In a thoughtful comment on the post Economic Development and Education a reader raised the question of how to define the "public good" and the contentious nature of this task.
Some guidance on this question comes from a remark that Nicholas Negroponte made to me. He said that non-profits should take on the projects where the risk is too great for the private sector. In other words, if the risk-return of an opportunity does not justify investment, the private sector will pass on the opportunity. I agree with Nicholas and think it frames the role of the private sector appropriately in a way that Milton Friedman would also accept. Interpreting further, it would allow the private sector to offer any product or service where the economic returns are acceptable. This leaves us with a definition of the public good as "the projects where the private sector will not participate".
Taking this idea further we realize that public good becomes the projects where the consumer or citizen lacks the money to pay for a product/service from the private sector. One quickly realizes that this situation applies to the really poor people in a community or population. In the developing world this situation can apply to a very large percentage of the population given that food and shelter are the highest priorities for spending and survival. Little discretionary income may be left for healthcare, education and other basic needs. I would feel comfortable as defining the public good as the basic needs that cannot be afforded through personal payments to private sector providers.
The battle then becomes defining "basic needs". I would define basic needs as food, water, healthcare and education. I think the definition becomes contentious when economic development gets thrown into the question of public good and basic needs. Here I think a compromise solves the problem. Let's take roads as an example. If the government cannot find a private sector developer for a road system, then the government can build a road but there would be two conditions that need to be met:
- The education, healthcare and food and water programs would need to be fully funded in each annual budget before economic development programs could be funded
- Any economic development project would be subject to sale by auction every five years with a minimum bid required based on an agreed upon return on investment to the government
The government would be forced to seek outside capital from private sector sources or multi-lateral agencies for economic development and to fill shortfalls in basic needs spending. Governments would focus on capital raising, which is the key shortage in most developing countries.
I would allow some government spending on defense, administration, judiciary, customs and tax collection, which would also be paid for before economic development spending.
Such an approach would be combined with a very unencumbered private sector that would be free to pursue opportunities provided they were legal and did not have dramatic environmental consequences. "If it is not prohibited, it is permitted" would be the concept for the legal system, thus permitting individual empowerment to solve problems and satisfy market needs. Such a legal system would allow entrepreneurship to flourish and become the engine for economic development. In this way people could advance economically to the point where they no longer needed government assistance and they would have the incentive to do so. We might also need to borrow a lesson from President Lula in Brazil and require children to be in school for families to receive food or require minimum child vaccinations to receive food.
Enough idealism for today.