Last week I wrote about how economist Paul Samuelson's definition of public goods became dominant. Today, let's look at why this definition is of little theoretical value and no practical use.
The definition has been challenged by economists on the right, particularly libertarians, as being too supportive of a role for government. These theorists say that the market could provide all goods and services. And they are technically correct. Textbook examples of Samuelson public goods can be and have been produced by the private market. Ships have sometimes paid for lighthouse services, mercenary armies have been hired to defend kingdoms and Disneyland and SeaWorld produce fireworks. Even clean air is being purchased by the wealthy in Beijing. If Samuelson-defined public goods can be produced by the market, of what use is his abstract definition?
From the center, some mainstream economists have implicitly recognized the fundamental deficiency of the definition and looked for ways to work around it. Because the definition fails to supply a conceptual basis for public goods and services found in real life, these economists have come up with terms like “collective goods,” “club goods,” “social goods,” and “impure public goods” to fill the conceptual void.
Importantly, a few scholars have challenged the Samuelson definition and some have called for a new one. In “Rethinking Public, Global and Good,” Meghnad Desai says that the Samuelson formulation is “useless for policy purposes”, and further that “The Samuelson fiction of pure nonexcludable goods is just that." Inge Kaul and Ronald Mendoza in “Advancing the Concept of Public Goods” note that the existing definition does not offer clear categories of public and private, and that “goods can change from being public to private and from private to public...[and that]...Goods often become private or public as a result of deliberate policy choices.” Marc Wuyts argued that “the extent to which a good is perceived as ‘public’ does not depend as much on its inherent characteristics as on prevailing social values within a given society about what should be provided by non-market mechanisms.”
In Development Policy and Public Action, Wuyts offers the most astute critique of Samuelson I have seen:
In our view, public goods are socially defined and constructed: the outcome of complex political processes which evolve around the definition of public need...Public goods...result from public action...Orthodox theory, by contrast, defines public goods as specific types of goods or services (such as law and order, defence, the use of a road or a bridge, etc.) which markets find it hard to deal with. The reasons for this market failure...are often stated in economic jargon...[I]n orthodox economic theory, public goods are defined solely with respect to the inherent characteristics of the goods and services concerned...[a definition that is] only technical in nature.
We need a new, positive definition of public goods to counter the current market-myopic economics definition that relegates pubic goods to market failure. Economists’ attacks undoubtedly derive from the fact that the concept of public goods undermines a foundational premise of neoclassical economics. As Bauman points out, “Public goods run counter to Adam Smith’s ‘invisible hand’ theory in that self-interested behavior by individuals does not, as the theory would have it, lead to good outcomes for society as a whole.”
A few – surprisingly few – scholars have called for a new definition of public goods. Kaul and Mendoza call for “expanding the definition of public goods.... The challenge is to define public goods in a way that does not leave the task of identifying ‘public’ and ‘private’ solely to the market but that also involves the general public and the political process.” Desai says that “we need to rethink and reconceptualize – in light of today’s socioeconomic and political realities – the notion of national public goods...” And Michael Ignatieff, former leader of the Liberal Party of Canada who now teaches at the Harvard Kennedy School of Government, calls for a “serviceable...liberal theory of public goods.”
It is astonishing that there are not more calls for a new definition, given that public goods are central to the quality of life, and to the very economy, in Western democracies.
In a future post I will write about proposals for a new defintion.