The story of Adam being enticed to take the apple by Eve is not merely an amusing insight into the human condition, its an example of the very first market at work.
Markets work on the principal that people respond to stimuli, economics tries to ascertain what those stimuli are, and what the impact of those stimuli on the wider community are.
The idea that the government, can or should, protect certain sectors of the economy from the market is a fallacy.
While I don’t agree with the Coalition’s (or indeed Labour’s) policy on University funding, the argument occasionally made, that charging fees is introducing ‘the’ market into education is nonsense. For as long as educational institutions have existed, they have existed in the market. Universities strive to have the best staff and facilities because they want to attract the brightest students, students want the best grades as that will attract offers from the best Universities.
Such is the market at work, whether that market should be monetised, as it has been thanks to successive governments introducing and maintaining third level fees, is another argument.
Similarly the NHS has been a market since the day it was created. NYE Bevin, its founder admitted that to get the BMA to support the establishment of the National Health Service, he had to ‘stuff their mouths with gold’. And so the market in the NHS was born.
I do not write that in any way to defend or praise the Tories current plans to reform the NHS, because I do not support those. The aim instead is to highlight the fact that whatever legitimate criticisms people have of education and health policy, the market has always existed within them.
One area in which the NHS is not currently harnessing the full power of the market is in procurement, with no attempts to benefit from their enormous spending power to achieve economies of scale, using more centralised procurement methods would allow for these bulk buying discounts, making existing budgets go further with no harm done to patient provision.
Tories from all wings of that party have long delivered rhetoric about introducing the market into public services and harnessing the benefits of the market for the taxpayer, while at the same time that party has always been keen to restrict entry into markets within the private sector.
Labour, old and new, have in their different ways, focused on making the market work for the collection of interest groups and voting blocks which comprises their support, quite often delivering immediate term benefits, but at the expense of the greater good in the long term.
The Lib Dems should mark out their territory, not as defenders or opponents of the market, for that is impossible, but as a party committed to making markets work for the betterment of all of society.
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27 Comments
That all social arrangements embody incentives to behave in particular ways is true by definition. That doesn’t make them markets.
This post rests on several very important assumptions.
First, it assumes that markets represent a neutral social technology: the ends are what matters and you can change the means by which those ends are achieved and there are no broader consequences (eg move from non-market public sector provision to contracts for service with private providers).
Second, it assumes that markets can effectively substitute for other types of provision without the state incurring significant monitoring costs to ensure that objectives around quality or equity are satisfied.
Third, it assumes that economists adequately understand the way these processes work. One of the best (in my view!) recent economics books is ‘the dismal science: why thinking like an economist is bad for community’ by Stephen Marglin, a Harvard economics professor. The basic argument is that economics focuses on structural critique – things like whether the bits of your theory are put together correctly – and is very bad at foundational critique – whether your theory has completely missed some vital part of social reality and is therefore built on the wrong foundations (in his case, ‘community’ – social relations beyond market exchange).
Fourth, it assumes that the public sector and the public realm is about service provision, no more no loss. That is, that such collectivised means of provision do not have broader functions in demostrating social solidarity.
These are all areas open to serious debate. All I’d say here is that the incautious advocacy of marketisation is unwise. It can deliver benefits in the right circumstances but it is important to be clear on when the right circumstances prevail, and when they don’t.
Excellent stuff. Extraordinary how many Lib Dems think claiming something will be run by markets is a bad thing in itself.
Markets work – and could work still more for ‘the betterment of society’ – despite the meddling of political parties, not because of it.
Liberal Democrats should strive to set markets free – and free society in the process.
@Andrew Duffield
“Markets work – and could work still more for ‘the betterment of society’ – despite the meddling of political parties, not because of it. Liberal Democrats should strive to set markets free – and free society in the process”.
Yes those meddlesome politicians should free the financial markets from their ridiculous shackles and let the bankers do what they do best, they’re the experts after all. The whole nation would benefit and we wouldn’t have to worry about old fashioned nonsense such as exporting more goods than we import – moving money around is so much easier and sexier. Oh, just a moment……………….
@ alex
Im not advoacting mocing from anything to anything. Im ta;king about what is, not ewhat should be.
a market is the facilitator of an exchange, and the examples I highlight are exchanges.
@ andrew
markets work when they are allowed to be free, but governments need to make markets free and need to intervene to keep them that way, as adam smith acknowledged a long time ago
@ alex M
Im not aware of a single non maerket public service provision contract and would be curious as to what you copnsider one to be?
@ simon
thanks I agree
Your argument about universities is flawed.
Universites are as much, if not more so, about research than teaching. This research is most often non-commercial and always unprofitable in the short to medium term. This is unsurprising, universities are instituitions of learning driven by a desire to discover as much as possible about the universe and our society in it for the benefit of all. This is why the research budget, although tremendously damaged by the coalition, has not been sacrificed wholly on the altar of commerce. It is also why research is measured completely independent of teaching when it comes to dishing out grant money and something arguments for free markets in education need to consider.
“The idea that the government, can or should, protect certain sectors of the economy from the market is a fallacy.”
Please explain why this is a fallacy?
My view is (and I am no expert) if you allow markets to dictate then you end up with multi-national corporate monopolies. You need an element of regulation to protect the consumer and allow small businesses to flourish. There is also an argument that if there is no real competition in areas such as energy supply, public transport and other utility based industries then they would be better run as a nationalised business.
Seems to me that the Lib Dems appear to be full of economic liberals these days and one of the many reasons why I am no longer a member!
its a fa;lllacy necause markets exist anayway.
the government should proetect cerrtain sectors of the economy from certain types of markets, but verything in the economy exists in a market, if it doesnt it doesnt exist, so trying to [protect somehting from its raison d’etre is fallacious.
@ G
i agree with you, but researchers exist as much in the market as the students do.
You’re gasp ov tthe consept ov a merkat is has shakesy as toor typoing.
The problem nowadays is that none of our political parties, the Lib Dems included, understand that a market is a social construct, not a natural, god-given state of affairs and as such should not be regarded as sacrosanct. Markets can fail and often do, but our politicians are so cowed by prevailing ideology that they fail to admit the extent of market failure and even if they do, they lack the courage to argue anything should be done about it.
I would add that the very idea of using the market model for elements of social provision like health and education is utterly wrong-headed. The marketisation of university education in this country has been an unmitigated disaster, just as the marketisation of the NHS will be if it is enacted. Think, for instance, of the proliferation of media related courses in the last 15 years, which has led to a glut of would-be journalists (at a time when the market for their services has gone into freefall) and PRs while the country lacks the skilled manual workers it needs. The collective behaviour of ill-informed “consumers” of university education has resulted in a disastrous misallocation of resources towards the wrong kinds of courses.
Viewing users of public services as “consumers” in a market the conventional sense is utterly barmy. In order to exercise choice, you need both information and the ability to access different alternatives. If you are old, ill and poorly educated, with limited mobility, how are you going to exercise “choice” in finding a heart by-pass op? Likewise, in education, the ability to exercise “choice” of schools is partly dependent on having the resources to ferry offspring to different locations, almost certainly by car. If you are at all constrained by access to transport i.e. if you are poor and don’t have a car or decent and affordable public transport, “choice” is likely to be illusory.
The long and the short of it is that markets don’t work when dealing with public goods. They only work if participants are incentivised through gains derived from changes in supply and demand. In a progressive society, such gains ought never be present in the supply and consumption of public goods.
The question that has to be asked instead is, what is a public good? Health? Education? Energy?
Discuss…
@MichaelKingsnorth I think it is wrong to judge how liberals think about markets by judging what is written on LDV. Look instead at how the Liberal Democrats actually vote at their annual conference, for example on the NHS reforms and their 10:1 defeat of free schools and academies.
As far as the author is concerned I think the mistake he is making is that he is applying a one size fits all approach as far as markets are concerned.
No one in their right mind would want the British NHS to be abolished and replaced with the US model. Under the US model, only the rich can afford to have adequate health care – and even they get ripped off given the incentives to overtreat.
Profits are made from rich people who can afford health care, whilst poor people who cannot afford health care are ignored.
The market model does not work for health care provision.
The problem the author has in my view is that he is trapped by an ideology, not one that is based on empirical evidence but one that is based on faith. In recent times their have been some horrendous market failures; such as with the banks where light touch regulation (ie the withdrawal of the state) led to moral hazard. Global warming also is a market failure, and can only be mitigated if the state applies regulations on the polluters.
We should pay heed to a great liberal economist; Joseph Stiglitz;
“They [free market policies] were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets — for instance, whenever information is imperfect, which is to say always.”
@ robert,.
the marketisation of NHS and third level has existed since the instituttions were founded. #
there is alreday an extensive monetised makret in the NHS, with things like PFP seeimng to do a good job, but now causing hopital wards to close.
the government should reflect the chooices of its citizenry….not just for example create nmore and more UNi places, whena substantial part of the pipulation would like to do an apprentioceship.
the pupil premium is more reflective of the public’s choice than ‘free; Uni tuition is.
the choice lement is that if someone wealtrhy chooses to go private, it increases the resources, and therefore choices available to the poorer persobn.
@kirsten the view you advocate is broadly in line with keynes and one I agree with.
@David Thorpe
the pupil premium is more reflective of the public’s choice than ‘free; Uni tuition is.
the choice lement is that if someone wealtrhy chooses to go private, it increases the resources, and therefore choices available to the poorer persobn.
This argument is crap. It is crap because of the orders of magnitude difference between the numbers pupils in private schooling and those in the state system. One pupil in the private system results in a neglible, less than pennies, extra money to the state system, while the private school pupil gets the best education their money can buy.
This means that those with money get a grossly disproportionate benefit over those with less.
@Geoffrey Payne
I was a member for 26 years and my comments are not based purely on LDV that would be silly!
@ geoffry
have you actually read my pice.
I am aerguing for intervention, for makrets with intervention…which is what economic liberals argue for.
it was labour who pursued ‘light touch regualtgion’ and tories who endorsed it, and lib dems who opposed it
@ g
it might be a neglible gain, but its a gain
@ robert C
I agree with you to a massive extent, but what I would say is that universities and the nhs have always been markets, the nhs is just a non traditional market because demand and supply curves go in different dircetions, but thats the strength of the NHS and needs to be preserved.
universities have also always been markets but the monitistaion of them has been a flop
@ micheal
yuou are correct, if the government doesnt intervene then you get monopolies, that is at the hearrt of l;iberal economic theory, and as I said above, adam smith highlighted that four centuries agi.
but the market is ttill the market with the government intervening or not.
and the poiint im making in this articld i that at the moment some markets are allwoed to run rampant, and cause hamr to the nation, and they need more interference from government. while other areas, we must use the market power the government has to schieve better resuts, so both using the market.
the idea that somethinge xists outside the makret is a fallacy
@ geoffrey payne
the nhs refomrs are opposed by the economic liberals within the party to the best of my knowledeg.
@david thorpe
it might be a neglible gain, but its a gain
No! It’s an increase in the disparity between the two. Would you describe it as a net gain for fairness if you were given a £10,000 pay increase and your neighbout a £1 pay increase? You both gain, but the difference is grotesquely unfair and moves you further ahead of your neight in whatever it is that the two of you spend money on.
two people getting a benefit is better than two people being worse off………….if there were no private healthcare or ecuctaion then the demand for state helathcare would be greater menaing waiting lists etc…
@david thorpe
when one person, by virtue of personal wealth, gets a massive benefit and the other, by virtue of a lack of wealth, gets a tiny one then by comparison the poorer person is worse off!
tjhey may be worse off compared to the wealthier person, but they are not worse off in real terms, becaiuse they are getting more resources than they were before. i.e. the gap increases between the two, but the poorer person gets an increase as well
@David Thorpe, it’s a profoundly regressive practice as it increases and entrenches inequality. Ones chances of success become, not a matter of ability, but a matter of wealth.
I do see what you are saying g, nut sdurely the student from the poorer backround has his chances increased by their being more re4sources for him to access.
and even if there were no private schools, unfortunately the richer student would still have an advantage, this is shown by ‘postcode lotteries’ for state school places in the UK, and by simple factors such as the fact that the rich students parents can pay for extra lessons etc if they deem them nescessary.
so if you have every student in the state system, there are less resources per student, and the wealthier srtudent is still getting extra help, but the poorer student is not, and also has less resources devoted to him because of the enlarged class sizes, so he loses twice, instead of onnce when there is a private school system