Sunday, 21 September 2014

Government Provision of Goods and Services as redistribution

The diagram in my previous post omits another prominent way of redistributing, popular in the UK until recently. This is redistribution through the provision of goods and services by government. Providing can be a means of redistribution, and in many cases this is to be applauded. However, there are degrees to which this can occur.

I will assume that the provision of certain basic goods and services (democracy, law and order, defence) in a redistributive manner is uncontroversial. (Murphy and Nagel, in their excellent book 'The Myth of Ownership' make this point).

However, some would propose that government should provide a lot more services, and that this should be the primary way of creating a more equal capitalist society. This was common in the UK in the middle of the 20th century, for example.

If the government provides services on a universal or limited basis then this is a means to redistribute resources. This could be done by providing some service or good to all people (and not just because it is a public good that cannot be provided by the market), or on a targeted basis to those deemed to be most deserving or suitable.

A good example is the state provision of housing (I will ignore the universal provision of education and health, since there are further specific reasons to provide these on a universal basis).

The problem I have with state provision is that it will favour those who are selected for the benefit—people who get state-provided housing for less than those who purchase or rent privately. Those who are not chosen will not benefit (except in rare cases where the provision corrects for a market failure). In order to avoid this favouritism the good could be provided to all people, but this is likely to reduce the choice available to people.

The latter example shows a further problem; that the provision of goods and services that can be provided by the market will often be inefficient. Simply giving people the money would be a more cost-effective way of achieving the desired redistributive effect. This is certainly the case in the extreme example where everyone has their housing provided by the state, but this point no doubt also applies to many other cases as well.

The economic argument against providing goods and services directly to people is very strong. However, there may be some further justifications that supporters could draw upon:
1. People can't be trusted with money - if you give them money they might waste it but if you give them something clearly good then it will benefit them.
2. Universality and solidarity - that providing these goods represents the value of society.
I'm not convinced by these lines of arguments, but I'd be interested if anyone wants to try to defend them below...

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