Posts Tagged ‘John Kay’

New publication: ‘The Power of Ideas’ collects ‘theoretical foundations’ posts

Wednesday, December 22nd, 2010


It’s finally arrived! The most anticipated (by me at least) Policy Progress publication of 2010, The Power of Ideas: Decline and renewal in the theoretical foundations of progressive thinking, is now online.

From my foreword:

This report collects together all of my writings on the ‘Theoretical Foundations’ topic, one of the main themes for the Policy Progress website in 2010. This topic goes right to the heart of what Policy Progress has been trying to do as a policy ‘think-site’ devoted to developing and supporting progressive initiatives and ideas. Over the course of this year, I’ve tried to grapple with the history and prospects of progressive thinking and renewal. And, perhaps miraculously, I feel that the 35 or so posts that formed the basis for this report really do add up to something that hangs together.

As I said yesterday, I won’t be able to write for Policy Progress anymore next year, so I’m pleased to have managed to complete this giant compilation as a record of (much of) the year’s work.

You can download a copy here.

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Further thoughts on welfare and the state

Tuesday, September 14th, 2010

1. Today’s post will be a bit more fragmentary than my usual column. I’m writing this after getting back from presenting at a Fabians seminar on child poverty with Sue Bradford. It’s the first time I’ve done a formal public presentation of that type, so getting it right has been my main focus over the past few days. (The powerpoint slides will be available on the Fabians website and/or here before too long.) It was a satisfying experience  - I felt the presentation was well-received and it was a pleasure to follow Sue (whose credentials in this area are unrivalled). The questions were well-considered and thought-provoking, too. A big thank you to everyone who attended!

2. I’m looking forward to part 2 of “Reconceiving the welfare state” arriving from David Craig in the very near future. I hope you’ve all had the chance the read part 1, which was published here last Thursday. It’s a great piece of work, with some really cutting-edge conceptual thinking. David’s one of the very top academic brains writing on these sort of issues in New Zealand, and it’s really great to have him contributing to Policy Progress.

His post raised the pretty provocative idea that maybe, when confronted by ideas like David Cameron’s ‘Big Society’, progressives (while justifiably suspicious as to hidden agendas) shouldn’t just reactively “spring to the defense of the state’s role”.

Instead, perhaps we should accept there is some genuineness and maybe some merit in attempts to “see what can be leveraged from wider elements of the social, local government, communities: elements imagined to be ‘closer’ to individuals and families, and as more flexible and people-oriented than ‘the welfare state’ . . . there’s a real will to see “communities” take up aspects of the social contract that the state has had.”

At the risk of misjudging where David is headed in part 2, I’d like to just add a few brief comments in response to this.

I certainly think there are merits in an honourable effort by progressives to engage with the things like the Big Society in good faith. A case in point is Matthew Taylor, who used to be an advisor to Tony Blair and is now chief executive of the RSA. He’s outlined his critical engagement with the Big Society on his blog in a number of posts including Big Society – ideas but no washing line, The Big Society – news from Downing Street, Big Society – Fair Society and The night watchman state?

And let’s not forget it was critics on the progressive side of things in the 1960s and 1970s who first pointed out the statist and disempowering tendencies of the postwar welfare state.

But I have a big reservation whether going ‘beyond the state’ really offers a way forward on the big issues. I don’t disagree that sometimes community-based service providers can meet people’s needs better than a government agency, but that’s still the state providing the financial resources. It’s just a matter of the state thinking differently about who it uses as its delivery agent (and maybe engaging/consulting more on what should be delivered and how.)

On the resourcing side of things, however, I just don’t see any other actor in society — not business, not communities, not social networks — that has both the will and the wherewithal to take responsibility for a prominent role in providing the resources for areas such as health or education or income support.

But maybe I’m missing something, or have misconstrued what this is all about. Anyway, I look forward to seeing where David Craig takes his line of argument next.

3. And while we’re talking about welfare state issues, I might just add a brief coda to my Understanding the purpose of the welfare state post from last Tuesday. One of the historical ideas I discussed was “decommodification”, which involved important services like health and education being taken outside the logic of the market. I ended by arguing:

If progressives are to recapture the debate, however, and both secure and further advance the institution of the welfare state, then we need to turn back to ideas such as the social wage and decommodification. We should look at both of these concepts again, and consider whether some version of one or both of those can serve to underpin a revitalised 21st century welfare state. And if so, we would need to think about what changes to the current practice of the welfare state that would imply.

On further reflection, and after engaging with David Craig’s post, I still think that it can be useful to conceptualise the welfare state as a ’social wage’, but I do wonder to what extent decommodification works even as an aspiration in the 21st century.

I alluded to this last week when I wrote that “the logics and practice of private market activity have increasingly been seen as something to emulate, even for non-traded services provided by the public sector, and even within the core Social Democratic regions such as Scandinavia.”

Do we really still seek to expunge market logics from, say, our school system, or do we rather seek to control which market dynamics to give free rein to and which to restrain? For instance, we might seek to incentivise innovation, but regulate competition between schools for pupils. I’m reminded of John Kay’s “disciplined pluralism”, as outlined in this post, back in April.

As always, your thoughts are welcome!

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Weekend reading, 30 July 2010

Friday, July 30th, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

Chris Trotter - The “Why?” of Superannuation More Important That The “What?”
Chris Hipkins – Tax cuts or Super?
Claire Browning - Universal pension: universally fair?
Bernard Hickey - Why NZ still has time to debate its pensions crisis before the debt wave overwhelms us
In this week’s column on the  Retirement Income Policy and Intergenerational Equity conference, I called for progressives who disagreed with Peter Harris’s position that the current system is sustainable to make their views heard. As it turn out, Chris Trotter was already doing just that in his Press column (later reproduced on his blog).

Trotter claims that, “Only a fool would suggest that the vast expansion of our over-65 population will require no adjustments whatsoever to the current delivery mechanisms.” He then casts doubt on the reliability of Treasury’s fiscal  projections and says policymaking should be made on the basis of principles instead. Nevertheless, he concludes be saying that society should “do what it takes” to maintain an adequate Superannuation: “That may mean higher taxes. It may mean increased immigration. It may even mean adopting Dr Brash’s suggestion” (of allowing people to trade off the eligibility age against the rate of payment).

Very few progressives I know (of whatever stripe) agree with everything Chris Trotter says, but most of them accept that he does make quite insightful points from time to time. Is this one of those times? What do you think?

Actually, though, I found a statement he made in the depths of an (often intemperate) comment thread debate with Pundit’s Tim Watkin at least as interesting:

The work of people like Michael Littlewood and Susan St-John has clearly demonstrated that NZ’s super’ scheme is one of the fairest and most sustainable on Earth. The size of the dependent population remains about the same as it ever was in NZ – actual dependency has simply shifted from the very young to the very old. (In case all you pest-controllers hadn’t noticed there are far fewer children to take care of, house and educate than there were 65 years ago.)

(Trotter also responded to Watkin in a post on intergenerational issues this week.)

Chris Hipkins is part of the Labour caucus’s very strong ‘Class of ‘08′ and a frequent contributor to the Red Alert blog mainly produced by that group (and Trevor Mallard). His post picks up on my analysis and argues there is trade-off between Super sustainability and John Key’s tax cuts.

Claire Browning writes about green issues for the Pundit website. Her post is primarily reportage of the conference (much more comprehensive than mine — but best read from the bottom up, as it’s done as a series of updates). But she did set out some of her own conclusions:

I just don’t buy the argument that this is a Trojan horse, for antique treasures. This is not just an NZ thing; other OECD countries are recognising the problem and responding to it . . . Change to super policy will come, sooner or later, but it will come in the form of a little of everything we don’t much fancy, after working through some stuff that is hard: accurately sizing the problem, having some mutual respect and good will, a bit of a rise in the age of eligibility, maybe a bit of means testing, better use of capital assets in retirement, longer working lives.

Bernard Hickey is a financial journalist who runs the www.interest.co.nz website, “blogging on interest rates, economics and business in New Zealand”. He’s a pretty opinionated guy, and while I disagree with him at least as often as I agree with him, he’s usually got something interesting to say. Hickey has long been an advocate of the need to address this issue, but this post is primarily reportage of Gabs Makhlouf from the Treasury’s presentation at the conference. (He kindly links to my column, as well.)

What’s your view on this issue? What, if anything, needs to be done to secure the future of New Zealand superannuation? Will the policy need to change, and, if so, now? Leave a comment below!


Centre for American Progress – The Generation Gap on Government: Why and How the Millennial Generation Is the Most Pro-Government Generation and What This Means for Our Future
CAP is a US think-tank led by Bill Clinton’s former Chief of Staff John Podesta (Matthew Yglesias, oft-cited here, is also a Fellow of the Centre). I’ve been watching CAP’s Doing What Works project for a while and will write something up based on some of that work in the near future. In the meantime, however, I thought these survey results were worth sharing:

young Americans age 18 to 32 give the government more positive performance ratings and more strongly favor a significant role for government in addressing national challenges than does the public at large. (read more)

John Kay - Capitalism looks back to the future
Our friend John Kay reviews a new book Capitalism 4.0: The Birth of a New Economy by Anatole Kaletsky, editor-at-large of the Times, probably the least politically-aligned of the quality UK daily newspapers. It looks like an fascinating book about the past and future development of global capitalism, but I was also interested by Kay’s comments:

The collapse of Capitalism 2 [the Keynesian era] was not caused by Nixon, nor the collapse of Capitalism 3 [the deregulated era] by Mr Paulson: the collapse of these modes of capitalist behaviour was the product of their own internal contradictions, to borrow a phrase, and Capitalism 4 can only thrive if it resolves the contradictions of Capitalism 2 more effectively than did the politicians of the era of the Great Society and “you’ve never had it so good”.

Also:
Bryan Walker (Hot Topic/Sciblogs) – Technology advances, politicians hold back
LSE Centre for Economic Performance – Reducing Crime: More Police, More Prisons or More Pay?
Paul Hamer (Institute of Policy Studies) – The impact on te reo Māori of trans-Tasman migration

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John Kay’s New Zealand parable

Tuesday, June 1st, 2010

I’m a big fan of BBC News. However, while it hasn’t happened recently, it used to be that every once in a while NZ television would repeat a clip from the BBC about New Zealand — often involving race relations — that would be so overly-dramatised and simplified that it would cause me to wonder if I really was getting an accurate story about all those other countries they report.

After a while, I’d move on and go back to admiring the BBC, but nagging doubts would remain.

I’m feeling something a little similar about John Kay.

After writing about his critique of the market failure doctrine and the alternative he offers, I thought I ought to go back and read his most famous book The Truth about Markets (2003)

And I’m enjoying it, for the most part. It’s a useful, refreshing and comprehensive account on the way markets (by which he means all sorts of markets in goods and services, not just the financial markets) work. Achela calls it “the only book you need to read about economics” and I can see why.

So I was very interested to come across a section in it on New Zealand.

Kay’s coverage of New Zealand began compellingly enough, with the sort of gloomy economic diagnosis you’ve become familiar with on this blog. He identifies nineteen rich countries, ranging from Switzerland and Norway to Australia and Italy, and then twelve intermediate countries, ranging from Israel down to Hungary:

Many of these intermediate countries — Spain, South Korea, Slovenia — are clearly on the way up, and will one day join the rich states . . . One is on the way down: New Zealand would until the 1980s have been grouped with the prosperous countries of Western Europe. (p. 20)

Later he takes a broader historical sweep. Of the ten productive economies in 1870, New Zealand is the only one not in the current list of rich countries. Kay goes on to discuss New Zealand along with Argentina as “these two once rich states.” (p. 43)

As I said, these themes won’t be new to regular readers, but his description does drive home just how unusual New Zealand’s downward (relative) trajectory is, which I hadn’t completely appreciated.

But then we come to Kay’s explanation for this decline, and here disappointment sets in. He puts it all down to “three phases of adverse economic experience, one externally created, two self-inflicted” (p. 46), namely:

  • 1960-75: The export relationship with Britain fractures as Britain moves closer to continental Europe. “New Zealand could find alternative markets only at lower prices” (p. 45).
  • 1975-1984: Muldoon and the expensive errors of ‘Think Big’. Kay is not a fan: “There may have been worse prime ministers in rich states than Muldoon, but not many.” (p. 392)
  • 1984-1999: the era of privatisation and deregulation. “No country modelled its policies more deliberately on the American business model — applause for self-interest, market fundamentalism, and the rolling back of the economic and redistributive functions of the state — than New Zealand after 1984, not even the United States.” (p. 45)

I don’t particularly disagree with any of that, as far as it goes. Britain entering the EEC (as it was called then) was obviously a major challenge, and I’m no fan of either Muldoon or Rogernomics.

But I was expecting something a bit more insightful. The message of much of the rest of the Truth about Markets is about the importance of societal institutions in making the difference between rich nations and poor ones. Yet with New Zealand — which he would probably see as the most extreme example of relative decline by a rich country — it’s all down to one external shock and two periods of mistaken policies?

I’m sure I’ll forgive Kay, as I did the BBC — his work definitely has a lot to offer — but I’m frustrated by his coverage of New Zealand. I feel he didn’t really analyse our economic problems, but just turned us into a parable about the follies of market fundamentalism.

We now have the vantage-point of nine years of the return to what Kay calls “a Labour government with conventional policies” (p. 46), which, while obviously fantastic, wasn’t able to dramatically turn around this trajectory of decline. I’d be interested in what lessons from The Truth about Markets Kay would now bring to bear to explain what has now been at least sixty years of decline.


Postscript: it turns out that this subsection of the book is largely drawn from Kay’s August 30 2000 column for the Financial Times, Downfall of an economic experiment. To be fair, this article does contain a little more substantive (or at least numerical) analysis about the 1984-99 period, although the basic argument is the same as above.

It also contains the following passage, which parallels my recent post about Gross National Income vs Gross Domestic Product:

New Zealand also has an unusually large gap between GNP and GDP. (The difference is net property and investment income from abroad). In 1997, when the difference was widest, GDP exceeded GNP by around 10%. GNP is the most appropriate measure in assessing the standard of living of the New Zealand population, GDP in measuring New Zealand output. New Zealand is a richer country than New Zealanders. There are several associated reasons why this difference is so large (some connected to the reform programme, some not) New Zealand has run a persistent balance of payments deficit: in part, presumably, as a result of consumption being maintained despite falling or slow growing incomes. There have been substantial capital inflows and there is extensive foreign ownership of New Zealand debt. While the reduction of New Zealand’s public overseas debt has been a policy priority (and largely successfully achieved), private overseas debt has risen very rapidly.

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Posted in Progressive Path to Prosperity | 8 Comments »

Vote with your feet – or work for change?

Tuesday, May 11th, 2010

Bundesarchiv: Wolfgang Krueger // CC BY-SA 3.0

http://www.flickr.com/ photos/peasandcornbread/ // CC BY-NC-ND 2.0

Progressives should embrace increased consumer choice as the best way of raising standards in areas like health and education.

That’s the view of economist John Kay, who we heard a bit about at Policy Progress last month, and who was interviewed by Kim Hill on Radio NZ this weekend talking about his new book Obliquity.

Explaining this view, Kay stated that ‘exit’ is much more effective than ‘voice’ in raising standards.

But is that really so, and what do we mean by ‘exit’ and ‘voice’ anyway?

As it happens, I’ve written a description of these concepts and an argument in favour of the importance of voice. In fact, I wrote this thirteen years ago as aspects of students’ association submissions to the 1997 tertiary education review.

After mentioning exit and voice in that earlier post, I thought it would be interesting to dig out those submissions and see how my views back then have held up. Having done that, I decided that rather than write something new, which might be influenced by having read Kay, it would be worth presenting what I argued in 1997.

The following paragraphs therefore are from the June 1997 APSU/NZUSA submission Building a World-Class Tertiary Education System:

For students, institutional responsiveness is good in itself. But for the government, it is also a very useful measure for ensuring quality provision.

This can be conceptualised in terms of economic theory, using the exit/voice analytic framework developed by Hirschman. Exit is the withdrawal from a relationship with a person or organisation when one becomes dissatisfied with that relationship. Voice means directly expressing one’s dissatisfaction to the relevant person or organisation.

. . . [as well as using 'exit'] there is also a great deal of scope to influence quality by improving student ‘voice’. This is a underdeveloped area and a crucial one. There is increasing recognition that effective use of voice can be, if anything, more important in fostering good practice than exit.

For instance, in the macroeconomic arena, there is a growing literature on the success of economies which use bank-based financial systems (emphasising ‘voice’) compared to those using capital market-based systems (emphasising ‘exit’). (See e.g. Joseph E. Stiglitz, Banks Versus Markets as Mechanisms for Allocating and Coordinating Investment, 1992); Michael Porter, The Competitive Advantage of Nations, 1990, and Capital Choices: Changing The Way America Invests In Industry, 1992; and Will Hutton, The State We’re In, 1995.)

And from the December 1997 NZUSA submission Looking to the Future:

Exit can be a powerful strategy but it does not have much subtlety to it: it is all or nothing. Yet some matters, while important, are not central enough to the learning experience to contemplate exit over. For such matters, effective voice is more useful. Similarly, exit is good at highlighting matters of concern, but not so good at generating solutions. Where students have something to offer in terms of developing improvements or suggesting alternative directions, then voice is more valuable.

Even where exit is a viable strategy not all students may be able to, or wish to, exercise their right to transfer to another institution if this was possible. Exit may be a response to deteriorating quality, but it can also cause quality to deteriorate further. A programme with dwindling numbers may suffer from reduced resources, poor morale and fewer fellow students to enrich the learning envionment. In a world with perfect information and zero transaction costs, all students could exit simultaneously and none would suffer, but these circumstances seem unlikely to occur.

While the context of these arguments is clearly tertiary student involvement in institutional processes, most of the arguments are applicable more widely across various areas of public policy.

However, as this last passage (responding to claims about the importance of exit that were based on studies in the school context) implicitly acknowleges, the relative importance of ‘voice’ and ‘exit’ may differ from one policy area to another:

The situation of university students is very different from the parents of school children. Students tend to be more concentrated at one site (the campus), are more likely to know one another, and the experience that they have in common (being a student at a given institution) occupies a greater part of their lives.

So perhaps the lesson from this is that, rather than assert either voice or exit as being the superior mechanism, we should look at the particular characteristics of the area that we are seeking to improve. In some cases it may be empowering service-users’ choice (via ‘exit’) that is more likely to make a difference, whereas in others finding ways to give them an effective say (‘voice’) may be more important.

What’s your view about ‘exit’ and ‘voice’? Are they useful concepts for looking at the different ways that people can make organisations respond to their needs? Do you agree with John Kay that ‘exit’ is generally the more powerful mechanism? Or do you feel that, as my 1997 argument implies, it depends on issues such as how realistic it is for people to organise and express themselves collectively?

Postscript: this article has Joseph Stiglitz looking back on his 1992 paper, cited above, in light of the global financial crisis.

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The lesson the left needs to learn from the right

Tuesday, April 13th, 2010

Many progressives, used to hearing the names Milton Friedman and Friedrich Hayek paired together as advocates of free markets and arch-critics of Keynesian economics, are likely to assume that the two were very similar in their economic theories. But actually there were very important differences between them.

Friedman’s Chicago School was the driving force behind what has been variously described as neoclassical economics, monetarism or freshwater economics. It has been the dominant paradigm in economics for the last thirty years, though is perhaps now being challenged by a Keynesian resurgence. It is generally known for elegant and detailed theoretical models using quite complex mathematics.

Hayek’s Austrian School on the other hand emphasised the unpredictability of the market economy and was generally distrustful of the claims of theoretical models and complex maths. While Hayek’s moral and political writings are sometimes fondly quoted on the Right, the Austrian School’s economic thinking has largely been relegated to an historical footnote.

Hang on, though – didn’t I say this post was going to be about John Kay, following on from his critique of the market theory to look at what his alternative? And so it is.

Kay, as we saw, is critical of the market failure doctrine. But its greatest failure, in his eyes, “is that its model provides not just an inadequate account of how markets fail, but an inadequate account of how they succeed“.

For Key, the most profound strength of market economies lies, not in the the way they efficiently allocate production and resources, but “in their ability to innovate and adapt in an environment of uncertainty and change.”

The sustained achievement of market economies comes from their pace of innovation — in products, technology and organisation – derived from the ability of market systems to undertake small-scale experiment, to watch the results, to mimic what works, and discard what doesn’t.

. . . That insight — the economics of Friedrich Hayek (concerned with the dynamic capacity of market economy to experiment and innovate) rather than of Milton Friedman (concerned to promote the allocative efficiency of competitive markets and to attack all kinds of state intervention) — is the lesson the left needs to learn from the right.

So far as I know, Kay is not affiliated with the Austrian school; he certainly doesn’t share their hatred of collective action. His own analysis centres on the concept of “disciplined pluralism”, which he describes as “decentralised choices with accountability”. This “allows a multiplicity of small-scale experiments and in which the successful experiment is quickly imitated while the unsuccessful quickly folds”.

He criticises old-style progressives who “conflate the need for collective choices and collective action with central direction and political control”, but also the tendency of UK New Labour to combine quasi-market mechanisms in areas like health and education with a system of detailed centrally-prescribed targets. He notes that “rationalist bureaucracies detest” the “inherently inefficient process” of disciplined pluralism, which “relies on constant displays of irrational optimism, and most of its experiments fail”.

Kay envisages a world where:

educational goals are not determined either by central state direction or by the simple aggregration of individual choices. Both are relevant but neither is sufficient. Multiple goals emerge, are different across different parts of the educational system and evolve over time, through an interactive process between those who provide the services and those who pay for it. In a similar way, medical treatment must be managed through trust relationships between politicians, professionals and patients.

I’ve found John Kay’s account of the limitations of market failure pretty persuasive. As he says, “the list of market failures is a guide to some common problems in economic policy” but is not a good theoretical basis for progressives to rely upon to justify and guide their interventions.

I’m a little more inclined to reserve judgment about his proposal of “disciplined pluralism” as an alternative. Partly, it’s just that I’m interested in looking around to see what other approaches are out there.

But I also have a few reservations. Firstly, I’d want to know a bit more about how “disciplined pluralism” would work and what it would mean. Kay’s earlier book The Truth about Markets covers some of that, apparently. Also, as Policy Progress newsletter readers already know, he has a new book out called Obliquity: Why our goals are best achieved indirectly, which may shed further light.

Secondly, some of the implications that he does set out may be a little troubling to progressives. For instance, he argues that we might not know the secret of successful provision but we recognise a good school or hospital when we see it. That means that ‘exit’ is more effective than ‘voice’ and policymakers should give people a choice of health and education providers – “the most effective means of getting a good school is to be able to reject a bad one . . . recognising success and failure is indispensible to innovation and imitation.” In other words, perhaps, provided that Professor Hattie can devise a valid methodology for them, school league tables might be a good thing! Is that a notion we’d be comfortable with? If not, what would be our theoretical basis for arguing against this?

I’d be interested in hearing what Policy Progress readers think of these ideas, including any impressions from anyone who’s read some of Kay’s other works.

Postscript: another book that might be worth following up on that seems to reflect a similar perspective is James Scott’s Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed. Anyone read it? What did you think – anything valuable for the Theoretical Foundations topic in it? Berkeley economist Brad Delong has an interesting though rather involved discussion on it (and its connections to Austrian economics) here.

Postscript 2: The classics of Austrian economics are probably worth engaging with further, but the modern Austrian school(s) are probably best steering clear of, a lesson Brad Delong draws from Time’s Justin Fox’s experience.

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The Failure of Market Failure

Thursday, April 8th, 2010

The idea for the Theoretical Foundations work programme topic came from reading John Kay.

John Kay is a British economist and writer. He has been director of the Institute for Fiscal Studies and a columnist for the Financial Times. His most famous book is probably The Truth about Markets (2003), which I haven’t yet read.

But I have read “Market Failure”, a chapter in a book called Beyond New Labour: The future of social democracy in Britain edited by our old friends Patrick Diamond and Roger Liddle, that covers some of the same ground.

In this chapter, Kay discusses how modern progressives – he is focussing on New Labour in the UK but the lessons go wider – have embraced the doctrine of ‘market failure’ as a way of squaring an acceptance of a market economy with a continued desire to address inequality. This, he says, has been a mistake.

Under the market failure doctrine, effective market outcomes rely upon the following four conditions, and there is an ‘efficiency justification’ for state intervention if any of them are breached:

  1. A competitive environment
  2. Consumers have good information about their needs and the services available
  3. No ‘externalities’ (the good or service affects only the producer and the consumer, not any third parties)
  4. No ‘public goods’ (producers can identify the consumers of the service, and can quantify the consumption and charge for it).

We can probably all think of instances where such breaches occur. A number of environmental issues for instance, including the climate challenge, are situations where condition 3 does not hold.

The market failure doctrine therefore seems to offer plenty of scope for progressive action, while also feeling quite prudent and economically literate. It is understandable that it would have seemed an attractive approach for modernising progressive parties.

But, according to Kay, market failure is a bad argument for progressives to buy into. “By conceding too much to market fundamentalists it loses both intellectual coherence and political resonance.” (p. 74)

Kay mounts a comprehensive critique of the market failure doctrine thoughout his chapter, but the theoretical core of his argument can be found in the following paragraph (p. 76):

The basic philosophical differences that divide left and right concern the priority that should be given to claims of individual rights and private property relative to those of solidarity and social justice. The left insists, and the right denies, that the public interest is more than an aggregation of private interests. The model that underpins the market failure doctrine answers these questions, and others, in the right’s favour. A particular philosophy is inherent in the mathematics. The model takes individual preferences as given, along with personal resources and property rights, and sees social welfare as an aggregation of individual preferences. The primacy of material incentives as determinants of economic behaviour is not a prediction of the model, but an assumption.

Moreover, because the modern left has invested so much in market failure as its rationale for action, there is a temptation to frame everything they want to do as a response to market failure, however tenuous the basis for this may be. Kay cites the example of health, where Gordon Brown insisted on explaining his commitment to a tax-financed National Health Service by reference to market failures that, while real, did not actually justify the particular model he supports.

“More importantly, they have nothing to do with the real reasons why most people – including Brown – support a publicly funded NHS. These reasons begin from ethical concepts such as compassion and fairness rather than economic concepts such as information asymmetry.” (p. 76)

And this is the crux of the problem. “The notion that some economic choices are essentially collective, and cannot be described as a summation of personal of personal preferences, strikes at the heart of the market failure doctrine.” (p. 77)

I can relate to this. Back when I worked for NZUSA in the late 1990s there was a lot of debate about the extent to which tertiary education was a private good and should be privately funded through student fees. The students wanted to maintain that tertiary education was a public good and should be fully publicly funded. I was keen to dissuade them from this – while they had good arguments against particular claims about the private benefits from tertiary study, by buying into the public/private benefit argument, they undermined their own position. There is clearly some private benefit from study so you couldn’t argue for free education on public/private benefit terms.

Instead, I argued, they should seek to frame tertiary education as a collective good, i.e. one which society should agree to fund collectively as it does for school education.

John Kay makes a similar point: “The majority of contested economic policy issues reflect disputes about the nature of entitlements, or they occur when parties look to the government to fill in the implicit terms of imperfectly specified contracts.” (p. 81)

And, indeed, first amongst his list of illustrative recent policy issues is tertiary fees, framed not as public/private benefit or as (market failure) barriers to participation, but as “What rights of access do individuals have to higher education, and on what terms?”

Progressives in New Zealand have not made as extensive or explicit use of market failure as a theoretical framework as appears to have been the case in the UK. Nevertheless, these and other market-oriented economic concepts have permeated policy discussion pretty thoroughly in this country for the last twenty-five years, and to a large extent progressive policy thinking has accommodated itself within that discourse.

In the Theoretical Foundations work programme topic, I want to take a step back from that and have a look at the theoretical arguments we progressives rely upon to justify our actions and initiatives. Are they fit for purpose, or, like the market failure doctrine, do we end up either making tenuous linkages and/or conceding significant intellectual terrain to our opponents?

In Tuesday’s post, I’ll survey Kay’s proposed alternative to the market failure doctrine.

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