|
August 21, 2007
John Kay has an essay in Prospect on market failure. It is opportune, given the recent fallout in global financial markets. Often in public debate in Australia market failure is counterpoised to state failure and it is argued that state failure is greater than market failure. It is then argued that if governments get the initial distribution of resources right competitive markets can optimise welfare.
Kay asks:
Does the modern centre-left have an economic theory? It has come, reluctantly, to acknowledge the primacy of the market, but demands intervention to reduce inequality of outcomes and to improve equality of opportunity. The most articulate rationale for this economic philosophy is the doctrine of market failure.
Unfortunately the rest of the article is behind a subscription wall. However, it was published in The Australian Financial Review's Friday Review section, where it is also behind a subscription wall.
Fortunately, I have a print copy
Kay says that the central claims of the centre left remain valid:
Unaided, markets do not give acceptable outcomes to the provision of educations and pensions, transport and health, because in these spheres choices are unavoidable political, in the sense that such choices are and should be based on collective decisions about the nature of society, not simply on the self-interested decisions of individuals. Nor is there in these areas, or in general, a dichotomy between the economic sphere and the political: far from being in opposition to the market, social and political dimensions of conduct are central to an understanding of how markets work.
Kay argues the market failure doctrine is based don an imperfect understanding of why markets succeed, not just why they fail, and hence provides a misleading guide not only to when government intervention is appropriate, but also to the ways in which market forces can improve the operation of the public sector.
|
Unfortunately, the collective social decision areas Kay mentions (education, pensions, transport and health) have increasingly been turned over to private interests. And I dont know what evidence supports the idea that market forces can "improve the operations of the public sector."