The political economy of public goods: why economists should care.

If one starts from Viner's quip that economics is what economists do, then the key question to ask is what do they do? According to Robbins (p. 3), what economists do is analyze "behavior conditioned by scarcity," where scarcity is "the relationship between objectives, either personal or collective, and the means of satisfying them." Expanding beyond Friedman's (1953) tight prescription for positive economics, Robbins widens the scope well beyond Friedman's notion that positive economics is either a value-free exercise or can be conducted so that values do not matter. Robbins (p. 6) first refers to the intermingling of values and politics with economics in the work of Adam Smith. He goes on to say that if economists (and those using economic analysis) "are aware of what they are doing and do not claim scientific authority for conclusions which clearly go beyond science, there is much to be said for the practitioners of scientific economics discussing such questions of policy. They may not agree on the extra-scientific elements in their arguments. But, provided the distinction is observed, there is everything to be said for the discussions of policy to be conducted by those who are aware of the objective implications of the values on which policy rests." He continues in this vein: "It should be clear then that Political Economy in this sense involves all the modes of analysis and explicit or implicit judgments of value which are usually involved when economists discuss assessments of benefits and the reverse or recommendations for policy" (p. 8).

If one takes the broad view of an economist's role that Robbins employs, then where does this lead? For those considering the political economy of public goods, this leads to concern over cost-effectiveness and the trade-offs involved, quite different from the concerns of those economists who attempt to prescribe public/private good status by definition. There is an almost infinite number of combinations and permutations from one end of the public/private spectrum to the other. Roads can be public and private. Firefighters and often police were historically private, then largely public, and private police and fire services continue to exist today. The delivery of letters and packages is both public and private today with an increasing portion becoming private. One must necessarily look at a specific slice of a continuum as one moves from public goods toward private goods and assesses the trade-offs in their provision. Many of the concerns that economists deal with in the course of applied policy analysis impinge on or are enveloped by this operational treatment of public goods. The specific typology of a good does not appear to really matter to the public and private decisions taken about the good or service in question?

The political economy approach was evident in the expansion of government involvement (and thus a broadening of public, quasi-public, or merit goods) during the Great Depression. Here we see examples of the expanded range of concerns that economists were addressing within the context of the values and perceptions of an appropriate role for government. Writing in the 1940 Yearbook of Agriculture, Howard Tolley (pp. 1160-61) initially backs away from promoting a dominant government role and claims that the implication of the broad coverage of public and private activities in the 1940 Yearbook does not imply "that government by sweeping flat should move militantly upon the Nation's problems, agricultural or otherwise. Rather, the emphasis is upon the encouragement of democratic channels of national energy and confidence, national consultation and decision, national tolerance and accommodation of views, together with the recognition that international affairs also have a bearing here."

Tolley first discusses the provision of the basics of life: food, clothing, and shelter. He (p. 1162) decries the inability of the country to "make its economy get food to those who need it and are willing to work for it." Tolley asks for "at least some measure of security in the enjoyment of the fundamentals of the good life." Improved medical care and facilities in rural areas, quality public education, improved transportation, and improved communications are essential to this good life for people in rural areas. The implication is that these should be governmental concerns at least in facilitation if not provision. These concerns are well beyond the existing and proposed agricultural policies to: increase buying power for agricultural commodities; control production and marketing to raise prices; provide credit and crop insurance; and promote conservation. For the future Tolley identifies such broad public goals as the essential development of increased commercial and industrial employment to soak up excess rural population. The goods and services Tolley refers to certainly have varying aspects of being public goods, but what drives his list is the perception of what government might do to help a large number of its citizens. Tolley has in his own mind for his own time an appropriate balance between public and private involvement in the provision of goods and a firm sense of where government should be involved and where the individual needs to take responsibility in the Adam Smith sense of liberty for the individual.

The broad public goods sense held by the agricultural establishment for rural America continued in the post-World War II period. The Farmers' Home Administration financed rural water systems. Rural and community development programs were instituted that included rural health activities. While the Country Life movement declined and died, there was still a political desire for the provision of goods and services to rural areas that continued for a time some of the expansive vision of the depression era. A nagging question that has returned from the past is whether increases in income inequality should be an argument for an increase in the provision of the broad public goods, like medical care, to which Tolley (1941) referred.

Part of the delineation of public involvement in citizens' affairs relates to technology and institutions as well as history. The invention of barbed wire helped make possible the privatization of what initially was a public good of endless grassland in the United States. Improved transportation made rural free delivery possible. A copper wire-dependent technology resulted in the regulation of telephones as a utility. A change in technology (the elimination of the dependence on wires) brought about deregulation that lowered cost and enhanced service for many. In contrast, the deregulation of electricity was implemented in a way that resulted in declines in the quality and reliability of power because these ancillary goods were not supported by the market forces that were proscribed to provide cheaper power for consumers. The disruptions in California in 2001 were partially the result of this lack of incentive for reliability and also stemmed from a set of deregulation rules that both limited the scope to utilize market institutions and invited gaming. Might we appropriately consider electric power reliability a public good? The case of electric power reliability is really intriguing. Under deregulation today the power itself is a pure private good. Once one is on the grid, then such things as reliability take on strong public good characteristics. The free-market economic theory that has been used to restructure the electric power industry has not successfully ensured the co-provision of the public goods associated with electric power in terms of quality and reliability (Toomey et al. 2005).

If one starts from the public good of property rights and then extends to the historically based public institutions of money, law, and credit in the context of the last several decades in the former Soviet Union, one can see how the lack of such institutional public goods can make a difference in economic progress. The contrast need not be with the United States or Western Europe. Eastern Europe was at a similar starting point economically as the former Soviet Union, but had a more recent and richer history of the institutions that make freer markets possible. Hicks' (1973) writings on these institutions demonstrate their integral role in the development of both free markets and government. Few of the economists advising the former Soviet Union fully understood the importance of these public goods to the development of actual free-market approaches to important economic decisions.