Abstract
Crucially absent from current economic thinking and from current principles of public management is an understanding of the forces and dynamics of nonmarket production in the public economy. Imposing market axioms and precepts on the public non-market is not merely ineffective; it is too often disastrous, as I detailed in previous chapters. In order to revitalize the practice of public administration, we need a new conceptual framework: a model of the public nonmarket economy. In this chapter I outline basic elements of the public nonmarket economy. I present a conceptual model of the forces and dynamics of production within its distinctive environment. I explain how these characteristics differ from the market model and why those differences matter.
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Notes
- 1.
See definition of “prices that are not economically significant” in NIPA Handbook—Bureau of Economic Analysis, Nov. 2011.
- 2.
For example, writing about “America in Decay,” political economist Francis Fukuyama (2014) talks about “the executive branch that uses power to enforce rules and carry out policy.”
- 3.
In an encyclopedia entry on NPM (Hood 2001), we find Christopher Hood a widely-cited scholar of NPM in Europe, writing that “Gregory’s controversial claim that orthodox managerial approaches foster a ‘production’ approach to public services that leads to several unintended effects, including downgrading of responsibility and what he termed ‘careful incompetence.” It’s not clear why a “production” approach is seen as the cause, rather than the market-centeredness of NPM. A similar avoidance of the economics of production may be found in Stephen Osborne’s critique of NPM as overly reliant on product-focused management theory which has been derived from research on the manufacturing sector. But his focus (Stephen Osborne 2006) is on debates about administration versus management, products versus services, and intra- versus inter-organizational theory, all of which miss the critical issue of a destructive reliance, in actual government practice, on market-centric principles in the midst of a non-market.
- 4.
In The Income of Nations (1958), Studenski traced the history of national income accounting and competing historical conceptions of production. Descriptions of Studenski’s work can be found in Warren (2005) and Ogle (2000).
- 5.
For example, see Sachs 2014 and Jan W. Rivkin, Michael E. Porter, Rosabeth Moss Kanter, David A. Moss, in “Can America Compete?” Harvard Magazine, Sept.-Oct. 2012, pp. 26–43.
- 6.
While my thesis and conceptual model are not derived from the historical school, it is important to recognize this non-orthodox, non-mainstream perspective that, while alive for a while, seems to have been extinguished. In his book on the Historical School, Shionoya (2005) writes both of its importance and of its dismissal by orthodoxy: “The German Historical School, belonging to the tradition of historicism as part of German romanticism and idealism, wrought a radical transformation in the outlook of economics. Yet mainstream economics has never taken the impact of the [Historical School] seriously….” Yuichi Shionoya, The Soul of the German Historical School; Methodological Essays on Schmoller, Weber, and Schumpeter, Springer, Boston 2005, p. xiv.
- 7.
For a relevant and cogent analysis of the nature and functions of organizations see Domhoff (2005), who holds that “organizations are the starting point for understanding power.”
- 8.
In the framing of the US Constitution there was great debate about where sovereignty lay, whether with the federal government or the individual states. Ultimately it was decided that sovereignty rests with the People (Ellis 2015; Verkuil 2007, pp. 15, 81, 102). The original, late medieval concept of popular sovereignty was not directly associated with democracy, given that the concept of “democracy” itself was not held in high regard. Indeed, writes Ellis, “the term democracy remained an epithet until the third decade of the nineteenth century. It meant mob rule, the manipulation of majority opinion by demagogues, and shortsighted political initiatives on behalf of the putative ‘people’ that ran counter to the long-term interests of the ‘public.’” With the passage of time, however, it has become widely accepted that popular sovereignty is the bedrock of the US Constitution and government, as well as of other democratic nation-states. Yet the embrace of popular sovereignty does not of itself yield a thoroughly democratic system. As even Wikipedia reminds us, “In most modern democracies, the whole body of eligible citizens remains the sovereign power but political power is exercised indirectly through elected representatives.” Moreover, these days the ability of the people to exercise their sovereignty is being severely undermined (Verkuil 2007; Dahl and Soss 2012; Moe 1994; Lynn 2001). And as Susan George observes in Shadow Sovereigns (2015), “transnational” corporations have overturned democratically-enacted laws in order to pursue their own profit-maximizing ends.
- 9.
Although this Brief treats democracies, I would argue that my approach holds for those many nation-states organized under other systems of government. Wherever there is a public economy (and that would include all, or nearly all, nation-states), the market model is inadequate for understanding or explaining it. There is a need, rather, for a theory of public economics that identifies and takes into consideration the sovereign source of the power to produce, as well as the source(s) of the inputs for production, regardless of the system of government.
- 10.
Fernand Braudel (1981) The Structures of Everyday Life. Civilization and Capitalism. Volume 1; cited in The End of the Experiment; From competition to the foundational economy; Andrew Bowman et al. (2014, pp. 12, 116–118).
- 11.
Arguably, a number of public agencies, such as public transit and local housing authorities, have been mis-classified by the National Income and Product Accounts (NIPA) used for calculating GDP. Because they are defined as “government enterprises”, they are defined as “businesses” in NIPA accounting and their value added is recorded in the “business sector” for GDP purposes (Baker and Kelly 2008).
- 12.
Note that “needs ” includes the needs of people, organizations, businesses, communities or the natural environment.
- 13.
Weisbrod (1964) in an analysis of the long-term impacts of public education, makes the point that “when goods and services have significant external effects the private market is inadequate”.
- 14.
See definition of “prices that are not economically significant” in NIPA Handbook—Bureau of Economic Analysis, Nov. 2011.
- 15.
The only justification to make revenue-raising a goal is to raise money to cross-subsidize the supply of other public goods.
- 16.
And of course, some public services, like the Post Office, have been required to cover all costs with revenues, tossing out the concepts of collective payment and universal access.
- 17.
Wuyts (1992), but cf. the work of economist Geoffrey Hodgson (2013), who distinguishes “needs ” from “demand,” which is a function of preferences and the ability to pay (Tankersley 2014, p. 671).
- 18.
The quote is from Michael Albert and Robin Hahnel, “A Quiet Revolution In Welfare Economics”, but Maxime Desmarais-Tremblay (2013) provides a more extensive analysis of Musgrave’s work.
- 19.
Tocqueville in Democracy in America p. 59, quoted by Beryl Radin (2012, p. 9) said that in the United States “The nation participates in the making of its laws by the choice of its legislators, and the execution of them by the choice of agents of the executive government…The people reign in the American political world as the Deity does in the universe”.
- 20.
Mirowski (2015) was pointing principally to microeconomics, but he implied that the charge could also be levied against aspects of macroeconomics.
- 21.
Any fees that may be paid by users are not, or should not be, intended to cover the costs of production.
- 22.
It doesn’t matter, in this context, whether the public agency contracts out. Even if it does, it is still the producer—i.e., it is responsible for what gets produced.
- 23.
Stiglitz (2000, pp. 15, 156–57). Although Stiglitz gives a rhetorical nod to collective decision-making through the political process, he reverts to standard economics modeling, using the “collective demand curve,” to explain what he calls “the demand ” for public goods .
- 24.
The idea that the state has a monopoly on the power to legitimately use force is generally credited to Weber’s theory of the state as developed in a lecture, “Politics as a Vocation” (Weber 1919). For a discussion of the implications and impact of the substantial differences between the assets of the private sector and the assets of the state, see Moore (2014).
- 25.
For a discussion of the assets of the private sector vs the state and the impacts and implications of these differences, see Moore (2014).
- 26.
Concerning the consequences of cutting the budget of the National Weather Service, see Doswell and Brooks (1998), Sirota (2013), Miles (2014) and Anyone regret slashing National Weather Service budget now?; Salon; Tuesday, May 21, 2013.
- 27.
An operational definition is needed for the term “rationing ” in the context of the public non-market environment. Cf. Ubel and Goold (1998).
- 28.
In the public non-market, it may well be that need always exceeds supply, so that no equilibrium can be reached. If so, the theory of equilibrium may be another conventional market construct that is inapplicable to the environment of non-market production.
- 29.
A useful discussion of the dilemmas of rationing, and sometimes tragic choices, faced by public sector producers can be found in an article on health care rationing by Ubel and Goold (1998).
- 30.
For more on the concept of obligations as a “product” of government, see Moore (2014).
- 31.
Graham does not specify how much of this is public infrastructure. From the context it appears that it may be the majority.
- 32.
In mainstream economics a good is nonexcludable if the supplier cannot prevent consumption by people who do not pay for it and non-rival if more than one person can consume the good at the same time (Krugman and Wells 2009).
- 33.
In China in response to extreme air pollution, some schools have built domes over sports fields and wealthy parents choose schools based on air-filtration systems: Wong (2013).
- 34.
I did not find similar information in Stiglitz (2000). This chart is from the 2nd edition, Stiglitz (1988, p. 30).
- 35.
- 36.
Kenneth J. Arrow (1963) makes this point with regard to non-market medical care. A doctor’s “behavior is supposed to be governed by a concern for the customer’s welfare which would not be expected of a salesman.”
- 37.
Those familiar with the textbook definition of public goods will recognize the term “non-rival” as an ascribed attribute. However, I use the term “non-rival ” differently—as an attribute of the process of production, not of the goods produced.
- 38.
There is a small but substantial and growing literature on this deficiency. Numbers of individual agencies and programs have constructed effective performance measurement and management systems, and some are statewide. But these operate despite the imposition of ineffective or counterproductive federal performance measurement systems.
- 39.
Of course, investors must be satisfied with their return on investment, but that is a completely different point than the reality that buyers must be satisfied with the products or services that are produced, or revenues will cease.
- 40.
In a partial victory, and as a result of the work by Good Jobs First, state and local governments that provide economic development tax credits will now have to publicly account for the losses. http://www.goodjobsfirst.org/gasb.
- 41.
Note that in this section I am discussing the ongoing, growing and increasingly routine practice of “performance measurement ” throughout government. This type of post-production measurement within and by government agencies themselves, but imposed from the outside, is different from third-party evaluations, which sometimes do attempt to predict or measure externalities, albeit usually not long-term ones.
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© 2016 June A. Sekera
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Sekera, J.A. (2016). The Public Economy: Elements of a New Theory. In: The Public Economy in Crisis. SpringerBriefs in Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-40487-5_5
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