Well, as the co-editor of the _JEP_ who agreed with associate
editor Oliver Hart's decision that Andrei Shleifer would be an
interesting person to write about the public sector (and as an
ex-college-roommate of Andrei Shleifer's as well), let me say
three things:
First, Andrei's major goal--at least as I understood the paper
that I edited, and if it didn't come through in the published
version then I messed up--was to try to break the link between
the case for social democracy (in the sense of substantial redistribution
of income and wealth and substantial goverment funding of education,
infrastructure development and so forth) and the case for the
public provision (in the sense of the government itself employing
a lot of people and managing a lot of production). As Andrei
put it to me the first time we talked about the paper, we don't
have the government try to raise nutritional standards for the
poor by hiring people to grow wheat on state farms which is then
processed in state mills, baked in state bakeries, and then distributed
through state warehouses--instead we have food stamps. And he
(and I) suspect that food stamps are more effective than the
state-run agricultural and nutritional center will be.
Second, Andrei's secondary goal was to explore the limitations
of the traditional arguments against trying to harness the market
to produce public and publicly-funded goods. The traditional
argument--half of which is well-expressed by Peter Dorman--is
that there is a lot of energy to be harnessed by appealing to
an ethos of public service, and there are lots of times when
you definitely do *not* want "hard incentives" because
they create enormous pressure to cut the quality of the service.
When the service would be produced by a natural or artificial
monopoly, when consumers would for some reason be unable to vote-with
-their-feet for an alternative provider (Andrei is especially
scornful of proposals to "privatize" prisons), or when
citizens are simply unable to judge the quality of the service,
then you definitely do *not* want the service provided by the
government handing out vouchers for citizens to use to buy it
from profit-seeking firms.
But--and this is where I think Andrei's argument is especially
interesting, even though I am not sure that it is true--in almost
every case in which you want "soft incentives" and
to harness an ethos of public service, you will find that you
would prefer to have the process of production and service delivery
performed by a dedicated non-profit enterprise rather than by
the government at large. The government at large is likely to
be too interested in cutting corners to save money to provide
tax cuts, or too interested in making sure that the people employed
are those who worked for the winning candidate in the last election.
Non-profit enterprises, Andrei thinks, allow you to have all
of the benefits of government operation--ethos of public service,
no strong financial incentive to cheat the public, responsiveness
to democratic politics in the sense that the government directs
the spending by providing the vouchers--and some of the benefits
of market provision as well: the potential for competition, and
a certain degree of insulation from machine politics and rent-seeking
corruption.
In short, better to have the Red Cross than to have Ed Meese
running the Federal Blood Collection Administration.
Andrei's view depends on a particular neo-liberal conception
of politics and government. But it is not clear to me that such
a neo-liberal conception of politics and government is false.
After all, Karl Marx had some things to say about how state powers
of command and control would be exercised as human progress continued...
Third, as I understand it at least, Jon Hay is under a cloud
for "personally misappropriat[ing] public funds"--he
appears to have let his girlfriend use an empty desk (and a telephone)
at a Moscow think-tank he ran to start her mutual fund, and that
Moscow think-tank [ILBE] was partially funded by USAID. Jon Hay
is in big trouble. USAID's complaint against Andrei Shleifer
is harder to figure out, and I have not been able to do so--after
the completion of the World Bank audit it certainly does not
seem to be that USAID money wound up in his pocket...
As to why we printed an article by him, it is because he seemed
to have an interesting perspective to offer: that the right way
to organize modern social democracies is to have public funding
(of redistributional expenditures, public goods, and other socially-valuable
goods and services), but to have private provision wherever we
trust citizens' abilities to judge the quality of what they are
receiving, and non-profit provision wherever we think that we
need to guard against the strong temptation profit-seeking providers
have to cut quality where they think it won't be noticed...
Brad DeLong
Professor
of Economics J. Bradford DeLong, 601 Evans Hall, #3880