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August 10, 2010

states versus markets (a somewhat different take)

On a major blog some months ago (unfortunately, I can't find the link), the blogger complained about his Internet-service provider, and a debate ensued in the comments section about whether corporations or governments are worse. One writer remarked, in effect: Companies can be as bad as government agencies, but when a company mistreats you, you can just walk away. It's irrational to get all worked up about that. When the government wastes your money or time or gives you bad service, it's an outrage. The author concluded that markets are better than governments.

I have a somewhat more complicated view. I think it is smart to minimize your emotional reaction when a company performs poorly; just take your business elsewhere, if you can. It is more appropriate to be angry at government because:

The question is whether, when, and for what purposes we want to rely on voice versus exit as the mechanism of improvement. I see the advantages of exit and competition and am therefore biased in favor of markets as the means for delivering ordinary services. But there can be at least three powerful rationales for state involvement:

To complicate matters, all markets are (at best) imperfectly competitive, and there can be choice and competition among governments (because individuals and companies can move). Thus voice is sometimes appropriate in the private sector; and exit sometimes matters in the public sector. Also, communities as well as governments can own public resources. Finally, some private corporations own resources that people identify as theirs--for instance, fans identify with their local professional sports teams. In such cases, whether to honor voice is the company's choice, but it is often a wise one.

* Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Harvard, 1970)

August 10, 2010 9:21 AM | category: none



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