Public or Private Goods? Redefining the Res Publica

Many tasks that have previously been provided by the public sector have become private in the last thirty years in Europe and abroad. What have been the arguments for shifting from the public to the private? And what have been the outcomes? Brigitte Unger explores the issue.

Many books have been written on privatization and its benefits and harms, my new book however addresses a slightly different question: is there a core Res Publica, a thing which has to stay public and should not be given away to private markets, at any price?

Core functions of the public sector according to the father of economics, Adam Smith 1776, are to provide internal and external security. This night watch role of the state is not guaranteed today. Instead of a public police, private security services who protect only those who pay are on the rise. Prisons are run privately and private military units replace public armies. A multinational company can donate to set up an embassy in its trade target country and criminal organisations are eager to buy up airports in order to move their drugs more smoothly.

Though these developments are scary, the book does not focus on inner and outer security but focuses on areas which have become public only later, when welfare states developed. Health care, education, unemployment insurance, environmental policy are among them.

Globalisation offered new niches for private players to enter new markets

Globalization has led to large shifts from the Res Publica to the Res Privata in these domains. Globalization offered new niches for private players to enter new markets. The book analyzes different policy fields like health care, the provision of public space (parks, access to beaches), cultural inheritance (museums, statues), unemployment insurance, child care, provision for disasters and combating money laundering in order look which arguments have been addressed in favour of privatization or against it.

The book develops three criteria as to test whether public tasks should become private or stay public:

First, efficiency criteria: do private markets or public authorities provide the public good cheaper, with better quality, or in larger amount? Common economic arguments are used in order to test the provision of public goods on efficiency grounds. Examples are the existence of market failures like asymmetric information, incomplete contracts, increasing marginal costs, which would speak in favour of providing goods publicly from an efficiency perspective.

Second, equity criteria: Should the good be provided by the public sector because this would lead to a more equal and fair distribution than if private markets took over? Would specific societal groups be excluded from the consumption of the good if it was provided through markets? Right at that moment the US under president Trump abandons Obamacare. Under equity criteria  health care should not be solely left to markets since parts of the population would not have access to life critical care.

Third, moral criteria: Some goods – so follow the arguments of moralists – have to stay public even if the private market can provide them more efficiently on moral grounds. Access to public space, like beaches and air, access to cultural inheritance, like historical documents, sculptures and paintings, should be open to everybody.

The book shows that most arguments for privatization were done on economic efficiency grounds. The analysis of the development of the above mentioned policy areas over time shows that several ways to provide goods are possible. Some European countries have chosen a stronger privatization of the tasks mentioned above, than others. There is no task that in principle could not be done by markets.

But, the book argues, though there are several options, the private sector performs less good than the public sector in the above mentioned areas. The book distinguishes between the provision, the funding and the regulation of each public task.

The provision of the good concerns who sets up the kindergarten, the unemployment insurance scheme, who runs the hospital, the park etc. The funding refers to who pays for the public task. The regulation means who sets the standards and criteria for performing the specific task.

There has been a large shift between these three ways of performing public tasks. The provision of public tasks has largely shifted from the public to the private, less so the funding and least the regulation.

German church kindergartens are provided by the church but funded and regulated by the German government, to give an example. This shift from providing public goods to only finance and regulate them has a dangerous impact. People do not know what the public sector is doing, where their tax money disappears, since they can perceive only the (private) provision of the goods.

With this, the state has become invisible. A problem which shows nowadays during elections where people in need of public goods vote for parties who definitely will not fund them.

The book argues that it is time to redefine the Res Publica. We need public goods especially in Europe in order to keep societal ties intact. Basic health care, access to public space, unemployment insurance etc must be provided by the public or semi public sector.

Brigitte Unger is Professor at the Utrecht University School of Economics, the Netherlands and is former Director of the Institute of Economic and Social Research WSI in Dusseldorf, Germany

Public or Private Goods? Redefining Res Publica edited by Brigitte Unger, Daan van der Linde, Utrecht University School of Economics, the Netherlands and Michael Getzner, Vienna University of Technology, Austria is available now.

Read chapter one free on Elgaronline.