Why are there difficulties with establishing so-called public goods in the market environment? And what solution does the state offer?
A few months ago, in the article “State interventions as information destroyers”, I criticized subsidies and redistributions; one of my readers contacted me with the remark that although my argumentation is valid for involuntary transfers of resources and wealth from one to another, I did not deal with the problem of so-called public goods, so today’s article will be about it.
Which goods are commonly called public? Public goods have two main features. You cannot easily exclude someone from using this good and also... the number of users does not significantly increase the cost of running such service; typical example is the street lighting (it is difficult to exclude someone without removing him from the enlightened area and the maintenance costs of these lamps do not grow according to how many people benefit from them) or lighthouses (it is almost impossible to let just some boats to use the lighthouse and the cost is also constant, no matter how many ships benefit from it). The problem of these goods is that if too many individuals decide not to participate in their funding - because they will be able to use it anyway (as it is very difficult or impossible to exclude someone from using it) - eventually they may not get enough money to run it; this is often referred to as a very vague concept of “market failure”, which mostly describes situations in which the free-market solution differs from the state one and personal preferences of the speaker are for the second option. Within this article, I do not want to deal with this name, because I find it irrelevant to judge, if there was a failure or not; even if there was a market failure (whatever that means), in my opinion, the question if the state is able to handle the problem better is more important.
Why are there difficulties with establishing so-called public goods in the market environment? Well, many people rather wait so others pay it (while they do not contribute at all) because they will not be excluded from the consumption anyway, so they can benefit from that good without carrying any consequences; if everyone would think that way, no public service would exist. However, the reality is (just look at the historical times when these goods were not set up by states) that those who want or need the service the most, they fund it, while many “stowaways” have a free ride. That could be understood by many as an injustice which has to be solved – and with this request they make the state aware.
And what solution does the state offer? At first glance, it may seem that stowaways are simply excluded by financing the “public good” from erratic money; but the second view shows that it was definitely not paid equally, because some contributed significantly more than others (and many did not participate at all). But that is not everything; there are other problems with the state dictatorship. The state has no way to find out whether some service for some amount of money pays off or not. For example, if we know that street lighting in some location would cost 100 000 USD, then the only way to decide if people really want it (and would not use the 100K for other services) is to leave them their money and wait if they voluntarily pay it; if not... then it means that they prefer buying other goods. The state does not have this option, because it takes the money from people and after that, there is no way to find out what they really want to buy for that.
Another challenge, specific for a democratic state system, is the principle of the elections itself. Let’s say that the following problem needs to be solved by the democratic means:
“In order to contribute to building of public lighting, the citizen has to work tens of hundreds of hours, and the chance that his contribution will be the limit one between the establishing and not establishing the service is so low that many of them rather prefer not to contribute.”
(Here, it is important to realize that the goal is not unconditionally to get money for the constructing of the lighting, but rather the decision whether such an investment is really the best choice for what to do with the money.)
And before what dilemma stands every individual when democratic elections take place?
“In order for a voter to make a rational decision on which vote will he eventually throw into the ballot box, he has to spend tens or hundreds of hours studying political parties’ programs and looking in their representatives’ past to find out at least some info about their credibility, and the chance that his vote will eventually be the limit one between winning or not winning of his favorite in the election is so low that many prefer not to vote, or to vote only for the smiling faces on posters or according to a similar criterion.”
It is only moving of the problem to a higher level; for the very same reason (too big cost with a little chance of changing anything), why many people do not pay to contribute to purchasing of a public good, it is not worthwhile to make a reasonable and responsible vote. So although the financing of so-called public goods in a market economy brings some problems, the state does not solve the problem, it even creates many more.