicly.

    7. Ralf Goergens Says:

      John,

      I sent you an Email.

      Shannon and Mitch,

      thank you, unfortunately I’ll be away til tommorrow and won’t be able to respond until the. Even so I’m pretty sure that a number of people will write some very critical things about both my post and comment until then, so there should be no lack of discussion in the meantime.

    8. dearieme Says:

      “the EU previously made the member states privatize and liberalize their energy and telecommunications sectors”: this sounds suspiciously like poppycock. Thatcher privatised coal, for instance, in Britain long ago, while Germany has only just grasped the nettle of announcing a future cessation of subsidy for coal.

    9. Ralf Goergens Says:

      dearieme:

      “the EU previously made the member states privatize and liberalize their energy and telecommunications sectors”: this sounds suspiciously like poppycock. Thatcher privatised coal, for instance, in Britain long ago, while Germany has only just grasped the nettle of announcing a future cessation of subsidy for coal.

      Coal-mining and energy generated by coal are two different things. Mining isn’t affected by the rules and regulations for the energy sector.

    10. Verity Says:

      I’m with Dearie Me and I think we both know infinitely more about this subject than you, Ralph, if you think ““the EU previously made the member states privatize and liberalize their energy and telecommunications sectors”.

      Thatcher privatised British Gas 30 years ago, when the EU was still masquerading as ‘the Common Market’. She was also the first in the world to privatise telecommunications. Indeed the whole idea of privatising state-owned industries was Margaret Thatcher’s, and where she strode, a hundred or so other countries followed.

      The British and Europeans voted for a Common Market, not a levelled out, Sovietesque monolith run by apparachiks. Those given a chance – the French, the Dutch and the Irish – voted with an overwhelming NO! to closer union. This was discounted.

      They voted NO to a European constitution, so it has been repackaged, even Angela Merkel admits it is the identical document, and re-labelled a “treaty”. This time they are not going to make the mistake of allowing the citizens of Britain and European countries to vote on it. Giving the electorate a vote is too dangerous and unpredictable. Stalin would be proud.

      I’m sorry, Ralph, and no offence, but your post reveals volumes of misinformation, misapprehensions and a very fragile grasp of what this project means. Americans must not mix it up with a United States of America, whose circumstances were different, in a different age. Britain and European countries have been sovereign nations in their own right for 1200 or 1400 years. They’re not a bunch of new settlers on a vast continent who need to cooperate. This entire project is grotesque and it is not wanted by the populations of Britain and Europe.

      When we voted for what they brought in on little cat feet as “the Common Market”, we thought we were voting for free movement of goods; free trade.

      After they got that through, the whole project continued underground, away from the light of day, for the next 30 years.

    11. Ralf Goergens Says:

      Verity:

      ’m with Dearie Me and I think we both know infinitely more about this subject than you, Ralph,

      No, you don’t, you really don’t. Fine, so Britain was first to liberalize, but it wouldn’t have happened anywhere else without the EU.

      Americans must not mix it up with a United States of America, whose circumstances were different, in a different age.

      I should hope so, for there never is going to be an European superstate.

    12. Verity Says:

      Ralph writes: “but people complaining about the EU simply don’t know what things were like before,”

      Oh, I think we do. Before CAP, for example, we enjoyed produce that cost roughly 1.5 times what it does in the United States and Canada. Now, with the CAP, we are privileged to pay around 2 1/2 times what Americans pay. At the same time, the EU is so viciously protectionist that African growers are not allowed to try their hand in our markets,to the detriment of ambitious African businesspeople and consumers in the EU compound.

    13. Ralf Goergens Says:

      Verity,

      I explicitly singled out the CAP. Not pretty, but one concession that had to be made to the most powerful interest group, in exchange for liberalization efforts in other sectors.

      Good night for now.

    14. Verity Says:

      Why? How dare you suggest that the CAP should be imposed on 400m people by unidentified apparachiks in order to provide some “greater good”? Except for the French farmers, every citizen of an EU country would vote to scrap the CAP.

      There was no trade-off for paying sky high prices for produce that the rest of the world gets at 1/4 the price in order to get “other benefits”. There aren’t any. And it wasn’t negotiated with the citizenries.

      And the accountants have refused to sign off the EU’s books for 13 years, yet it trundles on regardless of its financial illegitimacy. Doesn’t this tell you something about this foetid organisation?

    15. Richard North Says:

      The idea that enforced liberalisation of utilities by the EU is an example of the benefits of the EU is laughable – as indeed is the idea that the EU is necessary for this.

      In the UK, as well as the coal industry, we had British Telecom privatisation in the UK, as well as gas, electricity and water – without any EU intervention.

      However, we see similar claims made by EU advocates in respect of liberalisation of air transport – with the EU claiming credit for cheap air fares.

      Now, though, we find the cut-price airlines under huge pressure from regulation and rapacious tax systems which are eroding the advantages.

      That gives some indication of where the EU is going with utilities. Any benefits of “liberalisation” will progressively be absorbed be increased regulation and other imposts, to the extent that we will end up with the worst of all worlds.

      More to the point, though, one should read Duchene’s biography of Monnet – it is called “The First Statesman of Interdependence”. This gives the clue as to the political agenda behind so-called liberalisation.

      The real purpose of this programme is to break up national enterprises, with are regulated by member states, and recreate them as European enterprises, regulated by the supranational government that it the EU, thus furthering its ambitions of political union via economic integration.

      Whatever transitory advantages there may be from the EU’s intervention, therefore, there is a heavy political price to pay … and one that will still have to be paid, long after the benefits have been absorbed by the hugely cumbersome regulatory system.

      Since it is quite possible for free nations to arrange their own liberalisation programmes – and are accountable to their own electors as to whether they do or do not – there is little case for EU intervention.

      In the final analysis, even at its worse, national bureacracy is preferable to supranational domination. The benefits of the latter are illusory.

    16. Verity Says:

      Bravo to Richard North!

      And may I remind readers that the citizenries of this EU construct never voted for it. On the three or four occasions where a national vote was “allowed”, they voted against it. These national referenda – that had been graciously permitted – indicated that in the main, the peoples who have occupied the continent of Europe and Britain felt confident of their own nation’s future.

      Ask any Brit who is the president of the EU, and they won’t know. Do the Portuguese know? The Greeks?

      Guarantee: If the Brits leave, the Dutch and the Danes will leave, leading to Sweden leaving (those smart Norwegians never joined!). All the northern European deeply and anciently democratic countries will flee.

    17. Verity Says:

      John Jay: “Don’t you worry that witht he power the EU is amassing to itself that once it has broken the local powers, it will simply sprout a new set of power groups, special interests, and complex regulations that will once again put the brakes on progress?”

      It’s already happened. In spades. This sinister project has been going along for over 30 years now, with the electorates not given a say and having no power to halt it.

      And now we’ve got whole corrupt families in power. Unaccountable. Each claiming hundreds of thousands of euros in “expenses” (for doing what?) and impossible to remove because they were never elected in the first place. There are tens of thousands of these shadowy sharks, swimming just below the surface.

    18. Ralf Goergens Says:

      Verity,

      Why? How dare you suggest that the CAP should be imposed on 400m people by unidentified apparachiks in order to provide some “greater good”? Except for the French farmers, every citizen of an EU country would vote to scrap the CAP.

      I’m not saying it should be imposed on anyone, it is at least for now inevitable, for France would veto any changes,

      There was no trade-off for paying sky high prices for produce that the rest of the world gets at 1/4 the price in order to get “other benefits”.

      Now that’s simply a wild overstatement.

      And the accountants have refused to sign off the EU’s books for 13 years, yet it trundles on regardless of its financial illegitimacy. Doesn’t this tell you something about this foetid organisation?

      As it happens, a big majority of the irregularities occur inside the individual member countries, to which the EU disburses money according to European regulations, such as subsidies, cohesion fonds, etc, etc.

      On the three or four occasions where a national vote was “allowed”, they voted against it. These national referenda – that had been graciously permitted – indicated that in the main, the peoples who have occupied the continent of Europe and Britain felt confident of their own nation’s future.

      As far as most of the Eurosceptics on the continent are concerned, the European Union embodies unfettered free market policies. They thought they were voting against an American conspiracy to impose capitalism onto Europe. Not exactly an expression of confidence, more like one of disturbed minds.

      And now we’ve got whole corrupt families in power. Unaccountable. Each claiming hundreds of thousands of euros in “expenses” (for doing what?) and impossible to remove because they were never elected in the first place. There are tens of thousands of these shadowy sharks, swimming just below the surface.

      The administartive apparatus of the EU doesn’t employ more people than that of a mid-sized German city.

    19. Ralf Goergens Says:

      Richard,

      yes, Britain started to liberalize, but the Cintinent didn’t follow suit on its own, it had to be prodded to do so.

      Now, though, we find the cut-price airlines under huge pressure from regulation and rapacious tax systems which are eroding the advantages.

      Most of the impetus for new taxation comes from the member states, not Brzssels. Besides, kerosene has become much more expensive, just as all other fuels in the meantime.

      The real purpose of this programme is to break up national enterprises, with are regulated by member states, and recreate them as European enterprises, regulated by the supranational government that it the EU, thus furthering its ambitions of political union via economic integration.

      Oh please, they couldn’t do that even if they wanted to.