Cake Mixed Economy

Cake Mixed Economy

A wise man once told me government should do what is best done by the people collectively, and private enterprise should do what is best done by the people individually. That was a long time ago, but it still rings true for me today. The question remains, however, which is which, and how are they made to work together? Government and private enterprise are two poles of economic and political thought and each pole has staunch advocates.

It is the responsibility of government to create an environment within which individual initiative can flourish. This includes addressing issues of defense, justice, safety, education and infrastructure which are the common needs of all its citizens. In so doing it establishes a public wealth or “commonwealth” where equal opportunity is realized and where the pursuit of private wealth is enabled. Defense, justice, education and safety are generally acknowledged as legitimate areas of government endeavor, even though private industry has a subsidiary role to play in each. But infrastructure stirs considerably more debate.

Technical innovations, which at their inception are considered luxuries and therefore the proper concern of private enterprise, have a way of eventually becoming necessities. When this happens, it is the duty of government to insure equality of access which is independent of private wealth or industry profit. A good example of this is electrical power. Originally, electricity was developed and marketed by private enterprise. Cities, where the market was dense and therefore profitable, were electrified first; but when it came to the rural areas, the lines were too long and the population too sparse. The industry simply refused to provide rural dwellers the same service for the same price. This put people who lived in outlying areas at a considerable disadvantage.

The federal government, seeing that an inequity existed in something that was rapidly becoming a necessity of life, interceded by creating The Rural Electrification Administration which provided loans and assistance to rural communities and farm cooperatives. It also increasingly regulated private generators and utilities to insure equitable distribution. And, finally, it got into the generation business itself, most notably in the area of hydropower.

The above is a good example of something that was originally conceived and marketed by private industry and has since become a common need of all people. Government was required to become a player to insure a necessary fairness.

The postal industry is a good example of events happening in reverse order. Originally conceived and implemented by the federal government, and long its exclusive domain, it has recently seen inroads by private carriers who saw segments of the service that could be done better and still yield a profit. The entrance of private enterprise into this industry has resulted in an improved overall service for the country as a whole.

These two examples illustrate the respective strengths of the two poles of economic endeavor. Any industry that provides goods or services that are common necessities should have both elements present to some degree. Private enterprise spearheads the economy and is the most likely to produce innovation. Government spreads the benefits evenly and protects the citizens against abuse in the name of profit.

I like to think of this mix for the production of commonwealth goods and services as being analogous to a cake—the government component being the cake itself, determining the shape and providing the strength, and private enterprise the icing. Of the two industries mentioned, the postal industry fits the analogy best. The electrical power industry could use a little more cake and a little less icing. It’s a little too sweet the way it is currently structured in the United States and allows pricing irregularities created by the artificial manipulation of supply and demand. One way to remedy the situation would be to arrange things the way it is done in some prominent European countries. All power generated within a country is purchased by the government, which then takes responsibility for its distribution. As a side benefit, the government can easily influence how the power is generated by offering premium prices for power generated in the most desirable fashion. Thus power generated from renewable sources, for instance, can be encouraged.

An additional advantage of having a relatively large government presence in the production of basic goods and services is a reduction in the need to regulate the private segment of an industry. For example, the private carriers that compete in the postal industry know that if they get too far out of line in pricing their service people will simply revert to using the U.S. Postal Service.

Roads and highways are a common need which historically has been the purview of governments, although some private roads do exist. At the top of the list are the federal interstates, followed by state highways, county roads, and city streets. These are owned, operated, and maintained by governmental agencies, however, they are usually built by private enterprise. This demonstrates another way the cake can be mixed and could serve as a model for the distribution of electrical power. The defense and security industries are mixed in a similar way. Overall responsibility is governmental, but equipment and supplies come from private sources.

One industry which is still very much out of balance is health care. It is, without a doubt, a need which is common to all people, but it is dominated by private interests. This cake has way too much icing, and consequently, is much too rich for many people’s taste. As a result, a major health crisis can be financially ruinous to a person of modest means. This should not be. In addition, there is something very odious about private parties making a profit off other people’s misfortune. Not only should a single payer system be initiated, but the government should become directly involved as a provider on a large scale. This is not to say that the private practice of medicine should be eliminated. It should not. It should exist for those who are willing and able to pay a premium for attention above and beyond what is available through public channels. A national health care system could be achieved by expanding the system that currently exists for those over age sixty-five (Medicare) and drawing upon the experience of the many industrialized nations that already have such a system. The Government could also become a significant provider by expanding the service that is currently available only for veterans.

Per-capita spending on health care in the United States is far higher than in other industrialized nations, and yet life-expectancy is lower, and infant-mortality is higher, than in countries that spend less than half as much per person. A national health care system can achieve economies and improve care by:

  • eliminating the profit cost segment of current providers and insurers,
  • achieving economies of scale,
  • eliminating current adminstative costs for the screening of applicants,
  • exercising purchasing power for equipment and pharmaceuticals,
  • eliminating excessive duplication of capability, and
  • promulgating uniform treatment standards.

Numerous other goods and services exist which, in a modern industrialized society, fall into the category of basic necessities, and they can all be structured in a similar manner—a socialistic cake with capitalistic icing. Goods and services that are considered luxuries should remain the exclusive domain of private enterprise. People of sufficient wealth may function entirely within this realm, but for everyone else, a minimum level of basic necessities should be established that none are allowed to fall below.

“Let them eat cake”
Marie Antoinette

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Monday, October 20th, 2008 Cake Mixed Economy No Comments