March 13, 2011
The public goods provision question: Deepak Lal’s view
The question of public goods is very contentious. Libertarians, for instance, would argue that there are no public goods. Classical liberals also engage in significant debate around this particular issue.
Two fundamental questions need to be addressed:
a) What is a public good (that's the kind of question that Demsetz, for instance, has proposed refinements to, in his recent paper – see my blog post here); and
b) If we do agree on a public good then what's the best way to ensure its provision?
I accidentally came across Deepak Lal's 1996 paper Private Provision of Public Goods and Services, 1996 (linked to a PDF version) as I was browsing through an old file. Many years have passed since I last read this paper but it still remains deeply insightful. The quality of this particular paper re-affirms my view that Deepak Lal is one of the most outstanding economists India has produced. One of the key books that helped shape my opinions on "development economics" was his The Poverty of Development Economics. If you haven't read it, I strongly encourage you to do so. An eye-opener par excellence.
This paper is readily available in PDF form, but I've also converted it into Word (click here). I encourage all Indians to read this paper. It will show you the kind of thinking we need to engage in if we ever hope to reform our regulation and governance.
The paper provides brilliant insights into the way health and education (for instance) can be provided BY THE MARKET, not by the government.
Many of the arguments he makes are reflected in some form or shape in BFN, for instance in relation to the provision of health and education.
I met Deepak Lal in late 1997 in his UCLA office, and shared the following draft manuscript of my book (not completed yet) with him: Becoming Rich and Powerful – a Primer for the Citizens of Pakistan, India, and Bangladesh. Since then I've sporadically kept in touch with him.
Deepak Lal is the current President of Mont Pelerin society, an honour far greater in my view than getting a Nobel Prize in economics.
Just one example, below, will show you how deftly he covers various issues in the paper:
For education there is no case for monopolized state production as Mill knew over a hundred years ago and as Hayek reiterated in his Constitution of Liberty. As J.S. Mill put it:
"If the country contains a sufficient number of persons qualified to provide education under government auspices, the same persons would be willing to give an equally good education on the voluntary principle, under the assurance of remuneration afforded by a law rendering education compulsory, combined with state aid to those unable to defray the expense" (p. 161).
State action only needs to finance the poor (ideally through vouchers earmarked for purchasing this merit good).
I don't agree with J.S. Mill on a law rendering education compulsory. That is excessive use of coercive powers by government. However, defraying partial expenses of those who wish to pursue education but can't afford it, is perfectly legitimate as part of the social insurance program. Vouchers are an excellent way to get this done.