A parable of four villages | Brussels Blog

A parable of four villages

The parable of the dining philosophers

The modestly well educated will know a few economic parables – like the dining philosophers. These philosophers are on a night out at their favourite restaurant. When they order their meals they all order to excess because they have agreed to split the bill so any one philosopher’s excess is split amongst the whole group. Sitting in the pews Church of Liberal Economics we understand the message of the sermon: Collective payments (e.g. government expenditure) is bad.

But one of the philosopher has drunk too much and begins to turn turn nasty. The other philosophers decide that the threat of his bad behaviour requires some form of action from which they would all benefit. Throw him out. Who pays for the police action to throw him out? We need a parable of the drunken philosopher.

After he has been ejected the philosophers realise he hasn’t paid his portion of the bill. Who pays for the bailiffs? What if he is bankrupt? We need a parable of the bankrupt philosopher.

But what if one philosopher was very poor and very very hungry? Perhaps they are altruistic and want to see him fed. Do they all pay equal amounts? Some may be more altruistic than others. Who organises the whip-round? We need a parable of the altruistic philosophers.

OK. I’m getting fed up with these philosophers too. But I hope you get the point. Such parables may be useful if they rest in back of the minds of our lawmakers but they are not laws of science or laws of God. They can be taken too seriously. They often are.

The parable of the tragedy of the commons

This next parable concerns livestock farmers, each with the right to graze cattle on an area of common land. The owners add cattle one-by-one to the common but each extra cow decreases the production of the others by competing for the growing grass and trampling some of the grass into the mud. After a certain point one extra cow lowers the total milk production of the existing cattle more than the production she contributes. After this point the productivity of the common gets lower and lower. Extra cows damage production. But the damage form an extra cow is bourne by all the farmers. The damage is shared but the milk from the extra cow goes to her owner. So he adds yet more cows.

The Church of Liberal Economics uses this parable to highlight the importance of private property. The mantra becomes “private ownership good; communal ownership bad”. The farmers would all be better off if the common was divided into plots that they individually owned. As private owners the farmers would separately manage their plots to maximise milk production. They would not overstock their own plots. All farmers gain. This is a nice parable. It may even have been in the minds of the academics that designed the voucher schemes used to privatise state owned enterprises in Russia after the collapse of the USSR. But reality can be cruel. In Russian Privatization and Corporate Governance: What Went Wrong? the authors say:

In Russia and elsewhere, proponents of rapid, mass privatization of stateowned enterprises (ourselves among them) hoped that the profit incentives unleashed by privatization would soon revive faltering, centrally planned economies. The revival didn’t happen. …

First, rapid mass privatization is likely to lead to massive selfdealing by managers and controlling shareholders …. Russia accelerated the selfdealing process by selling control of its largest enterprises cheaply to crooks, who transferred their skimming talents to the enterprises they acquired, and used their wealth to further corrupt the government and block reforms that might constrain their actions.

Welcome to the real world of crooks with skimming talents and governments that are influenced by wealth. In democratic societies under the rule of law, this influence flows through many channels – wealth gives the power to manage the media, persuade the public who influence politicians through the ballot box. It can also buy the ability to get briefings in the hands of crucial policy makers. Perhaps we need a parable of the privatisation of the commons that incorporates crooks with skimming talents and governments who can be influenced by vested interests.

 

The parable of four villages

Despite their limitations, good parables still have the power to make some of us think. They also risk warping judgement if they are taken too seriously. I will take that risk with this parable of four villages. The parable starts with two villages, Millthorpe and Grangethorpe, in 1947, shortly after the second world war. Both villages had a main street with five shops, a primary school and two pubs. Buses left from the villages every fifteen minutes to the neighbouring town. There were few cars.

As the decades of the century passed more villagers bought cars. The motorists shopped outside the villages taking their business from the local shops. They moved their children to distant schools and stopped using the buses. The villages lost their shops – except for the government subsidised post office in one. The pubs closed. In one village the school was closed, the remaining pupils were bussed to the other village. The roads to town became congested and the buses less reliable. Less people used the buses so the frequent service became a government supported charity run. Fortunately, not too many children were hurt in traffic accidents because their parents kept them at home. The motorists ferried their children to school, to their riding classes and to their school friends’ homes who were now widely scattered. The pedestrian children watched TV or played computer games.

The other side of the town there were two other villages owned by Prince Peter, a descendant of a wealthy Russian dynasty. He had visited the Victorian model villages, Bourneville, New Lanark, Port Sunlight and his New Earswick. He felt uneasy with what he thought was their air of paternalism but recognised the good efforts of the benefactors. He wanted to do something similar but more suited to the second half of the 20th Century. He decided on an experiment. His overriding principal was that motorists should live in one village. He renamed it Motormore. Motorists should not be allowed in the other village. He renamed this Motorless. Occasionally he felt embarrassment about the names that he had chosen and the high handed way he renamed the villages. Serfdom was a heritage he was trying to leave behind.

His rules meant that, in all but exceptional cases, if residents in Motorless wanted to own a car they had to move to Motormore or out of the area altogether. The residents of Motormore were allowed to visit the neighbouring village (as was anybody else) but the Prince made sure that, if they came in cars, they drove very slowly and paid a very high fee. The fees were used to lower the rents in Motorless.

The villages developed rather differently. To date Motorless has shops, pubs, a school and buses to the town. Motormore has none of these.. PhD students from the economics department of a nearby university are comparing the difference in the newly-discovered Happiness Index between the residents of the two villages

Recently the residents of Motorless have learnt about Peak Oil. They are asking the Prince to arrange an extension to their village to house their relatives that moved to Motormore and will want to return.

Geoff Beacon