Dude where’s your mechanism?
Published by Ravikiran Rao November 25th, 2003 in EconomicsNote:
This was supposed to be a draft, but inadvertantly got published. I’d have changed its status, but as there is a comment already, I’ve left it as it is and only removed the unfinished sentence.
Yes CK, I had you in mind while I was composing the post, and the reason I had put this as draft was that I changed my mind and wanted to address the issue directly than in a roundabout way. I’ll do that if I get the time in a later post.
Look people, I will listen to you talk about alternatives to capitalism, but you won’t serve your case if all it amounts to is “The Government should do X”. You will have to tell me how you propose to make the government do whatever it is you want it to do.
The market system is a mechanism. An imperfect one, but a mechanism nonetheless. If you think you can do better, you have to propose an alternative mechanism.
For example you cannot just say: “The government should protect infant industries”. Oh I am sure you can produce beautiful economic models to prove that a country’s industries will grow up to be strong and healthy if they had the right midwife and wet nurse and also a good paediatrician prescribing them the right vitamins.
But if you want the government to perform all these roles, how is it to identify the right infants to nurture? How is it to avoid false positives? How is it to know when to stop nurturing them and let them out free into the world? Your economic model will give you the answer, but such models usually assume that there is an omniscient controller who is acting in good faith to do the planning, and an omnipotent one to direct the economy. In reality, you are depending on the political system.
I think the onus of responsibility is on YOU to prove that the Market can perform roles in areas that it has not done traditinally like police, monetery policy, environment etc. These are areas that have ALWAYS fallen within the purview of the Govt. and if you think that the government should not be in these areas then YOU have to prove that market can do the job better than the way it is currently being done. If you want to change the status quo then the responsibility is yours to prove that the changed way is better than the old way.
I have been following the market vs. govt. debate for many years now and to date have not see one shred of proof to show that the market is the solution for many of the cases we have debated.
CK, your logic is faulty - for example, just because religious institutions have traditionally been the makers of laws, the onus of proof is not on secular agencies that they can be as good at lawmaking. Yet most laws now are made by secular agencies, and we seem to be doing quite well. The areas you mention are complex enough that without actually ceding authority to a new body/mechanism, it may be impossible to theoretically estimate if they will be better or worse.
Well CK, I see that you believe that offence is the best form of defence. In the first place I wasn’t talking of police, environment or (in the current post) monetary policy. Right now I prefer to concentrate on those places where I think that the government has overreached - plain ole economics (as in fiscal policy) morality, etc.
Now I don’t think that the government does a really perfect job in defence or law and order, but I reluctantly concede that the government should be doing those things because I can’t think of a market mechanism that would do a better job.
On the other hand, you don’t even think it necessary to propose a mechanism by which you plan to make the government do what you want it to do. You think that attacking the market is sufficient.
1. The Oklahoma State started hiring Private firms to run Jailhouses in the late 1990s. And I think some other states do this as well, particularly Texas.
2. The Mumbai Police of Pandu Fame, is partnering TOPS (a Private security firm) to help the traffic police. I think the government finds it tough to hire newer police constables, because of its fiscal profligacy in other “development” fields.
3. If the government were doing a good job of Policing, which most people accept to be its core competency, then why are there so many private security firms around?
The examples you have posted are called outsourcing of government contracts - they have been around for ever (almost always in the US and only recently in India).
e.g:
The government outsources the production and development of a fighter plane to Lockheed Martin (a pvt. compnay) but it does not mean the Lockheed Martin has taken over the role of the air force - it only provides services.
A private Oklahoma jailhouse does not mean the the jail system has been handed over to a pvt. company. The government still judges and sentences criminals which the Oklahoma co. has no control over. They merely provide a service that houses the prisoners as per the govts. orders.