From Kevin Williamson in National Review, Socialism in Action:

Billions of dollars of Pemex oil goes missing every year as part of a criminal enterprise organized, if we are to believe the Mexican government, by Pemex executives, including its former head of security. Because socialism always begins with a man in a workshirt and ends with a guy dressed up as Cap’n Crunch, Pemex’s corrupt head of security was a brigadier general — which makes prosecuting him complicated.

State-run enterprises come with a couple of obvious problems. One is the lack of an adversarial relationship with regulators. If the state is the oil company and the oil company’s regulator, then you usually (but not always) end up with ineffective regulation, because there is no other party to bring the hammer down on. In a parallel case, Petroecuador is responsible for hundreds of oil spills in Ecuador and vast amounts of pollution — including, very likely, the pollution that money-grubbing celebrity activists tried to pin on Chevron with the fraudulent lawsuit brought by Barack Obama’s basketball buddy Stephen Donziger, currently under house arrest in Manhattan. There are rivalries and factions within governments, to be sure, but government regulators do not have a great record when it comes to the oversight of government enterprises — especially when they bring in billions of dollars annually.

Which brings us to a second problem: Just because a state enterprise generates billions of dollars doesn’t mean that it is well-run — or run in the interest of the people who, in theory, own it through their government. Mexico exports an enormous amount of crude oil, which provides the government with much-needed revenue and cherished opportunities for gainful corruption. But Mexico also imports gasoline and other refined petroleum products, because it has not invested sufficiently in refining capacity to meet its needs. Naturally, Pemex also dominates Mexico’s fuel-import industry, and the Mexican government restricts non-Pemex importers in a way that entrenches the state enterprise’s position. The result is that Mexico is a poor country relative to the United States, but its people pay, on average, about 25 percent more per gallon for gasoline than Americans do.

People who favor a socialized model of such enterprises as energy and health care almost always make the same mistake: They implicitly assume that by removing profit from the equation, we can make things both more efficient and more fair. The problem with that line of thinking is that people who go to work in government, including in state enterprises, are not magically divested of their self-interest. This is a variation on what is known as the agent–principal problem: When you hire someone to do a job for you, the person you hire has economic incentives that are different from — and sometimes at odds with — yours. Individual administrators have their own interests, agencies and bureaucracies have their own interests, employees have their own interests, etc.

The same basic story plays out everywhere from your local police department to the IRS. That sometimes produces corrupt results, but the non-corrupt results — inefficiency, ineffectiveness, distortion of institutional missions — often are worse in the big picture. The big problem with our schools, for example, isn’t that some teachers fudge their hours a little bit — the big problem is that they fail to educate students.

 

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