Tag: market failures

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Another brick in the wall?

To mark the 20th anniversary of the fall of the Berlin wall, the BBC World Service commissioned a survey across 27 countries to gather people’s views about capitalism and whether it is working well. The findings are striking. Only 11% felt that it is working well. “Most thought regulation and reform of the capitalist system were necessary. There were also sharp divisions around the world on whether the end of the Soviet Union was a good thing.”

The following articles look at the detailed findings of the poll and consider its implications for the functioning and reform of the world economy.

Global poll: Wide dissatisfaction with capitalism 20 years after fall of Berlin Wall BBC Press Office (9/11/09)
Free market flawed, says survey BBC News, James Robbins (9/11/09)
Wide dissatisfaction with capitalism, years after fall of Berlin Wall Dawn.com (Pakistan) (9/11/09)
Capitalism confronted with growing doubts Global Times (China) (11/11/09)
The fall of the Berlin wall – Pt 1 (video), The fall of the Berlin wall – Pt 2 (video), Al Jazeera (on YouTube), Riz Khan (9/11/09)
Column : Why Berlin was a win for all of us Financial Express (India), Lord Desai (Emeritus Professor, London School of Economics) (9/11/09)
The real lesson of 1989 is that nothing is ever settled Guardian, Seumas Milne (12/11/09)
The Wall fell and hope rose – for a while Otago Times (New Zealand), Andrew Rawnsley (10/11/09)
New name for a new economy? BBC News, Stephanomics (13/11/09)

Questions

  1. What are the alternatives to free-market capitalism?
  2. Do you agree that “however flawed free-market capitalism is, it is still the best of all systems”? Explain your answer.
  3. In what ways does free-market captialism fail to provide the optimum allocation and distribution of resources?
  4. What forms can government intervention take to influence markets?
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Is private best?

The following article by Will Hutton looks at the relative efficiency of private- and public-sector organisations. The public sector is typically characterised as inefficient and providing a poorer level of service and poorer quality products than the private sector. After all, the private sector is driven by the profit motive, where providing a good service would seem to be a key ingredient in making more profit.

Yet when you look around you, this portrayal can be seen as far too simplistic. On the one hand, much of the public sector has been forced to be efficient, following many years of tight budgets. At the same time, many in the public sector are keen to deliver a good service, not only because that is required by their employers, but because they are motivated by a sense of public duty and professionalism. On the other hand, there are many market failings in large parts of the private sector, where monopoly power, asymmetric information and externalities are rife. Read the article and see if you agree with Will Hutton’s analysis.

These money-grubbing companies make the public sector look good Observer (1/11/09)

Questions

  1. What are the incentives to encourage either private-sector companies or public-sector organisations (a) to be efficient in the sense of cutting out waste (X-efficiency); (b) to be allocatively efficient; and (c) to provide a high quality of service to customers / clients / patients / students, etc.?
  2. What market failures may prevent private-sector companies from achieving (a) to (c) above?
  3. What organisational failures may prevent public-sector organisations from achieving (a) to (c) above?
  4. How is Goodhart’s Law relevant to the setting of performance targets in both the private and public sectors?