Public Goods, commodities and social contract

Are education or healthcare public goods or commodities? Should the State control education or healthcare, or should it allow market forces to set prices and utilize resources?  Questions such as these seem to beg answers depending on the respondent’s political ideology.

Socialists, or statists in general, would argue that they are “public goods”; that the state must be their arbitrator. Liberals and libertarians would argue for the opposite; they are “commodities” which ought to be exchanged in free markets. Who is right? Can there be a common basis upon which one may judge the two opposing views?

Before I suggest such a basis let me reveal to the reader that, as a principle, I do not believe in public goods. The reason for that is that I consider absurd the notion that some third party (the State) could, or should, think of what is good for me better than I do. So my opposition to the idea of public goods is a fundamental one. It stems  not only from my instinctive mistrust of the State but from a host of rational arguments, like the one I mentioned above. Furthermore, experience has shown that socialized education and healthcare systems have failed in almost every country that has been tried. “Almost”.

The other day, as I was having a conversation about the (failed) education system in Greece with a number of friends, one of them pointed out that there exist in the world states which have socialized their education with excellent results. He mentioned Finland.

It is true that Finland reformed its public education system in the early 90s and today has what is considered by most the best educational system in the world. Doesn’t this “prove” that education can be – or is – a public good, and achieving high quality for best price is only a matter of “better” management from a State?

Firstly, I am not knowledgeable of the cost per capita for public education in Finland in order to provide a full economic analysis. Perhaps it is too costly, perhaps not. I would like to respond to the point raised by my friend (and by many other I am sure) by focusing on something beyond economics. Besides Finland there are a few other countries too, Scandinavian mostly, which seem to have achieved high standards in socializing education and health. How do they do it?

I would like to suggest that what makes the difference between success and failure in the socializing of education or healthcare is the trustworthiness of the social contract in a given State.

Counties that benefit from strong social contracts have a good chance of managing education and healthcare centrally. Countries where social contracts are not that strong, or failing, ought to take the view that education and healthcare are better served if considered commodities. Greece is an example of a country with a very brittle social contract. Mistrust for the State is fully justifiable: the Greek State does not serve citizens or society, it is an apparatus used by political parties to buy votes in exchange of life-long guaranteed positions in the public sector. Considering education and healthcare in Greece as public goods serves only to make the system cronies richer and more powerful, at the expense of tax payers and mostly the poor, the main beneficiaries of public services.

So it is not ideology that ought to determine one’s views. A more insightful analysis on the relation between citizens and the State, as well as the quality of democratic institutions, is also relevant.

Reflections on a dead referendum

Referenda are a terrible way to take political decisions, particularly complex ones. A simplified “yes” or “no” rarely qualify as valid answer. Real politics is all about the gray areas in between. Furthermore in matters of importance for a society it is imperative to reach consensus, a requirement that cannot be met in a referendum. If anything, referenda introduce the dictatorship of the majority and are therefore the cause of divisions within a society. In the ancient democratic cities of Greece such divisions caused defeated minorities to leave the cities altogether and establish other cities elsewhere – the colonies. The right to abandon your city if you disagree with it goes hand-in-hand with direct democracy, otherwise direct democracy may cause civil war or strife. However, in our modern world of nation-states there is no room left on this earth for dissenters to colonize and start anew. Finally, referenda catch the “moods” rather than the “thought” of a people; they thus offer fertile ground for demagogues. Direct democracy, although noble and aspiring as a concept, bears within it the seeds of its own self-destruction.

Nevertheless, ideological orthodoxy must not blind us to the exceptions that history throws upon us. And Greece, today, is precisely such an exception. A disunity of wants runs deeply within Greek society. Voiced in the streets and reflected on polls are two apparently opposing and mutually exclusive things: (a) to remain in the eurozone and (b) not to submit to the terms of their bail-out. This disunity is tearing Greek society apart. There is no magic formula to resolve this. But a referendum could have make citizens reflect upon their positions on the matter. More importantly, it would have made Greek citizens realize that decision-making is all about choosing what to sacrifice. This, in itself, would have been important for a people to gain a much-needed degree of political maturity.

The Greek referendum is not going to happen. The political elites have won the day. The Greek people will only be allowed to elect a new government in a few days. Much of this development owes to the potential disaster that such a referendum (on Greece staying or leaving the eurozone, as it was going to be framed) would cause on markets, as well as the Greek economy – whatever little is left of it. Nevertheless I find the angry reaction to the Greek referendum from the Franco-German axis and the bureaucrats of the EU and the IMF far more telling. Their vision of Europe is unmistakably one of bureaucratic elites running government and the people following. It is also a vision where some countries command and others obey. It is the wrong vision. It inspires little fidelity to a common European dream. It creates deep divisions within the Union, of the eurozone and the rest, and now within the eurozone as well. How long is this going to hold before the European project unravels?

And to be clear on something that is often flying around in the German press, or the German voters’ minds. German insistence to punish Greece for its so-called profligacy is hypocritical. Greece did not steal money from anyone, it received it from lenders in a market who at the time were happy to lend her, obviously because they were making profit out of the transaction. They obviously calculated the risk of lending to Greece wrongly. They should pay for that. That’s how free markets ought to work. End of story.

Besides, there were supposed to be mechanisms and agreements to control debt in the eurozone, monitored by the European Commission and the European Central Bank. What happened with that part of the story? How comes it is only Greece and Greeks that have been deemed responsible for “bending the rules” – and therefore justly liable to years of austerity and poverty?

Without condoning what the Greek governments did with the money they borrowed on the back of the euro, I argue that blaming the Greeks for spending it is idiotic, and immoral. It is like accusing the drug addict for his addiction, punishing him, and letting his pusher scot free with an extra bonus. So, Ms Merkel, there is no “moral hazard” in bailing  Greece  out without having to reduce Greek society to ruble.

Greeks were reigned in today and told to step back in line. They will. But how much of this is a solution to the real problems on the ground, in the streets and the economy? How much of Greek adherence to terms and conditions will save the future of Europe and of the Eurozone?  The real issue is not Greece, or the stillborn Greek referendum, but whether the agreement of October 27th is right or wrong. I would argue it is completely wrong, for it does nothing to safeguard a sustainable economic future for Europe. Analysts more adept and knowledgable than me agree too. Worse than that, the idiotic persistence of Ms Merkel and Mr Sarkozy to blackmail Greeks into accepting it is despicable, immoral and undemocratic – and must stop.

The political anticlimax of climate change

Our planet is warming up. Scientists agree that global average temperature is about 0.6oC higher than it was a century ago and that atmospheric levels of carbon dioxide have risen by about 30 percent over the past 200 years, mostly because of the burning of fossil fuels. Although the causal link between the increase in greenhouse gases and global warming cannot be unequivocally established, there is widespread consensus amongst scientists that global warming is man-made. There are data that contradict this consensus; for example, satellite measurements of the upper atmosphere where temperatures have remained virtually unchanged and deep ocean temperature measurements which indicate that oceans are in fact cooling. Other factors may be attributing to global warming too, such as atmospheric soot, land-use change, and solar variations, as well as natural processes which we do not understand yet. Scientists, in trying to understand disparate data and thus explain global warming, build so-called models, which are mathematical simulations of measured facts and logical hypotheses. These models are run on powerful computers and their efficacy is tested by means of their predictability. Current climate models are quite sophisticated and most of them predict a rise in global temperatures of around 10C in the next 50 to 100 years.

It is important to understand that although few disagree that global warming is real, the interplay between anthropogenic climate forcings and natural processes is a difficult one to establish. Our planet is an extremely complex system of natural feedback systems in constant interplay and, therefore, in unremitting change. For example, the history of climate on Earth, as revealed by science, shows that 500 million years ago temperatures were 80C higher than today; and levels of carbon dioxide many times higher too. Antarctica glaciated around 30 million years ago, probably due to plate tectonics that caused a restriction in the flow of ocean currents. Temperatures started falling below today’s average around 3 million years ago and the world entered into alternating ice-age cycles, the last one ending 10,000 years ago. Since then we live in what has been called “the long summer”, and it is no coincidence that farming and civilization arose around the same time.

Faced with undoubted scientific facts as well as scientific uncertainties, pressured from environmental groups who see their day, overwhelmed by media hype that feeds upon the theme of climatic apocalypse, western political thinkers have devised policies to avert climate change. The main premise of such policies is to “fix” future climate by reducing the burning of fossil fuels today. The argument for such policies is economic; climate change according to certain economic analyses will be devastating and, therefore, action should be taken today to avert future consequences.

Both the premise and the argument are debatable. Earth’s climate is always changing and the world can only accept change, embrace it and prepare for it. “Fixing” is an engineering term that assumes a deterministic understanding of the system to be fixed; something which does not apply to Earth’s climate. We are simply too ignorant, and too arrogant, to want to fix Earth’s climate by twiddling concentrations of carbon dioxide over the ensuing decades. Suggestions for “positive Geo-engineering” (altering Earth’s climate towards a “preferred” state by disrupting natural processes) reflect the logical extend of such a misled, potentially dangerous, and much criticized, approach.

Although there is widespread scientific consensus on the anthropogenic causes of climate change, economic analyses on the future impact of climate change are very disparate. For example, the Stern Report to the UK government, which estimated the cost of carbon dioxide at 86$ per ton, has been challenged as too overblown; most economists estimate it between 2 and 12$. Other economists argue that funds spent to fix climate will be withheld from other, more crucial and more urgent causes such as world poverty, tropical diseases or the spread of AIDS.

Proposed climate policies are also under scrutiny. “Market-based” greenhouse gas reduction schemes, such as cap-and-trade, promote the development of a carbon cartel seeking to exploit the system to make profits. Political considerations affect carbon markets and carbon lobbyists are having a field day. The carbon markets can never be truly open, and therefore market forces will be perennially superseded by politics and political corruption. “Green tax” schemes, although more effective, will be extremely unpopular to enforce, not only in the US but also in the EU where petrol prices are already heavily taxed by governments. It is no coincidence that, despite big talk from European leaders, Kyoto targets have not been met by the majority of EU members. Everyone knows that reducing the burning of fossil fuels, or increasing fuel taxes, will adversely affect economic growth and jobs in developed countries, particularly in times of economic downturn and recession; it will also put in peril economic advancement of the energy-hungry developing world. It is a dismal sign of our media-weary times that not one western politician seems brave enough to contradict global groupthink.

And yet the world ought not to remain inactive. Dependence on fossil fuels is politically and economically precarious for the West, as the case of Iran, the deliria of Chavez and the conflict in Georgia amply demonstrate. Continuing global economic development and prosperity needs vast amounts of environmentally-benign energy that must be found and made available to all, without the threat of blackmail by cartels and dictators. The long-term solution will have to come from massive public and private investment in research on renewable forms of energy, such as wind and solar, as well as safer nuclear. Climate change is an unavoidable part of living on a planet with an atmosphere. Future generations will be better prepared to face it – and better off – if we, instead of alluding to ineffective policies, we tap humanity’s greatest asset: our inner world of ideas.

This article was commissioned for the Athens News