The recent tragedy in Tucson has me thinking a lot about anti-government rhetoric in economic debates. In fact, the vast majority of economic debate boils down to questions about the proper role of government in the economy. The issue may be health care, taxes, welfare or jobs, but at the heart of it is often the different expectations and assumptions about the role government can or should play in a given scenario.
What we often forget is the question that comes before we determine the role of government — what are we really aiming to achieve? What do we want? Knowing where we are headed helps us determine the proper means to get there. Should this be achieved through an unregulated private sector, a regulated private sector or the public sector? For example, you can argue about the fairness of income taxes on the wealthy until you are blue in the face, but what’s the goal of the tax, anyway? Is it to raise revenues for the government? Reduce inequality? I don’t mean to ask these questions as in, “What are they trying to do?” It’s really a question for ourselves — what are we really aiming to achieve? We need to be clear about what outcome we really seek because the private sector and government inherently are designed to achieve different goals.
What’s the GOAL OF PRIVATE SECTOR in providing services?
- To make a profit.
- To give the shareholder the most profit possible in the shortest amount of time.
What’s the GOAL OF GOVERNMENT in providing services?
- To protect or create the public good.
- To ensure access to a service that is necessary to participate in an equal way in society.
The distinction is critical because if we choose a means that is designed for a goal that is different from what we seek, it will be like trying to drive straight down a road with a car that only steers to the right. You will constantly meet resistance and have to spend a lot of energy and money compensating and correcting for the tendency of the car.
Imagine, if you will, a continuum of government involvement with unregulated private sector on one end and fully public sector on the other. What lies in between are varying degrees of regulation within a particular industry or service provision. This middle area is where most people quibble about the specifics of proposed policy. So how can we decide whether or not government should have a role? Here are six questions we can ask to help us determine how much of a role we want government to play either through regulation of the private sector or by administering it itself:
- Is it a right? — Private markets are not designed to guarantee rights; rather they are designed to limit access to services (i.e. create scarcity) in order to create demand, limit supply and drive up profits. If what you are trying to achieve is a basic right, at a minimum, you will need to regulate in order to ensure access.
- Is it necessary to creating a level playing field? — If access to the service makes a difference to a person’s ability to participate in the economy, we may need to ensure that access through regulation. For example, most people don’t think that the ability to send mail is a right, but imagine if you needed to pay a bill but couldn’t afford whatever it cost to mail it in. Is it important to us as a society that everyone be able to afford this service? If yes, then government has a role to play.
- How is equal access to a necessary level of service guaranteed? — The private sector tends to favor the areas that are most profitable and will “cherry-pick.” But what happens if you live in a rural area and need to send a letter? Without a regulation in place about how many miles between post boxes, rural residents may find themselves driving really far just to send mail. Establishing a floor for the minimum service and access to it are the domain of regulation.
- What mechanisms do we need for accountability? — Will a customer service complaint be sufficient to resolve any or all issues? Who is responsible if something goes wrong? How do we have the power to correct it? With the private sector, accountability is to shareholders, not customers or the public. If the stakes are high, the public needs to have a say and maintain some degree of control.
- What are the true costs and benefits? Is it efficient? — Government is often painted as the most inefficient institution on earth, but there are many efficiencies of scale that come with bigger size and scope. Also, the private sector tends to “externalize” costs — meaning that it tries to push the costs elsewhere so that it won’t eat into profits. For example, a factory can choose not to pay for filters and force the community to deal with (and pay for) the resulting pollution. If you want the private sector to pay those costs before they get externalized, then regulation is critical.
- How will it affect community life? — What does having the service available to everyone make possible for the quality of our community life? What happens without it? Can we afford not to have it available to every one? What will that cost us in terms of our relationships with each other?
To me, it is the last question about community life that is the most often ignored in economic debates. Not all of life can be converted into profitable, unregulated private markets. Some things that we want to achieve or experience require public input, intervention or even direct administration because it creates the kind of quality of community life we want to have with each other or even just to get along peacefully. Writing off any government involvement in the economy limits what we can achieve as a society. So let’s stop confusing the means with the ends and actually talk about the kind of life we want to live together. Once we know what we are aiming for, the right means to get there can become more clear and less contentious because we will at least have a common goal.