The role of (Local) government

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I have been an elected politician for three years now. I have spent a lot of time in meetings, where people have said a lot of things. In some cases they have said the same things over and over but in many cases they have argued for the Council doing things. In nearly ever case, the focus has been on the benefits of taking the action. The implicit subtext is that this clearly exceeds the cost.

Most politicians would, if pressed, concede that all actions have a reaction, and, in reality there are very few changes that leave everyone better off. The hope is that the costs are low, and spread widely, and will be offset by one or other of the other actions taken which, cumulatively, leave everyone better off.

This is not unreasonable. we discuss many policies which cost very little in financial terms. A grant of £1,000 will cost the average person in the District less than a penny. It seems obvious that the average person would simply never notice such a cost. The gratitude and clear benefits to the recipient are, however, very clear to the grant committee. The argument hardly needs to be made that the award is worthwhile.

From an empathetic point of view, this is the right thing to do. But a quiet voice in my head keeps telling me that the resources that those 100,000 pennies represent have been diverted from what the producers of them would have chosen, to a charity that most of them have never heard of. Maybe if they had spent the time understanding the good work done by the organisers of this charity, they would have come to the same conclusion that we did. By examining the application, the constitution of the charity, the record of good work that it has done, we have saved countless hours of due diligence that could never have been justified if they were each considering dropping just a single penny in a collecting tin.

This is the argument made by Ronald Coase. That the practicalities of atomised decision making, are such that it makes eminent sense to delegate to a small group who can then arrange the joint purchase of services that in the absence of all the frictional forces operating in the real economy would have been impractical to agree.

The District Council collects household waste, and arranges for it to be disposed of. Every household may avail itself of this service. The cost is very modest. Private contractors would probably spring up if this service were not offered by the Council, and householders would, in most cases, sign up with one or other of the private contractors. Although I believe that capitalism is an incredibly efficient mechanism for supplying many goods and services, I acknowledge that it is very unlikely that households would save money.

There are certainly problems with local or central governments providing services. One of the biggest is the difficulty in innovating, especially when consumers no longer have the incentive to adapt their own behaviours to enable more cost effective delivery.

Coase’s Nobel Lecture.

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