fabian tract 387 the new right : a critique contents 1 the new right 1 2 the new right and the social services 6 3 public responsibility and public choice 18 " In a community regulated only by laws of demand and supply, but protected from open violence, the persons who become rich are, generally speaking, industrious, resolute, proud, covetous, prompt, methodical, sensible, unimaginative, insensitive, and ignorant. The persons who remain poor are the entirely foolish, the entirely wise, the idle, the reckless, the humble, the thoughtful, the dull, the imaginative, the sensitive, the well-informed, the improvident, the irregularly and impulsively wicked, the clumsy knave, the open thief, and the entirely merciful, just and godly person." John Ruskin, Unto this last, IV. this pamphlet, like all publications of the Fabian Society; represents not the collective view of the Society but only the view of the individual who prepared it. The responsibility of the Society is limited to approving the publications which it issues as worthy of consideration within the Labour movement. Fabian Society, 11 Dartmouth Street, London SW1. October 1968 SBN 7163 0387 6 1. the new right Hardly a week goes by without some conference of teachers, social workers or medical men being told that, for economic reasons, consumers must be charged directly for welfare services. This represents a school of thoughtwhich I shall label the " New Right " (though it would prefer to be thoughtof as " liberal " in the English tradi- tion). Bits and pieces of the New Right's doctrine appear in various places, from the writings of Enoch PowelV or the Bow Group to the propaganda of Aims of Industry, but it is most coherently expressed in the publications of the Institute of Economic Affairs (IEA). The lEA's output has been considerable. A number of distinguished economists have contributed to a series of papers the most common being known as Hobart Papers (HP) and Occasional Papers (OP). Although a large number of authors are involved a collective view can be discerned. At the risk of doing some (small) injustice I shall outline my impression of this view. The majority of academic economists have not taken the New Right seriously. But this has led to a situation where the economic case against, has failed by default. On the left (with the honour- able exceptions of Professors Richard M. Titmuss and Brian Abel-Smith) counter arguments have been based on instinct, sentiment and a vague distaste for the profit motive. In terms of economic theory there is a worthwhile piece of demolition work still to be done. A curious feature of the New Right is towards public administrators md the like. Several examples can be Eound. For instance, in the preface to HP 28 scorn is heaped on " the sociolo- ~ists, the moralists and the politicians :who) are apt to be impatient with the nconvenient truths of scarcity of re- ;ources " and in the text itself it is said that " sociology with its direct concern for human needs . . . presents de- mands unrelated to economic realities." This antipathy is not merely a casual prejudice but a direct consequence of the basic d constantly ana matched up '.~~~o<,L...II..!_?-;~~~c....u.c.___ ~~[§~~~~~~~~~~;for harsh cases apparatus of social admini- stration is therefore redundant. Now sociologists have a vested personalinterest in the lEA being wrong. They should therefore expect the public to be wary of superficial or sloganeeringrebukes. The central doctrine of the New Right can be stated as follows : The market system is a spur to efficient production. Liberty itself depends on the free choice offered by market institutions and each advance of the public sector is a step along Hayek's "road to serfdom." The public sector is clumsy, inefficient and bureaucratic. Its pricing policies lead to shortages (and restrictions of choice) which can be remedied only by pushing taxation to unacceptably high levels. As far as possible, state-provided services should be taken into the private sector . on normal market principles except for those hard cases really needing direct state intervention. This is strong and, in my view, influential stuff. But it is certainly not revealed truth and I shall attempt to show why. preaching as analysis F. A. Hayek's name appears frequently in New Right literature. (The road to serfdom, 1944, Individualism and the social order, 1949). His thesis, roughly, was that socialism, collectivism and , economic planning lead inevitably to a totalitarian state. The alternative is individualism; there is no half-wayhouse. Hayek's own view was clearly 1. the new right Hardly a week goes by without some conference of teachers, social workers or medical men being told that, for economic reasons, consumers must be charged directly for welfare services. This represents a school of thoughtwhich I shall label the " New Right " (though it would prefer to be thoughtof as " liberal " in the English tradi- tion). Bits and pieces of the New Right's doctrine appear in various places, from the writings of Enoch PowelV or the Bow Group to the propaganda of Aims of Industry, but it is most coherently expressed in the publications of the Institute of Economic Affairs (IEA). The lEA's output has been considerable. A number of distinguished economists have contributed to a series of papers the most common being known as Hobart Papers (HP) and Occasional Papers (OP). Although a large number of authors are involved a collective view can be discerned. At the risk of doing some (small) injustice I shall outline my impression of this view. The majority of academic economists have not taken the New Right seriously. But this has led to a situation where the economic case against, has failed by default. On the left (with the honour- able exceptions of Professors Richard M. Titmuss and Brian Abel-Smith) counter arguments have been based on instinct, sentiment and a vague distaste for the profit motive. In terms of economic theory there is a worthwhile piece of demolition work still to be done. A curious feature of the New Right is towards public administrators md the like. Several examples can be Eound. For instance, in the preface to HP 28 scorn is heaped on " the sociolo- ~ists, the moralists and the politicians :who) are apt to be impatient with the nconvenient truths of scarcity of re- ;ources " and in the text itself it is said that " sociology with its direct concern for human needs . . . presents de- mands unrelated to economic realities." This antipathy is not merely a casual prejudice but a direct consequence of the basic d constantly ana matched up '.~~~o<,L...II..!_?-;~~~c....u.c.___ ~~[§~~~~~~~~~~;for harsh cases apparatus of social admini- stration is therefore redundant. Now sociologists have a vested personalinterest in the lEA being wrong. They should therefore expect the public to be wary of superficial or sloganeeringrebukes. The central doctrine of the New Right can be stated as follows : The market system is a spur to efficient production. Liberty itself depends on the free choice offered by market institutions and each advance of the public sector is a step along Hayek's "road to serfdom." The public sector is clumsy, inefficient and bureaucratic. Its pricing policies lead to shortages (and restrictions of choice) which can be remedied only by pushing taxation to unacceptably high levels. As far as possible, state-provided services should be taken into the private sector . on normal market principles except for those hard cases really needing direct state intervention. This is strong and, in my view, influential stuff. But it is certainly not revealed truth and I shall attempt to show why. preaching as analysis F. A. Hayek's name appears frequently in New Right literature. (The road to serfdom, 1944, Individualism and the social order, 1949). His thesis, roughly, was that socialism, collectivism and , economic planning lead inevitably to a totalitarian state. The alternative is individualism; there is no half-wayhouse. Hayek's own view was clearly influenced by the pre-war German experience of state economy. But on widespread post war experience the Hayekian thesis appears to have been alarmist. Or rather, it would need to be modified into a " long run " tendency, by its nature irrefutable but useless as a guide to policy. Incidentally, because of its general anti-planning view, the IEA has made relatively little contribution in the field of macroeconomics. Its main macro-economic prescription is the control of inflation as this disrupts the terms on which free contracts are made in the market. If we may aside the bogey of totalitaranism two important points may be made. f'l. Freedom of choice is not the only 1 desirable end. At times there will be a trade-off between free choice and other objectives such as justice, protection of the wedc and survival. I know of no moral calculus for weighting these ends against one another. Liberty and totalitaranism are the extremes of a single- dimensional end. Real social choices involve a complicated trade-off between • multi-dimensional ends. 2. So-called restrictions of choice.. • often enlarge tlie area of cho ce for one group of persons at the ex~ns~ ~~ others. Rather than Hne f :lt choice w atever that might mean) there is a redistribution of it. The question "whose choice?" arises. Consider a simple example. A comprehensiveschool replaces a grammar and a secondary modern school. Those children who previously had the chance of going to the grammar school will find that their area of choice is now restricted. There has, apparently, been an encroachment on their freedom (and middle-class parents readily protest in the columns of the local press). But children who previously attended the secondary modern school will normallyfind their freedom to have been greatly increased. They will have a choice of courses, of extra-curricular activities and of sooiai contact quite outside their prior experience. It is therefore quite dishonest to talk in terms of " choice " ' alone. This factor cannot be separated out from one's general prejudices. Questions of " free ohoice " cannot therefore be considered independenily of value judgements about the distribution of power in society. It is because of the nature of the value judgements made fhat I choose to call the proponents of the new doctrine the "New Right " rather than some more neutral name like " Radicals." This point is of immense importance, for the New Right clearly attaches great weight to choice. Hence pamphlets on Monopoly or choice in health services, the reportsChoice in welfare and Education: a framework for choice. Choice simply cannot be measured in a "value-free" way as we shall see when we look at proposals for introducing more charges into health and education. market failure The New Right has a ready made argument for use at this stage. " Collectivists," they say, "start off with different value judgements than us. Collectivists do not worry about totalitarianism and scorn freedom of choice. Those who do not accept our belief in the importance of freedom will naturally not accept our conclusions." And, as reasonable men think that freedom is a good thing and totalitarianism a bad thing, the New Right can feel pretty safe. But it is wilfully simple-minded to use " fr~edom of choice " as the sole guide to policy. Not only do we have to trade-off freedom of choice against other desirable objectives but most practical questions involve some redistribution of choice among various groups in society. The New Right must be respected for the quality, consistency and rigour of its approach to the treatment of private industry. In this sense it is rather unfair to lump it together with organisations such as Aims of Industry. The economic vision of the New Right is the economists' model of perfect competition in which rational consumers indicate their preferences to profit-seeking producers by means of prices under conditions of perfect information. This is very far removed from a crude approach base.P on the vested interests of capitalists. ~ow it is an important and well-known proposition of theoretical welfare economics that if certain divergencies from the purely competitive model occur, it is unlikely that market-based behaviour will lead to a social optimum. Four important divergencies are " irrational " behaviour by consumers ; " distortions " such as tariffs and monopoly power ; the prevalence of " external " effects, and an " unjust " distribution of income. It is instructive to see what the New Right has to say about these . l 1. A major theme of pop sociology is the powerlessness of the consumer in face of mass adyertising. Looked at from a slightly different standpoint it becomes part of Professor Galbraith's thesis (The affluent society, Reith lecture). Now this line of teaching is highlysubversive of the free market philosophy. If it is true, there is no meaningful way in which private industry serves the " wants " of consumers. These wants cannot be define'd except under various hypothetical regimes of advertising. This interpretation of advertising is therefore attacked. Instead it is suggested that advertising expenditure is an efficient means of conveying information to the consumer. Further it aids economic growth and technologicalchange by bringing new products and processes forcibly to his attention. (R. Harris, Growth, advertising and the consumer, L. Telser, Advertising and competition). Thus far from destroying the whole basis of the free market, advertising simply improves the flow of information to consumers who still attempt, in a rational way, to maximise their utilities, satisfaction or whatever. The New Right certainly recognises its enemies! Now some advertising clearly fulfills the role claimed for it. But a great deal of it does not and the meaning and importance of consumer sovereignty must take a severe knock. For most consumer goods this might not matter much either way but in the field of welfare, health and education it matters crucially. 2. The New Right is fairly consistent in its view of the various " distortions " in an economic system created bymonopolies, tariffs and the like. Theyshould be removed. Its careful descriptions of, and attacks upon, restrictive trade practices have been particularly impressive. (F. Knox, J. Hennessy, D. Lees, G. Hutton, Restrictive trade practices in the building industry, Economic consequences of the professions, Source-book on restrictive trade practices in Britain). There are certain analytical difficulties concerned with the usefulness of piece-meal legislation in this area and known under the general heading of "second-'best" problems. But it would be unfair to clobber the New Right with this particular stick without clobbering most other economists at the same time! I concede a consistent and honourable attempt to remove a major blemish of the free market system. The same clarity and energy has not been evident in their approach to tariffs. Which brings us to the question of how the New Right proposes to treat powerful industrial no sovereign remedy will do for all of interests. Now a whole series of special them. For instance, if firms imposefactors, tariff protection, over-weaning external effects on one another they can market control, advertising and inflation merge or bargain for a mutually satishave combined to protect the large firm factory arrangement. Sometimes out- from simple economic forces. Indeed a right prohibition, as with noise levels, main plank in Galbraith's platform has is the best way. Sometimes enforcement been the private sector firm as a large, of compensation will be sufficient. · bureaucratic organisation hardly dis-Sometimes litigation will be necessary. tinguishable from the bureaucratic pub-Sometimes the imposition of a tax, or lie enterprise. A principal reason is the._. · payment of a subsidy, will be the "divorce of ownership from control," · answer. In any event the market so that managers are free to pursue mechanism has to be doctored in some goals (such as security, prestige) other · way before it can achieve sociallythan profit maximisation. The precise desirable results. External effects there- degree of divorce involved is certainly fore present a challenge to the New a matter for argument. G. C. Alien Right which does not have a united accuses Galbraith of neglecting the role front on the issue. G. Roth did some of powerful institutional shareholders. admirable work under the auspices of (Economic fact and fantasy: a rejoinder the IEA on the particular problem of to Galbraith's Reith lectures, OP 14). urban traffic where pricing solutions But he accepts the point that the old .. are appropriate. (Paying for making, HP antithesis between the public and 33). G. Peters in Cost-Benefit analysis private sector enterprise (the former and public expenditure (EP 8) surveyedinefficient and bureaucratic, the latter the contribution -that cost-benefit efficient, thrusting and purposeful) is analysis can make ; but A. Alchian in dead. Anyway, Sir Paul Chambers has Pricing and society (OP 17) stressed the said, even if the firm is shielded from costs of dealing with external effects domestic competition there is always and, by using a trivial example, poured the rivalry of foreign firms to be scorn on the whole notion. Elsewhere considered. (Economics, business and others have argued that normal be(gaingovernment, OP 8). Almost alone he has ing processes together with the free called for the " great principle " of free working of the market will be sufficient trade to be followed, though he seems to lead to an efficient solution. On this primarily concerned with the "dump-whole issue of externalities the New ing" of American chemicals in Britain. Right has failed to produce a consistent But the appeal to foreign competition viewpoint. is double-edged. If this is to be the major economic check to large firms' \ 4. Undergraduate students of econo behaviour it would work for public as well as private enterprises. 3. External effects occur wherever private and social costs '(or benefits) differ. Examples are oil pollution from tankers, congestion costs imposed on one another by road vehicles and the spread of epidemics. There are various ways of dealing with them, each appropriate to its own special case but mics are taught that some value judgement about the fairness or otherwise of income distribution must be made before one can say whether a market system yields socially desirable results. The traditional way of dealing with this problem has been a progressive tax system. But there is some evidence that for a large range of middle-income families the net redistributive effect of taxation is roughly zero• (" The inci dence of taxes and social service benefits," Economic trends, August, 1966). This fact has been used by the New Right as an argument for lowering taxes and allowing consumers to " choose " which social services to consume. Standing the argument on its head it is nice to know that some redistribution does take place at the extreme ends of the scale. The failure of our tax structure effectively to redistribute income suggests the need for more progressionrather than less. This connects with the question of whether taxes are so high as to act as a disincentive. A popular way of dealing with this is to make international comparisons and, as it happens, these cause one to doubt that the British " burden " is particularly great. But this is a crude way of going about things. We should be making a clear distinction between the empirical question of what effects taxes 3:ctually do have on work done and the value question of how we weigh " efficiency " and " equity " against one another. There is a singular dearth of empirical evidence on the' first question. Arguments run in terms of assertion and counter- assertion. My own prejudice is that the disincentive effects are over-stated. Even so, many writers on the left argue as if this were the only question. One is quite entitled to go further and argue that even if there is some disincentive the high rates are nevertheless desirable on distributional grounds. On this question of judgement those of us on the left differ sharply from the New Right. Value judgements are involved all the way along the line. A fortiori, all these divergenoies from perfect competition under conditions of certainty, apply to investme.nt decisions. In so far as investment leads to cyclical instability we have learned (successfully) how to manipulate mone tary and fiscal polioies so as to maintain relative stability at (near) full employment. In so far as it leads to inadequate growth we have attempted (less suocessfully) to link individual private investment to an over-all plan. This factor of uncertainty magnifies all the other causes of market failure. Where such decisions involve education and health we have a duty to be extremely careful before handing anything at all over to market forces. the left and the new right I have shown that even for ordinary commodities there is no general case for the alleged superiority of the private over the public sector. Many of myfriends will feel this is an oddly moderate statement. They will wish to argue for positive advantages of publlic ownership. My own rather different worry is that the left is being successfully out flanked by the New Right. While we argue about possible (marginal) extensions of public ownership the reallyimportant hard core of the presentpublic sector (health, education and other social services) is being undermined. We are now at the beginning of a series of major assaults on the welfare services and rather than foraging around in the private sector we should look to our defences. Fortunately they are strong but a bit of sharpening up will do no harm. 2. the new right and the social services education The New Right proposes that education should be bought and sold in the same way as any other co~modity. It. should be conducted in pnvate or m self- financing public institutions. On balance private institutions are prefer~e~ to public on the usual grounds of efficie~cy and bureaucracy. " Perhaps the maJOr administrative problem concerns the disposal of schools " which would be -sold to the private sector. (A. T. Peacock, J. Wiseman, Education for democrats HP 25). Special education " vo~chers " would be distributed and these could be used for purchasingeducation at the institution of the individual's choice, being supplefllented from his own resources if wished. Thus for very little outlay a parent could ~uy an ordinary standard sort of educatiOn for ·his child or he could pay rather more ·for a school with smaller classes, greater diversity of subjects and so on. This contrasts with the present system under ·which parents are free to choose education at zero cost at state schools or at very high cost at the so-called "public" ·schools but have no choice open to them in between. As many parentswould be willing to pay fhese additional sums (partly out of the taxes they.would not now be called upon to contribute) more resources than before .will be pulled into the educational sector and the present gap between private affluence and public squalor will narrow. Purple rage is one po_ssible (a~d forgiv~able) reaction to this doctrme. But It will be more helpful to look at it in the light of the observations I have already made about the private sector. 1. Irrationality : the proposal is that the new policy should be applied first at university level and then extended back into the schools. Peacock and Wiseman recognise (but do not. de~l with) the difficulty that the fa_mily _Is pretty deficient as an economic umt. " This is especially imp~rtant wher~. as is the case with education, the deci •sions are long-term, requiring both access to capital and a considerable degree of intelligence, knowledge and foresight." IThe calculation to be ~ade is of the following type. For a givenextension of education estimate the difference (over the lifetime of the individual) between his earnings and the earnings of a similar .individual without the further education.\Next estimat~ the capital sum to be borro~e?· the drr~t costs incurred by the indlVldual dunng •the process of education and the value of earnings foregone during the educational extension Next find that rate of discount which equates the erenJia _ ofifetime earnings stream to present costs. If this exceeds the borrowmg rate the extra education is worthwhile. If not, not. This highly complex investment decision (and I have said nothing •yet about uncertainty!) is to be made either by young people or by pare~ts ron their behalf. To assume anythingHke the degree of rationality required is absurd apart from any effect the proposal would have on the class dis:trihution of education. Peacock and Wise- man are therefore " doubtful about the extension of this privilege " (of being able to take up loans) " to students of 15 or 16." As to the availability of information this can be provided byadvertising. But in the field of med~cine general practitioners, mostly intelligent men, find it almost impossible to sort out the rival claims of drug manufact urers. The bombardment of ·parents with educational literature would surely •be just as useless and perhaps positively ·harmful. A " wrong " choice is so important here that we cannot agreethat bad choosers " can learn to choose wisely by being allowed to choose and at first by choosing wrongly." (A. Alex ander et al, Towards a welfare society, OP 13). In a less doctrinal moment the IEA comes rather near our position in calling for exceptions " for people incapable of discerning and earning their essential requirements: children, the sick, the old, the mentally incapacitated, larger or " problem " families, and others." (OP 13). 2. Distortions : a well known defect of the free market system is the existence of " indivisibilities." That is to · say, an institution must be of some minimum size in order to be viable. r Now, given transport costs there would, particularly in country districts, be schools with near monopoly power:~ Predictably the answer is to call for anti-monopoly legislation because education is an ordinary commodity, so the sort .of legislation directed at ordinary commodities is appropriate. Consider the situation, in a country area, in the present and new situations. At present· the secondary school is " free," being financed out of general taxation, including taxes paid by local people. Under the new scheme there will still be one school. Parents will pay rather lower taxes but also fees (plus vouchers) to the school. Were it not for anti- monopoly legislation they would have to pay through the nose as the school is now run as a profit maximising institution. Physically the situation is the same. The parents have no more choice than before. The only difference is that they now stand a chance of being fleeced. I suggest that the local monopoly phenomenon in education is far more widespread than the New Right admits. Before discussing the problem proponents of the new doctrine should do a great deal more work on the optimal size of certain types of school, the transport costs and distances tolerable and· the age structure a6d physical distribution of rural children. On this score the professional educationist (dismissed as " unscientific") has more to contribute than the dogmatic economic theorist. 3. Externalities (alternatively known\ as " spillovers"): if society derives benefits from education over and above that received by the individual we can argue that private individuals will under-invest in education. Several classical economists certainly took this line and we find it cropping up again in the neo-classical writings of Henry Sidgwick, Alfred Marshall and A. C. Pigou. We have already seen that the New Right takes a poor view of external effects. West, in his book on education, minimises.,._their importance and has been rapped on the knuckles by Blaugfor doing so! (E. G. West, Education and the state, lEA 1965, A. Beales, M. Blaug etc., Education : a framework for choice. lEA 1967). Peacock and Wise- man say," it has not, to our knowledge, been firmly established that the increased value is not normally reflected fully in the earnings the individual can command." Now this is of even more importance than it might have been, because of terminology used in the recent past. (M: . Blaug, The rate of return on education, Manchester School, 1965). It has become usual to derive the social rate from the private rate by adding on direct taxes and subtracting those costs not paid by the individual. No account is taken of factors that one might normally think of under the heading " social." As a result of this terminology social rates of return turn out to be less than private rates. But if there is anythingat all in macro-economic estimates of the contribution of "education " to economic growth it is likely that most estimates we have of the social rate of return are too low. That is the earn-~ ings of everybody (and not to the same degree) are raised when the labouriorce is better educated. Only a part of this is picked up by looking at earningsdifferentials. Indeed in the extreme case, earnings differentials could be zero so that the private rate of return was zero too but at the same time the social rate was positive. 4. Equity: under the proposed system · some people will choose far less education than others for their children. Now, it is quite true that this happens under the present system too. But at present the choice is made mainly on grounds · of ability in secondary and highereducation and only to a minor degree for financial reasons. If the new proposals were adopted the financial reasons would, of course, become more important. A reluctance to pay for other than a bare education could be due to one or both of two reasons. Firstly incomes are unevenly distributed and poor parents could afford to buy less education. Secondly, even if incomes ... were equal, some families would have different preferences to others and choose very little extra education and even then, three grounds have already been noted for not allowing a free market to operate. But the income distribution question is perhaps the most serious of all. The New Right takes the line that it is inefficient to give away goods and services in kind. If we want to help the poor, far better distribute money income to them and enable them to choose for themselves. In some waysthis is an admirable doctrine. It is not clear, however, how much redistribution is envisaged. The " voucher" is simply a redistribution in kind and would certainly not be generous. One can judge from the general complaint about " penal levels " of taxation and plans to go over to more " indirect " taxation that nobody on the New Right is prepared to go very far in the direction of redistributing money income. It is proposed that many of these distributional difficulties could be removed if the principle of loans were adopted. As a first step the New Right ha~ universit·ies in mind. The loans issue focuses attention on the pupil (student) rather than the parent. It is the pupil, not the parent, who will have to repay the loan and he will assess his own chances of being able to secure a sufficient lifetime income to make the loan worthrwhlle. Thus the economic oircumstances of the parent would become irrelevant. This line of argument is attractive but fallacious. Firstly, even an 18 year old is normally much influenced by his parents' hopes and fears. Many working class parents find it really very difficult to keep a child at school to the age of 18 but do so ·in the belief that it is in the interest of the child. But they would " be less willing to encourage this if it meant imposing what seems to them a " burden," rather like another mortgage on his future life. Secondly from theJ' pupils' point of view it is easier to contemplate repaying a loan if one has reasonably well off parents who cpuld step in during times of difficulty. 'The percentage of working class children going to university is certainly too low. But it is higher than in many other countries. I am quite sure that ~he percentage would fall if student loans were introduced. My last point about equity concerns the simple economics of supply and demand. It .is convenient to bring it in under the heading of education but it is of quite general application. It concerns the elasticity (or the responsiveness) of supply to price. If services that were not priced at all, or were priced very low, under public provision are then provided privately, price will certainly rise. The New Right argues that this price rise will call forth a greater supply so that the total amount of service provided is greater than before. Now apart from relatively minor sources of supply (housewives) the supply of teachers is governed by the supply of teachers' training colleges. The increase in total supply is therefore a " long run " effect. But the responsiveness of supply to price within the total available will be high. Over-all, then, the effect of allow-1' ing market prices will be to redistribute educational services from the worse off to the better off in the first instance. " ~here is nothing inherently undesirable," say Peacock and Wiseman, " about competition for ' excellence." " It is true " says the New Right " that the distribution of welfare in a market is based on the distribution of income which ·is unequal ; the welfare of children is thus dependent on family or parental income. The solution is not necessarily free or subsidised state or local authority services." (OP 13) What is it then? Why, nothing other than the celebrated voucher scheme! It is certainly not denied that schools charging high fees would be able to pay higher salaries and attract staff from less fortunate areas ; " no obstacles should be placed in the way of institutions willing to pay more than the negotiated rates." (HP 25) Only in the most superficial sense can education be regarded as an "ordinary" commodity. The "liberal " dog.... mas of the New Right blind it to glaringdeficiencies of the free market system. These deficiencies are harmfu1, but not disastrous, for most commodities. But in education, particularly, the inability of ill-informed consumers to make complicated investment decisions wisely, the risk of local monopolies, the prevalence of " spillovers " and gross unfairness in the distribution of educational resources would combine to make any such move absolutelycatastrophic. vouchers for primaryschools Recently Dr. West has made another plea for educational vouchers, this time at the primary school end of the system (Economics, education and the politician, HP 42). His paper has been widely reported and The Observer commented, "It's a complex problemcertainly. But this is all the more reason to consider seriously Dr. West's. proposal for an experimental voucher sche'me in some areas." (23 June 1968). I would like to comment first on two interesting, but relatively unimportant, side issues raised by Dr. West. The first of these concerns the unhappy position of "left-wing intellectuals." On the basis of one example (frequently cited) it appears that middle-class left wingers 'J'. send their children to fee paying school~A' and are opposed, on " liberal " grounds, l to their abolition. I do not know many left wing intellectuals. If they are people who write Fabian Tracts, let me assure Dr. West that his strictures do not apply. The second question concerns the " economic theory of politics " on which West's political predictions are ostensibly based. Now I am sure that Dr. West would be the first to agree that the economic theory of politics is still at a critical formatJve stage. I find it perhaps the most interesting of recent developments in economics. But it is certainly not yet safe to erect a political economy on what has been so far achieved. For instance, no one has yet inte~rated the various strands of separate )thought in this f·ield. Downs' brilliant analysis of party political behaviour, the mathematical analysis of majority voting and the social welfare function (following Arrow) and Buchanan's "cost" approach really must be brought together. Now for the substantive issue. We seem to be agreed on the problem. Although present day primary education is generally rather good, there is a critical shortage of buildings and teachers in certain areas (principally, the Plowden priority areas). Some authorities are even unable to fulfil their legal obligation to provide education for five year olds. Cutting right through the debate between us is the basic difference between the New Right and the left as to choice (often phoney) versus equity and private sector versus public sector upon which I have already commented. Incidentally, widespread public knowledge of the problem casts doubt on Dr. West's suspicion that the teachers and the state are in tacit collusion to hide the facts from parents. On the proposals themselves I have the following comments to make ; 1. West exaggerates the short run price elasticity of supply. 2. Vouchers would cause more m- equality in the distribution of educational resources as between income groups, unless it was forbidden to add to them privately. 3. The Plowden minority reportrecommending fees for under fives was right not to extend this to primaryschools. 4. West's figures show some inequaiity as between schools and regions. These inequalities would become even more closely related to income differences than at present. 5. Within large cities, intelligent zoning of schools can do much to break up immigrant ghettoes. Vouchers would cause more social div,isiveness, not less. 6. A small scale " experiment " would appear to be more successful than it really was in that elasticity of supply would be very much higher than in a nation wide experiment. No doubt we shall hear more about vouchers (how long before a Labour Party Conference embraces them?). Meanwhile the best we can do is to agitate for more spending within the state system. student loans This issue is discussed separately because it is topical and because student loans are likely to be the thin end of a free market wedge. Many of the arguments I have used against the_ market in education are weaker in the case of student loans. Even so, I believe there are important grounds for rejecting the loan principle. I now state the case for · student loans. Private economic rates of return from university educaNon are high. Students can, byvirtue of their education, expect to earn more than their contemporaries. Admittedly they pay higher taxes if they earn more but this fails to differentiate beween people on the same income levels with various amounts of education. Education is an investment in human capital. Students are rational adults (coming of age has recently fallen to 18), less like'ly to be influenced bytheir parents than 16 year olds. They should be capable of deciding, on economic grounds, whether or not higher education would, for them, be a good investment. The income distribut, ion argument, it is said, falls to the ground because university students are predominantly middle-class and the net re-distributive effect of free university education is the opposite of that desired. The local monopoly argument no longer holds as students are mobile. Certainly they are not restricted to the nearest university. A posit>ive advantageof the scheme is the better allocation of manpower. Students would move into training for those occupations where expected earnings were high and , in a few years, skilled manpower would be available. A final and decisive advantage is that the "burden" of higher educat,ion would move from general tax payers to the beneficiaries. F or a careful statement of the case the reader is referred to a paper by A. R . Prest. (Financing university education OP 12). All this adds up to a reasonable case. But there are several grounds for doubt. 1. It is not clear that expectations by15 year olds, at which age key decisions are taken about subjects within the school~1.of life-t,ime earnings differentia'ls will lead to a more correct allooation of future manpower. The evidence available will consist of highly nonrandom observations of what certain grown-ups earn, some data about pre> ent relative salaries, the hunches of teachers and offi~ial and non-official :orecasts. The New Right is fond of ::>ointing out mistakes that have been nade nationally on such issues on the Jasis of inadequate statistics. But it has 1ot shown that its own scheme is any )etter. ~. Spillover effects have already been liscussed. If, as I have argued, they :xist and are non-uniform then there vill be under-investment in university :ducation if it is privately financed. '· There will be some discouragement o the children of working-class parents. )rest has drawn an analogy with hire mrchase debt which the " poor " are ·ery willing to incur. The analogy is a .ubious one, of course, as the obligaion is relatively smaH, is short term nd decisions whether or not to take up new debt can be made at quite short intervals. On the discouragement of working class students Peacock and Wiseman have observed, " it is not obvious that such a discouragement of the doubtful or fainthearted must be against the public interest." This in a pamphlet which is said in the preface to be " scholarly in its reticence and meticulous in its phrasing! " 4. Then there are the practical difficulties. These are formidable and have not been properly resolved. The concept of a loan proper has now been more or less abandoned. Instead repayments will be linked to income. This leaves the problem of female students who would bring negative dowries to their husbands. Prest suggests an ingenious compromise Whereby " married couples should have to pay at the greater of either the normai rate on their combined income or at a rate 50 per cent greater than normal on the income of the spouse with the larger income." (OP 12, p25). This and similar bizarre schemes go a long way to undermine the principle. The other major. problem associated with loan schemes is what to do about emigration. Some solutions involve restrictions on liberty of movement contrary to the supposed liberal principles of the New Right. Granted, there are solutions to these practical problems but in general the New Right is fonder of enunciating general principles than of getting down to the nuts-and-bolts. In this respect · they do worse than the social administrators and the like whom they affect to despise. the economics of altruism J. M. Buchanan, writing in 1965 about the apparent "collapse " of the National Health Service, has put forward an important thesis on inconsistencies in the collective provision of services. (The inconsistencies of the National Health Service, OP 7). These arise because the individual demands services in his private capacity but cannot pay for them except collectively. He cannot supply himself without supplying everybody. It therefore pays him to " malinger " by demanding more than he really needs. This leads to acute shortages, queues and rationing. People are not willing to supply extra services for " everybody " though they would be prepared to buy these services for themselves. This thesis is faulty in that it ignores altruism. In the jargon of economics, altruism implies externalities in consumption. The happiness df one individual is a function not only of the volume of goods and services consumed by himself but also of certain goods and services consumed by others. Thus many people would be distressed to know that the sick were, for f.inancial reasons, receiving very inadequateattention. If this is true, prov1s10n for the sick should be made to a higher level than many sick people would themselves have provided for. This is not "paternalism." On a purely liberal interpretation, it is individual preferences that count, and it is into these that considerations of altruism enter. Buchanan's gap between private demand and publicprovision is therefore narrowed when altruism is brought in. What is the most efficient way of taking altruism into account? (Towards a welfare society, OP 13). One method is to rely on private charity. Generally thi is too haphazard and inefficient to be the basis of a general provision. Undoubtedly collective provision is the most efficient way of incorporating unelfish feelings. This consideration ha some force in education and housing but is most powerful in health. the health service Worship of the cash-nexus reveals itself in assertions such as that privatepractice will "improve the pers~nal relaJtionship between doctor and patient by ena'bling all patients to pay for the services they expect from state or private suppliers" (OP 13). The New Right's proposals are very similar to those on education. Medical services-. will be provided at market pr,ices. Consumers will pay these prices partly by means of voudhers but also by taking• up policies with insurance companies. It will then be up to the consumer to provide for himself whatever degree of medical care he wjshes. The insurance principle makes the whole scheme possible for it apparently does away with the problem of uncertainty for the individual Hospitals would become ' private, profit-maxim'ising, institutions. Before we examine the general proposition it will be useful to look at the pamphlet The price of blood (HP 41) by M. Cooper and A. Culyer, calculated to upset squeamish. This is interestingbecause it seeks to employ the market medhanism in only a particular sector of the HealVh Service, the collecNon of blood. We shall not be surprised to discover some leanings further to the right. " If hospitals were privately- owned, wealth maximising institutions . . . the ultimate incidence of costs of the services received (and of blood given) (would fall) on the patient qua" patient-consumer " rather than the patient qua tax-payer. In these circumstances, depending on the degree of local monopoly power, high cost hos' pitals which used up "too much blood " would tend to lose " trade " to ho pitals which used the "right " 1mount of blood as reflected in the :ees charged to patients for the same 1uality service." (HP 41, p25). The m thors are " forced to argue that if '>ricing is to be effective it should be '>perated by independent (privately> wned) institutions whi~h would supplenent the present ... structure." Their :uggestion is that the present voluntarylonation system should be supplenented by a price sector so that total upply would come from a "dual " .ystem. Instead of b~ing " rationed " as ·tt present hospitals would pay the narket price. There would be econonic pressures on surgeons and nurses tot to "waste" blood. The analysis 5 illustrated by a simple supply-andlemand diagram in which, as it hap, ens, total supply has increased under he new system. As the authors admit, [ some voluntary donors withdraw on he introduction of the new scheme and : professional supply is price inelastic he total could conceivably be less than efore. But, so as not to spoil their rgument at the outset, let us assume 1is does not happen. 'wo questions arise. First is there a hortage? A table of consultants' pinions is provided but it is not clear rhat this means. That 36 per cent of :msultants claim to have sometimes ostponed operations for lack of blood 1pply may or may not be serious and tay or may not be susceptible of cure y a price mechanism. The authors )ncede that the problem of rare groups ould have to be left outside the tarket mechanism, so the market could )t possibly be of help when opera: ::ms are held up due to shortage of tese blood types. But are there reallywrtages? From the preface it is clear tat the lEA's initial evidence was highly :.tpressionistic. Since the pamphlet was ritten some further evidence has :cumulated. For instance the Medical irector of the South West Regional transfusion centre, wrote that he knew "of no instance in the South West Region in which there has not been sufficient blood (donated by voluntarydonors) to satisfy the needs of patients requiring transfusion." (Bristol Evening Post, 3 Ap11il 1968). The second question to be asked concerns the price elasticity of supply. This, it is agreed, wiH be higher for people at low income levels. Donors mightsuffer by giving too much blood and patients by receiving inferior blood (theInst,itute's jibe about blood being givenby prisoners in this country is unwortlhy). A research paper in "Transfusion " has revealed poor handling and pooling techniques by the commerciallyoperated American blood transfusion service, leading to a high incidence of plasma-induced hepatitis (a liver infection). The ~ethods used are cheaperthan those in this country and there is strong economic opposition to reform. That there may not even be a problemhere and that, in any case, certain undesirable consequences could follow the reform suggested, is not allowed to d~ter the writers from recommending a New Right solution. There is a final financial problem. Whether or not the marginal cost of collecting blood is higher under the present or the proposed system is an open question. But if a price is to be paid it must be the same price for everybody, exceptvoluntary donors. The finanoial burden on the Health Service would be larger. This is not a real economic burden, it really involves a redistribution of income from the taxpayer to intramargina~ blood sellers, which may not be a bad thing. But the New Right cannot take this purist view as one of its prime anxieties is precisely the share of public authorities in total spending. It is an interesting case of schizophrenia. After this brief digression on blood we 1-t must turn to the more general problems of health. Our standard list of " market failures " applies to health even more than to education and rather than gothrough it agafu we shall look at one or two special prohlems. We have already noticed that the staggering difficulties involved in making health expenditure decisions where urrcertaintties are a'lmost the whole situation, can be partly met by the insurance principle. Professor Titmuss has pointed out some of the snags (Commitment to welfare, Alien and Unwin). Some element of compulsion would be needed to make insurance companies take on bad risks : " old, mentally ill, chronically ill, the unemployed and redundant, the disabled, widows and many o'tlher physically hazardous groups." Thus OP 13 suggests a government subsidy for those insurance companlies who agree to pool good and bad risks. But why is the New Right so squeamish? Why not simply push up the premiums to very high levels? The bad risks objection to private schemes is really quite fundamental. At present patients in the private sector are frequently advised to use the health service when their illness ·becomes really acute. Under a completely private system how would we deal with children actually born with severe heart disease or with youngpeople who had contracted tuberculosis? To achieve a humanitarian solution such a large degree of government intervention would be required as to make a state run service actuallysimpler to operate. On " spillover " grounds the objection to a free market in health is serious but not so much so as a few years ago. The spread of infectious diseases, where social cost exceeds private cost, stimulated the great nineteenth centurypublic health reforms. Clearly it is in society's interest that such diseases hould be prevented. It would not for instance be in society's interest to make householders pay directly, rather than through taxes, to have thcir dustbins emp~ied, so the service is provided" free." Sim·ilarly the major post-war campaigns aga:inst diseases like diphtheria have been provided at no direct cost to the consumer. Mainly due to these efforts the incidence of the worst infeatious diseases is less than it was a few years ago. Many of them have almost disappeared. Even so, it is important that these gains should not be eroded. Some, but not the whole, of the case for a free market in health can be demolished by appealing to this type of externality. But a lot of healbh problems concern the patientand his dependents only. The basic objection relating to uncertainty remains but added to it must be the objections relating to local monopolies, the distribution of services among income groups and also questions of altruism. Low income families " could not afford to pay, either directly or through .insurance, . . . this is a serious problemand no one would wish to minlimise its importance. But to abolish the market is to risk throwing the baby out with the bath water . . . ; the appropriate solution is for the state to pay out cash to whatever extent is considered necessary and to leave the market free to settle the production and d'istr'ibution of goods." (OP 3, p2) This raises the spectre of two types of service, one for the rich and another for the poor. The crucial question here is how much in the way of cash, or vouchers the poor are to be given as a result of some kind of means test. Presumably each family would have an allowance depending on its size and age structure as well as its income. How generous are these payments to be? It would be too much to ex·pect from the New Right a thorough going redistribution of in come ; low income families simply get " whatever is considered necessary." The aim really must be "equality." Professor Jewkes has enormous fun with this concept in one of his rejoinders to T.itmuss. (OP 3, p35) But in medicine it means something quite deDinite. It means that a mother who suspects her child to be ill should be prepared to consult a doctor and tJhat the doctor should be prepared to advise hospital trealtment, courses of injections or whaJtever, quite regardless of the family's ' financial circumstances. Anyone who has direct experience of, say, the midwifery service \Wth 'its attendant services :>f ante and post-natal care must surely recoil from any suggestion thait medical ~are of various qualities should be lV'ailable depending on the amount of .nsurance premium paid. There should ' Je no question of anybody having in' erior medical treatment simply for ·easons of money. Granted, better off )atlienlts who are not willing to pay for >resenlt privaJte practice may find some >f the day to day conditions of some tospitals a littie uncongenial: but tax-·. 1ayers subsidise the sick. This is the ' vay our society uses of inst1tutional.ising r the public sector should be abolished, •ur altruism. It is absurd to make the •oint, as J ewkes does, that " people 1ith small incomes who are rarely sick ubsidise people with large incomes rho frequently fall ill and make large emands on the ;IW.<~:lth, Servlice." 1~.__· not really so very different from the f.t-~er"iJ,.""bt~ '~L~~~,.ti,_, ' . p~~s}nt ,situation. Private rents creep:ocal monopolies in medicine (networks,Lc.~spite of, and sometimes at the E old-boy relationships between genera]•v~ behest of, Rent Tribunals a:nd manyraoVitioners, consultants and their~ local authorities have differential rents ospitals) combine with consumer schemes. But :two areas for pulbl'ic action ~noranee and uncerta·inty to make . . f5.m_aj : ~"' l.t. \ s(!.lltvi {; rploitJation of the patient and misal-~L ""';r lh-'""· , · r V 'cation of resources very ltikely on priori grounds. In the valuable 1mphlet by Titmuss already cited a ;t is given of various reasons why the ttlient does not have a really free toice. The subsequent method of de bate employed in " 11itmuss versus the New Right" is to bandy statistics about the American system and then to argueabout them. I have preferred to start from first pr1inciples of market behaviour. We have seen that the usual defeot•S of markets-consumer ignorance and uncertainty, the neglect of exJternal effects or spillovers, their inability to do anythlng about equity or altmism and the prevalence of local monopolies-apply with much greater force in ~he field of medicine. On the empirical quesrion we need only observe that the worst aflega~tions about American medicine are perfectly pred'ictable from the general observations we have made. h=:-o_u_s_i_n_,g"'-----;---...--.,----:-~ The IEA has made several forays into the question of housing, including an extremely va1lua:ble discussion by F. G. Pennance on the Land Commission. (Housing, town planning and the land commission, OP 40) Predictably, its solution is thalt rent control inthe private sector and general subsidised housing in wit'h provision for means tests. The rise in the price of housing would increase supply from various sources and enable \ consum~rs to exercisefreedomofchoice. In fact, the New Right's proposal is 1. To provide adequate accommodation for low income families. 2. 'J1o reconstruct 'de.~liot areas. ~.' A writer on this subject offers " analy sis and conclusions which will not be palatable to sociologists who have discussed the subject in terms of nebulous housing 'needs'." (J. Carmichael, Vacant possession, HP 28, preface). Using the groundnuts scheme, Parkrnsons Law and contempt for statisticians as a basis for argument, he launched a general abtack on planning and on inflatlion. " Keeping the pound strong, if a thank'less task, remains the test of social justice, rational economics and honest politics." On the question of low income families, Needleman's calculation that, on reasonable assumptions only 9 per cent of families cou1d afford to buy, and only 23 per cent to pay the market price for, a three bedroom house, is acknowledged but dismissed on the flimsy grounds that house buying costs (estate agents and building society charges) woufd be reduced bycompetition. For the sake of argument let us take the moderate view that a great many families cannot afford adequate housing. What should we do about them? There are three possibilities. 1. Give them a money subsidy wruch they would be free to spend as theywished at market prices. 2. Give them a subsidy in kind by means of vouchers to be spent on housing (this being a more paternalistic version of the above) again at market prices. 3. Give them subsidised housing together wibh a rat,ioning system (the waiting list). Now the questions of consumer ignorance and uncertainty are nothing like as troublesome as in education and housing. The choice depends on the kind of minimum housing standard envisaged and the total amount of such housing provided. In a situation where local authority hou e-building i severely restricted, low income families mlight be better off by accepting a generous payment under one of the first two alternatives and tthen going to the private sector for their housing. Otherwise the result ·is lengtheninghousing lists. But if the payments were niggardly, as they probably would be, it might be worth putting up with some sort of waiting l~ist for the sake of being sure ~hat they will sooner or later get sound accommodation in a council house. Brian Abel-Sm.ith's plea for more choice (Freedom in the Welfare State, Fabian Tmct 353) has been deliberately misinterpreted as an argument for 1Jhe private sector. He was really arguing for more choice for low , income familli:es within the public sector. Spillovers in housing are associated with poor condit,ions in slum areas. It is not · in the interest of private developers to renew such housing for low income accommodation. If houses are pulleddown in central areas economic pressures wlilllead to commercia'l redevelopment or to high cost housing. Social considerations here combine with external economies in traffic congest1on to argue for occupation by low car ownership groups. Tills still leaves the whole area of suburban (where"choice " leads to depressing uniformity) and high cost urban housing for private enterprise. But the responsibility for low cost urban housing must remain with local authorities. The recent paper Choice in homes by F. G. Pennance and Hamish Gray once again states the argument for a greater use of markets in housing and provides a useful survey of consumer attitudes. what people say they want The IEA has gone to much trouble to find out how people feel about plans for a greater reliance on market processes. Respondents were asked what their reactions would be to various alternatives. The same sorts of question were asked about education, healt'h, housing and pensions. Roughly 1Jhere were three possibilities in each case: more or less the present system, automattic contracting out above a minimum standard and optional contracting out. Before looicling at the answers there are two preliminary points to be made. Firstly questionnaires of this type are notoriously unreliable. Either because of dishonesty or misunderstanding people are apt to give a fa!lse impression of their real preferences. I share Rlichard Pryke's incredulity that a number of people on reaNylow incomes would accept vouchers ~overing half of schools fees and be ?repared to make up the rest ~hemselves. Secondly the questions deliberltely put the emphasis on the taxation ;ide. The first alternative starts " the ;tate should take more in taxes and :ontributions" and the second alterna ive " the s~ate should take less in axes .. . " They might equa!lly well rave started, "people shou~d cont,inue o obtain free " and " people should >e made to pay for . . . " ~ot surprisingly the results of the urveys are treated as a great vindica[ on of ~he New Right ; " a oloor case Jr allowing a choice on more equal ~rms." !{Choice in Welfare, 2nd report). :ut thtis is a matter of interpretattion. ilhat strikes me about the figures is: Even the upper income groups do Jt show the enthusiasm for market 1oice that we might have expected on 1rely se:llfish grounds. For less than half of the upper middle and middle come groups preferred a voucher heme eivher in heruth or in education. ei~er did support for the presenthemes fall off sharply as incomes se. And nearly a half of those choosg the first alternative in education ought it " right that everyone should have an equal chance to have a good education." I gather from this that there is a fair amount of altruism still around ; it greatly strengthens the importance of my olaim that the market's inability to institutionalise altru'ism is one of its great defects. 2. As one would expect, support for market schemes fa:lls off as incomes fall. Oniy 17 per cent of semi-skilled manual workers would support a 50 per cent voucher scheme in health : the £10 insurance premium scheme wd'Hld not cover chronic illness! On!ly 19 percent of them would accept a two-{•hirds voucher soheme in education. If the rich are unenthusiastic, the poor are positively loathe. I really do not see, on the basis of this evidence, how the New R1ight can possibly claim overwhelming support for " choice " in welfare-unless, of course, it is blinded by its own dogmas. 3. public responsibility and public choice A compromise between private and free public proVIision •is for the state to provide wel!fare serVIices but to finance them by charges to the consumer rather than by general taxation. We refer t~ this as "public pricing." It is attractive to many, even on the left and the present government has gone some way towards it by reintroducing prescription charges and raising the prices of welfare milk and school meals. Some of the objections we have made to the market principle do not apply to public pricing ; for instance : 1. If externalities exist, a degree of subsidy can be introduced so as to avoid under provision, 2. The loca·l monopoly objection does not ar•ise. On the face of it, then, publ!ic pricingis acceptable even to those who object to the market principle. Before passing a judgement we should consider why the proposal is beingmade. Basicailly the aim is to transfer the financial burden of welfare services from direct taxation to " consumers." Why should this be thought necessary? Douglas Hough'ton tells us, " the level of government expenditure is regarded by many at home and overseas as a rel~able guide when assessing our capacity for economic growth. This is where confidence comes in. The question being asked by our overseas creditors and rhe users and hdlders of sterling is this 'Can Britain do ·it?' " (Paying for the social services, OP 16). In other words the public sector has to be run down in order to defend the pound . Preoccupation with "finance" as opposed to real resources leads to odd positions. Thus the country cannot afford to bring its school buNdings up to date but it can afford to put up expensively carpeted and furnished office blooks. This attitude is veryinteresting and wholly characteristic of the old Right. The peculiar twist added by the New Right is that the country can afford extra market seo~or education but not extra state education. The public sector is clearly believed to be " unproductive." We note that : 1. A large public sector is not in itself an iniilafiionary factor, though it may call for sophistlicated debt management ; there is no necessary relationshipbetween the size of the public sector and the rate of change of prices. 2. The productivity of many public sector acvivi]ies shows up only in the accounts of private sector companies! A notable example is spendling on roads which increases the apparenlt productivity of the private sector by reducing costs. 3. Some of the main objectives of governments: defence, redistribution of incomes and social services are " noneconomic." These framework activities are not expected to be, and should noli: be expected to be, prod uctlive in the narrow sense. It would be a tragedy if the public sector were curtailed simply because of the incomprehension and ill-will of some foreign bankers and Vhe prejudicesof right wing economists. The conolusion so far then is that the motive for public pricing seems to be doctrinal. A further serious objection remains. Voucher schemes, et al, at least have th:e merit of working through both the supply and the demand sides of the market. Suppose that fees are first set at a Iow level but rise gradually through time so as to clear the market. There is no reason to believe that fees will be earmarked : they are more Iike·ly to go into the general pool. Supply will therefore be fee-inelastic even over the longer term. As a result of introducing fees only two things will have changed: 1. The financing of these resources has been shifted from taxation to fees. 2. The resources have been redistributed from the less weH off to the better off. Public pricing is therefore a potentiaHy dangerous half way house. economics, welfare and the new right The central problem is how to allocate the right amount of (scarce) resources to various types of social expenditure. The New Right talks as though each social scienllist, having recognised the prolJlem in these terms, should turn to the science of micro-economics where he will Iearn that each and everyproblem can best be solved by adopting a market mechanism (with quite minor modifications). Ocly a preference for " choice " rather than totalitarianism seems to be reqU!ired to make the conclusion . inevitable. The various proposals under this head are argued with some vigour and with a consistencythat impresses. They have been enormously influential. But they are based on an overly simple view of what welfare economics is aN about Theyignore or play down certain well known causes of market fa:Uure. These failures are worrying enough in Vhe case of ordinary goods but positively alarming in the cases of health and educ