Creating Competitive Markets

The name of this blog comes from a now-infamous statement by a senior Republican staffer that Republicans were part of the “faith based community,” as distinct from the Democrats’ “reality based” foundation. This faith went far beyond foreign policy, extending into vast reaches of domestic policy. From school choice to Medicare Part D to the president’s abortive Social Security privatization plan, Republicans have pushed ambitious programs to inject markets into new areas of social policy. Some of these made sense–others didn’t. But what characterized many of them was not analysis, but faith–a faith that markets, once “unleashed” (choose your alternative jargon, if you wish) would actually serve the goals of the programs better than state provision. That is, having failed to dismantle the programs, conservatives accepted (rhetorically at least) their goals and claimed that market-like mechanisms would be more effective means to achieving them.

I have a chapter (with Alan Jacobs of UBC) in a new book entitled Creating Competitive Markets, which looks at market making as a policy design problem. Using a wide range of cases, and with a pretty impressive set of authors (more impressive, that is, than me!) the book carefully interrogates when and under what conditions market making actually works. One of the findings of my chapter with Alan is that a key obstacle to effective market-making is excessive belief in markets on the part of policy-makers. That is, the same faith that leads market-makers to want to privatize or deregulate in the first place may cause them to fail to engage in skeptical and serious analytical design work to ensure against the risks of market-making. The consequence of this is that “faith-based” market makers are more likely to create policies that cause unintended consequences, thereby leading to substantial (often heavily market-distorting) changes after the fact, when the public is demanding that they clean up the mess.

While my chapter is in this book, and obviously I am not without substantial conflict of interest in this matter, I have to say that this is one of the most coherent edited books I know about. Policy-makers looking for insight as to when and how to apply markets to public policy problems would be well-advised to read it closely. What is more, the editors made certain that the chapters were concise and written with the non-specialist in mind (my chapter got 1/3 cut out of it!). There’s a copy of the introductory chapter on-line here.

Author: Steven M. Teles

Steven Teles is a Visiting Fellow at the Yale Center for the Study of American Politics. He is the author of Whose Welfare? AFDC and Elite Politics (University Press of Kansas), and co-editor of Ethnicity, Social Mobility and Public Policy (Cambridge). He is currently completing a book on the evolution of the conservative legal movement, co-editing a book on conservatism and American Political Development, and beginning a project on integrating political analysis into policy analysis. He has also written journal articles and book chapters on international free market think tanks, normative issues in policy analysis, pensions and affirmative action policy in Britain, US-China policy and federalism. He has taught at Brandeis, Boston University, Holy Cross, and Hamilton colleges, and been a research fellow at Harvard, Princeton and the University of London.