The Independent Institute
Traditional public policy and welfare economics have held that market failuresthe presumed inability of a free market to deliver certain goods and services deemed to be in the public interestare common and require government intervention to protect the public good. But is this actually the case?
Table of Contents
PART I: Market Failure and Political Solutions: Orthodoxy
1. Market Failure and Government Intervention: The View from Welfare Economics
2. Political Presuppositions of the Idealized State
PART II: In Dispraise of Politics: Some Public Choice
3. Undemocratic Side of Democracy
4. Pathological Politics: The Anatomy of Government Failure
5. Politics of Free and Forced Rides: Providing Public Goods
PART III: Understanding Property, Markets, the Firm, and the Law
6. Private Property and Public Choice
7. Rediscovering Markets, Competition, and the Firm
8. Public Choice and the Law
PART IV: Case Studies in the Anatomy of Government Failure
9. Political Pursuit of Private Gain: Producer-Rigged Markets
10. Political Pursuit of Private Gain: Consumer Protection
11. Political Pursuit of Private Gain: Government Exploitation
12. Political Pursuit of Private Gain: Government Schools and Mediocrity
13. Political Pursuit of Private Gain: Environmental Goods
14. Political Pursuit of Private Gain: Coercive Redistribution
15. Micro-Politics of Macro-Instability
PART V: Political Implications of Public Choice
16. Creating a Climate for Liberty
Social and economic problems are usually met with calls for the government to do something, especially when the causes are believed to stem from the failures of a market economy. Unfortunately, good intentions dont ensure good results: government solutions often make things worse. Why is this the case? And how should public policies be formulated so as to reflect the limitations of government activism?
In Beyond Politics: The Roots of Government Failure, political scientist Randy T. Simmons shows why political and bureaucratic attempts to correct the problems of so-called market failure often result in inadequate, even counterproductive outcomes. The causes of that common malady are not especially hard to grasp, but doing so, Simmons argues, requires that we recognize the flaws of orthodox assumptions about politics and marketsand that we understand the institutional framework that shapes our government and economy. After laying this groundwork, Simmons exposes the roots of government failure in case studies of producer-rigged markets, consumer protection, government exploitation, public education, environmental protection, social welfare, and macroeconomic policy. He concludes by drawing out the core lessons of this analysis and offering four guidelines to improve public policy and create a climate for liberty.
Originally published in 1995 with co-author William C. Mitchell, Beyond Politics has been revised and updated to provide readers with insights about the crash of 2008, Americas fiscal crisis, and other realities of twenty-first century political economy. Academics will find it a refreshing synthesis of the burgeoning field of public choice, and practitioners of the dark arts of policy-making will find it a treasure trove of cautionary tales that illustrate the adage, Fools rush in where angels fear to tread. After reading Beyond Politics, no one will ever be surprised to see public-policy outcomes diverge, often tremendously, from political promisesand no reader will lack useful ideas about how to improve the public sphere.
Market Failures and Political Solutions
During the past century, rent control, pollution regulation, safety rules, import restrictions, fuel economy standards, and thousands of other controls were enacted to overcome perceived imperfections in markets. In fact, market failure has become the leading justification for government intervention in the economy.
Why are markets said to fail, and why is government activism offered as the remedy? Chapter 1 addresses the question by explaining the orthodox view of market failure and related concepts, such as negative externalities (i.e., spillover costs borne by third parties), public goods, imperfect competition, system-wide economic stability, and transaction costs. Chapter 2 traces the development of a view of democracy taught widely in American schools: the pluralist theory that politicians and bureaucrats merely implement voter preferences and that political competition tends to produce policies that serve the public interest.
In Dispraise of Politics
The orthodox views of market failure and the idealized conception of the state, which have shaped policymaking and analysis since the mid twentieth century, are deeply flawed: among other shortcomings, chapter 3 explains, they fall short in explaining government failure. Fortunately, a social science developed over the past several decades provides breakthrough insights about this phenomenon.
Public choice, chapter 4 explains, is an academic discipline that applies economic reasoning and analysis to the study of politics. Rather than ask: what would we like for people to do in the political realm? it asks: what are people likely to do, given the incentives and constraints that they face? Public choice analysts have used this approach to identify the causes of government failure in numerous areas of public policy.
Their core finding can be boiled down to one sentence: government intervention often makes a problem worse, not because government workers are particularly lazy or incompetent (in fact, many work very hard and conscientiously), but because we demand more from government than it can handle well. One key reason is that elected officials, bureaucrats, voters/consumers, and special interests lack sufficient knowledge and incentives to intentionally promote the public interest.
These deficiencies become apparent when we scrutinize the governments provision of so-called public goods, the topic of chapter 5. The term public goods is technical jargon in economics: it refers to goods and services that many people (free riders) would enjoy without having to purchase, and that for-profit firms would therefore not supply adequately (a textbook case of market failure). But government provision of public goods is no panacea: it is often plagued by problems that arise from non-market pricing, bureaucratic allocation, and overcrowding/overuse by consumers.
Property, Markets, Competition, and the Law
Sound policymaking requires an understanding of the subtleties of seldom-discussed institutions that shape the public sphere. Property rights, chapter 6 explains, act as a set of behavioral rules that guide social interaction. Thus they create incentives to consider others values as we pursue our own ends, and they create a platform for conflict resolution. Property rights can determine, for example, whether individuals take care of trees (or cause desertification) and whether neighboring homeowners will cooperate on issues that affect all of them (or bicker among themselves).
Property rights also shape the performance of markets and businesses, the topics of chapter 7. Economists have improved our understanding of these institutions in recent decades. Markets are best seen as a discovery process that generates and spreads information useful to consumers and producers alike. Market prices communicate subtle trade-offs and coordinate human action with amazing speed and efficiency. Competition and profit seeking are essential components of the market process.
How well property rights are defined and enforced depends in part on the structure of the legal system. Chapter 8 discusses the incentives that judges and lawyers face (as well as the incentives embedded in the common law and in statutory law) and their effects on legal outcomes.
Protecting consumers, the environment, the poor, and workers are widely shared values, but advancing these goals politically often yields greater costs than benefits. Consider the case of cartels and monopolies, the subject of chapter 9. Business leaders often lobby for laws and regulations designed to reduce competition at the expense of customers and potential rivals. Their desire, often cloaked in the language of the public interest, is to reap profits that exceed the amount they would earn in a free market, but their goal may prove elusive: the money spent to acquire and defend their protected status may wipe out any gains they hoped to enjoy.
Anti-competitive policies designed to protect established firms and other interest groups often come in the guise of consumer-protection laws. Occupational licensing requirements, import quotas, motor vehicle gas mileage standards, vehicle safety inspection laws, and state liquor stores are examined in chapter 10. Chapter 11 looks at how politicians and bureaucrats advance their own special interests through taxation, red tape, and agenda control.
Educating students and protecting natural resources are services that many believe are best handled by government, but government schools and environmental policies are often inadequate. Chapter 12 examines the effects of a lack of consumer choice on school performance. Chapter 13 shows how political priorities, and poorly defined property rights, contribute to environmental problems. It also shows how market-based policies (e.g., clean air and water markets) have improved environmental quality.
Coercive redistribution has played a growing role in the United States. In 2008, 24 percent of U.S. households received aid from means-tested programs. By 2007, 53 percent of U.S. citizens received direct benefits from the government, such as Social Security, Medicare, unemployment compensation, educational assistance, and veterans benefits. Chapter 14 examines some of the perverse effects these trends have created.
Many individuals might believe that fostering a stable economic climate would be a goal less impaired by political interests. Chapter 15, however, explains the incentives for deficit financing and examines evidence for the political manipulation of business cycles. Even without the incentive problem, macroeconomic policymakers would be overwhelmed by a knowledge problem: they lack all the information they would need to effectively manage the entire economy.
A Climate for Liberty
The reformers standard call is for the removal of waste, fraud, and abuse from various government programs. In fact, the problem goes deeper. Politics as such is problematic: it is often a ruthless competition for power to benefit particular interests at the cost of others.
What is to be done? Earlier chapters offered specific policy proposals, but chapter 16 takes a broader view and discusses general principles that provide a sound alternative to the negative-sum game of politics and bureaucracy. These principles are: limiting the scope and power of government, allowing markets to handle problems, fostering freedom, and establishing the rule of law.
These four principles build on the books earlier observations about the beneficial aspects of property rights, market processes, and private institutions. Embracing them would make for a more rational and peaceful polity. They are also wholly in keeping with the American political heritage of decentralized government and individual liberty.
Beyond Politics is a superb, thought-provoking and penetrating book, analyzing the real, as opposed to the presumed, effects of government regulation. This outstanding book deserves to be read by all serious students of government policy.
Beyond Politics is a lively book that very effectively analyzes the very real phenomena of government failure. . . . The authors make a significant contribution by dealing informatively with the side of the matter that welfare economics tends to neglect and make a vigorous case for the view that government intervention in the workings of the market should never be taken lightly.
Simmons make[s] a lucid case for a market economy and limited constitutional government. Beyond Politics is the most effective introduction to this topic that is now available.
Beyond Politics is so well written and interesting that it appeals even to those, like me, who may disagree with several of its arguments.
We have needed an answer to the question often asked: Can you refer me to a single book that will explain in simple language what Public Choice is all about? Beyond Politics . . . meets this need superbly. The authors have assembled the required understanding of both economics and politics that allows them to get straight to the important elements involved.
Simmons ha[s] . . . done an outstanding job of illuminating the inefficient allocation of public resources in the face of politicians, bureaucracies and interest groups. Beyond Politics explains how and why the forces work in a constant struggle among these three elements in the continuum of public policy battles and why bureaucratic institutions are unable to deliver on their promises at the intersection of politics and economics.
"Beyond Politics: Markets, Welfare, and the Failure of Bureaucracy is the best non-Ph.D.-level summary of the basic insights of public-choice scholarship."
There is a need for a public philosophy that would provide a framework for discussion of appropriate spheres for markets and government. One such philosophy might begin with recognition of the desirable features of markets and also of the possibilities of market failure. But it would build on material such as is in this book to identify
the risks of government failure, that is, the possibility that government intervention may well make things worse. Such a philosophy could provide a basis for communication and discourse and a framework for reasoned disagreement between people with diverse points of view about the goals of public life. The seeds of such a public philosophy are to be found in this book.
The book is well written, . . . That is why this book should be highly recommended for a course in economics at the junior or senior level. In fact, a curriculum in economics that does not include the subject matter covered by Simmons . . . will be, at least, questionable in its quality. Those who do read the book will come out with what may be considered the most important lesson of Beyond Politics: Governments rely on force, and when force is wielded for political purposes the government becomes the worst violator of individual rights. Such lessons in liberty and freedom are badly needed in contemporary American economic education. This book ﬁlls this void more than satisfactorily.
Sir Antony Fisher International Memorial Award (1995 Edition)
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