Home > Uncategorized > Denial of the public non-market system, and the consequences

Denial of the public non-market system, and the consequences

from June Sekera

The Denial

Public non-market production makes up a quarter to a half or more of all economic activity among advanced democratic nation-states. Yet the public economy’s ability to function on behalf of the populace as a whole is seriously imperiled in many western democracies, and particularly jeopardized in the United States. The surging influence of mainstream economics has been a prime factor in the degradation of the public domain over the last several decades – a phenomenon that James Galbraith (2008) has called “the collapse of the public governing capacity.” Market advocates, exploiting neoclassical economic theory, have foisted market axioms and precepts onto government, intent on transforming public goods production in imitation of an idealized and idolized market model. The ravaging of government in the interests of ideology and private profit has proceeded largely unhampered because we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace.  Government produces its outputs in a non-market environment. Its resource inputs are supplied collectively: from the authority of the people (their votes for elected representatives) and from their aggregate financing (taxes). The mission and the result of government’s distributed decision-making, collective-financing system of production is that goods, services, benefits, and protection are supplied for the wellbeing of the society as a whole, and can be accessed regardless of personal wealth because they are provided free or below cost at the point of usage. Economic theory today lacks any cogent theory of this non-market system.

Public choice theory, to which many contemporary economists default for a “public economics,” draws its lifeblood from market-centric ideology. The public choice school holds that the axioms and assertions of market-model economics apply to the public economy. Simply put, there are two fundamental problems with this school: 1) it fails to recognize that the public economy is non-market; and 2) many of the basic assumptions and assertions of market economics have been challenged and disproven by pluralist economists regarding their applicability to the market (e.g., see Fullbrook, 2007), nevermind the non-market.

A myopic market-centric view of the public economy prevails in textbooks, in university classrooms, in the documents and debates shaping public policy and in the current practice of public administration. As it stands now, students in university economics courses learn about the superiority of markets from a professoriate that transmits the reigning market-centric economics, that speaks regularly of government as little more than an impediment to “efficient markets,” and that understands public goods as a problem of “market failure.” In the United States, about 40% of college students take at least one economics course (Goodwin, 2014); after graduation, more than half of economics majors go to work in government (Kalambokidis, 2014).

My argument is that mainstream, market-centric economics has been broadly and dangerously transformative within government and public institutions. Market-centric economics is the smog that pervades the atmosphere of public policy and public administration, a smog that has at once caused and obscured many of the failures of what some say is a “broken government” (Schuck, 2014; Howard, 2014; T. Smith, 2014; Fahrenthold, 2014; Luntz, 2014). “Economic abstraction has been coupled with power to impose that abstraction throughout [the nation]. The result has been a political economy that generates the conditions for its own failure…”[1]

The Consequences

The consequences of the contrived and contorted imposition of market-model economics on the public domain range from the unfortunate to the disastrous. Agencies originally created to meet a public need are being warped into entities whose purpose is to generate revenue and deliver private profits at public expense. National parks are selling naming rights to corporations who will rebrand Yellowstone and Yosemite in their corporate images (Rein, 2016; Olorunnipa, 2016). The “policing-for-profit” model in criminal justice results in officers stopping motorists for minor infractions in order to make fee-and-fine quotas (U. S. Dept. of Justice, 2015; anon, Harvard Law Review 2015; Zapotosky, 2016). Public education – today being relabeled “government education” by those on the right – is being taken over by Wall Street, which has targeted “the education industry” as a new profit center through the spread of private “charter schools” funded by taxpayers, but shown in multiple studies to arrive at widely inferior results (Persson, 2015; Losen et al., 2016). Through “public-private-partnerships,” multinational corporations build toll roads that go bankrupt, leaving taxpayers holding the bag. Private collection companies, contracted by government agencies, are being granted the sovereign power of the state to garnish wages of students, the poor, and other citizens in order to collect overdue debt AND fees and fines imposed by the companies themselves (Choudhury, 2014; Edsall, 2014; Shapiro, 2014; Stillman, 2014). Privatizers are very close to turning the venerable Veterans Health Administration into an ATM for the private healthcare industry, despite studies that have consistently shown that the VHA provides health care superior to private care systems (Farmer et al., 2016; MITRE, 2015; Gordon, 2015; 2016; Mundy, 2016; Kime, 2016). The result is a subversion and erosion of the capabilities of the public system of production, such that it can no longer deliver its intended results. A mission-model economic system, in which meeting public needs was the guiding purpose, is being distorted into a faux market-model system, in which revenue-raising becomes the goal.

[1] Bowman et.al., 2014. The authors write principally about the UK, but their argument brilliantly captures the American reality too.

from
June Sekera, “Missing from the mainstream: the biophysical basis of production and the public economy”, real-world economics review, issue no. 81, 30 September 2017, pp. 27-41, 
  http://www.paecon.net/PAEReview/issue81/Sekera81.pdf

  1. December 2, 2017 at 10:50 pm

    Yes, yet when the citizens are squeezed by austerity to subsistence plus a procreation bonus the pie shrinks and cannibal capitalists spend more and more time on corporate strife just as Earth’s bountiful free lunch is turning to friction.

    The government soon becomes viewed as a hostile occupying force with no positive benefit.

  2. December 3, 2017 at 2:36 am

    I have to disagree with the statement that ” we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace. ”

    We do have such an intellectual infrastructure — it is called Functional Finance (developed by British economist Abba Lerner), along with its more recent development which is known as Modern Money Theory (MMT). The latter has been developed by a range of economists in the postKeynesian tradition, and has received a lot of recent publicity.

  3. December 4, 2017 at 9:33 am

    You are, in my view generally correct in the statement, “A myopic market-centric view of the public economy prevails in textbooks, in university classrooms, in the documents and debates shaping public policy and in the current practice of public administration.” However, this statement is not correct.

    “The ravaging of government in the interests of ideology and private profit has proceeded largely unhampered because we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace.”

    There are multiple alternatives to the private-property, market-centric view of public life, including the public economy. First, there is over 100 years of theory and practice in public utility regulation that lays out quite clearly the nature of public needs and rights, why the public sphere must exist, and how economics in that sphere is pointedly different from private markets. Markets are used in this area, but they are designed and assessed differently from private economy markets. Second, communitarian theory and practice has supported brisk discussion and experimentation with many forms of public life and economics. Third, government- and community-owned public utilities (electric, phone, water, etc.) has been practicing public finance and economics for almost 120 years. Finally, there is scientific regulation. These guidelines and system support the use of different practices and shared understandings for oversight of products and services in private vs. public research and product use.

  4. December 4, 2017 at 5:19 pm

    “Market advocates, exploiting neoclassical economic theory, have foisted market axioms and precepts onto government, intent on transforming public goods production in imitation of an idealized and idolized market model.” I agree with this statement, which is the core of this article, and I applaud the author’s work to change things.

    However, this statement is presented as an absolute: “… we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market … .” The key word is “adequate”, and I agree with the direction the author is taking here. Perhaps presenting such an absolute, even with the adjective “adequate” is stating too much.

    Also, “[we have] no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace.” Again sounds like a debatable absolute unless we consider the adverbs “crucially” and “substantially”. It seems to me these qualifiers, especially the latter, are crucial. And when I notice “The surging influence of mainstream economics” to lead it all off, I agree with the statements.

    I am working on a project that reviews three-dozen or so top economics departments in the United States to determine the extent to which they offer or require courses in the History of Economic Thought (tentative conclusion: largely missing from most offerings). Such courses, properly taught, would present the intellectual history of public economics (which is much more than public goods and public finance). I wondered about the author’s alma mater, Tufts. In the offerings of the Economics Department (her bachelor) I find only Public Finance, described as focusing on methods of public finance and evaluating the effectiveness and size of government. Such description fits well within orthodox market-oriented economics and offers little “intellectual infrastructure” outside of it. I find no offering in Public Administration (her masters). In my review of other economics departments, I find this typical.

    In my own training (Berkeley, early 1960s), the focus was, as now, on neoclassical theory and mathematical economics. A course in public finance was offered (textbook by Richard Musgrave), but the focus was almost entirely on methods of financing government, not on broader public economics per se. Theory of public goods (a la James Buchanan and Mancur Olson) was offered, but this theory has a market bias.

    Wikipedia’s first paragraph on its “Public Economics” page says: “Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiency and equity.” And that is part of the problem right there, because “efficiency” and “equity” in this presentation employ the limited and biased neoclassical ideology.

    Eight years ago Elinor Ostrom won a Nobel prize for her work showing how public resources can be managed outside of both privatization and government regulation. I wonder how much her ideas have penetrated economics curricula (I’m guessing not much). And I believe we are losing our cultural concept of the public good and the welfare of the commonweal. Such work as Sekera’s and Ostrum’s could help turn that around and put Milton Friedman, James Buchana and their ilk to rest.

    • December 5, 2017 at 4:48 pm

      “…Public economics…is the study of government policy through the lens of economic efficiency and equity.” And that is part of the problem right there, because “efficiency” and “equity” in this presentation employ the limited and biased neoclassical ideology.”

      I have argued that one of the best justifications for using governments to provide certain public services over the “private sector” option is the fact that governments are able to provide a quality of product that is superior to that which competitive markets can provide.

      Privately-owned firms operating in a price competitive market quite often do provide a product desired by the public more efficiently than governments can because competition forces firms to reduce their costs to a bare minimum in order for them to survive.

      But in virtually any enterprise, some of the most vital costs of production are those which are needed in order to generate an output that meets a sufficiently high standard of quality. Yes, this emphasis on quality over quantity (output per units of input) typically invites more “bureaucratic waste”, but this is the trade-off that many tribes are willing to accept in order that they might enjoy a higher quality of output.

      In the private sector, competition puts constant pressure on firms to compromise quality in order to minimize costs. Asking governments to produce a product/service that the tribe highly values makes sense when tribe is economically advanced enough to afford a higher quality of product.

      In less advanced economies (e.g., Somalia) the citizenry have no choice but to rely on the inferior private sector option to provide desirable services (like security) because they cannot afford a superior government option. (Only the wealthy in Somalia can afford them.)

      In modern economies, economic participants understand in a general sense that it is going to cost them more if they want to enjoy the highest quality of goods/services/experiences that are available in the marketplace.

      Perhaps the question America’s educated class should be asking is why the American people should be settling for the inferior quality-of-life that one gets when relying on the private sector alone when they can as a people easily afford to pay the premium it would cost to enjoy a far superior quality of public services?

      It’s not always about efficiency (unless you are a poor country). In the modern age, we can afford a superior quality of life and have every right to insist that our leadership class provide it for us.

      In other words, it is rational to choose inefficiency when/if it also provides a quality of product that is highly desirable.

      (Of course, most privatization schemes in America don’t even offer more efficiency, since the private alternative—for-profit prisons, e.g.—usually faces no price competition and is therefore just as inefficient as the government options. In these instances, politicians simply promise the “magic” of private ownership, which has no basis in reality sans competition.)

  5. December 5, 2017 at 12:07 pm

    I suggest a look at the journal, Public Goods Post, published online since 2015. In 2016
    umair haque published the article “The End of the American Experiment, It’s Over. So What Can the World Learn?” Some excerpts from this article might provide insight.

    It’s safe to say, I think, that the American experiment is at an end. No, America might not be finished as in civil war and secession. But it is clearly at an end in three ways. First, to the world, as a serious democracy. Second, to itself, as a nation with dignity and self-respect. Third, its potential lies in ruins. Even if authoritarianism is toppled tomorrow, the problems of falling life expectancy, an imploding middle class, skyrocketing inequality, and so on, won’t be.

    What does America not have that the rest of the rich world does? Public healthcare, transport, education, and so on. Every single rich nation in the world has sophisticated, broad, and expansive public goods, that improve by the year. Today, even many medium income and even poor nations are building public healthcare, transport, etc. America is the only one that never developed any. Public goods protect societies in deep, profound, invisible ways.

    Working societies — if they are to endure, grow, and cohere, if they are to prosper, hang together, and really mature — need moral universals. Moral universals are simply things that people believe everyone should have. In the UK, those things — those moral universals — are healthcare and media and welfare. In Germany, they are healthcare and media and welfare and higher education. And so on. Moral universals anchor a society in a genuinely shared prosperity. Not just because they “spread the wealth”, though they do: because, more deeply, moral universals civilize people. They are what let people grow to become sane, humane, intelligent human beings. Moral universals let people act morally, and acting morally is what the process of civilization is.

    A society that cannot create sane, humane, civilized people can therefore no more reasonably stay a democracy than a global economy can be powered by fossil fuels forever. At some point, without moral universals to create citizens worthy of the word, democracy runs out of gas.

    And that is what the end of the American experiment proves. Without moral universals, there is no process of civilization, and democracy itself can no longer continue to grow and develop.

  6. robert locke
    December 5, 2017 at 12:43 pm

    In his Spirit of the Laws, Montesquieu claimed that the durability of a despotism depended on its people fearing the despot (once they no longer feared him, he was finished), that the durability of a monarchy depended on the presence of an aristocracy possessed of a strong sense of honor, to oppose a king with despotic tendencies, and that the durability of a republic, depended on the virtue of its citizens, without virtue the republic would fall prey to corrupt self-interests and greed. Hegel, in the Philosophy of History, claimed that the World Historical Spirit expressed itself in the institutions of the state, moving dialectically from state to state as an expression of the progressive development of the Idea of Freedom. The US has clearly lost the mandate of heaven.

    • December 7, 2017 at 11:33 am

      Robert, or phrased more abstractly the durability and stability of a culture (society and its ideas) depends on the number and variety of the associations making up the societal actor-network. Focused on the varied weak and strong relationships involved in that network on a day-to-day basis. The emergence of actor-networks and thus socio-cultures can be examined and demarcated. This is the job of anthropologists and historians. The first examining the work while still “under construction;” the latter looking back from specific points after the construction is completed.

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