Public Goods – The Economic vs the Ethical Category
By Ljubica Komazec, Ph.D., Faculty of Economics, Subotica, Serbia and Montenegro |
Property is theft. Abstract The phenomenon of public goods has existed since the dawn of civilization, but their significance and the approach to them has been different in various historical, and especially socio-economic, stages of the development of civilization. This issue is becoming emphasized in the conditions of the occurrence of the New Economy (or Total Economy), especially in countries in transition. Serbia & Montenegro is currently in the stage of general transition, which involves a dramatic process of transforming social into private property, with all the elements of the elitist process. During such a transition, it is necessary to explain and educate all the interest and social groups about the essence of public goods, as well as about the consequences of their uncritical, excessive and immoral privatization. This paper points to the very essence of public goods and their generally adopted classification with a special emphasis on the ethical, as opposed to the economic, dimension of determining the goods themselves and the approach to them. This is an obligation of present generations both for ourselves and for all future generations. Key words: public goods, ethics, awareness, public choice The phenomenology of public goods is as old as civilization in general. What is variable in relation to public goods is the awareness of them, the knowledge about them (cognition on a scientific basis) and the approach to them. An additional variable is the degree of organization in providing public goods at various stages of the development of civilization. Economic Genesis and Classifications Economics as a science started to develop intensively and to systematize its knowledge in the second half of the 19th and the early 20th centuries. It is, therefore, a very young science, compared to mathematics or philosophy, for example. Its constitution and development are mostly related to the development of markets, exchange, money, and production as organized activities, etc. However, we shall all agree that human communities had existed and functioned even before the occurrence of economics as a science and of the elements of economics in the categorical sense. These communities used natural goods (natural resources) under some principles that we cannot call economic in the above sense. The primitive accumulation of capital, the development of trading capital, the beginning of manufacturing and technological inventions, and the formation of strong nation states made the economic processes complex and imposed a need to explain them. Furthermore, these conditions created a need that is considered more important today, the need to predict and project them. In terms of economics, in relation to public goods, the strongest influence was the occurrence and development of manufactured goods. That is to say the fact that public goods - in large numbers - acquired the characteristics of goods and all the features of commodities – use-value, exchange-value, and market price. Three facts cardinally contributed to this process: - Increase in the global population, - The scarce and limited character of natural resources, and - The developmental trend of economic sciences, especially political economics, supported by marketing and similar skills, and their turn from the objective (labor) theory of value to a subjective value theory, which meant opening the process of “creating” human needs. [2] Modern economic science defines and systematizes public goods starting from the most general division of all goods into private and public. Thus goods range from purely/completely private goods to purely/completely public goods. The basic economic characteristics of private goods are: - Users of private goods easily can be and are charged for their utilization; - The marginal production cost of goods is positive (equal or higher than the average cost); and, - In the acquisition (purchase and use) of private goods, consumers act by the principles of rivalry (if I do – you don’t) and exclusion (I paid – only I use). What is characteristic of public goods, however, is that: - It is practically impossible to charge for utilization because production cost is indivisible, so that marginal cost equals zero; and - What applies in their utilization are the principles of non-rivalry (both I – and you – and others) and non-exclusion (nobody can be prevented from use). Between these two (theoretically known as extreme) definitions of goods are the so-called transitional forms of goods, such as common pool resources (hunting grounds and pastures [3] ) or club goods (concert halls, sports halls or swimming pools). Another, not less significant, classification of public goods uses allocation criteria. According to these criteria, all public goods are divided into: - Global public goods (state borders are not obstacles for the inhabitants of other countries to benefit from these resources – such as biological diversity, tropical rainforests, and air); - National public goods (national defense and national parks); and - Local public goods (municipal parks and squares). It is the allocation criteria that introduce key economic categories (and related problems) into the system: - The category of ownership and - The category of rent (cost, i.e., benefit from utilization). The largest number of natural resources does not have an owner or is in a special ownership regime, (e.g. essential resources necessary for life - water, air, and biodiversity). This ownership regime is known as “res nullius” - nobody owns and nobody controls the resources. Unlike this regime, there are: - State ownership regimes (state-owned and controlled resources) and - Communal regimes (resources owned and controlled by groups of co-owners). The systems of ownership and rent (utilization cost) are the categories leading to problems and conflicts in the production and use of public goods. The most often addressed consequential issue is that of free riders, (i.e. rent dissipation) which ultimately leads to the “tragedy of the commons.” [4] Simplified, in the absence of price, access to public goods is not limited by anything so scarce resources are subject to an unlimited degree of exploitation. To prevent this drastically negative phenomenon, it is necessary to set utilization rules, especially through: - Legislation (or a regulation arrangement), which implies setting standards for participants regarding exploitation and imposing sanctions on those who break the regulations; - An arrangement (system) of utilization fees (based on the principle “the users pay”); - An arrangement of developed licenses, set by a competent authority (i.e. in exploiting marine fisheries and resources); and - Traditional resources based on awareness, responsibility, good practices, culture and tradition, without particular enforcement forms other than social values. From Ethics to Economics and Back History teaches that human communities at a lower degree of technical development had a higher awareness of the significance of public goods (e.g. drinking water springs), like the awareness shown nowadays by Swiss dairy farmers or animal rights activists. This simplified parallel leads to a conclusion that high awareness, and the related ethics, of the importance of public goods is immanent in those human communities that are extreme in terms of technical development – either at a very low or a very high level. What is it all about? It is obvious that this important issue is directly related to the level and degree of satisfaction of a person's need for goods. If a person is satisfied at the level of his or her personal needs his or her awareness of public goods is higher and vice versa. Let’s take a very simple example. You have your own car that you use daily to commute to work. In this way, you have solved and satisfied your own need to get to work and back home efficiently and comfortably, using all the benefits of your own private good (the car). At the same time, your have the possibility, of which nobody deprives you, to use bus, tram, train, etc. (i.e. public transportation) – as public goods. Many of your fellow citizens will use the public goods because they are entitled to them, because they do not own cars or because they do not want to drive their own cars. In this case, objective circumstances or motives for using public goods are completely irrelevant, and we all bear the costs of using public goods – paying the fares (if we ride on it) or taxes and fees used to finance the organization and functioning of public transportation. Another textbook example of public goods is a national defense system. Every citizen in the state has an equal right to security and safety of his or her life and property. In terms of organizational economics, production of the public good, national defense, is in the hands of the state, for which certain funds need to be provided. Financing defense is one of the most important state expenditures, and the awareness of it is widespread no matter how pacifist one may be. As a third example, during the summer heat, each person has equal (natural) need to cool down in the water. This need may be satisfied in various ways. They can, for example, go to the municipal swimming pool (a public good) or build their own swimming pool (a private good). They can travel to some of the appealing resorts where they will be using the swimming pool inside their hotel (a club good) or go to a public beach – depending on their needs, wishes or personal attitudes. Let us stick to the municipal pool. We may, but do not have to, use this public good. However, the awareness of the need for it will seldom cause protest if the municipal authorities use funds collected from the taxes we all pay (or should pay) to build (produce) a municipal swimming pool. The problem may arise if, at one point, the municipal authorities decide to sell the pool, as the new ownership form, guided by the logic of profit and the policy of pricing for the service of using the pool, will lead to the exclusion of certain people (first of all the poor) from the availability of this good for all citizens. Production of public goods is financed from public income. The players in this process are all the members of a community, at any organizational level – local, regional, national or federal. Nobody, therefore, is excluded from production or consumption (availability). Within these coordinates, a public good is an explicit economic category determined by other economic categories: income-expenditure, cost-benefit, production-consumption. In the above mentioned, as well as all other examples of public goods, however they may be categorized (as global, national, communal, common pool or club). What inevitably imposes itself is the concept of awareness (consciousness?) of the need for public goods and their production, as a per se necessity. This ontologism based on the concept of good (as opposed to bad) leads us into determining public goods as an ethical category. Where is the Lost Ethic? The ethical discourse of technology, with all its good and bad consequences, is rooted in the ancient tragedy, when the “machine” appeared as the intermediary between God and humans (i.e., natural resources and people) in its modern explicit meaning. It is not necessary nowadays to demonstrate particularly that technological process has led to an imposing extent of economic and any other type of progress in humankind. Similarly, it is unnecessary to demonstrate specifically that development has lead to a regression in many spheres of human life with very pessimistic prognoses for the future. Despite the facts and the knowledge of harmfulness of certain technological solutions, humans use them excessively and indiscriminately, turning in this process against themselves. Production of one resource (e.g., motorways, so that we can travel faster and more safely) necessarily destroys another resources (e.g., fertile land or forests). The awareness of a natural (public) good withdraws in this away before the (created?) need to rest on a distant shore of a sea or a lake or to do “business” quickly. Technical solutions and their role in the frantic satisfaction of generated rules, willingness to pay for them, and especially to make profit, bring us into a situation where we must once again “form” people's awareness of the gradual, but radical, “change of people's attitude toward nature, society, other people, the world and life, on the foundations of the new naturalized humanism and humanism in general,” [5] with the creation of the new value matrix. On the boundary between the industrial and the post-industrial epochs, perhaps the most important question of the civilization is: Does what I do benefit or harm the human in me and/or in other humans? Probably the solution to this dilemma, at the same time the most difficult, is creating needs appropriate to a person. Maybe it will tickle our imaginations to know why a person, a famous athlete or businessperson, hoards 10 - or more - best or fastest cars in his or her garage and lives in a house with several dozen rooms on an estate of several hundred hectares, even though it exceeds by far his or her existential needs. Can we imagine what would happened if he or she wished for, or could afford, and were willing to pay for, purchase and turn into his or her private good, Niagara Falls, Plitvice Lakes or the Tara Canyon? There are numerous examples showing how economics defeated ethics. Accumulation of private goods beyond the extent of a person’s needs is evidence of this and will persist as long as material private goods remain the measure of a person’s value. The Tara Canyon – Victory of Ethics over Economics – for the Time Being A recent idea of the Government of Montenegro to publish an Invitation to Tender for a dam and hydroelectric plant on the River Tara is the most typical example of how a purely public good nearly became a marketable economic (maybe even private) good. This infantile idea of the Government, fortunately, mobilized a wide front of conscious people, formally and informally organized groups, expert and non-governmental organizations. For the time being, the Tara will remain what it should be – a public good. At this point, we come to the key assumption for the preservation of public goods and their function – public choice. According to the theory of public choice (a separate, modern economic discipline), public choice is a “process whereby individual preferences are joined into common decisions.” [6] A democratic society (a mature one, of course) coordinates and appreciates the significance of individual values and tastes and establishes them by the principle “one person – one vote.” It is the sum of individual values and preferences, on the basis of the qualified majority, that directs and shapes (through its legitimate representatives) the frameworks and goals of policy in a community (state, region, local community) and nominates politicians as the reflection of the voters’ awareness. Conscious voters (educated, informed, responsible) will choose such representatives, and vice versa. Not entering any further into this equally significant issue, it is necessary to underline that in this way, by public choice, we, citizens-voters, actually establish our own system of values. For this reason it is necessary to open the widest possible front for educating and informing the population about public goods and their importance for us and especially for future generations, to whom we also bear huge responsibility. Translation from Serbian: Women’s Center for Democracy and Human Rights, Serbia and Montenegro Sources: 1. Babić, Mate (2001). Makroekonomija [Macroeconomics]. Mate d.o.o, Zagreb. 2. Bojović, Viktorija (2004).“Javna dobra – karakteristike, formiranje tražnje za javnim dobrima i problem besplatnih korisnika” [Public Goods – Characteristics, Forming Demand for Public Goods and the Free Rider Problem] in Anali ekonomskog fakulteta u Subotici, Issue 12, 2004. 3. Drašković, Božo (ed.) (1998). Ekonomija prirodnog kapitala [The Economics of Natural Capital]. Belgrade. 4. Goodstein, Eban (2003). Ekonomika i okoliš [Economics and the Environment]. Mate d.o.o, Zagreb. 5. Ilić, Bogdan et al. (2000). Politička ekonomija [Political Economics]. Beograd. 6. Malešević, Krstan (2004). Čovek protiv sebe – ogledi iz socijalne ekologije [Man Against Himself – Essays in Social Ecology]. Belgrade. 7. Milenović, Božida (2000). Ekološka ekonomija [Ecological Economics]. Niš,. 8. Samuelson, Paul, and William Nordhaus (2000). Ekonomija [Economics]. Zagreb.
Ljubica Komazec, Ph.D., Professor at the Faculty of Economics, Subotica, University of Novi Sad, Serbia and Montenegro. Her fields of expertise are Economics of Companies, Menagement, and Environmental Economics. She is a co-author of three textbooks, published about forty articles and papers, and participated in developing about forty scientific and research projects. She is the Editor-in-Chief of the Journal «Annals of the Faculty of Economics in Subotica''.
[1] Proudhon, Jean-Pierre, Qu’est-ce que c’est la propriété ? Recherche sur le principe du droit et du government, [What is Property? Or, an Iquiry into the Principle of Right of Government], 1840 [2] According to the subjective value theory, the value of goods is determined by the desire of an individual (i.e., the attitude of an individual toward a commodity – what it means for him/her). If, for example, we like to follow fashion, we shall do anything to come into possession of fashion novelties, entering the consumer society whirl. [3] An example of communal goods is the utilization regime of pasture rights in Switzerland. Alpine pastures have been communal property for centuries. Overgrazing was prevented by associations of users who limited the allowed number of cattle. These associations have had a long-term, stable function and have transferred rights and responsibilities from one generation to another. The bases for their functioning are awareness of communality, trust and obedience to rules. [4] An irresistibly imposing association is that of the system of social property in the former Socialist Federal Republic of Yugoslavia. 4 Krstan Malešević: Čovek protiv sebe – ogledi iz socijalne ekologije [Man Against Himself – Essays in Social Ecology] Belgrade, 2004, p. 59. [6] Mate Babić: Makroekonomija [Macroeconomics] , Zagreb, 2001, p. 390.
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