Dispersed losses, concentrated gains

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dispersed-losses-concentrated-gains

I like the FT’s Westminster blog, but it had a post yesterday that bothered me:

Interesting to see the BBC today picking up the letter to the Telegraph from 21 “high-profile” businessmen and Tories complaining about the high-speed rail project.

Britain’s public service broadcaster forgot to cover a letter two weeks ago – from over 60 businessmen – in favour of HS2, which I wrote about in the FT.

The pro campaign dwarf the anti in both quality and quantity of signatories, it would appear.

The writer goes on to mock the relatively unknown signatories of the anti-HS2 letter compared with big, pro-HS2 businesses like BAE Systems, John Lewis and Siemens. Because big business likes HS2, the thinking goes, it’s a good thing. Well, maybe, but I’m not sure the opinions of established businesses are relevant at all when trying to decide how the government should spend its money.

It’s quite possible that HS2 might benefit big, established businesses. So would a government subsidy for businesses of a certain size, but it would be bad economic policy. It’s extremely naïve to assume that what’s good for big, established businesses is good for the rest of us. We’re all paying for HS2 and, as with most big government projects, the voices in favour are loud and united, and voices against are quiet and scattered. Here’s Simon Jenkins:

[Nobody] ever considers it the done thing to raise the taxpayer question. Whatever is spent is worth it, and paying for it is the great undebated. . . . I notice that interviewers never put the "taxpayer question". They invariably ask: "When will the minister do more, spend more, intervene more?" They never ask why is he not cutting deeper, and perhaps saving more of the nation's resources and taxpayers' money. They are hard-wired to high spending.

I recommend Jenkins’ whole article. What he identifies is a case of concentrated gains and dispersed losses, a basic element of public choice economics. The big businesses lobbying the government may stand to gain from HS2, but the only cost to them is the cost of that lobbying – low risk, high reward. The people who’ll have to cough up are taxpayers, but because the costs of lobbying are hefty for individuals versus the costs of doing nothing, they end up being underrepresented. (Incidentally, much of this goes for defence projects as well.)

The phenomenon of concentrated gains and dispersed losses means that government has a big incentive to spend and regulate in favour of special interest groups. In this case, big business stands to gain something at very little cost to itself, while no individual will lose out enough for an effective counterattack to be worthwhile. Prominent businessmen calling for more spending for might be impressive, but let’s remember who ends up paying.