Sean CAREY
28 February 2008
Port Louis — Free market does a pretty good job in delivering a whole range of goods and services. However, healthcare services can't simply be compared to running coffee shops or selling cars, says the author.
Sales of the Nano, the "people's car", are expected to be huge and there are plans to export it to other countries.
After the article I wrote a few weeks ago where I took issue with a free-market approach which would involve the dismantling of publicly funded institutions like education and healthcare in Mauritius, I received a number of emails asking me for further clarification of my views. So, for what it's worth, here goes.
Although one correspondent denounced me as a socialist with Marxist-Leninist sympathies, I actually believe that the free market does a pretty good job in delivering a whole range of good and services that consumers want. For example, anyone paying a few visits to London over the last 15 years will have witnessed the incredible growth in the numbers of branded coffee shops in the more affluent areas of the capital. It started off with Costa but now there are chains like Caffé Nero, Coffee Republic and Starbucks as well as a significant number of independent shops operating in niche markets in different parts of the city centre as well as suburban and outlying areas.
Why has this happened? Well, partly because the UK has been influenced by American fashions and inward investment - the globalisation argument - but mainly because traditional cafes in the capital (often run by Italian families) where it was possible to buy (you still can) a decent cup of coffee were not the sort of places where young and affluent, middle-class consumers wanted to hang out. They didn't want to spend time in traditional British pubs either. Some sort of alternative space was required and the modern coffee shop fitted the bill perfectly (at least in the daytime and early evening).
And for those of us who are interested in such things it has been a wonder to behold as these branded coffee houses in London have adapted to changes in fashion and consumer behaviour. The seating has been changed and rearranged - there are now sofas and armchairs instead of stools in many places - so that instead of getting a message to vacate the premises as soon as the cup of coffee has been drunk, the customer is invited to linger, read a newspaper or use the wireless internet connection and buy something else like a sandwich or a slice of cake.
"I don't think that there will ever be
a time when Las Vegas-style
slot machines become an
integral part of public
hospitals in the UK."
And the types of coffee available have changed. There are varieties from all parts of the globe - Afghanistan, Brazil, Costa Rica and South Africa - with an ever increasing number in last few years bearing the «fair-trade» mark. Also if milk is required it's no longer a surprise to find that it is organic in origin.
Service has altered too - staff, many of them new migrants from Eastern Europe (as well as a few students from Mauritius working part-time to fund their studies), have been taught to form a (micro) relationship with customers by looking them in the eye, smiling and wishing them a nice day. All of these innovations - including those catering for the ethical and health conscious consumer - are undoubtedly good for profits and keep the economy moving.
So the market particularly in a major global city like London is very efficient in responding to shifts in fashion and consumer behaviour - it really is an amazing tool or mechanism in extending the range of choice available to individuals. Businesses that get it badly wrong for whatever reason find out very quickly and end up closing their doors - the 'to let' and 'for sale' signs soon follow.
And economists employing (microeconomic) rational choice theory (or marginal utility theory to provide its other name) which focuses on "goal directed" and "instrumental" behaviour in the marketplace - sorry about the jargon, but it's difficult to avoid - can reveal a lot about these successes and failures but then so can the analyses of social anthropologists, sociologists, geographers and marketing specialists.
But no advanced or emerging economy is directly comparable either to the workings of a single coffee shop (as ex-British Prime Minister, Margaret Thatcher, famously thought) or even to London's coffee bar market as a whole, simply because the role of government cannot be reduced to the supervision of economic transactions. The idea put forward by free-market economists that it can and that government shouldn't do much more than observe and occasionally intervene in legal disputes - the so-called nightwatchman theory of the state, nicely summarized by the American writer, P.J. O'Rourke, as "capitalism and the rule of law" - is absurd.
The minimalist relationship between state and market may have been true of some advanced agrarian and early industrial societies but it is certainly not true of large, advanced economies which are obliged to carry out a whole range of sophisticated political and economic functions on behalf of their citizens.
In fact, around half of the annual income of most advanced economies will be spent by the state on building and maintaining necessary infrastructure and services. It's simply unavoidable - the state and private enterprise are inextricably linked. It's all a bit like ballroom dancing - "it takes two to tango" as the saying goes. Free market advocates who pretend otherwise are being disingenuous - the reality is that they have a political agenda masquerading as a technical, economic one.
A good example of this state-market economy relationship can be found in last month's unveiling of the $2500 Nano, the world's cheapest car, in India. Sales of the «people's car» are expected to be huge and there are plans to export the car to Europe and elsewhere (including Mauritius, I bet).
The Nano may be a triumph for the designers and engineers of Tata Motors and the workings of the free enterprise system on the subcontinent, but it is certain that Indian middle-class families won't be going anywhere very far - let alone fast - unless the central and state governments build a network of decent roads. This will require increasing levels of taxation in the next few years.
Of course, there are also the environmental costs to consider if millions of people in India (and China) are encouraged to start driving vehicles which contribute to pollution and global warming. This highlights a different set of problems and which are often global rather than just regional or national in scope and significance.
However, there is no good reason why publicly funded institutions concerned with, say, education and healthcare either in the UK, Mauritius or anywhere else can't learn a trick or two from the way that successful commercial companies and brands selling cars and coffee go about their business.
For example, for years what has gone on in public hospitals in the UK has been exclusively defined by a fairly narrow definition of healthcare and welfare - it was a culture dominated overwhelmingly by a medical ethos. Other services like delivering newspapers, chocolates, fruit and soft drinks to patients were either performed by family members or by volunteers.
This is beginning to change. Patients (and their families) are increasingly recognised as consumers. In some of the big hospitals in London, for instance, the foyer area has taken on some of the characteristics of a high street - a variety of outlets like florists, newsagents, baby care and even Costa coffee shops can be found. For a fee, patients in most UK hospitals can even watch satellite TV, make phone calls and use the internet from the comfort of their beds.
No one can have any serious objections to this sort of innovation as long as the pricing of goods and services is not unfairly increased because of the captive market as has been suggested in some cases of telecommunication service - these sorts of things extend consumer choice and bring in useful revenue from rents or a share of the profits for the National Health Service.
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