Free markets do not allow for governmental interference. Rather, the buyers and sellers of products and services assume the complete responsibility of determining the prices in these markets by way of demand and supply. Despite the emphasis of the United States government on free markets, however, free markets are only existent in theory seeing that governmental interference in the form of regulation is considered a necessity.
Governmental interference may be bureaucratic and hierarchical, whereas the free market was supposed to be built on the principles of freedom and equality. Even so, governmental interference is essential given that the global human society is not considered evolved enough to avoid destructive behaviors altogether. As far as markets and economies are concerned, destructive behaviors may take the form of certain individuals usurping the privileges of entire societies.
David Osborn and Ted Gaebler, the authors of Reinventing Government: How the Entrepreneurial Spirit Is Transforming The Public Sector (1992), would therefore like the government not only to provide guidance and support to the producers of goods and services, but also consider giving up the production of goods and services entirely for the free market mechanism to take charge as much as it is possible for it do so under governmental guidance.
According to the authors, the present dilemma faced by the government on the question of free markets versus governmental interference has its origins in “hierarchical centralized bureaucracies designed in the 1930s or 1940s [which] simply do not function well in the rapidly changing, information-rich, knowledge intensive society and economy of the 1990s (p. 12). ” Hence, it is time for a paradigm shift. The authors discuss this paradigm shift by expounding ten principles that must be incorporated by the government which has decided to rely on its entrepreneurial spirit to increase overall efficiencies.
Each of the ten principles is explained in a separate chapter of Reinventing Government, and each describes the kind of government that is necessitated by the times: (1) Catalytic; (2) Community-owned; (3) Competitive; (4) Mission-driven; (5) Results-Oriented; (6) Customer-Driven; (7) Enterprising; (8) Anticipatory; (9) Decentralized; and (10) Market-Oriented. The first principle, explained in “Chapter 1: Catalytic Government: Steering Rather Than Rowing,” requires the government to simply act as a catalyst in the economy.
The authors argue that each of the sectors of the economy must assume responsibility for the tasks that it is best at performing. This division of labor – where the labor constitutes the public sector, the private sector and the nonprofit sector – would allow for an efficient allocation of resources. Thus, the government must not consider producing goods and services because the private sector happens to be best at doing so. The government must also desist from pricing decisions.
Instead, it must focus on the design and implementation of regulation to guide the business environment in the country. After all, privatization raises revenue for the state, plus the investment capital for the industry or company that has been privatized, seeing that it may provide market entry to important international players as well. Apart from these advantages, privatization promotes wider share ownership, increases efficiency and introduces greater competition.
Competition lowers prices, and this factor is of utmost importance in the enhancement of people’s standards of living. Additionally, competition leads to improvements in the quality of goods and services, given that privatization also exposes firms to market discipline. A successful example of privatization provided by the authors is that of garbage collection in the city of Phoenix. In the year 1978, Phoenix began to contract this job in phases to the private sector.
The policy was considered radical at the time, and its eventual success served as an illustration of the free market’s superiority, especially for the conservatives who have always seemed to despise government bureaucracies. All the same, the bureaucracy in Phoenix got stronger with privatization of garbage collection. The public works department of the city at first attempted to bid for the business but lost it eventually to contractors who were prepared to do the job at lower costs. This led the public works department to begin to improve its operations.
Labor-management teams were organized to evaluate and improve the quality of service. Drivers were hired to redesign routes as well as work schedules. Bonuses were provided to all employees who gave their ideas for significant improvement of the service. Trucks that required two-person crews were replaced by vehicles that a single individual could operate. Soon enough, the costs of the public works department were reduced drastically. As a matter of fact, the costs of the department turned out to be lower than the costs of private contractors.
By the year 1988, therefore, the public works department was able to win back all of the work it had previously lost to the private sector. Although the above example does not show the government giving up its right to produce goods and services, it illustrates how the private sector can teach important lessons to the public sector. Perhaps the government would never act as a simple catalyst as Osborne and Gaebler desire. Besides, the authors have no examples to produce about governments that have entirely given up their right to produce goods and services for the people.
They remind the government, however, that it is incapable of fulfilling all needs of the people. Moreover, in “Chapter 10: Market Oriented Government: Leveraging Change Through The Market,” the authors identify eight of the problems with programs that are designed by the government to meet the needs of people. These problems include the fact that governmental programs are not driven by consumers, who happen to be heart and soul of the market. Governmental programs are also inherently problematic in that they are based on politics rather than policy.
Additionally, these programs cannot be self-correcting, seeing that the example of garbage collection in Phoenix is typically not replicated everywhere to allow for private sector efficiencies to guide public sector activities. Lastly, these programs are based on commands rather than incentives, and if they are obsolete and never exposed to market discipline it is difficult for them to be concluded. In the authors’ view, cities are like markets with “vast, complex aggregations of people and institutions, each constantly making decisions and each adjusting to the other’s behavior based on the incentives and information available to them (p. 82). ” A nation may also be looked upon as a market under this definition. Most importantly, the authors insist that the government’s role is only to steer the market processes, rather than to control them directly. The government should use policy that leverages the behaviors and decisions of the people; and because it is incapable of fulfilling all needs of the people on its own, the government should intervene in the market only to offer incentives to the people for finding alternative routes to meet their demands.
The market is rather efficient on its own, and it does not need additional feedback from the government. It is noteworthy that the authors do not provide unrealistic views on the role of the government in the market. As mentioned previously, the free market is only theoretical, and governments around the globe may not be prepared to give up their interest in regulation of the market so long as people are not evolved enough to end destructive behaviors altogether.
Thus, Osborne and Gaebler would like the government to continue establishing rules, and policing the participants to enforce the rules. The government may also want to facilitate the free market mechanism by providing necessary information to all, and by increasing demand. At the same time, however, the government must bear in mind that the free market is the most efficient form of market and it does not call for governmental interference. So therefore, all governmental activities in the market must be focused on the maintenance of the free market mechanism.
At no point in time should the government decide to influence the decisions of the people. By allowing the market to remain as free of control as possible, the government would also benefit by an overall efficiency increase that is experienced throughout the economy. Thus, Reinventing Government calls for a change in governmental practices to help the government fulfill its major responsibility – overseeing welfare enhancement of all people in the nation or the market.