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User Pays

Entry 1535, on 2013-05-24 at 20:40:59 (Rating 2, Politics)

In 1984 New Zealand began its great experiment in open and free markets, minimal regulation, and user pays. Strangely it was all started by a Labour government, which would traditionally be far from enthusiastic about these concepts. But that government had been hijacked by extreme idealists form the libertarian camp and bore little resemblance to what would normally be expected from them.

Since then these extreme neo-liberal policies have peaked and are now gradually being backed away from, unless you are one of the few people left in the libertarian wing of the dying Act party. So the experiment has clearly been a failure although some people might argue that things would have been even worse if we hand't followed the path we did (but who can prove or disprove that?)

And this phenomenon didn't just happen in New Zealand. As I said in a recent blog entry titled "Zeitgeist", during the late 70s and 80s it seemed to be an idea whose time had come and many countries were following similar ideas, with Reagan in the US and Thatcher in Britain being great enthusiasts for it.

But let's just move all the politics and economic dogma aside and look at the concept of user pays from a purely logical perspective. Whatever the political ideology it is usually associated with, is it a good idea? Actually yes, in many ways it is a good idea, but only in certain contexts. Let me explain...

A basic idea behind user pays is that nothing is free. Every user pays for what they need - for housing, food, education, electricity, etc - and the market will establish appropriate prices for these items based on true costs and on market forces such as competition.

So if electricity supplies don't keep up with demand then the price will go up which will either persuade people to economise to save power or will provide more money to build new power plants. It sounds great in theory and in fact it can be a very effective economic mechanism.

But there are certain necessities for living which any person living in a relatively rich, modern democracy like ours (or in the US or Britain for example) should expect. There is no real excuse for New Zealand having a whole family living in a garage or in a single room, or in getting sick because they can't heat their homes (or their garage) in winter, or for relying on charities to supply them with food because their other expenses are so great.

So user pays is fine as long as the users can afford to pay for the basics. And in many cases today that just isn't true. Many user actually can't pay for housing or for electricity or for food in an open market because their income just isn't sufficient.

And that is also a natural outcome of user pays. Most employers will pay as little as they can get away with and will claim they are just following the model (which they are). But at the same time people who own rental housing will charge as much as they can get away with. So the user pays a lot but isn't paid a lot to compensate.

User pays seems to be naturally suited to making the privileged minority much richer while they prey on the majority of "users". And that's exactly what we see in every case. I discussed the obscene extremes this phenomenon has reached in the US - where the top 1% have about as much wealth as the bottom 90% - in a blog entry called "When the Revolution Comes".

So in summary I support the idea of user pays but only if the minimum income is linked to how much a user needs to survive with a reasonable standard of living. Where that point is will depend on individual opinion, but I think compromise is possible. One thing's for sure: the point certainly isn't at the income level which the minimum wage provides.

And if there are no jobs for a significant number of people and if the income of many people on poorly paid jobs isn't sufficient then a user pays system simply isn't appropriate. We can't have it both ways: we have to either make sure people have enough to participate in the user pays system or use a different system. It's a simple choice.

Comment 1 (3534) by Anonymous on 2013-05-29 at 13:16:00:

Many assumptions made here. Whatever you think of the free market it is the best way to allocate resources. As soon as governments step in they upset the whole system, as we see in the past.

Comment 2 (3539) by OJB on 2013-05-30 at 09:36:09:

It's not helpful to claim I made assumptions but not say what they are. I can tell you one assumption you have made without justification. This: "Whatever you think of the free market it is the best way to allocate resources". Is it? How do we know?

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