Monday, March 03, 2008

Market Failure vs. Government Failure, Part 2

One big reason why there are so many instances or scandals of corruption and inefficiency in government is because there as so many opportunities for stealing and waste in so many agencies. And it has come to that situation because government has assumed or arrogated upon itself so many functions and responsibilities, many of which should have been personal and parental or corporate responsibilities in the first place. No thanks to many people who endlessly rant “market failure”, the “greedy nature of markets”, and “tendency for wide social inequity under markets” thinking.

Repeated attacks and distrust of the market is often bordering between ignorance and just evil desire to intervene in other people’s lives, like taking a big portion of people’s income and savings through various taxes and fees. The market is often equated with big corporations, like those engaged in the stock market and foreign exchange market. But market refers to all individuals, both consumers and producers. Even the economically dependent (children, physically or mentally disabled, old people) and the plain lazy and irresponsible people who don’t want to work, are part of the market. Because even if they earn no income, they consume (food, milk, medicines, alcohol, cigarettes, haircut, etc.) and that makes them part of the market for various goods and services in society.

“Market failure” has been abused to justify various forms of government intervention, regulation and taxation. And a number of people who enter the bloated government have seen opportunities for stealing and corruption. Some politicians run for public office, or bureaucrats beg to be appointed to high government positions, mainly to steal; or secure certain business favors that would not be available to them if they are out of government. Or perhaps just an ego-trip to show to other people how “intelligent” and how well-connected politically they are.

Those in government whose main intention is to steal can do it in various departments and their attached agencies or bureaus. Or there are several hundred government corporations, financial institutions, state universities, even constitutional bodies, to occupy where stealing or rent-seeking can be done. Or head certain regulatory agencies that decide who can do business and who cannot. All that one who leads any of those regulatory agencies do, is to make plenty of strict regulations, so that some of those who want to be allowed to do business quickly will be forced to pay bribes or grant certain economic and political favors. This largely explains the widespread existence of illegal gambling, illegal drugs, prostitution, and other services despite the fact that government prohibits all of them, at least in paper.

Those multiple and repeated instances of robbery, or small-scale wastes that happen a hundred or a thousand times elsewhere, already constitute ample proof of “government failure”. But instead of government withrawing from those sectors and services where abuses, red tape and corruption are repeatedly noted and reported, "government failure" is addressed by another set of government intervention, by instituting plenty of anti-corruption bodies and counter-check mechanisms and procedures. These moves are often pouring more public money to determine how much public money have been stolen and wasted already.

An option to go "back to the market" and "less government intervention" is far out among the minds and demands of many groups and people, even from those very vocal sectors and individuals that regularly note government failure, like those in media, the academe, NGOs and civil society groups.

There will always be market failure in all spheres of our lives as individuals and communities become more specialized, as tastes and preferences constantly change and evolve. For instance, Juan demands a rice variety that also boosts his and his family’s immunity against dengue and malaria because they live in a mosquito-infested neighborhood. But such rice variety does not exist yet, so this can be taken as “market failure” already. Or even assuming that such variety is already available but its price is too expensive for Juan and his family, other people will again call this “market failure” because the supplier/s of such rice variety only think of their profits, not public health and nutrition.

Market failure often creates market solutions. An initial lack of supply of a certain good or service that caught the attention of a big section of the public results in entrance of new players and producers. Pretty soon, the problem is no longer lack of supply but over-supply. Over-supply sends a signal to various producers and suppliers in the form of declining prices. The market's self-correcting mechanisms guide societies, producers and consumers alike, to allocate resources where they are needed, and stop supplying those resources when they are no longer needed.

Government failure on the other hand, almost always results in more government checks and balances, more bureaucracy, and hence, more taxes and fees to finance the expansion of the bureaucracy. Government failure is more sinister, more damaging and more disastrous to the lives of people, of private taxpayers especially.

Crisis situation of corrupt administrations should be a good opportunity to remind people that the problem lies less on the morality of the people that administer the state, but in having a big and interventionist state that can turn angels into devils. Stop or limit this transformation of people by limiting the size and power of the government.

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