Thursday, June 25, 2009

Markets want to be conservative?

The other day I said something that should strike a reader as odd: Markets want to be conservative. And in that, I did not mean "conservative" as a collection of political positions that some pundit might want to assign to the term; I mean the much older and more literal meaning of the term. The sort of market economy we have today resists some types of change.

It's not an inherent property of the market itself. It's a product of social influence. With the creation of each market, each service, each industry, a special-interest group is created. The invention of the personal automobile lead to the automotive industry - and all those involved in the manufacture, sale, and maintenance of the automobile have a vested interest in consumers using cars, and will try to influence policy to fit.

The only change that the market embraces is one that makes someone more money; privatizing prisons, for example, has backfired by creating a lobby - one with, in many cases, pre-existing ties to state legislators that landed them the contracts in the first place - with a vested interest in increasing the prison population. Insurance companies have a vested interest in preventing health care reform - because successful reforms would obliterate their bottom line.

In a land where everything is for sale - including legislative access and the publicity needed to get into office - the market provides incentives for parties to fight against change. We've seen it with the tobacco industry; we've seen it with state-run lotteries; we're seeing it now, once again, with health care. In each case, the profit motive of the private sector puts the brakes on changes in public policy.

When I look at the privatization of prisons, I am not surprised that some states may achieve short-term savings in higher efficiency operations; I am also not surprised that in the long term, it comes back to bite them in the tail, as suddenly there's a group that benefits if recidivism rises, if indeed crime rates rise, and fundamentally if prison populations rise - a motive that does not exist in a publicly run prison.

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