Friday, February 17, 2012

Market Outcomes Are Not Always Ideal Outcomes

Mike Konczal explains things in ways far more clear than I ever could:
Privatization replaces the democratic role of citizens finding solutions to collective problems and transforms it into consumers trucking and bargaining in a marketplace. Finding solutions in a public space emphasizes accountability, voice, transparency, rules and claims through reasoning that goes beyond the self. The market emphasizes cost-benefit thinking, profit-seeking strategies, bargaining and the satiation of individuals’ wants; good things in many circumstances, but not necessarily when it comes to the powers of the state. (emphasis mine - JMG)
This is really something I want to hammer home in the face of a long-standing misconception that markets always produce the best outcomes. Markets produce human welfare maximizing results when they are competitive. This is one of the major reasons markets persist as the economic system of rich and successful Western nations.

But the end goal is not to have more "market" relative to "government". Markets are not a goal into themselves. The goal is to maximize human welfare through just and equitable mechanisms; whether it be through the market or through the government shouldn't be a major concern. Moreover, there are a number of goods and services where a profit motive is more harmful than helpful, as this Mother Jones piece on Pontiac, Michigan's privatization ordeal can attest:
Gov. Rick Snyder put Louis Schimmel in charge of Pontiac last September, invoking Public Act 4, a recent law that lets the governor name appointees to take over financially troubled cities and enact drastic austerity measures. Under the law, passed last March, these emergency managers can nullify labor contracts, privatize public services, sell off city property, and even dismiss elected officials.

Schimmel got to work quickly, firing the city clerk, city attorney, and director of public works and outsourcing several city departments. City fire fighters were told that they would be fired if their department was not absorbed by Waterford Township's. Schimmel has proposed putting nearly every city property up for sale, including city hall, the police station, fire stations, water-pumping stations, the library, the golf course, and two cemeteries.

Williams and his six colleagues on city council have been stripped of their salary and official powers. "Nearly the whole city has been privatized," he laments.
The mind-set that places an emphasis on fiscal balance, or profit-maximization on public-service sector goods and services completely misunderstands the logic of the public service sector in the first place. The use of taxpayer funds to provide public goods is grounded in the understanding that there we all benefit when our (or our neighbor's) children are learning in schools, our streets are not overflowing with garbage and we're not continually being accosted by beggars who have no safety net recourse.

Moreover, not only does it make poor philosophic sense for the state to profit from the services it provides the public, or outsource its services to profit-maximizing actors; it is becoming clear that state budget surpluses, and perhaps even perfect fiscal balance, can be a drag on our economic growth.

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