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The Private Abuse of the Public Interest
Chicago Studies in American Politics A series edited by
Benjamin I. Page, Susan Herbst, Lawrence R. Jacobs, and James Druckman
Lawrence D. Brown and Lawrence R. Jacobs
The Private Abuse
of the Public Interest
Market Myths and Policy Muddles
The University of Chicago Press Chicago and London
LAWRENCE D. isbn-13: 978-0-226-07642-3 (cloth: alk. United States—Economic policy. Public welfare—Contracting out—United States. p. paper) 1.5'38—dc22 2008013578 o The paper used in this publication meets the minimum requirements of the American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials. Chicago 60637 The University of Chicago Press. Brown and Lawrence R. JACOBS The University of Chicago Press. 4. II. Public administration—United States.: alk. paper) isbn-10: 0-226-07643-1 (pbk. 1947– The private abuse of the public interest : market myths and policy muddles / Lawrence D.b75 2008 352. Social service—Contracting out—United States.. I.: alk. ansi z39.48-1992. Title. Published 2008 Printed in the United States of America 17 16 15 14 13 12 11 10 09 08 isbn-13: isbn-13: isbn-10: isbn-10: 1 2 3 4 5 978-0-226-07642-3 (cloth) 978-0-226-07643-0 (paper) 0-226-07642-3 (cloth) 0-226-07643-1 (paper) Library of Congress Cataloging-in-Publication Data Brown. Public-private sector cooperation— United States. Jacobs. London © 2008 by The University of Chicago All rights reserved. 2. is the Walter F. cm. Jacobs. paper) isbn-13: 978-0-226-07643-0 (pbk. Ltd. BROWN is professor of health policy and management at the Mailman School of Public Health at Columbia University. (Lawrence David). 3. jk421. Lawrence D. 5.—(Chicago studies in American politics) Includes bibliographical references and index. . LAWRENCE R. and Joan Mondale Chair for Political Studies and director of the Center for the Study of Politics and Governance of the Hubert Humphrey Institute and the Political Science Department at the University of Minnesota. Lawrence R. paper) isbn-10: 0-226-07642-3 (cloth: alk.
they were all alike. Lady Chatterley’s Lover . they left everything out. H. Lawrence.These men. D.
Contents Acknowledgments ix 1 A Return to Realism 1 2 Markets and Policy: From Pragmatic Realism to Dogmatic Utopianism 10 3 Cycles of Reform: Formulation and Ratiﬁcation of Market Utopianism 38 4 Cycles of Reform: Institutional Reality and the Dystopia of Markets 67 5 The Democratic Disconnect and the Growth of Government 95 6 Pragmatic Policy in the Marketplace of Ideas 121 References 133 Index 145 .
One of its pleasures has been interchange with colleagues who read and commented on all or parts of the book and who enriched it in the course of conversation with us. Hank Levin. Hugh Heclo. We alone are responsible for errors in and limitations of the book. Ruth Messinger. Kate Kraft. J. David Smith.Acknowledgments We have worked on this book for longer than we care to admit. Miles Rapoport. Although we did not always embrace their suggestions or satisfy their challenges. Stephen Heintz. David Callahan. Jon Oberlander. as did two superlative social science editors— Ben Page (series editor) and John Tryneski (Chicago’s Social Science editorial director)—who admirably uphold the traditions of intellectually engaged editors. Mondale. ix . Walter F. Judy Feder. Sue Urahn. Howard Rifkin. Deborah Stone. and Michael Gusmano. Michael Lipsky. we particularly want to thank Je∏ Henig. Jennifer Hochschild. Michael Delli Carpini. Brian Atwood. We are grateful to the Ford Foundation for a grant that got this project under way. Three anonymous reviewers gave us insightful feedback and encouragement.
and many state capitals since 1968. D. and still less an indictment of markets per se and their role in the “coordination of human activities not by central command [but] by mutual interactions in the form of transactions” (Lindblom 2001. transforming air travel into a common form of transport for millions of middle-class Americans. an invitation to think twice about the supposedly broad-ranging beneﬁts of the public use of private interests. This little book is a caveat emptor.” Though many conservatives would presumably decline to buy this proposition wholesale. a former Republican leader in the U. House of Representatives. 4). the cultural penetration of words to that e∏ect has transformed both intellectual debate and policy practice in the American public sector over the last three decades. government is dumb. It is by no means a general critique of the introduction of market mechanisms into public policies. Our book’s more modest aim is to explore the central institu1 . The hot pursuit of market alternatives to government has powerfully shaped both how policy is conceived and how it is practiced. “markets are smart. Armey.S. contributed to competition among carriers and a sharp decline in fares.C. That private interests harnessed to market strategies should and can be deployed in the service of public ends has become an article of faith among many of the conservative and moderate political leaders who have largely dominated Washington. p. for example..1 A Return to Realism According to Richard K. Even members of that endangered species formerly known as liberals often refrain from quarrelling with this received wisdom. Deregulation of airlines.
citizens and thoughtful commentators are entitled to make interim judgments. ironically enfeebled by diminished capacities born of irrational exuberance about the merits of markets. Why has an era dominated by market enthusiasts and bipartisan agreement that “government is the problem” produced not only market-oriented policies that fall short of promised outcomes but also more government? Three essential points pervade our discussion. What are the results? American patients pay more out of pocket for medical care than do patients anywhere else in the world. The desire to liberate markets from heavy-handed government regulation can and routinely does open doors to market failures and abuses. We ﬁnd a striking paradox: conservative aspirations to expand markets and shrink government have often disappointed citizens and resulted in more extensive government rules and routines. transportation. an important one) in achieving the aims of society. Nonetheless. and electric rates have soared in states that dismantled government protections. many cities either lack railroad and air transport or are at the mercy of a few providers who are free to charge exorbitant rates. Market reformers may respond that their vision was never fully implemented or that unforeseen circumstances intervened. however smart markets may be in theory. while health care costs continue to exceed what other societies pay and millions lack coverage.2 CHAPTER ONE tional considerations that market strategies often overlook and the principal primrose paths down which they may go astray. First. they are far less adept at o∏ering answers to policy conundrums than their admirers tend to assume. energy. and pulled down the regulatory sca∏olding erected over the past century to prevent the breakdown of transportation and electric energy provision. in our view. Markets. have a role (at times. but a utopian vision . Confident reformers sold government oΩcials on expanded markets in health care. That may be true. which was prescribed as a cure for rising expenditures. which in turn trigger alarms summoning back into action agencies of government. and other essential arenas. Policy makers dutifully following the advice of market sages increased the fees charged to patients to make “health care consumers” aware of costs.
and worker safety. for instance.A RETURN TO REALISM 3 of markets poorly serves the public good. a quest that has reminded many consumers. and providers that competitive markets are diΩcult to create and sustain. a1). In reality.” In the past three decades. For consumers. the commonplace zero-sum imagery that treats markets and public power as irreconcilable opposites is wrongheaded. a call to return to pragmatism and realism. business and individual consumers now bitterly complain—as a representative of large industrial ﬁrms put it—that “we asked for competition but we do not see competition in any wholesale market” (quoted in Johnston 2007. deregulation has allowed electricity suppliers to inﬂate prices artiﬁcially (Johnston 2007). This book is.” only to embrace the competition. Bush wound down. some of the country’s largest industries promoted further government regulation to protect the environment. citizens. Second. for example. c1). was once the poster child for deregulation and market competition. It has stirred a generation with the illusion that markets can be made a stronger force in policy by compelling government to retreat and retrench. Electrical energy. The motivations of businesses were varied and often self-protective—raising the bar against lower-priced imports. and fending o∏ sti∏ new state laws and ominous legal action—but all speak to the recognition by the private sector of government’s role in their operations (Lipton and Harris 2007). A pattern is plain: time and again policy makers have pondered the appeals of one or another version of “managed competition. jettison or fail adequately to fund . As the presidency of George W. long-standing values in policy debates until they were recently upended by theoreticians who took little serious account of the workings of institutions and the expectations of citizens. p. p. in part. government regulations have been repeatedly rolled back to make way for the much-heralded competition of markets. One expert had “never before seen so many industries joining a push for regulation” (Lipton and Harris 2007. consumer health. well-functioning markets generally require government for their establishment and maintenance and for correcting damage that economists antiseptically term “negative externalities.
unleash new ones. lower spending. bigger. though not necessarily better. If markets are so smart. and citizens variously vexed by abnormalities in new policy-market constructs. which is obliged to respond to complaints of businesses.4 CHAPTER ONE and build the management. less regulation—they had the resources to do it. why is their deployment so often such a rich source of unintended expansion of government responsibilities? Third. reviewing the Republican Party’s promised revolution to dismantle the state. former Republican Speaker of the House. Chapter 5 catalogues the sustained growth in government during the administration of Republican President George W. lower taxes. Bush than it did under Bill Clinton (Stolberg 2005). The New York Times. Overall spending by the federal government has increased about two times faster under George W. for instance) behave like “normal” markets perversely ends up nourishing growth of government. who . and belatedly pursue governmental correctives complicated by ceaseless assaults on government legitimacy and capacity. Bush. p. asked. This bursting of the small government bubble was acknowledged by a matter-of-fact report of President Bush’s budget oΩce—the beneﬁts of its expanded regulations outweighed their costs (OΩce of Management and Budget 2005). dramatically increased spending. they had the knowledge to do it. aggravate old policy problems. The swelling of government shows up in growing regulation. and a widening work force employed directly by the government or through government contracts and grants. Greenspan’s sense of betrayal was shared by conservative Newt Gingrich. consumers. And they didn’t” (quoted in Andrews 2007. “Whatever happened to the promise of smaller government?” A “very disappointed” Alan Greenspan (former chairman of the Federal Reserve) concluded that “political control trumped policy” in Republican Washington: “Smaller government. government—big and bigger—is here to stay. they had the political majorities to do it. a17). The schemes of die-hard market believers to shrink and even “drown” government are but so many doors that invite it back in. than ever. The urge to make policy venues not previously envisioned as ripe for market forces (health care and education.
” he morosely concluded (quoted in Stolberg 2005). and stocks tanked from the loss of conﬁdence. Health care and education reform reﬂect legislation of choice. Although the expansion of government has proceeded without a national manifesto (indeed. In addition to expanding the government’s scope. there are also pragmatic government expansions. A paradox emerges: The growth of government is not mainly the work of proﬂigate “tax and spend” Democrats. dominated policy debates and held the levers of power in Congress and the White House for three decades. Republican conservatives used their political supremacy—secured by control of the White House and both congressional chambers—to enact No Child Left Behind in President George W. As an encore. “Republicans have lost their way. p. The National Taxpayers Union similarly complained that twenty-eight of the thirty Republicans who swept into oΩce during the Gingrich revolution in 1994 and still remain in oΩce have sponsored legislation to increase government (Stolberg 2005. indeed. Having built careers by blasting big government. The law created an unprecedented intrusion of federal power into the prerogatives of state and local school systems. a1). it has proceeded in opposition to the reigning slogans). a former vice chair of the Federal Reserve and other Wall Street inﬂuentials reported that “[ﬁnancial] markets are clamoring for decisive government actions” to regulate account- . Solidly among the spenders and promoters of government activism were the antistatists who controlled Washington in the early twenty-ﬁrst century and. indeed demands. Bush’s ﬁrst year in oΩce. burgeoning regulatory clariﬁcations and correctives as far as the eye can see.A RETURN TO REALISM 5 blamed his party’s lack of deep commitment to antigovernment principles. this conservative cast of characters then added to Medicare in 2003 an expensive prescription drug beneﬁt incorporating a complex tilt toward competition among managed care plans within the program. all of which invites. When several major corporations were exposed for malfeasance. No Child Left Behind created an array of challenges in implementing new national rules. the trend is unmistakable in the daily news in the opening years of the twenty-ﬁrst century.
and other stimuli (Sanger 2003.6 CHAPTER ONE ing and governance problems (Blinder 2002. and misleading analyses of stock values by ﬁnancial advisors. During the George W. but his administration intervened in these and other cases because “events”—as one close observer of Washington politics explained—“forced [its] hand. . When things go wrong. coli–contaminated spinach and of meat containing mad cow disease. Congress gets nervous. When railroad cars derail. corporate boards. the introduction into the food chain of E. and the Department of Transportation’s inspector general instructs the Federal Railroad Administration to strengthen oversight and to step up enforcement of safety rules (Bogdanich 2005). Maine capped increases in drug prices. President Bush campaigned in 2000 with promises to reduce government and to free markets. Eight states bypassed the Justice Department’s settlement with Microsoft and instead launched their own antitrust suit against the company. concern grows across the country. Such spurts of federal activism do not begin to exhaust the paradoxical interplay between market rhetoric and public activism. the failure of deﬁbrillators in businesses and homes. At the state level. Meier 2004. Americans look to government and to their elected representatives for help. Missouri’s Republican attorney general led a crusade by over thirty states against a telecommunications megamerger. the invasion of e-mail spam and telemarketers. and the accounting industry. p. drug companies that conceal negative information. President Bush and congressional Republicans soon expanded the government’s oversight and regulatory responsibilities for corporate ﬁnance. the federal government intervened in response to the death of a baseball player who took the dietary supplement ephedra. California set strict limits on emissions of carbon dioxide by automobiles that the federal government then tried to counter. and spew poisonous gas into communities. for example. Lipton and Harris 2007. 13). former New York State Attorney General Eliot Spitzer aggressively assailed fraud in private insurance plans.” not because anyone had a new “grand political plan to embrace government activism” (Sanger 2003. p. p. crash into automobiles. a1). Lipton and Harris 2007). a15. Bush administration. which policy makers often provide in the glare of the media spotlight.
A RETURN TO REALISM 7 Moreover. Johnston 2007). Business Week devoted a cover story to the “slew of individual state restrictions on Corporate America. the movement of prices sharply higher (not downward as market enthusiasts promised) in states that deregulated electricity caught their attention and triggered calls for reconsideration of government regulations. insuΩcient philosophical commitment. But this diagnosis calls a fundamental question: Can the size and scope of government be reduced if American voters recoil at the e∏ects of doing so? Can idealism . if not the deﬁning. 156).” Warning that a “bottom up movement with a decidedly anti–Big Business tone” could be “very costly to business. though. The political parties clearly di∏er. Harris 2004. Republican control in Washington and in many states may well have depressed government expansion below what Democrats would have preferred. p. If Enron’s rapacious gaming of the California energy market failed to wake state consumers and policy makers. Prices shot up fourfold in Montana and twofold in many Northeast and New England states. in some prominent policy arenas. issue of contemporary American politics—the size of government—the parties di∏er mainly by degree. is that on a deﬁning. What is striking.” this authoritative source for business leaders rued the irony: when legions of Washington conservatives “preached the gospel of states’ rights [they] didn’t quite imagine that 50 separate states and their attorneys general would become a signiﬁcant part of the 21st century business landscape” (Business Week 2002. and arm-twisting by lobbyists may strike market devotees like Alan Greenspan and Newt Gingrich as regrettable and avoidable mishaps. Why has government continued to grow even under the sway of antistatists? Pragmatic responsiveness to constituents. states that attempted to unleash the magic of competition ended up costing consumers $292 billion in higher electricity prices between 2000 and 2007 and $48 billion more than consumers paid in states that maintained traditional rate regulation from May 2006 to May 2007 (Slocum 2001. According to one study. the perceived costs of deregulation have triggered newfound and increasingly vocal support for tougher government intervention.
Chapter 2 surveys debates since the eighteenth century about the promise and limits of markets as a pillar of social organization. and other prominent classical political economists. the tight dependence of market forces on government frameworks. and myriad stakeholders press government to serve their interests? Explaining why and how government has continued to grow under the tutelage of policy makers who (by all outward signs) distrust and even despise government leads us back to the realism and pragmatism about markets and government that once dominated policy making. Our analysis is grounded in research by scholars and nonacademic experts. But they also recognized the critical role of public power in checking the excesses of self-interested behavior and in supplying both crucial collective goods (systems of justice. the aged.8 CHAPTER ONE about markets serve as a guide to policy in a world in which citizens have voice. politicians bear the cost of scorning constituents. and education) and assistance to vulnerable populations such as children. and transportation—in hopes of isolating the analytical and practical essentials that might guide prospective buyers of marketist “solutions. Much recent American doctrine on the policy uses of markets invokes a utopian theory of market forces and a corresponding denigration of government that departs sharply from the pragmatic realism of Smith. venerated markets as engines for the generation of private wealth and correctives to corrupt and ineΩcient government practices. and the inﬁrm. often cited as forbearers of contemporary conservatism. transportation.” We wade through the utopian visions of ascendant markets to explore the underappreciated institutional complications of market strategies. In addition to abandoning tradi- . not constrain. Such luminaries of the Scottish Enlightenment as Adam Smith and David Hume. defense. and the paradoxical tendency of marketist innovations in policy to expand. the presence and prominence of government rule making. education. Hume. This book focuses on three policy arenas in which market forces have been touted as promising reforms—health. We synthesize patterns and trends across policy domains that are often treated as separate and self-enclosed silos.
A RETURN TO REALISM 9 tional conservative attention to institutional complexities.S. and transportation policies that begins with the invocation of markets as the solution to problems created by government and ends with recognition by chastened policy makers that markets are less benignly automatic and government less expendable than voguish policy analyses had surmised. and Chapter 6 outlines what we take to be a more realistic synthesis of government and markets. recent market promoters also break ranks with a distinguished cadre of U. . and use accurate information in making decisions. Chapters 3 and 4 trace a striking cycle in health care. not to shrink it in obeisance to an imaginary zero-sum trade-o∏ with market mechanisms. analyze. The ﬁnal two chapters use our examination of these three policy arenas to explore general themes. Contemporary economists continue to identify vital roles for government in sustaining the delivery of public goods and the sound working of markets and to address barriers to healthy market dynamics that result from the frequent inability of consumers to collect. economists who worked over the past century to improve the performance of the public sector. Chapter 5 discusses the broader consequences of promarket reforms. education.
neglects the formidable intellectual energy that Smith and other eighteenth-century philosophers and social scientists devoted to mapping why and when the visible hand of government might properly check. complement. American conservatives have sacriﬁced the insistent institutional realism of Smith and other classical political economists for a utopian image of markets that understates both the dangers that markets might break down and the importance of government rules and correctives in averting such failures and in supplying the public goods society requires. or even supplant private markets both to keep them working and to ensure that communities are supplied with essential goods and services. Today’s image of Adam Smith as a single-minded proponent of “free” markets is a caricature that distorts Smith and later generations of economists. They are invoked to celebrate capacities of private markets and unfettered voluntary exchange to expand wealth and social well being.2 Markets and Policy From Pragmatic Realism to Dogmatic Utopianism Seminal thinkers like Adam Smith remain conservative icons more than 350 years after their writings ﬁrst appeared. Understanding the evolution from the realism of Adam Smith 10 . The pioneering promoters of private markets argued for both a broad scope for voluntary exchange among individuals and an authoritative framework of governmental rules that constrain market transactions. The classics in political economy—the shorthand description for the analysis by Smith and others of the intersection of markets and government—have su∏ered an especially selective reading in the United States. The iconography too often. however.
In fact. the political economists of the eighteenth and nineteenth century sought to draw workable boundaries between the private and public spheres. it was successful in winning Republican and Democratic adherents in Washington and many state capitals because it advertised simple. they contended. and decline. The utopians have sought to isolate this long tradition of pragmatic realism and to frame public policy debate as presenting a stark choice—embrace markets with all the liberty and prosperity they promise or succumb to government with its oppression. by allowing monopolies to squelch . economic stagnation. would expand wealth and well-being. public policy. They repeatedly warned. however. p. Although this market philosophy was consistently challenged by the legacy of Adam Smith and by economists who studied the real world. As we will show. elegant logic and an honorable lineage from seminal truths articulated three centuries earlier. this is a false choice. the rise of a dogmatic utopianism during the last four decades of U. could damage the general welfare and that markets might falter in myriad ways—for example. any fair and balanced reading of Smith and his intellectual heirs would give due weight to the need for robust government precisely to secure and complement market exchanges. that individual self-interest. 33).S. This chapter brieﬂy traces the decline of pragmatic realism as a public philosophy. Free and ﬂourishing private markets. indulged too far. and the persistence of pragmatic realism as a dissenting opinion that embraces private markets while acknowledging their limitations and the legitimate functions of government. however.MARKETS AND POLICY 11 to the utopianism of contemporary market promoters is more than an exercise in connecting intellectual dots. American market advocates generated ideas and proposals for expanding markets that constitute a kind of “public philosophy”—an outlook on public a∏airs that became the “dominant framework for deﬁning the ﬁeld of political argument and interpreting events” (Heclo 1986. Adam Smith as Institutional Realist As industrialization eroded traditional economic and social structures.
p. p. He also documented the eΩciencies that accompany proﬁt seeking and the price mechanism as a means of allocating resources. and devious business practices that undermined competition. “laissez-faire” capitalism (a term Smith did not coin or use). tend to ignore the psychological and institutional realism that permeates that seminal work. But The Wealth of Nations also carefully identiﬁed where and how government can assist markets and the pursuit of individual self-interest within them. Rarely quoted are Smith’s warnings that “the interest of every man [is] to live as much at his ease as he can” and that this tendency endangered both social harmony and the generation of wealth (quoted in Rosenberg 1960. To be sure. Far from o∏ering an unqualiﬁed celebration of unrestrained self-aggrandizement.12 CHAPTER TWO competition. His attention to individual calculations fed a sophisticated account of how government institutions reconciled self-interest with a larger social good.” managerial ineΩciencies. uniform.1 Contemporary market champions who cite Smith’s Wealth of Nations as the source of that eternal beacon. and by leaving vulnerable groups to su∏er. Britain’s Corn Laws. Smith worried. thus expanding the overall welfare of society. and uninterrupted e∏ort of every man to better his condition” [Smith 1920. Smith did indeed applaud the drive for self-improvement (the “constant. however. Far from seeking an idealized endgame in which government shrinks away. 364]). Smith struggled to balance individual self interest against the social need for institutions that harnessed selfregard to the service of society. Smith. as Na1. which imposed a high tari∏ on imported corn in order to shield domestic farmers from competition. by failing to supply critical public goods such as defense and transportation. This section draws on Rosenberg (1960) and Muller (1993). Smith heartily criticized government policies—for example. Smith was an acute student of the tensions within human motivation—including the primordial drive for self-betterment and the temptations of corruption and laziness. that self-interest could generate wasteful “expensive luxury. . 557).
which was a radical notion in mideighteenth-century Europe. and services in the expectation that contracts would be honored and payments rendered. [which] is alone suΩcient to make any country ﬂourish. With considerable attention to detail. p. bk. New demands for commerce and trade required the government to expand its role in funding and maintaining both public education (“promoting the instruction of the people”). and a transportation system of roads. and the prime responsibility of any government. canals. is to provide for the nation’s defense. The ﬁrst such duty. The third and fourth explicit roles that Smith assigned to government accompanied the advance of industrialization.” which were wracked by poverty because they left industry “neither free nor secure” (Smith 1920. to every man that he shall enjoy the fruits of his own labor. envisioned government practices that achieved “a careful balancing of incentive [and] of provision of opportunity to enlarge one’s income against the need to minimize the opportunities for abuse” (p. the other spins a subtle and potentially expansive argument about the logic of the state’s role. A second vital public function is the protection of property and liberty. pp.” . Smith identiﬁes as appropriate for government intervention four “public goods” that serve all members of society but are unlikely to be provided if left to individuals themselves. 42–44). Notwithstanding his strictures against o∏ensive legislative particulars.MARKETS AND POLICY 13 than Rosenberg (1960) explains. 567).” Reliable laws are the indispensable framework for market exchanges among independent producers of goods and services. and harbors. or even preserved for any considerable time” (quoted in Rosenberg 1960. IV. The Wealth of Nations presents a two-pronged practical theory of government intervention: one dimension lists critical public goods. . Smith singled out by contrast the weak “civil and ecclesiastical governments of both Spain and Portugal. Organized armies are essential to ensure that the “civilization of any country can be perpetuated. they give merchants conﬁdence to supply capital. bridges. goods. Smith applauded the general system of laws for guaranteeing “security . . 560). which would “facilitate the commerce of the society.
and other goods and services are “in the highest degree advantageous to a great society [but] . pp.14 CHAPTER TWO Government is necessary for an adequate supply of these public goods. government is indispensable to prevent economic actors (individual or corporate) from using their freedoms to obstruct those of others. and supplementing them. David Hume. the proﬁt could never repay the expence [sic] to any individual or small number of individuals. “in blithe disregard of his active philosophy. assisting. These four functions do not exhaust the government’s scope in Smith’s reckoning. Smith argued.” Smith is often claimed as a conservative. V. Smith. Realism. nineteenth-century conservatives who invoked The Wealth of Nations to condemn humanitarian legislation did a “strange injustice” to Smith.” rarely arises (Hume 1963. National defense.” and that “a choice which is either purely good. 214)—that is. and interest rates (Checkland 1975). and moderation permeate the political economy of Smith’s friend and countryman. complements his praise for market competition with unapologetic realism about the limits of markets and the vital role of government in establishing. who cautioned that “all political questions are inﬁnitely complicated. pragmatism. If market and individual quests for self-improvement are to generate social beneﬁts. or purely ill. Services that are “laid for the general beneﬁt of the whole society” must and should be “defrayed by the general contribution of the whole society” (Smith 1920. p. As Robert L. is at once “the spur of industry” and the most “irreclaimable” and . Heilbroner observed. whereas “in fact he was more avowedly hostile to the motives of businessmen than most New Deal economists” (Heilbroner 1980. . maintaining.” who therefore could not be expected to develop them. bk. 67–68). who. though an ardent foe of monopolies (public or other) did not oppose “government action that has as its end the promotion of the general welfare. 492). regulating. defending. currency. a legal system. The Wealth of Nations discusses state regulation of banking.” for example. . transportation. “Avarice. Smith’s prominent intellectual peers and heirs accepted and reﬁned his pragmatic realism. in short. p. ﬁnanced by taxes and user fees.” Today too. For example. education.
pp. laid on gradually. Some taxes (for instance. those “levied upon consumption. pp. p. . Hume found the free governments of his day frighteningly adept at “contracting debt and mortgaging the public revenue. . Quite the contrary: civilized society could not exist without “laws.” At times. pp. Legislators and founders of states merit the “ﬁrst place of honour” among men of “remarkable achievement. happiness. and liberty.” blessings that “can only be derived from good government” (Hume 1963. and e∏ect not the necessaries of life. 94). Calls to oppose in some comprehensive zero-sum fashion two uniﬁed. 184.” But they also postulated “a whole complex of necessary functions of government. with regard both to foreign and domestic management” (Hume 1963. No more for Hume than for Smith was government an intrinsic and implacable enemy of a free society. 190). 54). especially those of luxury”) are better than others (“poll-taxes”) (Hume 1963. 462–463). and magistrates. pp. In any society. But. obstructions. and others articulated at length with an impressive blend of “worldliness” and analytical rigor (Robbins 1965.” but not all such measures are “prejudicial or useless” (Hume 1963.MARKETS AND POLICY 15 ridiculous of vices (Hume 1963. Hume declared. 331–332. 188. modern governments showed “a great change for the better. pp. p. reiﬁed entities . To be sure.” which David Hume. 351–352).” they may stimulate productivity (Hume 1963. on the whole. pp.” but when taxes are “moderate.” because they “transmit a system of laws ands institutions to secure the peace. 94. and imposts” that deter foreign trade have a “general ill e∏ect. 22). p. 351. “wise regulations . John Stuart Mill. are the most valuable legacy that can be left to future ages” (Hume 1963. 96–97). “Numberless bars. 565). they agreed that “the elimination of absurd laws and regulations seemed a more important recommendation than the necessity of some law and some regulation at all times. Jeremy Bentham.) Carried too far. the classical political economists tended to have a poor opinion of the wisdom of governments and held a strong suspicion that states were “likely to prove the vehicle of special interest. (Hume 1963. and judges” to prevent the strong from abusing the weak (Hume 1993. pp. 349).” a course that risked “intolerable” increases in taxes. taxes “destroy industry by engendering despair.
stabilizing banking systems. centrally organized and controlled [government] interventions” (p. In state after European state. “The road to the free market was opened and kept open. protections for union organizers. Britain. enacting antitrust laws. As Polanyi (1957) recounts in The Great Transformation. “by an enormous increase in continuous. 140).” the growth of free markets “enormously increased their range” (p.” Polanyi declared. 141). fashioning new protections for private property. . Facing market failures and concomitant threats to social peace. and intervention. both academic political economy and the European political economies it sought to . At the dawn of the twentieth century. collectivist methods of regulation and restriction” (pp. regulation. regulating utility rates. Firm philosophical allegiance to individualism and self-reliance were tempered by a pragmatic acceptance of the need to enlist and expand government to prevent and. The Nineteenth Century’s Great Transformation In the United States. nineteenth-century political leaders who were doctrinally committed to self-regulating private markets proceeded in a “purely pragmatic spirit” to promote the “realistic self protection of society” by undertaking new administrative tasks (such as establishing uniform measurements and collecting statistics).16 CHAPTER TWO called “the government” and “the market” would have struck them as absurd. extending the judicial and transportation systems. 146–149). Put another way. the spirit of Smith’s conservative realism prevailed as industrial growth intensiﬁed and then matured in the nineteenth and twentieth centuries. “far from doing away with the need for control. in short. policy makers “turned against laissez-faire and preferred . and many other emerging capitalist countries. when necessary. . and laying the foundations for future welfare states (public health initiatives. and embryonic social insurance programs) (p. conservatives and promoters of private markets understood that establishing and sustaining markets required expanded government. 140). oversight of factory conditions. correct the breakdown of markets and the social ills associated with capitalism.
the product of political.S. So-called institutional economists understood that “such institutions as the market. A Pragmatic Profession: The Progress of Political Economy in America The convergence of European and American thinking about the compatibility of private markets and robust government might seem strange. trade. p. see also Moss 1996. The academic economists who . 46). More than one academic career has been destroyed by notions “inimical to corporate interests and private wealth” and excessive a∏ection for socialist (or further left) reasoning (Bernstein 2001. . and historical circumstances” (Bernstein 2001. pp. Institutional realism on markets and government may seem—at ﬁrst blush—out of step with the laissez-faire dogma often associated with England’s and America’s deep-seated cultural aversion to big government and its attraction to free markets as a necessary (and perhaps suΩcient) condition for free citizens. 19–21). .MARKETS AND POLICY 17 inform acknowledged that markets exhibit both impressive scope and worrisome limits. The stark choice between government and markets that contemporary American economic utopians o∏er departs sharply from the intellectual and policy tradition of their forbearers. economics profession stood at a crossroads of cultural antistatism and public policy realism in responding to societal transformations. p. property. cultural. and that the design of government institutions that shape and govern markets (the political component of political economy) is an important challenge that economists could and should help to meet. and competition were . that statecraft (including economic policy) required an artful interfusion of market and state forces. contract. its practitioners advertised the discipline as a new and solid body of scientiﬁc knowledge that was sure to improve the workings of public policy. A principal purpose of economics was to inform the decisions of government oΩcials. Not surprisingly. At the birth of economics as a cohesive profession in the United States in the late nineteenth century. The U. 32. the “principle of noninterference” has been prominent in the teachings of American economists.
p. pp. . 69). to ﬁnd strategic instruction. American economists “were eager to use the new tools of their discipline to improve the practice of statecraft. these were the leading force behind a qualitative change in market-government relations. The main tools then at their disposal—the development of national income accounting techniques and rigorous statistical analyses of national economic performance data—contributed modestly to guiding mobilization for the war. n. 40. but “a commitment that the state had a positive role to play remained” (Barber 2001. Indeed Kenneth Boulding found in John R. Ely’s draft “platform” of 1887 for the nascent American Economic Association declared that the doctrine of laissez-faire was “unsafe in politics and unsound in morals” and that the state was “an educational and ethical agency whose positive aid is an indispensable condition of human progress. 7–8).” After “lively discussion” among the association’s ﬁfty or so founding members. amid competing economic theories. pp. 181–182. 34). Before World War I.” They saw themselves as “mediators between capital and labor. Secretary of Commerce Herbert Hoover “assisted in the professionalization of economics like few government oΩcials in modern American history” (Bernstein 2001. the deprecating reference to laissez-faire was removed. Commons “the intellectual origin of the New Deal.” indeed as “disinterested scientiﬁc safeguards uniquely qualiﬁed to lead public opinion toward a more positive and constructive view of the state” (Moss 1996. John Maynard Keynes’s arguments for using the government’s ﬁscal and monetary policies to stabilize the economy and modulate wild swings between economic downturns and upturns gained prominence by 1938–1939 within both the economics discipline and the counsels of federal policy making. In the Harding administration. Although the Depression initially left federal oΩcials hesitating over where. pp. No lonely voices crying in the wilderness. 223–224).18 CHAPTER TWO founded and led organizations such as the American Association for Labor Legislation in the Progressive era believed that the state could “right social wrongs associated with industrial capitalism. whatever its purposes or goals” (Bernstein 2001. Richards T. of the whole movement in this country towards a welfare state” (quoted in Moss 1996. of social security. 43. of labor legislation. 19). pp. 55.
for example. p. World War II expanded and cemented the evolving partnership between professional economists and public leaders. and mathematical simulations of competitive behavior advanced steadily in both theory and application (Bernstein 2001. 79). Activity analysis. Mainstream economists and economic policy making in the United States were shaped by pragmatism—solving real world problems with appreciation of the limitations and opportunities of both markets and government. Paul A. Tjalling Koopmans. p. After the Second World War. Robert Nathan and Simon Kuznets helped Washington war planners to estimate how quickly the economy might convert to a wartime footing and what levels of output it might be able to produce (Bernstein 2001. p. 94–95). 81–82. Neoclassical theory spoke directly to such urgent practical challenges as how to adapt scarce means to given ends and how to maximize output while minimizing cost. pp. Democratic and Republican policy makers found willing partners among both macro.MARKETS AND POLICY 19 The search by policy makers for realistic and pragmatic advice in managing markets brought professional economists into the inner sanctums of government. The rich history of the role of economists in building and shaping an enormous expansion in government functions discloses a telling irony: it was “not individualism but statism” that brought neoclassical analysis into the policy spotlight. As one historian put it.and micro- . 131). in 1943. a discipline “renowned for its systematic portrayal of the beneﬁts of unfettered. Economists were proud that their creative deployment of neoclassical notions of rational choice helped to beat the Axis powers (Bernstein 2001. Economists applauded the eΩciencies and wealth generated by private markets but also recognized the importance of government interventions to provide public goods and otherwise protect citizens. competitive markets would ﬁrst demonstrate its unique operability in the completely regulated and controlled economy of total war” (Bernstein 2001. operations research. Samuelson dubbed it “an economist’s war” (Fogel 2000. modeled how to maximize the transportation of cargo while minimizing cost and measuring and attenuating opportunity costs. game theory. pp. 89). 88). linear programming.
the higher education system instructed a new generation of public oΩcials. Milton Friedman) deplored this drift toward government involvement in the economy as a dangerous form of “collectivism” and “socialism.20 CHAPTER TWO economists. Conﬁdent that economists had mastered stabilization policy techniques. later. was a tale of collaboration across porous public-private borders. spurring the “adoption and . p. Although some prominent economists (most notably Friedrich von Hayek and. managed those economies to combat a severe depression and then to sustain employment and constrain inﬂation. including the eradication of poverty in the United States (Bernstein 2001. In the ﬁrst half of the twentieth century. 47). these “New Economists” set out not only to steer macroeconomic performance but also to fashion a broad ameliorative social agenda. The ﬁrst half of the 1960s saw a further ﬂowering of ﬁne-tuned economic participation in commonwealth a∏airs. the Council of Economic Advisors (CEA). namely. and appropriated growing shares of national wealth to support welfare state programs and to construct highways and national and international transportation networks. journalists. political economy in the United States. as in most of the Western world. Such luminaries as James Tobin. . regulated (and occasionally nationalized) some important economic enterprises.” policy makers and many of the coun- . entrenchment of Keynesian views about macroeconomic policy” (Salant 1989. The federal Employment Act of 1946 crowned the partnership between economics and the state in grand style both by formally embracing the government’s Keynesian duty to steer the economy toward high levels of employment and by creating for the profession its own organizational turf within the Executive OΩce of the president. In sum. and Kermit Gordon brought to the CEA both impeccable academic credentials and a “worldliness” born of ﬁrsthand knowledge that the “vast apparatus of federal economic planning” triggered by wartime necessity had worked well (Bernstein 2001. 138). businessmen. . Meanwhile. p. Walter Heller. states had mobilized their national economies to ﬁght two world wars. as the 1960s commenced. p. and other leaders in the government sector’s role in regulating demand through spending. 132).
debate about how to hold something called “the market” free from “the government” took a backseat to pragmatic. The Republicans’ victory ushered in a new political demand for the services of unconventional economic voices. an inquiry that almost invariably yielded promarket. 115–121). market utopians steadily gained standing in the policy debate. James Buchanan. This new school insisted on a searching. Nixon’s election precipitated reconsideration of both liberalism and conservative realism.MARKETS AND POLICY 21 try’s leading economists were consumed by practical challenges. The writings of Milton Friedman. essentially philosophical.” see Blyth 2008. and not infrequently devoted to laissez-faire principles that Adam Smith himself did not embrace (on the neoliberal critique of the “new economics. which combined private property and market dynamics with democratic governance and redistributive social programs. The supply of these dissident voices proved to be both plentiful and professionally prominent. The national elections of 1968 marked a profound change of political guard as Richard Nixon narrowly won the presidential election and public policy shifted to the right. inquiry into the respective merits of the two sectors. often anti-Keynesian. Gordon Tulloch.S. . but they collectively constituted a body of theorizing that rejected on principle the pragmatic accommodations between state and market that had long governed U. and Anthony Downs (to cite but the better-known leaders of the revisionist pack) were neither homogenous nor representative of the profession as a whole. a description that applied broadly to other Western societies including the United States. policy and the participation of economists in it. Although the intellectual descendants of Adam Smith and other pragmatic political economists continued to churn out studies and recommendations. Postwar West Germany called its mix of government and markets a “social market” state. appreciative acceptance of inescapably political economies. At midcentury. antistatist conclusions and recommendations. pp. George Stigler. The Assault on Pragmatic Realism The 1960s did not end as they began.
The greater part of the new ventures undertaken by government in the past few decades have failed to achieve their objectives” (1962. a powerful inspiration for a generation of rational choice theorists. . 199). 29–30. the core teachings of the free market school that started its rise to prominence and power in the 1960s can be boiled down to ﬁve pathologies that aΔict government and make it “the problem.22 CHAPTER TWO The Problem—the Governmental Afﬂiction With no more than minor damage to nuanced variations. the veil of ignorance is here to stay: Arrow’s impossibility theorem. Milton Friedman declares that the government’s record is “dismal. George Stigler (1975) contended a few years later that “often” (though not always) “public policies seem not to achieve much toward fulﬁlling their announced goals” (p. . 24). shows that it is “impossible to achieve colGOVERNMENT IS INCOMPETENT. . . x). Anthony Downs helpfully elucidates why government is condemned to ﬂy blind: the state participates in input but not in output markets and therefore cannot accurately gauge the results it achieves for the resources it consumes (Downs 1967. That government fails is no circumstantial happenstance but rather follows from the basic nature of what government is and does. GOVERNMENT MAINLY FAIL S . O∏ering up his “fundamental thesis. Rational expectations theorists coined an inﬂuential “policy ine∏ectiveness proposition” that purports to explain why the intervention of a “well-meaning but ill-equipped and self-defeating government . p. lest reformers wonder.” Notwithstanding a short list of “exceptions” (and the history of the previous half century). also Stigler 1975. 36). 160–161). The chorus of market boosters was clear: government—one big Corn Law ripe for repeal—is an ine∏ective tool with which to attain that maximization of individual utilities upon which a rational and defensible social order depends. p. pp. at oΩcial remediation of market outcomes merely made matters worse” (Bernstein 2001. p. . And.” Stigler ﬂatly proclaims that “we” simply “do not know the relationship between the public policies we adopt and the e∏ects these policies were designed to achieve” (Stigler 1975. . pp.
and farm subsidy programs.” “public interest. p. p. The Interstate Commerce Commission. p. Interest groups intent on maximizing their own interests “acquire” policies by buying the votes and other support of politicians hungry for cash and organizational backing (Stigler 1975. 137). 23). majority rule imputes to each individual a set of preferences that are . for example. Those seeking to explain policy outcomes need merely follow the money. zero sum game. “started out as an agency to protect the public from exploitation by railroads” but.” thus rendering meaningless such concepts as “public. p. 29. Such terms as “public interest” and “social welfare” are dangerous metaphysical legends because they mask the sordid reality of “politics as trade” (Amadae 2003. 122. By assuming equally intense preferences. 143). Government. 9). . GOVERNMENT ABRIDGE S FREEDOM . is doomed to fail. well-organized producer groups “will invariably have a much stronger inﬂuence on legislative action and the powers that be than will the diverse.MARKETS AND POLICY 23 lectively rational decisions that respect individuals’ freedom to determine personal ends. Achieving agreement by “explicitly political decisions” entails a one-size-ﬁts-all “conformity” that whisks society straight down the road to serfdom (Friedman 1962. pp. GOVERNMENT MEANS CAPTURE . and activism of producer groups whose demands the political class slavishly labors to satisfy. in sum. pp. tari∏ policies. widely spread consumer interest” (Friedman 1962.” Absent special precautions. 131). As now constituted. according to Milton Friedman.” and “social welfare” (Amadae 2003. p. .” not the positive-sum exercise that would (and should) prevail if decisions were made by the unanimous consent of utility-maximizing individuals engaged in exchange (Buchanan and Tullock 1962. After reviewing oil import quotas. governments interpret collective decision making as a “power maximizing . Hayek 1969). degenerated into an agency “to protect railroads from competition by trucks. 114). Stigler is conﬁdent that “everyone will admit” that government “enters ﬁelds simply because a politically wellsituated group wishes assistance” (Stigler 1975. organization. 24.
GOVERNMENT ONLY GETS WORSE . pp. The democratic state. and the bigger government grows. and personal loyalty (Downs 1967. then. A “spiral e∏ect” thus aggravates capture and kindred public sector pathologies (Buchanan and Tullock 1962.” run by “able and ambitious” careerists eager to expand their turf (Friedman 1962. totalitarian encroachments on individual freedom” (Amadae 2003. 201). public agencies become “selfgoverning bodies. the more largesse there is. Organized pressure groups push for more government largesse. Freedom required radical change. 175). p. p. The Solution—the Free Market In contrast to the sorry litany of governmental deﬁciencies. . 2. who are well equipped to collect and process information and reach decisions. One approach would invent “an individualistic democracy to protect against . clumsy institution all too frequently diverted by emotion and administered by venality” (Stigler 1975. Friedman and others recommended a vast reduction in the reach of the state in order to entrust the functions it had usurped to the market of autonomous individuals. 287). which prompts more group pressure.24 CHAPTER TWO highly restricted and misleading because they fail to reﬂect (hence to aggregate) the true preferences of the consumers of policy (Buchanan and Tullock 1962. prestige. the cadre of market-promoting economists that began their ascent to political power in the late 1960s professed to o∏er a superior decision-making product—the free market. The “fundamental premise” of Anthony Downs’s look inside bureaucracy holds that oΩcials “are signiﬁcantly—though not solely—motivated by their own self interests” such as power. convenience. can be safely and summarily dismissed as a “well-meaning. p. Once in place. 126). Markets successfully balance supply and . Moreover. income. The state embodies a relentless expansionary dynamic. 84). 103). 186–187). p. p. security. . pp. simple majority voting “tends to cause a relative overinvestment in the public sector” by encouraging each voter to “secure beneﬁts from collective action without bearing the full marginal costs properly attributable to him” (Buchanan and Tullock 1962.
to put it mildly. debatable. coercive hand of public authority. They enable buyers and sellers to gauge. the costs as well as the beneﬁts of alternative uses of scarce resources. competition averts unfair concentrations of market clout. Naive legislative and regulatory nostrums come and go. that government decisions are not taken without regard for evidence and argument (and may be no less informed than those made by players in markets and market organizations. the road would lie clear to constitutional arrangements that mimic the features and confer the beneﬁts of markets and deter collectivist and totalitarian interventions. absent false promises of free lunches and shifted costs. as majority voting does not. which have . not their adroitness in putting public oΩcials in their pockets. and oblige them to face. p. 231).MARKETS AND POLICY 25 demand across millions of particularistic exchanges governed by the preferences of participating individuals rather than by the heavy. Markets leave people free to choose what tastes to satisfy and how. p. thus honoring intensity of preferences.” says Stigler (1975. 32). If only well-meaning but credulous reformers and political scientists were educated against unnecessarily complicating issues of institutional design (Buchanan and Tullock 1962. 12). Upon these motivational rocks and the incentives they evoke lie the keys to better public policy (Stigler 1975. p. 188). Reactions to Market Utopianism The merits of the stark and sweeping depiction of the pressing need to choose between government and market were. They compel producers to seek proﬁt in the superiority of their wares. but “self-interest and competition are never passing fads” (Stigler 1975. p. Given an elemental public framework of protections. Economists and other analysts acquainted with institutional and historical complexities countered that government programs did many citizens much more good than the critics conceded. The divine deliverable of free markets is competition— “the consumers’ patron saint. and checking collectivism before it hits the skids to totalitarianism. substituting for the voracious “spiral e∏ect” of public and group power a socially benign self-equilibration.
Indeed. contradicted the dogmatic critique of government and its insistence that policy makers choose between market and state. of course.” Buchanan and Tullock invited skeptics in the 1960s to test the implications of their model against “[their] own general knowledge of existing political institutions” (Buchanan and Tullock 1962. Their conclusion was. European conservatives and anticommunists often joined American liberals in arguing that the best protection for both capitalism and democracy against challenges from both far left and far right lay in balanced and judicious expansion of the state. States grew bigger precisely in the successful service of mixed. . that for many needy citizens government programs are a vehicle of empowerment and freedom.” the free capitalist alternative. True. This reality. meet. But the ﬁght against Marxism and the anxious defense of capitalism had been in full swing for much of the twentieth century and peacefully coexisted with a wide range of market / government arrangements in noncommunist Europe. their assaults also heavily advertised their empirical research that objectively analyzed how government institutions “really worked. Studying Real World Government and Markets A dispassionate surveyor of the midcentury scene would credit Western governments with having vanquished the Depression and totalitarianism. managed economies and the harmonizing of capitalism and democracy. 3). p. the postwar United States competed with communism in a bipolar cold war setting—the all-powerful statist “them” versus “us. not a static and invariant fact characterizing all government agencies all the time. alas. In light of the long history of participation by economists in statecraft. that “capture” is a matter of degree. the sweeping condemnation of the state reversed generations of pragmatic “circumscription and circumspection” (Rothschild 2001. 29). p. Although the market dogmatists’ disdain for the state emanated from deep normative convictions. and that government grows mainly in response to the breakdown of markets or to social demands that markets cannot. or do not.26 CHAPTER TWO bureaucratic dysfunctions of their own).
executive branch agencies. other intellectual ﬁelds—notably public administration. Open-minded inquiries into how public (and market) institutions “really” worked proceeded but lost ground within the academy and policy circles. for example. 87. and political science— were dismounting their theoretical high horses and wrestling afresh with institutional complexity. p. Research was invoked to buttress sweeping pronouncements. and the legislature were increasingly reduced to “rational egoism” and the self-serving mechanics of “politics as trade” (Amadae 2003. on one study (his own) of the impact of regulatory commissions on electric rates (1975. pp. The power amassed by government should be shifted back to the free market. 137). The implications directed Simon and other social scientists toward ﬁne-grained research into the subtleties of decision making in public and private organizations (Simon 1947. Simon’s study of decision making and problem solving revealed that individuals operated within “bounded rationality” and practiced “satisfycing”— the search for “good enough” courses of action. which rested on rather limited empirical study. quoted in Amadae 2003. organizational analysts such as Charles . Market promoters posited that government institutions ran on the same utility-maximizing energies as markets but had acquired illegitimate coercive powers that must be dismantled. Stigler’s sweeping condemnation of government rested. the choice between the public and private sectors was axiomatically obvious. Herbert Simon. Ironically. 364). Crucial but nuanced institutional features of markets. hearth and home to voluntary exchange. even as market dogma labored in and after the 1960s to demote government to decidedly junior status in any tolerable private-public partnership. who worked across the social sciences. As the 1960s commenced. 154). found a disconnect between human behavior and the models of market idealists that pictured informed individuals assiduously maximizing their preferences. 27–28). So framed. pp. organizational analysis. 1991.MARKETS AND POLICY 27 foregone: public choice theory supplied “intellectual foundations that allowed citizens to understand the political failures they were able to observe at ﬁrst hand” (Buchanan. p.
Theodore J. political scientists broke from theorizing about “the” structure of power and instead studied intensively the dynamics of power across distinct “issue areas” and cities (Hunter 1953. redistributive. Patterns of gain and loss in distributive. Richard Scott. Wilson (1980) and his doctoral students would leave capture theory pretty much in tatters (see also Vogel 1996. They sought to shape policy. These ﬁndings contradicted the simplistic models of politics that market dogmatists espoused. pp. and James March were illuminating the myriad complications that shape the behavior of complex formal organizations. and regulatory programs shaped the universe of individuals and groups that participated in political struggles. heavily dependent on case studies. which invaded and captured them. delivered a message: one cannot generalize about “the” workings of the state or public policy without examining them carefully in real life across a range of policy arenas. policy makers seeking counsel from social science could choose between two sharply distinct intellectual approaches: an elegant. The results gave little comfort to simplistic theoretical models of government agencies as passive victims of special interests. 13–16). In 1964. W. Dahl 1961. parsimonious theory that urged a downsizing of government and an expansion of market forces whenever possible and a growing body of real world research that demonstrated the variability and complexity of the institutional behavior that drove the workings of market and state alike. A later collection of careful studies of regulatory agencies by James Q.28 CHAPTER TWO Perrow. These explorations. and how. the marketists capitalized on the seductive simplicity of their models and on their ideological compatibility with a new corps of policy makers that entered government after the 1968 elections. Lowi argued that political conﬂict was not uniform but rather varied with the attributes of public policies. . Banﬁeld 1963). The Darwinian competition among alternative intellectual road maps was far from natural. Markets of Knowledge—the Demand Side By the end of the 1960s. Scholars such as Phillip Selznick and Herbert Kaufman had explored the workings of public entities as diverse as the Tennessee Valley Authority and the Forest Service. In the 1960s.
Conservatives successfully convinced much of the middle class that it was locked in a battle of “us” versus “them”—single black teenage mothers. and . and white “backlash. the rise of black power. Nixon as president and then reaΩrmed with fairly minor interruptions for more than thirty-ﬁve years—was reinforced by persistent demonization. Dogma obscured the nuanced analyses of scholars such as James Q. (Nobel laureate James Buchanan helpfully ﬁngered Keynesian economics as “the source of the student unrest because . D. drug dealers haunting school yards in hopes of hooking innocent youth. Civil rights legislation coincided not with a new age of racial harmony but rather with urban riots. ﬁscal laxity breeds moral laxity” [Amadae 2003. The Johnson administration’s resolve to reconcile guns (military spending) with butter (social welfare programs) aggravated inﬂation and economic anxieties. In the latter half of the 1960s. The ardor with which post-1968 policy makers embraced market forces reﬂected the (dis)temper of the times as much or more than the cogency of their claims. The reaction against government—ﬁrst signaled by the election of Richard M. regulation. not falling. welfare cheats who contentedly loafed on public assistance (and were pleased to do so across generations). p. rates of crime and welfare enrollment. who illuminated the limits of government intervention without overselling the ameliorative capacities of markets. perhaps even an “emerging Republican majority” (Phillips 1969.. Demonizing the disadvantaged translated into a simple political message: bureaucracy. Morone 2003).MARKETS AND POLICY 29 A SIGN OF THE TIMES .” New programs waving the banner of a war on poverty came accompanied by rising. Wilson and Daniel Patrick Moynihan. in the streets of Washington. Political observers presciently warned that Democratic voters (especially suburbanites and white southerners) might translate their distaste over “the social issue” into new conservative and Republican allegiances. and elsewhere. Scammon and Wattenberg 1970).C. taxes. federal activism grew quickly and triggered intense controversy. . and an antisocial culture created by well-meant but muddleheaded and undeserved government aid (Glassner 1999. 144]). The war in Vietnam generated protests on college campuses. amoral and predatory teenage criminals. redistribution. .
mainly for the better-o∏. health care. . Economic and social dislocations combined with the rise of the market utopians to diminish the prominence of pragmatic economists in policy-making circles and the legitimacy of government as a policy tool. government has been “oΩcially” on the defensive. the marketist critique—government was an incompetent failure that was captured by special interests— and its proposed reforms (replace corrupt. Under the circumstances. physicians. and wasteful government with responsive. government projects disappointed expectations on many fronts: federal programs seemed to be blithely throwing money at problems they had no clue how to solve. and more). and federal grants and regulations increasingly intruded in a widening range of policy arenas (education.” Dozens of implementation studies were read (and taught) as exposés of “displacement of ends.” a sorry tale of federal. Market forces were welcome a priori because they permitted public policy to proceed in seeming detachment from a discredited government. Since the 1960s. and the military-industrial complex.30 CHAPTER TWO government itself were “the problem. accountable market forces) looked eminently desirable and feasible. Republicans and many Democrats interpreted Nixon’s victory in the presidential election of 1968 as a CHANGING OF THE GUARD: PRAGMATISTS OUT. law enforcement. As portrayed by conservative critics. housing. The sole vision that stirred the nation’s political blood was the repeated call for tax cuts. and the left has labored to articulate a positive vision that would attract reliable electoral majorities. a casual inquirer of suitable ideological bent might purport to ﬁnd evidence for all ﬁve of the pathologies of government identiﬁed by promoters of markets (and outlined above). and local agencies throwing money at social problems. Democrats have struggled to reclaim the middle class and to soften their identiﬁcation with needy minorities. state. ine∏ectual. MARKETISTS IN. Since 1980. federal agencies appeared passively to allow the implementation of these programs to cater to the needs of “providers” such as teachers.
and supply public goods. and (later) banking. the traditional role of economics in American statecraft—adroit adjustment of budgetary tools advocated by Keynesianism and targeted interventions to sustain markets. the reformers . In the rightward shift that commenced in 1968. p. that “what is privatized inevitably beneﬁts the citizen-customer” because tax rates and the price of services must surely go down (Suleiman 2003. contacting out of public services to private suppliers by competitive bidding.” Unwilling to rest content with longstanding expedients such as public-private partnerships. 4. and energy. as Charles Schultze (1977) would later put it. the post oΩce.MARKETS AND POLICY 31 mandate to retreat from plans to deploy big government to solve society’s ills and instead to embrace market forces. a questionable “competition paradigm” (Rosenau 2003) nourished a problematic “competition prescription” (Kettl 1993) that in turn inspired multiplying strategic leaps of faith—for example. market reforms o∏ered an enticing virtue: they seemed to be immune to the enervating institutional complexities that brought public agencies. faltering and malfunctioning right and left. The principle underlying these disparate policy initiatives. 3). a formidable list of sweeping proposals took shape that promised to change or overturn long-established policies: deregulation of transportation. In the eyes of battle-weary Americans who made and consumed policy. p. ﬁnance. pp. to their knees. telecommunications. was “the public use of private interest. Suleiman 2003). 34). as Adam Smith and others envisioned—was supplemented and in some measure supplanted by a new preoccupation: expansion of markets to serve public purposes while shrinking the state. 180). and social security. contracting out of public services such as the maintenance of parks and libraries. or with such latter-day innovations as New Public Management (Kettl 1993. privatization of “enterprises” as diverse as prisons. compensate for their ill e∏ects. and the replacement of bureaucratic and regulatory powers with market forces as a means to achieve public goals in arenas such as education and health care (Bernstein 2001. Spurred by “antistatist fervor” and “virulent” attacks on public bureaucracies (Suleiman 2003. As marketist ideas gained force. the welfare system. and various “business-emulating” reforms.
a “New Democrat” determined to walk a ﬁne line between too much and too little government. once introduced into (or instead of ) government programs. George W. pushed both antigovernmental rhetoric and adulation of “the magic of the marketplace” (in Reagan’s coinage). The rise of market dogmatism as a guiding force in public policy and its successful recasting of sizable swaths of government was an exception. to unveil another version of market reform—“consumer driven” (high-deductible) health insurance that raises the cost of care to consumers. Major change in American politics does not come easily (but cf.32 CHAPTER TWO upped the ante by installing supposedly self-sustaining competitive dynamics at the core of such “markets” as health care. Mayhew 2005). Bill Clinton. will exhibit the virtues ascribed to textbook markets—responsiveness to consumer prefer- . Bush. Congress rejected the Clinton plan. The ﬁrst holds that market forces. The inconvenient resurgence of health care cost escalations prompted Clinton’s successor. The Constitution was deliberately designed to slow the gears of policy making to an incremental pace. Ronald Reagan and George H. education. supposedly indisputable evidence that market forces worked and that more of them would be better. Bush. Institutional Realities The victories in the march against government that started in the late 1960s did not exhaust the pent-up demand for market-based policy reforms. made managed care and managed competition the centerpiece of the health reform legislation he proposed in 1993. but promoters of markets advertised the silver lining: in the later 1990s unmanaged competition slowed the growth of health costs. Within a mere half decade the marketists had morphed from Cassandras railing at a government at full expansionary tilt to honored prophets to whom anxious and imploring policy makers turned for strategic sagacity and solace. who won the three presidential elections of the 1980s. Two assumptions underlie the market dogmatists’ policy agenda—from deregulation and privatization to contracting out and competition. W. and transportation.
access to schooling. is mediated by the purchasing power of parents in private real estate markets. a quintessential public service. or . but it delivers care to its beneﬁciaries by means of private physicians and hospitals and has lately added prescription drug coverage that is available only through enrollment in private plans. A Track Record Proposals to replace public oΩcials who responded to and spread faulty incentives with right-thinking private players rarely wrestled with the realities of delivering beneﬁts and protecting citizens by means of arrangements that inextricably blend public and private powers and are unlikely to cease doing so in obedience to policy “logic. but not all. Likewise. competitive equilibration of demand and supply. fewer employers are willing to o∏er it and fewer employees are willing to buy even if it is available. private purchasers (employers) buy health insurance for their workers in local markets from competing insurance ﬁrms that face government constraints—for example. and so on. Residential patterns shape the context in which consumer choice among schools plays out. Public programs (for instance. of the slack. The second maintains that the public rules of the game required to keep markets working right can be conﬁned to an unimposing list of “minimum standards” or some comparably light legislative lift. for example. In this institutional context. As the costs of private coverage soar. Inner city children rarely get to choose better schools in suburban neighborhoods because they are not o∏ered the option.” Within the health arena.MARKETS AND POLICY 33 ences. Meanwhile in the private health insurance system that covers most Americans. the Medicare program is a strapping specimen of big government. mandated beneﬁts and regulations on the pricing and availability of insurance—that some critics denounce as oppressive and others as ridiculously permissive. beaming in market reforms and expecting them markedly to improve performance (whatever exactly that means in this case) by main force of “correct” incentives is utopian indeed. Medicaid and SCHIP) and a public-private complex of providers called the safety net pick up some. cannot a∏ord or arrange transportation.
and governments often led them to resist reforms and sometimes triggered the gaming of new rules. The beneﬁt / cost balance is if anything less clear for the deregulated trucking and railroad industries. overcrowded skies and ﬁnancially overstretched carriers—accompanied these beneﬁts.34 CHAPTER TWO do not feel welcome there. Such reforms have not excised ineΩcient public and professional inﬂuences nor introduced in their place consumers and producers newly responsive to healthy incentives. they were challenged by economist colleagues who lauded the beneﬁts of markets. Considerable (and predictable) institutional “stickiness” in the practices of businesses. The costs of this unrealism to citizens and social policy are not small. sound incentives. The Revolt of Economics Although the market dogmatists enjoyed a meteoric rise in policymaking circles (and in some quarters of academe). however. and the rest of the package— were easier said than done. pp. money “talks” in these instances is a tough question. and consumer choice but also insisted on a pragmatic adaptation of theory to real-world conditions. fairly competing sellers. the empirical case for market organization is rough and ready. for instance. Deregulation of and competition among airlines—the marketists’ poster child—did indeed lead to lower airfares and new mass access to air travel. lucid price signals. 1. it is fair to say that heralded market reforms have disappointed the unrealistically high expectations their promoters encouraged.” The realists o∏ered two crucial correctives to the utopian deployments of markets—pragmatic corrections that steadily gained . and the persuasive part is pragmatic and qualitative rather than rigorous and quantitative. unions. and how coherently. 5). Costs—for instance. This is not of course to argue that market reforms never work. On the whole. The requisites of well-working markets—informed buyers. Richard Nelson (2005. dismissed the standard textbook model of markets as “folk theory” and warned that “the most commonly cited theoretical argument in modern economics can support little weight. How much. competition.
) The regulatory and tax functions of government that assure public goods and services and discourage the negative side e∏ects of market exchanges perform an “allocation function. identiﬁed three such functions—allocation. the famous British economist Arthur Pigou warned that sparks from a railroad engine could ignite farms or woods. Harking back to Adam Smith and other classical political economists. The deregulation of trucking. has prompted concern for the safety of other drivers. an important economic school sought rigorously to specify the functions a modern government must fulfill if markets are to work and social welfare is to advance. L EG I T I M AT E G OV ER N M EN T F U N C T I O N S . The ﬁrst of these functions requires government to intervene in the allocation of resources when private markets fail to produce “public goods” that society requires (such as national defense and a transportation system) or lead to “negative externalities. for instance. and distribution (Musgrave 1959.”2 Market reforms make this allocation function more not less essential to the public interest. Possible negative consequences for the funding and quality of public education from the expansion of markets in schooling cannot be brushed from the picture. Musgrave and Musgrave 1984)—that illuminate government-market interactions in ways that bear directly on the themes of this book. for example. Deregulation of airlines and railroads has raised anxiety about anticompetitive behavior and spurred debate about the need for new regulatory tools. Richard Musgrave.MARKETS AND POLICY 35 notice as the more extravagant claims for market forces lost credibility. which would impose costs on the landowners but not on the railroad company or its passengers. In health care too. . stabilization. 2.” (These arise from private exchanges between buyers and sellers that hurt otherwise uninvolved parties—for instance. Musgrave’s speciﬁcation of three government functions was built on a large body of research and in turn fuelled extensive analysis (for reviews. see Musgrave 1989).
in which consumers can readily acquire information. such as those for food and household goods. Government intervention in such cases will likely produce ineΩcient outcomes that disappoint consumers’ demands. bear brief mention. Two other government functions. and availability of which are essential for discerning consumers and ﬁrms engaged in bargaining and voluntary exchanges intended to allocate resources e∏iciently.36 CHAPTER TWO such market-thwarting properties as moral hazard (patients whom insurance insulates from the full costs of medical care may use too much care or not look properly after their own health) and adverse selection (people who are ill or more likely to become so are especially motivated to acquire insurance. Pragmatic economists have also highlighted the problematic nature of information. Macroeconomic disputes (lively to be sure) over when and how government should seek to stabilize the economy lie beyond the scope of our discussion. the accuracy. Finally. . government’s stabilization function is essentially the Keynesian imperative to smooth the economy’s performance both by stimulating it during slowdowns to avert high unemployment and by slowing it to head o∏ inﬂation in periods of rapid growth. the adequacy and equity of subsidies to the less well o∏ are of paramount importance. If. consumers may have little information and may not understand the information they do have on hand—a state of a∏airs THE INFORMATION HURDLE . One is distribution— government’s use of tax and spending powers to alter the market’s allocation of income and wealth so as to ensure that the needy do not lack adequate income and services. In complex and technical markets such as health care. which drives up the costs of coverage for the “general” population with “average” health costs) demand a sizable package of public rules if market forces are to stand a chance to work well. however. Nicholas Barr (1987) argues that consumer choice works well enough in markets. though less directly pertinent to the foci of this book. adequacy. policy makers try to reform health care and education by issuing vouchers that empower consumers to shop and buy in a competitive market. for example.
. pragmatic pondering of the uses and limits of information is a guide to isolating and integrating the uses. limits. The next chapters. assess when and how market forces serve and disserve the public interest. In short. which trace the evolution of market reform logic from promise to practice.MARKETS AND POLICY 37 that can lead to unfortunate choices unless government steps in to illuminate or constrain (or both) those choices. and interdependence of market and state.
and the disastrous response to Hurricane Katrina revealed the inadequacy of basic government services and the need to strengthen them. Assessment of the capacities and responsibilities of government and markets has been stymied.3 Cycles of Reform Formulation and Ratiﬁcation of Market Utopianism Many Americans have been stirred by recent history to take stock of market reforms and the role of government. In this chapter and the next. education. however. Health care. and transportation deserve close attention because they are important and costly “human services” and have preoccupied market reformers. Headlines have pushed arcane policy discussions into America’s living rooms—the bankruptcy of charter schools and the soaring prices of electricity (when not interrupted) drove home the precariousness of market initiatives. and transportation—in order to detect recurring patterns and outcomes. education. and the second misses important similarities in developmental patterns and outcomes that cut across policy areas. by high abstraction and acute particularism. We recognize that separate policy areas can resemble separate 38 . We need to appreciate the distinctive features of particular policy areas but also to transcend idiosyncratic details in order to identify consistent and perhaps predictable tendencies of market-oriented reforms. corporate scandals at Enron and elsewhere became household shorthand for business that harms the public good. we focus on the performance of government and market-oriented reforms by comparing three policy areas—health care. The ﬁrst avenue is divorced from the daily lives of Americans and the real workings of policy.
the size and inﬂuence of the public and private sectors vary across policy realms. Taking seriously the dynamics of institutions and politics is a starting point for designing the practical and sustainable balancing of markets and government we address in our ﬁnal chapter. This and the next chapter track the shared success of market reformers in putting their polices in place and the common challenges and reversals that ensued. This chapter outlines distinctive features of three policy areas and analyzes their similar developmental patterns as market-oriented reforms were hatched and introduced. The next chapter considers the reactions of citizens and policy makers after the implementation of these reforms. In particular. health. 120) is “the persistence of private markets as the predominate mechanism of resource allocation” in ﬁnancing and delivery.MARKET UTOPIANISM 39 countries. This “process analysis” moves us from assessments of philosophical purity (whether policy makers were true to market catechism) to the study of concrete institutional and political dynamics. While remaining sensitive to di∏erences. p. with a language and landscape all their own.S. health care system. Distinctive Policy Legacies Over the past three decades proponents of market forces in education. Sectoral Dominance Debates about “the government” and “the private sector” sometimes proceed as if American culture assigned them ﬁxed and uniform roles. In reality. The distinguishing feature of the U. writes Carolyn Tuohy (1999. and transportation policy launched their initiatives from very di∏erent starting points. The public sector is . the scope and character of public and private sector involvement in these three policy areas di∏ered in at least ﬁve ways that deﬁned the context in which market-oriented reforms were introduced. we look over the institutional hedge to identify commonalities across policy areas in the introduction and response to market-oriented reforms.
Health care’s status as an essential “public good” and the barriers to market allocation of services and resources (moral hazard. Whether health care should or can ever be a “normal” market has long been debated. adverse selection. which promotes the spread of work-based coverage by allowing businesses to take the premiums they pay for workers’ coverage as tax deductions and by permitting workers to exclude employers’ contributions to coverage from their taxable incomes. Free. this most public of goods is rationed by a pervasively private process. poorly designed incentives that need only the economist’s artful touch to function e∏ectively. As with health care. empower disadvantaged students to choose from a range of schools those that best meet their needs. supplied by and at the expense of government from kindergarten through grade 12. meanwhile. for the right. Transportation. and imperfect information) deﬁne. a set of arrangements that argue for rejecting market approaches altogether. however.40 CHAPTER THREE admitted mainly to ﬁll gaps. the private sector steps in to plug “gaps” mainly for those who seek and can a∏ord a presumably better product. and. Medicare and Medicaid were created to fund care for populations that private insurers could not proﬁtably cover. home developers. may be viewed as a quasi-private policy arena: air travel and trucking are supplied by private ﬁrms subject to government rules governing safety and competitive practices. and other . namely. the purchase of housing in the communities that fund and run the schools. This mediation of educational opportunity by housing markets raises troublesome equity issues and has inspired correctives ranging from state equalization grants to vouchers that. universal public schooling is the foundation of the American creed of equal opportunity. It is also a quasi-public arena: highway policy is made by engineers employed in state and federal agencies. the public-private balance is subtler than at ﬁrst it seems. for the left. Government’s oΩcial deference to the private sector is embodied in federal tax expenditure policy. in principle. Education is the quintessential public good. the plans of which are shaped by the lobbying of contractors. In the United States.
Republican then-governor John Engler sparred with the Chamber of Commerce and moderates within his own legislative party.MARKET UTOPIANISM 41 private interests. Elected . Race heightens the tensions within Republican ranks: constituents may welcome the philosophical turn against government but not an inﬂux of poor and minority students into their prosperous and mostly white neighborhoods. the “proper” balance of public and private power has long been heatedly debated. on the other hand. two reliable Democratic constituencies—African Americans and Catholics—joined Republicans to support school choice proposals even as labor unions (especially teachers unions) opposed them. the “distributive” politics identiﬁed by Lowi (1964). whose rights to organize and strike have been in legal and political contention.” Education debates. giving rise to distinctive coalitions (Lowi 1964. Transportation issues tend to turn on considerations of a di∏erent kind. is legitimately construed as a “commodity” and that markets can handle equity. often unionized. Americans on the right contend that health services can be. debates about markets tend to divide along philosophical lines. most teachers are public employees. engineers. sometimes unite strange bedfellows. By contrast. Mettler and Soss 2004). truckers) and government workers (air traΩc controllers.and needs-based allocations. Most health providers are proud private professionals who acknowledge no formal dependence on the public sector and insist on autonomy in their work. In Michigan. or health care. In health care. the pattern is a mix of private professionals (pilots. Political Coalitions Policy shapes politics. highway planners). In this realm too. bought and sold in markets that can be “normalized. for example. In Milwaukee and Michigan. who supply education in systems dominated by public school boards and bureaucracies. In transportation. at least to a point. Provider Organization Organizations representing the providers of services di∏er substantially. Those on the left deny that health. By contrast.
In health care. Michigan law capped the number of charters at 150 (permitting enrollment of roughly 34. and trucking industries in the 1970s o∏ers a near thirty-year record with which to assess the policy and political consequences of a shift to market forces. market forces—mainly in the form of managed care and competition. E∏orts to introduce them in education met with staunch and e∏ective opposition by unions.000 students. competitive. p. and rail service if the industries in question were regulated less or more ﬁrmly. In education. and public skeptics. which used a full arsenal of weapons. from inserting legislative restrictions into what were ostensibly promarket reforms to pursuing legal challenges. Even so. 75 percent of elementary and secondary schools are still public and only 10 percent of students attend schools that are not public (U. 2002). Deregulation of the airline. 26). 107). markets remain a gathering storm of unknown force. Their response has been to favor or reject market forces according to whether the areas they represent will gain or lose ﬂights. market” (Oster and Strong 2000. One of the most successful e∏orts at promoting school choice (Cleveland’s voucher program) capped enrollment at about 5 percent of the city’s public school system in 1998–1999 (Hess 2002.42 CHAPTER THREE oΩcials recognize that transportation operations that run at a loss “may no longer be served in a privatized. rail. about 2 percent of all students in the state) even though there is sizable demand for more. albeit largely unmanaged—are a powerful continuing presence. The proportion of school children attending schools of choice— either private schools or among public schools—has increased modestly since the mid-1990s. however. school districts. p. Department of Education 2001. freeways. p. Market Scope The presence and sway of private markets also di∏er considerably. Wisconsin state law took the “radical” step in 1995 of allowing up to 15 percent of Milwaukee public school students to enroll in its voucher program (Hess 2002.S. 157). Many choice programs limit the eligible student popu- .
Meanwhile. p. Developmental Sequence Private sector responsibilities and functions emanate from particular institutional histories. have not threatened public school jobs or budgets. 224) In health care. Hospitals. statutory restrictions. As Fredrick Hess concluded his review of the Cleveland and Milwaukee school choice reforms. program caps. by contrast. and often target atrisk populations that public educators ﬁnd onerous.MARKET UTOPIANISM 43 lation by stipulating speciﬁc localities (e. thereby undermining the consequences of competition that marketeers most hoped to instill. private schools are expensive. and persistent legal challenges. due to limited private school capacity. (Hess 2002. providers and consumers initially were less e∏ective at resisting the expansion of markets. The history of health care was replete with the prerogatives of private practitioners and market forces. Some choice programs. Although the dollar value of vouchers can be substantial. Voucher programs. . are often subject to extensive regulation. and vouchers are often suΩcient to permit attendance only at the least expensive schools and rarely cover expenses. The threat posed by choice plans has generally been mild. imposing numerical limits. that may be burdensome for low-income families. Moreover. were crafted to limit the revenue lost by the impacted system. and patients lacked the political intensity and organizational cohesiveness of teachers and schools when managed care began to take o∏ in the mid-1980s. School districts formed coalitions with teacher unions and other opponents of school choice to make sure that they would not lose money if students exited to private schools. charter schools are generally small.g. vouchers rarely provide genuine ﬁnancial opportunities for Americans of modest or low income to choose private schools. the boundaries of the Cleveland Public School District). such as for uniforms and books. like those in Milwaukee and Cleveland. doctors. and conducting means tests.
Similar Policy Patterns: Deﬁning the Problem and Crafting Market-Oriented Solutions In health. market dominance begot expanded markets (Jacobs 1995). the contexts in which market-oriented reforms have been introduced vary substantially across the policy arenas of health care. education. Put simply. the success of which depended on the mysterious production functions of schooling in a new educational setting that fostered competition and punished market “losers. These varied contexts not only help to explain enduring di∏erences in policy areas but also highlight remarkable similarities in developmental patterns and outcomes as market reforms were introduced. the clash of competing . Logic ignores. and transportation. Proposals to expand school choice collided with durable supports for public education. and transportation.44 CHAPTER THREE Managed care could be successfully sold as necessary and suΩcient to ﬁx malfunctioning but perfectible markets. however. education. the speciﬁcation of remedies (widening markets and diminishing government). Education followed an opposite sequence: government dominance generated a predisposition toward maintaining government and suspecting private market innovations.” In short. Faith in the merits of public uniformity cast school choice as a risky gamble. Chapter 4 examines the last two stages—institutional breakdown and fumbling government interventions to sustain market allocations while protecting citizens from their undesirable consequences. This chapter traces the evolution of the ﬁrst three—the deﬁnition of the problem within each arena as insuΩcient reliance on markets. and the legislature’s ratiﬁcation of new policies to empower markets. a broadly similar policy evolution—from market promotion to improvised government e∏orts to protect citizens from markets—produced a “cycle” of ﬁve distinct political stages. Problems Deﬁned as Public Departures from Market Principles A purely logical approach to policy reform would start with close analysis of the ﬂaws in existing policies and a careful canvassing of available solutions.
health. Critics of public schools sang a similar tune: overbearing government su∏ocated innovation and produced scholastic achievement levels in public schools—especially in poor inner cities—that were not remotely commensurate with the sums the education system consumed. people who paid little for services tended to use them proﬂigately) and “provider dominance” (i. Yet. ineΩcient. The common refrain declared that customers (aka citizens) should receive fair value for money but did not because government regulations artiﬁcially inﬂated costs and depressed service. In the political give and take of policy making. In health care. Supply and demand were out of kilter because . Stone 1997). Nelson 1984. in the 1960s and 1970s.MARKET UTOPIANISM 45 values and interests. the Civil Aeronautics Board (CAB) and the Interstate Commerce Commission (ICC) suppressed competition that would beneﬁt the consumer. Market critics in each sphere concurred that the status quo was in “crisis.. critics attributed soaring costs to perverse economic incentives (third-party payment and fee-for-service practice) undisciplined by market competition that would oblige customers (aka patients) to shop for high-quality care at low cost. Economists attributed the problem of rising costs to a combination of “moral hazard” (i.e.e. critics in the 1970s blamed government for high costs and poor service. By regulating entry by new carriers and ﬁxing rates and routes..” and they targeted the same root cause—insuΩcient consumer choice. and transportation present dramatically di∏erent histories and policy styles. Meanwhile. including the collapse of Penn Central in the Northeast. or corrupt. caregivers deﬁned the demand they then supplied). and rail transportation. promoters of markets found the same failings in each of these policy domains and delivered the same diagnosis: the public sector had ceded political power to providers whose performance was inadequate. criticism of government railroad regulation intensiﬁed after a series of bankruptcies in the 1970s. Education. success often depends on deﬁning “the problem” in ways that mobilize supporters and marginalize opponents (Kingdon 1984. In air. motor.
correct incentives and eΩcient production were sure to follow. From these three simple steps. however. The practical question. and shippers) lacked or failed to exercise the power they would enjoy in normal markets. . Policy makers (at times from both political parties. hospitals. In health. physicians. and rail industries arbitrarily shackled workable markets and that unfettering these ﬁrms would bring better service at lower cost (Derthick and Quirk 1985). Transportation needed nothing more than deregulation—that is. employers. and truckers) deﬁned demand. administrators. joined by charter schools and options within public school districts. and (3) use competition (to wit. the market mantra was “let consumers / purchasers choose. airlines. elimination of government rules that inhibited the free play of market forces. was whether market principles could be translated into sensible policy and sensitive political strategies. though more often from the Republican side) were hardly shocked to hear that the self-interest of providers played a big part in generating high costs and inferior services. fear of going out of business) to motivate providers to shape up. which morphed into many varieties of “managed care” and furnished the conceptual foundations for managed competition. the vehicle of choice was the voucher.46 CHAPTER THREE purchasers (parents. (2) expand the menu of choices for consumers among competing systems of providers. As a result. In education. In the 1970s. the engine of market forces was the HMO.” The steps seemed straightforward: (1) give consumers the right to make choices. patients. Market Forces Can Fix Broken Public Policies In each arena. In time. trucking. providers (teachers. taxpayers. policy makers in both the Democratic and Republican parties and all along the philosophical spectrum listened closely to economists who argued that government regulation of the nation’s airline. make providers compete. the agency came to be criticized for imposing avoidable and TRANSPORTATION . Regulation of the airline industry was assigned to the CAB in 1938. travelers.
198–200. The Supreme Court’s ruling of 1954 against segregated public schools spurred the growth of private alternatives throughout the South. The issues in trucking. Since the 1920s. he appointed prominent critics of regulation to high posts in the regulatory agencies.MARKET UTOPIANISM 47 unintended costs on what would otherwise operate as a competitive industry. and in “virtually every subsequent decade. weakened incentives for eΩciency. 205–206). and (given the obstacles that inevitably beset attempts to do regulation “right”) invited violations of administrative norms (Breyer 1982. and enthusiasts in between—and paved the way for congressional hearings on and administrative innovations in deregulation. p. vociferous critics pointed out the failures of American schools” (Murnane 2005. abolish them outright. After Jimmy Carter entered the White House. . pp. which the ICC had regulated since 1935. In the 1960s and 1970s. 222. regulation of trucking imposed “unnecessary anticompetitive harms” that undermined what would otherwise be a “competitively structured” industry (Breyer 1982. 197). in the case of the CAB. “Common” (public) schools have been the norm in the United States since the mid-nineteenth century. school reform and proposals for choice are deeply woven into the country’s religious and racial history. pp. Although school choice has won wide public prominence only in the last two decades. Stephen Breyer (whom Bill Clinton appointed to the Supreme Court) encapsulated in the early 1980s the prevailing view of the CAB’s rules and rulings—they invited high prices and overcapacity by guaranteeing stable market shares for established carriers. 163). As in the airline industry. consumerist Ralph Nader. endowing them with bully pulpits that they used to promote legislation to trim the agencies’ statutory authority and. were diagnosed as very similar. discouraged entry into the market by newcomers. Catholics have asserted their right to send their children to parochial schools. 238. The challenge to government regulation appealed across quite a spectrum—free market conservatives. court-ordered busing of students in the name of desegregation helped to reshape the image of pub- P U B LI C ED U CATI O N .
Children of aΔuent families have always enjoyed “school choice. In 1955. 75). . Some embraced the choice to attend private schools as a vehicle of resistance and escape. for years. This infatuation after its years in the backwaters of policy debate gained force from a double-barreled critique of the educational establishment by market promoters. the schools were portrayed as public bureaucracies run at the behest and for the beneﬁt of “providers. 217). thus disempowering the recalcitrant interests that . Market promoters contended that vouchers and kindred school choice mechanisms would let parents select the schools their children attend. reformers have been seeking to engineer in myriad other ways”(p. 5–8).48 CHAPTER THREE lic education from “crusader for a moral cause” to a misguided and heavy-handed oppressor (Henig 1994. the conservative economist Milton Friedman proposed vouchers as the means by which market forces could improve public education. the liberal-leaning analyst Christopher Jencks embraced a version of vouchers as an answer to the problems of urban schools. In an inﬂuential book of 1990.” Second. [that] has the capacity all by itself to bring about the kind of transformation that. p. In 1966. and economic malaise. p. by the late 1980s it had achieved the status of conventional wisdom (Henig 1994. severing the link between residential location and schooling options. John Chubb and Terry Moe assured policy makers that choice was a simple “panacea . Proposals for school choice emerged from this cauldron of race. 73). Although school choice was not a new idea. pp. These reforms were also expected to make providers (teachers and school oΩcials) accountable and responsible to customers. religion. First. .” but the public school establishment is content to conﬁne the poor and lower-middle class to underfunded schools in their own neighborhoods. These religious and racial antipathies to public education converged with anxieties about the maladroitness of schools in reviving the “fading American dream” and doubts about the e∏ectiveness of government (Fuller and Elmore 1996. conservatives attacked public schools for sustaining gross economic disparities.
school choice released the “decentralized magic of the marketplace” that would transform “clients of a public service into consumers of a marketed product” (Fuller and Elmore 1996. To others. The “panacea” of choice might. 2). Hasidim. p. racial activists. p. it was a tool for achieving social and economic justice that made it possible to “turn around a child. black church groups. community empowerment and the opportunity to shake up lethargic public bureaucracies” (Henig 1994. . 9. scholars. pp. citizens. pp. The coin of competition is enhanced educational performance: better teaching. and foundations. tax reformers. Morken and Formicola 1999. These heady prospects drew a diverse coalition in support of school choice: businessmen. 55. The catalogue of supporters masked striking di∏erences over intended ends and acceptable means for achieving . entrepreneurs. If parents are empowered to exit a school that fails to satisfy their child’s needs and to select another. 5). Hess 2002. According to its advocates. a neighborhood. Republicans. not to mention presidents. This parental empowerment advances justice as well as eΩciency by allowing the students least well served by the public education monolith to win fresh chances for social and economic advancement. better learning. policy researchers. p. schools must compete to attract and retain students and the revenues they bring. p. Catholics. 55. liberals. Democrats. governors. and better scholastic achievement scores. 225). Islamics. 288). “in a strange twist . 4. 188–189). Although market enthusiasts ﬁxated on a narrow mechanism to promote reform. they expanded their appeal by inﬂating conﬁdence that school choice was “an onrushing train” and “an idea whose time is coming” (Henig 1994. Protestant evangelicals. and a community” (Morken and Formicola 1999. cultural diversity. be more democratic than democracy itself ” (Henig 1994. . conservatives. libertarians. p. Some portrayed choice as a tool for achieving “non-market rationales such as individuality and personal growth.MARKET UTOPIANISM 49 had wrongfully “acquired” (to recall Stigler’s term) school policy for themselves. and professional educators (Henig 1994. 28). p. p. Morken and Formicola 1999.
p. self-selection and selection of preferred risks by schools. p. and the potentially decisive inﬂuences of social and cultural characteristics of schools. also see Morken and Formicola 1999. 138. and those that did relied on “di∏erent methods of controlling for family background and student ability” (Henig 1994. Buckley and Schneider 2007. 11). The truth. 144–145. Even guarded and tentative conclusions about the potency of school choice were compromised by methodological quagmires: Hawthorn e∏ects. pp. 10). and chap. all of which greatly complicated the translation of the choice “idea” into policies and programs. Van Dunk and Dickman 2003. and “harsh environments” (Henig 1994. pp. The school choice movement both oversold its “panacea” and unleashed an extravagant denigration of public education. 172. reforms in public schools had introduced “tougher graduation requirements. p. 28. 117.50 CHAPTER THREE them. 124. Since the 1960s. missing baseline data. teacher . 218). In portraying an educational system in “crisis” that was producing “an army of illiterates with no skills. Most studies failed to include more than basic controls. p. 43. p. 6 and 47). family background. Van Dunk and Dickman 2003. as various experts observed.” they ignored a complex and mixed picture of educational achievement. more challenging curriculums. Methodological controversies over the causal influence of school-based versus nonschool factors in student performance left ideologues free to follow their favorite arguments. p. p. the promotion of school choice was loud and insistent but “dismally poor” (Fuller and Elmore 1996.” according to Je∏ Henig who concluded in 1994 that we knew “very little at all” aside from scattered anecdotes (1994. At no step along the way did advocates of markets produce much reliable evidence of the independent impact of school choice on improving educational performance. Murnane 2004. Declarations of success rested on “rather wobbly foundations. As a result. Studies showed conﬂicting results largely because their research designs were inconsistent or ﬂawed. pp. 6). was that “declines in some areas are coupled with improvement in others” (Henig 1994. more sophisticated measurements of student performance.
government regulation. the Nixon administration was searching for politically palatable antidotes. government intervention and regulation could not be blamed for the ﬂaws in America’s health care system. Until recently.MARKET UTOPIANISM 51 competency testing. Third-party payment. pp. . The solution Ellwood proposed appealed to the Nixon oΩcials. the national government was largely absent from health care ﬁnancing and delivery and even by the 1960s public health coverage in the United States fell far short of the norms of other Western nations. Paul Ellwood. The federal government had sponsored medical research and the building of hospitals since the 1940s. who saw no reason not to run up the tab and send it on to insurers. pp. By 1970. or reduced beneﬁts in the new Medicare and MedHEALTH CARE . The passage of Medicare without the cost controls recommended by pragmatic economists and civil servants in the Kennedy and Johnson administrations (Jacobs 1993. professional credentialing that limited entry of providers. longer school years. might set things right. 155–157. and asymmetries of information between consumers and providers all confounded classic dynamics of supply and demand (Arrow 1963).” Acknowledging this history of reform would have meant crediting educators for a record of innovation and conceding that the public system was by no means an unmitigated failure (Henig 1994. school-based management. if anything. and school-ﬁnance reform. It was not clear what. longer school days. 205–206). Dr. Before the Second World War. but the passage of the Medicare and Medicaid programs in 1965 marked its biggest and most controversial intervention. a physician and policy analyst. 207–209) precipitated predictable increases in spending. who were disinclined to endorse broad reforms of the system. The puzzle that intrigued economists in the 1950s and 1960s was the failure of health care to display the properties of “normal” markets. merit pay for teachers. won the ear of the administration’s health advisors by pinpointing “the” problem: the ill-advised conjunction of fee-for-service practice and third-party payment generated faulty incentives for consumers and providers.
The resulting internal eΩciencies of the health plans would lower costs for their enrollees and. would integrate the essential elements of market forces—choice. The policy makers promoting HMOs within the administration and. their incentives were to keep subscribers healthy. such as the Kaiser-Permanente Health Plan. then in the surrounding system. and incentives— to slow costs and improve health (Brown 1983a). in Congress hoped that this ingenious variation on market themes would achieve. ﬁrst in Medicare. The HMO strategy was far more innovative and politically appealing than crude moral hazard models that restored market forces by compelling consumers— the sick no less than the healthy—to pay more out of pocket for the care they sought. prepaid group practices. motivate traditional competitors such as Blue Cross to improve lest they lose market share to the HMOs. and progress in closing gaps in coverage. In Ellwood’s view. no public utility regulation. not merely treat them once they got sick—hence their credulous rechristening as “health maintenance organizations. and transportation was not unanimous. Skeptics included a hardy band of pragmatic economists fo- . and no battles with beneﬁciaries in Medicare and Medicaid. in turn. Ellwood and other promoters of expanding markets in health care contended that prepaid group practices reversed illogical ﬁnancial incentives by incorporating delivery and insurance within one organization and by employing physicians or contracting with physician groups that employed them.52 CHAPTER THREE icaid programs. education. soon enough. the health care holy grail—control over the rapid escalation of costs. Because prepaid groups contracted to supply comprehensive care to subscribers within a global budget derived from premiums. Promoting HMOs entailed no comprehensive reforms. competition. preventive care. The strategy “simply” opened new choices to consumers and extended the range of competitive players within an already competitive health insurance market. The conviction that markets were an all-purpose answer to the challenges in health.” Modest sums of federal aid would suΩce to encourage entrepreneurial medical reformers to launch HMOs across the land.
Education researchers cautioned that introducing markets was not a magic bullet for improving the performance of schools and pointed to hurdles such as ﬁnancial cost. and transportation would produce better outcomes and downsize government regulation and bureaucracy. Senate hearings convened by Senator Edward Kennedy (D-Mass. The Legislative Turn to Private Markets for Public Ends Policy makers in both political parties welcomed promises that the promotion of choice and competition in education. and market promoters rose skillfully to the occasion. community resistance to residential migration (would America’s suburbs welcome inner-city African American children?). These skeptics noted that competition might bring ﬁnancial instability to the airline industry. TRANSP O RTATI O N . and the social deprivations students bring with them to school. and cost was quite another.MARKET UTOPIANISM 53 cused on the institutional dynamics of markets and the progressive role of government in sustaining the allocation of resources.) served as a launching pad for airline deregulation: they heavily advertised the work of academic . New government programs and responsibilities adopted during the Great Society gave Republicans and moderate Democrats considerable angst over ﬁnancial costs and alleged threats to self-reliance among individuals and communities. Airline regulation diminished more or less in tandem with that of trucks and trains. for example. and that market forces were a most implausible corrective for the ills of the nation’s passenger rail systems. health. In any case. the risks were too small to warrant forgoing the large gains in social utility that freer market forces promised. giving consumers new choices between HMOs and conventional plans and among competing HMOs themselves was one thing. Market promoters assured skeptics that savvy market players were attuned to incentives and would learn how to manage risks. access. Likewise. Policy makers were receptive to importing the virtues of private markets into government programs. giving them the information they want and need to make informed trade-o∏s among quality.
In the closing days of the Carter administration in 1980. which monitors safety. which phased out the agency altogether. 325. Congress passed both the Motor Carrier Act and the Staggers Rail Act. demonstrated support for deregulation among a range of executive branch agencies. surrendering the regulatory ﬁeld to the Federal Aviation Administration. which called for consumer empowerment. an advocate of competition appointed by President Gerald Ford to head the CAB began winding down the regulatory regime in airline travel. and put stakeholders in the existing system on the defensive (Breyer 1982. the ICC had gone out of business: most federal regulatory controls over the railroads ceased. to ease the agency into oblivion. new leadership at the ICC began. made the issue “politically visible and live” to the public and the media. a process soon accelerated by the Airline Deregulation Act of 1978. Trucking and railroads were also hit by the wave of deregulation. to encourage competition in these industries. which took aim at provider dominance and allegedly unwarranted government interposition. including the Department of Transportation. pp. By the 1990s. it meant lower fares.) Three political forces propelled the decline and fall of regulation in the transportation sectors. Deregulation promised something for (almost) everyone: “It was a ‘proconsumer’ issue. 333. with the encouragement of President Gerald Ford. First. and the right. it was an ‘anti-inﬂation’ issue. (Regulation of railroad pricing and mergers was transferred to the independent Surface Transportation Board in the Department of Transportation [DOT] and its authority over trucking— especially licensing—was moved to DOT’s Federal Highway Administration. it . In 1975. 329. 339). p. President Jimmy Carter chose Alfred Kahn. the Council on Wage and Price Stability. the Council of Economic Advisors. and the Federal Trade Commission. one of academe’s sharpest critics of regulation. the Department of Justice. which further promoted competition and weakened the ICC. leaving the industry “fully competitive” (Moore 2002.54 CHAPTER THREE critics of regulation. 7). and intrastate rules on trucking were lifted. In 1984 the CAB expired. regulation came under bipolar ideological assault from the left. In 1976.
Assorted programs to permit choice of schools have made headway at the local. 151). Third. Participating parents got a voucher equal to their public school’s per pupil costs for children in kindergarten through twelfth grade. internal splits and strategic faux pas by self-protective ﬁrms and unions markedly reduced their inﬂuence. the cities of Milwaukee and Cleveland adopted much-noticed and controversial programs to pay tuition for private schools (including religious institutions). The airline industry’s opposition to deregulation “thoroughly collapsed” even as Congress addressed the issue. and national levels of government. and many Republicans. the proposition that competition was preferable to continuing regulation carried the day. and the trucking industry’s deﬁance eventually gave way (Derthick and Quirk 1985. p. and less government. it was a ‘less bureaucracy / less regulation / less governmental control’ issue. regulatory reform. the combination of more competition and less government in transportation won staunch support from presidents Ford.MARKET UTOPIANISM 55 was a ‘major regulatory reform’ issue. With Congress and most state legislatures deadlocked over the constitutionality of public payments to private religious schools. 339). vouchers preserve government ﬁnancing of education but shift its delivery to the private sector. The ensuing legislative coalition embraced not only Ted Kennedy but also Howard Cannon (D-Nev. state. lower prices. . In the most aggressive challenge to public education. and a wide range of federal agencies that saw (or were persuaded to see) deregulation as consistent with their missions. all in one package” (Breyer 1982. Second. faithful friend of the Teamsters. In the 1990s. launched in the EDUCATIO N .).” In short deregulation allowed policy makers to promise “concrete achievement. p. Milwaukee’s Parental Choice Program began in the 1990–1991 school year and then expanded in 1995 to include schools with religious aΩliations. The Cleveland Scholarship and Tutoring Program. and Reagan. As these political and policy streams converged. Carter. Government funds parents to pay all or some of the costs their children incur when attending a private school or purchasing supplementary educational or tutorial services.
an ingredient in the Cleveland Scholarship and Tutoring Program. Coverdell Education Savings Accounts o∏er tax deductions or credits for income used to pay for elementary and secondary education expenses. The program. performance measures. parents. In the face of persistent battles over the constitutionality of government payments to religious institutions. Charter schools also found increasing favor among state legislatures. seven years after the program began. a number of states created “internal” markets within the public school system. . Expanded choice went beyond vouchers. or other organizers. Since Minnesota ﬁrst authorized charter schools in 1991. Beginning with Minnesota’s 1987 legislation. these schools are granted substantial leeway from state regulations to fashion innovative curriculums. Such choice was. which allowed lower-income students to choose public schools in districts adjacent to the city school district. forty states and the District of Columbia followed suit. students have been allowed to choose among public schools across districts.56 CHAPTER THREE 1996–1997 school year. state education boards. and management and ﬁnancial practices (Buckley and Schneider 2007). participating private schools agreed not to charge parents more than 10 percent of the tuition cost. Alas. Although they remain within the public school system. which are speciﬁed in a “charter” that addresses study plans. in principle. set its voucher at up to 90 percent of the cost of tuition. no adjacent public school had accepted such students. Charter schools are sponsored and supervised by local school boards. who are mainly poor and black (Smole 2002). Other districts encouraged unsubsidized choice among magnet and “alternative” schools within the home districts of students. For example. regardless of where they lived. the federal government has worked to promote school choice. made grants to students from low-income families in kindergarten through third grade to allow them to attend private schools (including those with religious ties) within the boundaries of the Cleveland City School District. or other public authorities and run by teachers. In addition to vouchers and charter schools. which extended to eighth grade for accepted students.
Charter schools.500 in 2006. p.” fall victim to violent crimes. or go to schools deemed unsafe. In 2004-2005. NCLB also compels states to o∏er choices to students who attend schools that fail to make “adequate yearly progress. religious schools.” Nevertheless. on June 27. D. and internal markets are having an impact. p. Last. schools were charter schools. bold statements about “revolutions” are grossly inﬂated. Supreme Court gave school choice a powerful thrust by ruling. for instance. and surely not least. Eligible students are expected to be given a range of choices within their public school districts and extra tutorial services from providers of their choice.. The Milwaukee and Cleveland . School choice strategies based on vouchers. 202). and the challenge of school choice to the public status quo in education is laying foundations that may be built upon in the future (Mettler and Soss 2004). Simmons-Harris found that Cleveland’s public funding of school vouchers for children attending religiously aΩliated schools was constitutional so long as parents also had the opportunity to select among public and private secular schools. have grown in number from 100 in 1995 to more than 3. Buckley and Schneider (2007. only 4 percent of U. Although government’s role in education remains dominant. they conjecture. for example. the size and scope of the private sector and the options for choice among schools are expanding.S. and now serve more than one million students (Buckley and Schneider 2007. The Act authorizes increased funds to start and support charter schools (Smole 2002). 1). that public school vouchers may.MARKET UTOPIANISM 57 Federal support for school choice expanded substantially on January 8. The result. 2002. 2002. the U. The Court’s decision in Zelman v. are more satisﬁed than those without choices. charter schools. School choice still reaches only a small portion of students who attend public schools.C.S. be used in private. believe that the basic test of market payo∏ (“greater consumer satisfaction”) has been met—parents choosing their children’s schools in Washington. under speciﬁed conditions. is that that “charter parents may represent a political force for the further expansion of choice. when President Bush signed the No Child Left Behind Act (NCLB).
conﬂicting goals and emerging tensions among those who initially supported the reforms threaten the future expansion of school choice. and choices were often based on criteria other than the quality of education. p. Moreoever. the Republican-controlled legislature three times voted to ease or remove caps on enrollment in the voucher program and the Democratic Governor vetoed the legislation each time.” 43 percent supported charter schools.000 had enrolled in the program. the vouchers do not cover sizable nontuition costs. Among “school choice organizations. for example. which in the absence of proper oversight allegedly used public funds for private proﬁt (Heritage Foundation. In Wisconsin.58 CHAPTER THREE voucher programs can accept only a limited number of students. 37 percent endorsed vouchers. p. After eight years. 40 percent selected scholarships. a feature that may powerfully skew choice by obliging low-income parents to select low-tuition religious schools.000 students (more than 70 percent of them in religious schools). only about 4. if anything. Political controversy over choice had.825 students of the 15. In 2005.600 students had left the public schools. Milwaukee’s voucher program had 130 participating schools and about 15. and 27 per- .d.000 eligible within the city’s student body of 104. intensiﬁed. which had been made eligible for selection in 1995. In 2007. as do 80 percent of Cleveland’s voucher students (MacInnes 2003b. Of these. who must come from low-income families that are presumably least well served by the public system.). only 5. Ohio’s Governor proposed that the state’s “undemocratic” voucher program be eliminated and that a moratorium be placed on new charter schools. 36). One survey showed that proponents of choice split widely among competing strategies. 23 percent opted for magnet schools. Customer response in Milwaukee has been underwhelming. Then again. 35 percent favored tuition tax credits. 103). n. schools were stingy with information to guide shoppers. But the old issues lingered: parental shopping for schools was rare. which means that less than 5 percent of eligible parents had opted to remove their children from those schools (MacInnes 2003a. As of 1998–1999. fully 40 percent had already been attending religious schools.
One vision of better schooling links education to “mature Christian expression . for example. 211. Blacks. Then again. p. 57. As the program proceeded. the promoters of the di∏erent forms of school choice are more competitive than complementary. First.” Because whites pushed school choice solely to help white schools. Milwaukee’s ambitious voucher program. 201–202. she concluded. school choice means many things to many people. the full armor of God. as do Lutherans and Catholics.MARKET UTOPIANISM 59 cent went for “other. pp. Some religious leaders argue that the . 126. racial tensions are intensifying. may unravel in the face of at least four distinct divisions and conﬂicts. targeted vouchers were a preferable strategy (Morken and Formicola 1999. [and] the power of prayer. should have their own schools. These ﬁgures reveal an “internal lack of cohesion” (Morken and Formicola 1999. Tax credits and vouchers threaten charters. pp. pp. drew strength from an alliance of Wisconsin’s Republican governor Tommy Thompson and Milwaukee black activist Polly Williams. Williams grew “deeply alienated” from it.” Fully 43 percent of organizations with budgets over $1 million supported “other” or their own particular types of school choice. religion has fuelled private schools but also injects potentially contentious issues into the school choice debate. Like HMOs (which spanned arrangements from classic prepaid group practices such as Kaiser-Permanente to improvised. The growth of charter schools might hurt parochial schools. Second. Meanwhile. 279).” all conveyed by low-paid teachers driven by a sense of ministry and mission (Morken and Formicola 1999. views within the black community have splintered as other African American leaders stepped forward to support charter schools or smaller schools with smaller classes (Morken and Formicola 1999. the threat of vouchers might leverage the growth of charters (Morken and Formicola 1999. without answering to “white outsiders. loosely integrated independent practice associations). 216). . 207). 166). she contended. however. Third. 214). often odd from the start. 204. As government money and rules have started to ﬂow to di∏erent options. . School choice coalitions. p. the classic political battle over who gets what has ﬂourished.
after all (though biblical exegeses on tax credits are rather murky). California. argues against making “broad claims regarding the promise of competition” (p. p. and protecting teachers from the threat of losing their jobs (Henig 1994. Teachers and their unions. p. To advance his agenda for . This conﬂict among goals. which are anchored in “the authentically religious perspective” rather than in. for instance. eased fears among educators by excluding private schools. Such dogmatism understandably troubles proponents of school choice who see the primary goal of choice as improvement in educational attainment or better preparation of students to excel in a complex. Some religious supporters of choice think it deplorable. To characterize school choice as “the new pluralism” (Morken and Formicola 1999. a broad canvassing of philosophical (including secular humanist) wisdom (Morken and Formicola 1999. 241). 175). 71). A fourth dimension of conﬂict stems from the demands of providers. globalizing world. p. The intense demand to deploy public funds for education to advance particular religious views seeks an objective very di∏erent from the secular motivation of improving educational attainment as measured by standard achievement tests. 171). say. Hess (2002) observes. the Alum Rock voucher experiment in San Jose. on which they depend. p. assuring that no public schools would be closed because they lost business. pp. as well as school heads. 189) is at best a superﬁcial half-truth: the goal is new options with which to preclude and exclude a diversity of viewpoints and practices. Some insist that chosen schools teach “morals” (as public schools allegedly do not).60 CHAPTER THREE government should provide tax credits or public revenues to their schools with “no control and few restraints” (Morken and Formicola 1999. pose questions and raise objections intended to turn the opinion of the public and the votes of politicians against choice proposals that threaten the status quo. For example. The Bible declares that education is a parental duty. 237–238). Innovations in school choice often respond—at least to some degree—to the intense preferences of providers. that Milwaukee’s voucher law lets students opt out of chapel (Morken and Formicola 1999.
school choice reﬂects “conﬂict and accommodation among shifting and competing goals” (Henig 1994. voiced with all the vitriol and political force organized medicine could muster. This is a recipe for short-term progress that may yield to longer range friction and disa∏ection within tenuous coalitions. and private schools with a “public-schools-only emphasis” on choice (Henig 1994.MARKET UTOPIANISM 61 school choice. Minnesota pioneered the charter school movement but did not “relinquish public-sector responsibility in favor of reliance on market forces. however. p. President Ronald Reagan was obliged to beat a “strategic retreat” that replaced a push for vouchers. 114).” About half the states with charter schools had “very weak laws that do not give [them] much discretion at all” (Henig 1994. 79). opponents of HMOs contended that this model of medical organization violated norms of ethics and fairness because HMOs gave providers ﬁnancial incentives to underserve their patients and saddled “mainstream” caregivers with competition from closed panel groups employed by insurance plans. unfair. The Nixon administration’s proposal to use prepaid group plans to reorganize the health care system by means of consumer choice. but the administration concluded that the AMA had (as one put it) “shot its wad on Medicare” and pushed ahead . and correct incentives for providers met bitter protest from the American Medical Association (AMA). These compromises reﬂect political and institutional realities. 227–228). tax credits. providers can no more be sidelined or ignored than the law of gravity can be repealed. the federal government had tasted the ﬁscal consequences of the Medicare and Medicaid programs it had enacted ﬁve years earlier and faced forecasts for “uncontrollable” growth in coming years. stiﬂed the spread of managed care for decades. Likewise. HEALTH . These arguments appeared in the earliest days of prepaid group practice in the 1920s and. In practice then. and possibly unconstitutional because it subjected public schools to competition from better-funded private alternatives. Critics of school choice complained that it was unethical. p. By 1970. competition among insurers. pp.
potholes. insurers viewed them as an unfamiliar business in which they risked losing large sums. managed care di∏used slowly and unsteadily as national policy makers and local HMO entrepreneurs labored to deﬁne what managed care “really” meant. Nixon signed legislation that gave federal grants and loans to HMOs. lightly regulated entities that could spring up in many communities with small sums of federal start-up capital. 257). employers saw little reason to complicate their employee beneﬁt packages by o∏ering them. Whereas Nixon’s administration.62 CHAPTER THREE (Brown 1983a. however. the nature and appeal of HMOs lay largely in the eyes of diverse beholders. In the mid-1980s. wanted loosely deﬁned. the tide began to turn for reasons still not fully explored and explained. broader “rationalizing” policies such as national health insurance. Supporters of the Nixon administration’s approach embraced HMOs as much for what they avoided—cuts in Medicare and Medicaid beneﬁts. consumers resisted HMOs because they restricted their free choice of providers.” Some students of the American health system worried that the marketist proposals for managed care might be marked by detours. ﬁrmly regulated plans that would enjoy billions of dollars of federal support and mount a two-ﬁsted challenge to the dominant system of fee-for-service medicine (Brown 1983). p. Organizational innovation within the HMO industry spawned an alphabet soup of decidedly unKaiser-like hybrids—independent practice associations. and surprises. Well into the 1980s. In 1973. for example. launching a national movement toward what would come to be called “managed care. point of service plans—that reassured con- . and providers continued to deplore and denigrate them as an indefensible infringement on their clinical decisions and earnings. Evidence that prepaid group practices such as Kaiser-Permanante delivered good care at prices below those of fee-for-service. preferred provider organizations.” As the protracted congressional debates over the legislation showed during the Nixon presidency. Like school choice. Senator Edward Kennedy envisioned elaborately deﬁned. third-party insurers was uncritically extrapolated to a broad and ill-deﬁned universe of “HMOs. and heavier regulation of the health care system—as for what they purported to o∏er.
and states rushed to embrace it. Until the late 1980s. managed care was the most appealing Medicaid reform on hand. managed care had become the norm in the private sector. run. federal and state policy makers took aim at the limited penetration of a stratagem that had been conceived in hopes of slowing the growth of costs in Medicare (and Medicaid). As managed care set down private roots. In this context. Jimmy Carter’s ambitious hospital cost containment plan of 1978–1980) collapsed. and might prosper ﬁnancially by underserving them. however. Insurers began to picture ﬁnancial windfalls as they gained management experience with HMOs. Competition within a market of private and public HMOs bidding for a state’s Medicaid business was held out as a promising . three considerations had changed many minds across the federal system: Medicaid costs kept rising quickly and claimed large shares of state budgets. raising the question of why government beneﬁciaries should be treated di∏erently. managed care in all its sundry and amorphous incarnations had largely replaced older fee-for-service indemnity models of coverage and care in the private (employer-based) sector. savored huge savings that could follow from reducing (that is.MARKET UTOPIANISM 63 sumers who wanted to retain a broad choice of physicians and hospitals. and now readily found backing from equity investors eager to get in on the ground ﬂoor and build market share quickly. and even own them. and multiple health problems (sometimes including mental illness and substance abuse) should not be “locked into” HMOs that lacked experience treating these complex case loads. By 1990. By about 1990. form. limited literacy. “managing”) expensive and “excessive” inpatient and specialist care. states largely deferred to critics who warned that disadvantaged populations su∏ering from poverty. social dislocation. Providers concluded that managed care plans were not about to disappear and that prudence counseled them to join. abridged their freedom of choice. Employers listened more attentively to policy analysts who tirelessly touted the merits of market-based alternatives as health costs continued to rise and as government e∏orts to control costs (most notably. and access to and the quality of care in traditional Medicaid programs seemed to be faltering badly.
Determined to avoid such old Democratic bugaboos as higher taxes and heavier regulation. During the 1970s. Congress stymied this reform route by insisting that the Medicare statute forbade abridgment of free choice of provider in all but highly exceptional circumstances. it was after all the initial inspiration for introducing managed care to government programs as a cost-containment strategy. By the end of the 1990s. the Reagan administration secured a softening of these legislative strictures and vigorously promoted HMOs to the elderly. The plan failed to pass or even to get a vote in Congress largely because governmental management of market competition among managed care plans enjoyed no partisan or ideological constituency—the right resented excessive government. but market promoters were in for a surprise.” The new program aimed to entice Medicare beneﬁciaries into HMOs by o∏ering broader beneﬁts such as outpatient prescription drug coverage. maintain high quality (lest state regulators and / or prudent purchasing by Medicaid consumers shift enrollees away from under performers). The ensuing increase in Medicare HMO enrollment rates to 16 percent looked like a harbinger of transformations to come. but HMO penetration among seniors stagnated at around 10 percent. Federal promotion of managed care advanced in 1997 when a Republican-led Congress created “Medicare Plus Choice. Medicare remained the primary focus of federal policy makers.64 CHAPTER THREE approach for inducing new providers to serve the program’s beneﬁciaries. more than half of Medicaid beneﬁciaries were enrolled in managed care. Clinton crafted a plan in which managed competition among managed care plans would yield savings suΩcient to bring coverage to the nation’s forty million uninsured residents and return money to the Treasury for deﬁcit reduction. and the left rejected excessive reliance on markets. As the 1980s began. Democratic President Bill Clinton gave managed care new prominence on the federal agenda by making it the strategic foundation of comprehensive national health reform. Many plans discovered that seniors were more costly to serve than expected and lobbied . In 1993. and slow the ascent of costs all the while.
The embrace of private plans was a notable victory for the right. Policy makers persistently turned to one market-based prescription—make consumers choose among health plans that compete by instilling incentives in medical providers to avoid unnecessary care. When government oΩcials refused to raise rates.e. accepted the premise that these huge sums harbored vast clinical waste. The Medicare Modernization Act created new outpatient prescription drug beneﬁts. the ascendance of managed care did not presuppose artful negotiations with hostile providers. 2007). which had long worked to break the “monopoly” of the federal government in Medicare (Oberlander 2003. The move toward markets in health care was pervasively (and ironically) state driven. Although skeptics warned that the market for Medicare beneﬁciaries was vulnerable to multiple forms of failure. For three decades. in short.S. Government oΩcials looked at their health care budgets and ﬁscal forecasts. agency capture) and painful politics. health care policy was dominated and guided by one diagnosis—that the conjunction of third-party payment and fee-for-service practice is inherently unworkable. Republicans believed in markets and competition as an article of faith and saw in them means by which the haughty health . this strategy attracted odd political bedfellows.MARKET UTOPIANISM 65 the federal government for higher payments. or predictions that the innovation’s scale of penetration would be modest. Democrats (or at least “New Democrats”) saw managed care as a credible rejoinder to conservative attacks on “big government” and threats to cut eligibility and beneﬁts in public programs. and cheerfully designated unmanaged competition among managed care organizations as the battle plan for controlling costs. an objective the left had sought for decades. some plans exited the Medicare market. As in the case of school choice. leaving tens of thousands in limbo. assurances that a∏ected interests would not lose money.. the debate over U. but supplied them by means of competing private plans. reformers resumed their crusade to expand markets in 2003. embraced the view that aggressive public regulation meant bad policy (i. Unlike the rise of school choice.
. political. Democrats and Republicans alike welcomed the chance to weaken the hegemony of organized medicine. Although market theory sketched seductive solutions to challenges in health care. education. thus forestalling new increments of public regulation. Policy makers felt compelled to respond. and electoral realities. they scrambled to secure essential public goods and to prevent breakdowns in the services that Americans expected without entirely jettisoning increasingly troubled market reforms. and transportation.66 CHAPTER THREE establishment could be made to honor “normal” market forces. As the next chapter shows. the implementation of the new market-oriented policies soon encountered institutional.
Questions turned into investigations and opposition. This chapter traces the institutional reception given to market reforms and policy makers’ pragmatic retreat. details of institutional performance. Grand Theory Meets Institutional Reality Lucid models of markets that would deliver more and better services at lower costs worked wonderfully in building coalitions. The trouble emerged in the many. and launching new policies. and complex organizations reach decisions and behave in ways that do not always follow the script. journalists. citizens. providers. 67 . education.4 Cycles of Reform Institutional Reality and the Dystopia of Markets Implementation of new initiatives to foster choice and competition through markets in health care. and transportation brought a disconcerting revelation: institutions mediate the translation of market theory into policy practice. which attracted the attention of politicians who found their oΩces on the receiving end of complaints from constituents. Chalkboard models and grand theory receded as Republican and Democratic oΩcials hastened to respond. The market model had missed something important: consumers. advocates. and (of course) special interests questioned whether the public interest was well served. As the new day of dynamic markets dawned. winning oΩcial support. The incentives that were expected to accompany competition did not consistently appear on cue. often arcane.
the individuals and ﬁrms that su∏ered these reductions in transportation saw damage to a critical public good in their communities. p. deregulation and its widened markets generated a mix of costs and beneﬁts that left more than a few experts recommending that regulation be revisited and perhaps partly restored. 25–26). “will no longer be served in a privatized. The ﬁrst is the perceived need to “control anti-competitive behavior .” according to one historical review (Dempsey 1989. An evaluation of deregulation a decade later concluded that “the need for some supervision of the economic environment remains—and actually may increase” (Oster and Strong 2000. p. . p. observers warn that private ﬁrms seeking “to reduce costs and increase proﬁts will reduce expenditures or ‘cut corners’ on safety” (Oster and Strong 2000. one study predicted. although arguments for freer markets and less government in transportation often rest narrowly on economic savings for consumers. especially for railroads and air travel. 26). . Third. pp. Decreased service makes sense for the bottom lines of private ﬁrms. and prevent the acquisition and exploitation of market power” (Oster and Strong 2000. 26). Analysts highlight four consequences of deregulation and expanded markets that trigger pressures for new government intervention. For instance. Many money-losing operations. the pace of mergers and the decline of profits and services had stiﬂed the initial “euphoria. These consumers are also voters whose complaints understandably caught the attention of their representatives in government. 28). 25–26). By the end of the 1980s. large airline carriers have sometimes exploited their market dominance to set high fees while cutting the quality of service. Although advocates of markets may view these outcomes as a step toward more eΩcient allocations of resources. but transportation also serves important social purposes such as preventing the further collapse of rural America. Deregulation may nega- . competitive market” (Oster and Strong 2000. pp. A second source of pressure for a larger government role in transportation is the reduction in service and access for small markets that ensued after deregulation.68 CHAPTER FOUR Transportation In transportation.
INSTITUTIONAL REALIT Y
tively a∏ect the environment “through noise, congestion, or air and
water pollution” (Oster and Strong 2000, p. 26). It may also have
indirect impacts; the advent of deregulation prompted a decline in
passenger rail service, which led to “[environmental] deterioration
brought about by the road and the car” (Richmond 2001, p. 153).
The threats to human safety and the environment that have followed deregulation and expanded markets typify a common form
of market failure long familiar to economists—namely, “negative
externalities” in which private exchanges between buyers and
sellers hurt uninvolved third parties. The emergence of negative
externalities was not obscure or hypothetical. For example, the
New York Times began in 2004 a scathing ﬁfteen-month series,
“Death on the Tracks,” that investigated the breakdown of safety
in the operation of railroads (Bogdanich 2004). The articles gave
graphic accounts of faulty road crossings and inadequate oversight
of the transportation of potentially dangerous chemicals through
densely populated neighborhoods. The reporter, Walt Bogdanich,
won a Pulitzer in 2005, and the U.S. Transportation Department
investigated the ine∏ective oversight of railway safety by federal
Fourth, the deregulators’ proclamations of improved eΩciency
and gains for consumers slighted the impact on the economic circumstances of the transportation workforce, notably a decline in
wages large enough to constitute what one observer termed “a disconnect between eΩciency and ethics.” A study of decisions by ﬁve
cities to contract with private suppliers of public transit found that
because the “primary focus” was saving money, transit boards largely
stayed aloof from wage negotiations, leaving it to contractors to establish “market rates.” But contracts went to the lowest bidder, and
private contractors set pay levels very low, in one case below the region’s poverty level. Bent on providing “the most service at the least
cost,” the contractor and public oversight body were not “ethically
disturbed by the concept of a public agency o∏ering compensation
that is inadequate for a basic standard of living” (Richmond 2001,
This downward impact on wages also hit airline employees and
truckers. In the airline industry, declining earnings of ﬂight attendants and pilots generated dissatisfaction among workers (and travelers) as carriers maneuvered for leverage lest they go under in the
brave new world of open competition (Cremieux 1996). In trucking, deregulation precipitated a sharp decline in wages and in the
unionization of drivers (Belman and Monaco 2001). One side of the
ledger records impressive savings, but the other side depicts a blow
to working families and to consumers who su∏ered disruptions of
service. These accumulating critiques shaped continuing debates
about transportation policy.
Deregulation of airlines has unquestionably produced
tangible beneﬁts. One glowing account, for example, cites the larger
number of carriers and lower airfares since the 1970s as evidence that
the industry has “ﬂourished” and that “the market works much better free from government controls than with government oversight”
(Moore 2002, p. 13).
The costs of deregulation are far from negligible, however. According to one scholarly study, twenty years of empirical evidence
and academic research make it clear that “several of the key theoretical foundations upon which deregulation was based were ﬂawed”
(Goetz 2002, p. 1; U.S. DOT 2001). Large “hub and spoke” operations impair “contestability” in some airline markets and encourage
industry concentration and single-carrier dominance, which favor
high fares. A striking regional bifurcation appears between low-fare
regions, in which Southwest Airlines, Jet Blue, and other lower-cost
entrants apply competitive pressure, and high-fare venues in the
Southeast, Northeast, and Upper Midwest where “fortress” hub
airports reign (Goetz 2002). In May 1999, the U.S. Department of
Justice ﬁled suit against American Airlines for allegedly engaging
in predatory behavior that obstructed the entry of new low-cost
airlines into its markets. The woes of passengers are aggravated by
poor service—cancellations, delays, interminable waits on the tarmac, bumping, and lost luggage—prompting Congress and some
states to consider enacting a “travelers’ bill of rights.”
In 2001, nearly thirty years after deregulation arrived, the DepartAIRLIN E S .
INSTITUTIONAL REALIT Y
ment of Transportation in the market-friendly administration of
George W. Bush warned that the “real threat to deregulation [is] the
use by dominant airlines of their market power to end competition
. . . [and the prospect that] community groups and consumers will
demand that Government regulate fares and service”—a forecast
that looked prescient indeed in the summer of 2007. If, as one study
contends, the forces driving industry consolidation are “inexorable,”
some measure of re-regulation may be only a matter of time (Goetz
2002, p. 17).
TRU CKIN G . Precisely because the trucking industry is now “one
of the most competitive industries in the U.S,” government has
been obliged to increase its regulatory reach. Just as the end of
the Civil Aeronautics Board did not avert the need for the Federal
Aviation Administration (FAA) in the airline sector, so too deregulated trucking triggered pressures for government oversight and
rule setting on a host of issues—certiﬁcation of drivers, testing
for drug and alcohol use, handling of hazardous wastes, and assuring proper use of equipment. One analyst argues that in trucking,
deregulation has moved government to implement “even more
such regulation than it would have in the absence of unfettered
markets, making regulation more extensive than ever” (Belzer 2002,
In 2000, the Surface Transportation Board, which inherited regulatory authority over rail transport from the Interstate
Commerce Commission (ICC), reported that deregulation had
produced “signiﬁcant economic eΩciency beneﬁts, most notably,
rapid productivity growth that enabled railroads to become ﬁnancially stronger while lowering average rate levels” (quoted in Moore
2002, p. 8). In rail as in air, however, regions that lack competition
complain of high prices and uneven service. Two decades after the
Staggers Rail Act passed, a study in Transportation Quarterly found
the industry “in turmoil” and noted “talk of turning back the clock
20 years—and re-regulating the railroads” (Larson and Spraggins
2000, p. 31).
In economic theory, freeing up the market induces competitive
leanness; in institutional practice, industry dominance is at least as
likely an outcome. Curtailment of the ICC’s powers invited railroad
mergers and consolidations in the 1980s and 1990s. Although studies
in the mid-1980s cheerfully reported that deregulation had lowered
costs and improved service by encouraging upgrades in the speed,
reliability, and supply of rail cars, by the end of the decade Congress
was considering reintroduction of many of the ICC’s powers (Larson
and Spraggins 2000, pp. 34–35). As the twenty-ﬁrst century began,
shippers who paid exorbitant charges because they had no choice
among rival railroads made plain their contempt for the magic of
competition, and urged the government to compel railroads to allow competing operations to run on their tracks. Meanwhile, one
study added insult to injury by disputing the received wisdom that
government meddling had driven prices too high before deregulation. Citing ﬂaws in such calculations, Boyer (1987, pp. 408–409)
contended that regulatory distortions “were not serious.”
Contemporary patterns in transportation seem to be following a
familiar arc in the long history of government intervention to protect citizens (and industries) from unrestrained market forces that
had run amok. When prices reﬂect “the level of competition in the
market rather than the cost of providing service,” government has
repeatedly intervened to mollify popular and private demands to
“protect the public and the transportation industry from the ravages of economic instability and exploitation.” Far from sullying
a pristine economic status quo, government steps in to end “ruinous rate wars . . . designed to drive competitors out of business
. . . [and] price ﬁxing and pooling agreements, whereby carriers in
competitive markets would agree to raise prices and pool revenue
and freight [so that] rates soared” (Dempsey 1989, pp. 8–13). Taking
the long view, one historian of transportation discerns both déjà vu
(an industry cycling from laissez-faire through a century of government regulation and back to the “unconstrained free market”) and a
predictable coda—excesses of the market that preceded regulation
“have reappeared under deregulation” (Dempsey 1989, p. 1).
INSTITUTIONAL REALIT Y 73 Education Rhetoric about choice and empowerment helped to build a broad coalition to win government funds and authorization for school choice. Early ﬁgures from the Government Accounting OΩce estimated that state budgets would face charges of $1. The implementation of school choice programs gave researchers a chance to study their progress on the ground. Demonstrating the impact on student performance of school choice reforms.3 billion to develop and administer the new tests required by No Child Left Behind (NCLB. Some taxpayers and legislators wonder whether this intensive testing of students to detect improvement in their performance yields value for money. Dillon 2003). including vouchers. diΩcult.9–$5. Conservative icon Charles Murray (2006) complained in the Wall Street Journal that President Bush’s NCLB program relies on “uninformative” and “deceptive” testing. The building block of school choice models is parents. Collecting accurate and useful information on the performance of students has proven to be costly. school choice emerged less as an idea whose time had come than as a motley crew of ideas ﬁghting for prominence and dominance. A fair reading of the evidence failed to o∏er much encouragement that choice would soon vanquish the public education status quo in a dramatic institutional analogy to. say. pp. Test results generate meaningless statistics that states hype in response WHERE IS THE HARD DATA ON PERFORMANCE? . Questioned and challenged. and controversial even among conservatives who favor market approaches. is but one of several hurdles. however. In reality. 86. parents often lack accurate information to evaluate their options (Van Dunk and Dickman 2003. and it must be accurate and credible if parents are to be empowered and schools held accountable. NCLB focuses schools on “teaching to the test” at the cost of core classroom instruction. both intensiﬁed opposition and fragmented supporters. The implementation of school choice initiatives. But information must be available. 95). the mainstreaming of managed medical care.
Education Department’s analyses of math and reading scores demonstrate that di∏erences between students in public and private schools are not consistently signiﬁcant after controlling for social and economic factors such as the education and income of parents (Braun. A control group in public schools was reported to have scored six points lower on the tests. p. which found in 1966 that U. a1.74 CHAPTER FOUR to “powerful incentives to show progress” and avoid costly sanctions (Dillon 2003. Although Peterson has not issued a substantive public rejoinder.). Jenkins. David Meyers. methods. and controls that best guide improvements in pupil performance. p. a12. schools were highly segregated and unequal. and charter schools and challenged “magical thinking” that seeks improved education by . The interpretation of what test results mean remains controversial. analysts still disagree over what can be said scientiﬁcally about the data.S. a27). When Princeton economist Alan Krueger reanalyzed the data. Impartial studies of test scores challenge the familiar claim that private schools are superior to the “hopelessly defective” public schools. The U. public. he found no evidence for Peterson’s conclusion. One key variable—a “harsh environment” for students— is especially mysterious and refractory. school choice enthusiast and Harvard Professor Paul Peterson released a study with a Mathematica research partner. Peterson pitched these results as proof that vouchers work. p. a message that was then eagerly disseminated by conservative editorial writers and columnists including William Saﬁre in the New York Times.S.” and warned that this was “not a study I’d want to use to make public policy” (Winerip 2003. Meyers accepted Krueger’s analysis. The New York Times (2006) editorialized that these results conﬁrmed the wide variation across private. and Grigg 2006). Murray 2006. What is the value of market reforms that do not properly control for environmental inﬂuences when trying to gauge the independent e∏ects of school choice? In one particularly contentious case. reporting that vouchers substantially increased the test scores of black children by allowing them to attend private schools. More than forty years after the Coleman Report. conceded that the “impact of a voucher o∏er is not statistically signiﬁcant. however.
And insofar as competition did register. p. that showed fourth graders in traditional public schools performing signiﬁcantly better in reading and math than their counterparts in charter schools. The Milwaukee results are sobering given the initially high expectations. Children in the program did not register higher academic achievement than did comparable children outside it. Nor did improvements in reading and math achievement scores accompany the presence of voucher schools in the neighborhood (Henig 1994. Milwaukee’s voucher program.” Although teachers did feel both more “empowered” and more aware of competition. In 2006. schools with voucher schools nearby were “signiﬁcantly less likely to make changes to retain or attract students”—quite the opposite of the anticipated competitive response.” Indeed. School choice generated “enormous enthusiasm among parents and private educators. pp. The federal commissioner of education statistics struggled to put a favorable spin on results that contradicted the hopes of the Bush administration: “We know [charter schools] are not doing harm” (quoted in Schemo 2006. One study reported that “neither voucher nor public school parents appear to be receiving the promised educational beneﬁts of competition through school choice” (Van Dunk and Dickman 2003. public schools “may be less likely to make changes when there are voucher schools nearby. a14)—a startling retreat for a school choice reform that had been heralded for improving student performance. at once the most ambitious and best-examined school choice experiment. 72–73). prepared by the Educational Testing Service in 2003. 236). These recent studies are depressingly consistent with earlier ﬁndings. Public school teachers in Milwaukee reported little change in “teacher autonomy. or responsiveness to parents.” but student achievement . these changes seldom correlated with the competitive pressure of voucher schools in the vicinity. p. o∏ers a case study of initially high hopes that met with modest or disappointing results. the Department of Education released a study. school collaboration.INSTITUTIONAL REALIT Y 75 granting vouchers to attend private schools rather than by producing better-trained teachers.
of course. One reason parents lacked accurate information about their options was that some schools were unhelpful: one-third made it “incredibly diΩcult” for parents seeking information to behave like discerning shoppers (Van Dunk and Dickman 2003. and impede the capacity of market mechanisms to achieve public purposes. I M P L E M E N TAT I O N FA I L U R E A N D M A R K E T T H E O R Y A R E C O N - Market enthusiasts in education—as in transportation and health care—often rejoin that these disappointments reﬂect not shortcomings of the theory but rather failure to implement it properly. and schools did not become more e∏ective (Witte 1996. 128. which reduced incentives for schools to improve their performance and eΩciency. school choice in practice departed sharply from marketist principles. The Wisconsin legislature could. 147. 142–143. pp.76 CHAPTER FOUR failed to rise. pp. they deﬁne the policy world in which education is conducted. The money did not follow the children (Van Dunk and Dickman 2003. Institutions are no mere inconvenience to reformers. Failure to account for them often produces inﬂated expectations. . 186). MORE GOVERNMENT. condition. N EC TED. Nonetheless. 136). and policy disappointments. 130. The complaint has its merits. risky proposals. Indeed the incentives were perverse: schools that failed to attract tuition-paying students could stay aﬂoat by enrolling voucher students. The theory of school choice has neglected the institutional dynamics that mediate. Because the laws governing the funding of schools tended to mute competitive e∏ects. p. Even in Milwaukee. Attention to institutions shows that government regulation and oversight are necessary to foster market dynamics that create a workable program of school choice. 119–120). have ceased to protect the education providers. parental decisions to move their child did not yield ﬁnancial punishment for the schools. but legislators were loath to bear bad tidings to their districts. MORE CHOICE . observers may reasonably ask whether the failure to implement market blue prints reveals unrealistic expectations or ﬂaws in the theory itself.
and—by no means least important—transportation (Henig 1994. Lee and . Catholic Conference capture only a subset of the goals schools are routinely expected to attain. Robert E.S. pp. geography and homemaking. the Arabs and the Israelis.S. p. ﬁrst aid. modern music. or information technology. 155–156). are essential. Will schools enroll students by lottery? Will siblings or children in the parish get preference? Will children with physical or educational handicaps be part of the choice program? Will current or only new students get to choose? Will religious education be allowed? Will students be permitted to opt out of religious requirements? Will teachers of religion be paid teachers’ salaries? Will classes on health and sexuality conform to church teachings? Can Catholic schools handle the burdens of accreditation and teacher certiﬁcation? The Conference warned bishops who may be tempted by choice programs to “review such matters carefully before becoming involved in them” (Morken and Formicola 1999. human resources.INSTITUTIONAL REALIT Y 77 At least ﬁve di∏erent types of interventions. international understanding. 120) cited an educator’s lament over the insistence of one or another group that public schools give more attention to Little League baseball. for instance. health and safety. and local history. A ﬁrst set addresses such “details” as curriculum requirements. Setting policy and administrative procedures for these functions is no mere technical exercise for experts in budgeting. Canada and South America. Spanish in the ﬁrst grade. the collection and dissemination of data. noted the absence of “hierarchical” answers to questions such as. which individually and collectively amount to much more than a package of minimum standards. speech correction. the Turks and the Greeks. sociologist Robert Merton (1996. truth in advertising. The U. pp. mental hygiene. Catholic Conference. world history. Fifty years ago. 175–178). Important constituencies di∏er in their preferences and the intensity with which they hold them. teacher qualiﬁcations and credentials. American history. The concerns of the U. discipline. military preparedness. Christopher Columbus and Leif Ericsson.
dramatics.78 CHAPTER FOUR Woodrow Wilson. cancer prevention. . human relationships. moral values. civil defense. religious literacy. scores on state standardized tests. the 3 Cs. tobacco. 173). consumer education. Helen Ladd. mathematics. All any of them ask is that the nonessentials be dropped in order to get their material in. Each group. temperance. free enterprise. points out that measures of average performance on tests may mislead parents because these scores mainly capture “the socioeconomic status of the average student at school. use of the typewriter and legible penmanship. not all schools can discharge these data-driven duties. labor relations. nutrition. p. Most of them insist that they do not want a special course—they just want their ideas to permeate the entire daily program. the 3 Rs. and student attendance rates (p. the educator observed. Many lack the administrative capacity to process and distribute large amounts of information. ethical concepts. and school choice has further complicated the deﬁnition of school achievement. and . care of the teeth. narcotics. thrift. for instance. and the challenges facing parents who seek to buy it. law observance. 11).” not the school’s contribution to learning (cited in Buckley and Schneider 2007. atomic energy. the school’s governing structure. physical ﬁtness. the ability of schools to evaluate it. qualiﬁcations of teachers and administrators. methods of teaching. kindness to animals. “is anxious to avoid overloading the curriculum. Esperanto. the mission and philosophy of schools. the number of students suspended and expelled each year. phonics. the use of ﬁrearms. graduation rates. The second form of government scrutiny and intervention arises from the challenge of compiling and distributing accurate and useable information.” The list of goals pressed on schools has grown longer in the last ﬁve decades. how money is budgeted and spent. the Constitution. and the four Fs. ceramics. Whatever the merits of such metrics. physics. Van Dunk and Dickman (2003) insist that schools participating in choice programs should make public information on curriculum. so govern- . . Whether such numbers are more than statistically signiﬁcant is not always plain.
p. A fourth challenge is how (if at all) to steer schools toward “real” change in educational practice instead of superﬁcial enhancements in the schools’ public imagery. to gather the required information . and New Zealand . ﬂexible. and e∏ective to induce schools to improve student learning. and regulation. not mom-and-pop shops. Even an eΩcient administrative structure to churn out ever-longer lists of indicators and information may still fail to capture the heart of the educational exercise. not an unsparing natural selection that allows unﬁt schools to perish. Given how few schools with poor records of student performance have been terminated and how even systems for rating them have come under attack. to cease protecting faltering public schools. Closing schools sounds eΩcient in theory but triggers conﬂicts that elected oΩcials and administrators prefer to avoid. 238–239). These “variables” seldom ﬁgure in standardized measures. here today gone tomorrow as market forces ebb and ﬂow. pp. 175). Van Dunk and Dickman 2003. one wonders if the ﬁnancial incentives that government (or other) funders wield are suΩciently nuanced. however. Schools are complex formal organizations. For example. .” “inspirational ideology. Funding constitutes a third package of thorny issues. Reliable and useable information may be underproduced in the absence of increased government investigation.INSTITUTIONAL REALIT Y 79 ment may have to build new institutions such as a “public-private board . . 7)? So far choice supporters seem to hope that competition will mean benign general improvements among all or most local schools. and to allow those that ﬂunk the market test to close their doors (Henig 1994. pp. Republicans have joined Democrats in denouncing NCLB for giving low ratings to public schools and taking steps to close some of them.” and “speciﬁc values operative in the Catholic sector” (Henig 1994. South Wales. oversight. Evidence not only from the United States but also from Great Britain. Can foundations and private entrepreneurs supply the cash necessary to fuel the choice “movement” or are government funds essential? Will funders summon the courage to let money follow students. some scholars contend that the superior performance of Catholic schools rests on “spiritual and communal aspects. 167–168. and make it available to the public” (Van Dunk and Dickman 2003. . . p.
” not to mention selection of preferred “raw material”—namely. choice may leave the disadvantaged worse o∏ by increasing “discrepancies in educational quality” (Fuller and Elmore 1996. pp. and Kemerer 1996.” notes Hess (2002). “Symbolic appeals. A survey in Detroit found that. 86–88). Paradoxically. marketing. 133) discovered that parents searching among charter schools in Washington. Such out-migration by the better-o∏ aggravates the problems facing districts with large poor and minority populations and reproduces in the educational arena migration patterns that have long sharpened stratiﬁcation by race. Buckley and Schneider 2007. improved the performance of enrolled students. 67).80 CHAPTER FOUR suggests that competition prods schools to emphasize “public relations. and cultural background across metropolitan areas (Abernathy 2005). p. Cherry-picking of students is hard to detect and reverse. the design of school choice programs. may “easily and rapidly satisfy a substantial number of customers while minimizing the resulting organizational disruption” (p. but also contributed to a “lack of satisfaction and involvement in school activities by parents whose children could not gain admittance” (Martinez. p. they may in fact “expand the opportunities of those already advantaged [while] limiting opportunities for those in greatest need” (Henig 1994. A choice program in San Antonio.C. Croninger. quick-ﬁx reforms.. p. 45. which are redistributive by their nature. pp. 27. social class. Murray 2006).” though they were disinclined to say so in telephone or face-to-face surveys. families with higher incomes and better education would probably transfer their children from city schools (the worst ones anyway) to schools in other districts. One study concluded that combating these risks “will . p. were “seeking out schools with a lower percentage of black students. pp. Buckley and Schneider (2007. has important implications for equity. better-o∏ and better-performing students (Hess 2002. D. and visible. 51). Finally. Godwin. if choice were available. for example. Lee. and Smith 1996. Although these reforms (including President Bush’s) were presented as extending opportunities to the have-nots. 276–277). 191–192. The better-o∏ may seize on choice programs and leave the remaining students in less e∏ective learning environments. 189.
By enacting NCLB. Although market approaches to education were initially billed as a way to circumvent political negotiation and compromise. 192). 209. pp. Current education policies fail to “require or even encourage suburban schools to accept inner-city children whose best option for escaping a failing school is to cross a district line” (Liu 2002). the crafting of plausible school choice policies is inescapably an intricate political project. government regulation. introducing school choice requires “speciﬁc alterations of institutional structures within speciﬁc constraints on organization. 100). Successful programs require public leadership. 175). and authoritatively and sometimes forcefully using governmental power” (Henig 1994. p. and information” (quoted in Henig 1994. political skill. 111. widening the national government’s ﬁnancial and regulatory footprint in elementary and secondary education.INSTITUTIONAL REALIT Y 81 likely require more governmental intervention rather than less” (Fuller and Elmore 1996. Success also demands a keen appreciation that. money. coalition building. collective negotiation. 219. Opening suburban school districts to genuine choice runs into ﬁerce political opposition from middle-class voters and suburbanites. 145). p. A former oΩcial in the Department of Education warned. Conﬂicts over values and interests must be navigated by “public oΩcials exercising leadership. POLITICS AND MARKETS . 100. . p. 150–151. President Bush contended that his education reforms would combat the “soft bigotry of low expectations” by improving the performance of disadvantaged students and closing the gaps between minority and white students. as Richard Elmore remarks. Morken and Formicola 1999. however. 118. nurturing supportive coalitions. that “choice within [inner city] districts does not provide real opportunity to most of the students who need it” (Liu 2002). and civic capacity (Henig 1994. Federalism further complicates the politics of school choice. Washington policy makers—led by conservatives and Republicans—thrust the national government into what had been largely a state and local matter. pp.
Even as government intervenes to salvage market-oriented approaches to educational reform. Richard Elmore blasts NCLB as the “single largest and the single most damaging expansion of federal power over the nation’s education system in history” (quoted in Dillon 2003. Charles Murray (2006) protests that NCLB spells “disaster for federalism” by “nationalizing elementary and secondary education.” Teachers were left suddenly jobless. conservatives complain about growing government meddling. fraud. causing havoc: six thousand students scrambled to ﬁnd an alternative. 242). But the marketists’ ceaseless denigration of government has left government lacking the infrastructure to implement successfully the myriad public and private institutional changes essential to building “competitive capacity” in school systems (Hess 2002. swearing and shouting. Poor bookkeeping and administrative controls led to deﬁcits. the Democratic House minority leader reported ﬁscal mismanagement by one-ﬁfth of the seventy-three charter schools examined. 224. one of the country’s largest operators of charter schools collapsed. p. and theft (Lonetree 2003). p. The irony is that market-oriented education reform depends intimately on the government regulation and political negotiation that reformers sought to circumvent. pp. students’ academic and medical records were abandoned. prompting one school oΩcial to complain of “hysterical parents calling us. . for instance. In California.” Although not philosophically conservative. a29). bankruptcies.82 CHAPTER FOUR State governments have struggled to keep their choice models aﬂoat in the face of administrative and ﬁnancial diΩculties. a1). Accumulating state regulations have sparked revolt among some parents and state oΩcials in Republican strongholds such as Utah. Bruce Fuller wryly observed that “the critics of market-oriented reforms warned of risks with the philosophy of let-the-buyer-beware. California and other states have shifted—as a California school superintendent put it— toward “tough love” in regulating charter schools to “keep this kind of near-bankruptcy and chaos from happening again” (Dillon 2004. and taxpayer money was squandered as school desks and other assets were stolen. but in this case buyers were just totally hung out to dry” (Dillon 2004). In Minnesota.
• Declining to authorize medical tests and procedures and erecting bureaucratic hurdles (the infamous 1-800 phone numbers) that make authorization diΩcult. That managed care is both dysfunctional and dangerous became the theme of widely noticed journalistic and cinematic exposés and of countless consumer complaints and provider pleas.C. their business supporters. Several techniques pique opposition: U N D E R S E RV I N G S U B S C R I B E R S . Among the more prominent charges against managed care. and the judicial system. • Refusing to pay for emergency room visits that are not (in the eyes of the plan functionary reviewing the case) “true” emergencies. managed care stands accused politically of doing too much to too many. These complaints coalesce into the charge that “greedy” MCOs abuse innocent enrollees and then set up toothless internal review processes that let plans play judge and jury to the detriment of victimized consumers. Washington. • O∏ering physicians ﬁnancial incentives to limit care. • Using primary care physicians as “gatekeepers” to reduce access to specialists. the list of grievances from which voters and health care providers (especially doctors and hospitals) sought relief lengthened..INSTITUTIONAL REALIT Y 83 Health Critiques of school choice allege that it has done too little for too few. One common complaint about managed care plans is that they cut costs by underserving their customers. Policy makers also worry that the ﬁnancial health of MCOs may be as precarious as that of Enron and other FINANCIAL SOLVENCY. and state and national political leaders were inundated by proposals for legislative and regulatory redress. three are especially noteworthy. D. . MCOs. As unmanaged competition among managed care organizations (MCOs) came to dominate the health care system. Fights to hold the health plans legally liable for faulty medical care raged within state capitals.
84 CHAPTER FOUR casualties of corporate mismanagement. Mobilizing in defense of professional freedom and patient rights. The near collapse of MCOs is disruptive too. for instance. pay them too slowly. fueling subscribers’ anxiety and fear among policy makers about disruption of health services for legions of voters. FIGHTING FOR PROFESSIONAL AUTONOMY. Some plans play fast and loose with their budgets. and. the providers warmed up hoary critiques long launched at both government health insurance and prepaid group practice (Starr 1982) and redirected them against the encroaching innovations in corporate medicine that government had nurtured and helped to di∏use. Some MCOs su∏ered ﬁnancial collapse or went into state-monitored receivership. Some have eye-popping executive compensation plans. of course. Health care providers aligned with consumers in support of “patient protection” measures in order to safeguard their own clinical autonomy. Some stand at risk of shutting down overnight. and transportation were initially sold as policy instruments that constrain .7 billion) enraged the public and provoked investigations. Market forces do not guarantee sound management. interfere with their freedom to practice by subjecting treatment decisions to administrative reviews. made the nightly news and daily press for months. Physicians and hospitals complain that MCOs arbitrarily exclude them from their networks. Some lack the management information systems and managerial acumen to keep revenues running reliably above expenses. Failures and insolvencies of prominent plans such as the Health Insurance Plan of New Jersey have made policy makers think twice about the costs of market forces. Financial turmoil in the Harvard-Pilgrim Health Plan in New England. Extraordinary stock options for executives at UnitedHealth (including compensation for its CEO in the range of $1. education. Government Grapples with the Market Alternative—and Grows Market-oriented reforms in health care. threatening providers in their networks with unpaid bills and alerting providers in general to what could happen to them.
p.” The CEO of Delta Air Lines. but their solutions created fresh problems—fewer ﬂights. fewer personnel. c3). controlling hand of government. the inspector general of the Transportation Department asked tough questions about the rigor of oversight by . the success of policy entrepreneurs in pushing market reforms ended up fuelling political discontent and legitimating new government interventions to manage markets. the airlines began posting proﬁts for the ﬁrst time in years. p. all of which drew attention to the case for more regulation. Prominent voices in the industry itself were “begging Washington for policies that will help it survive. Transportation Market forces were unleashed in the transportation arena not by the introduction of new organizational forms (MCOs) or consumer options (school choice) alongside the status quo but rather by the outright dismantling of long-accumulated regulatory machinery in exchange for lofty promises. 1). and more bumped passengers. and reductions in salaries and beneﬁts that sparked labor unrest.” and policy experts wondered whether deregulation was “really the best way to run a giant industry” (Maynard 2005a. the industry conceded that it was “out of ideas for competing in a brutal climate. Amid government bailouts and loan guarantees. But as implementation confronted theory with practice. Headlines dramatizing the problems drew further attention to the case for regulation. stabilize the supply of public goods. The mixed results of deregulation have returned regulation to the public agenda. In response to serious train accidents in the early years of the twenty-ﬁrst century. After 2005. urged federal oΩcials “to establish a comprehensive aviation policy that would o∏er the companies speciﬁc guidelines” on a wide range of issues (Maynard 2005b. annual ﬁnancial losses. more congestion (hence delays) as carriers concentrated ﬂights in peak travel hours. and control negative side e∏ects. unintended consequences set in and pragmatists got busy designing government interventions to sustain market allocations of resources. for example. Paradoxically.INSTITUTIONAL REALIT Y 85 or circumvent the heavy. the airline industry su∏ered from bankrupt carriers. Until 2005 or so.
They need not move directly to legislation when administrative performance— lax monitoring of antitrust practices by the Department of Justice. among other steps. In addressing these challenges and maintaining safety and consumer service. maximizing the gains . the watchword in many legislative capitols has shifted from “revolution” to “policy design. Democratic majorities in Congress called for better oversight and stronger rules. constituent complaints and disturbing headlines have stirred a new pragmatism among policy makers. by. inadequate safety reviews by the FAA or ICC.86 CHAPTER FOUR the Federal Railroad Administration and requested that it present a new regulatory strategy within ninety days (Bogdanich 2005. undermining competition. In Michigan. however. p. Recognition that market-based policy strategies have intrinsic limitations may slowly be dawning. policy debate came to focus on “how to make the emerging market for schooling work better. Although a full-scale retreat from transportation deregulation is not in sight. Competition contains no magic self-preserving properties. Heads of organizations in competitive markets take risks when they expect to win and strive to reduce risks when they fear they may lose. a leader in the movement for charter schools and school choice. underpricing. Education As the complexities and trade-o∏s in choosing among school choice options have grown clearer. misrepresentation. and insuΩcient attention to regional disparities by the Surface Transportation Board. Although the Republican administration resisted new regulation.” Pragmatic e∏orts to satisfy the expectations of voters upended ideology and fuelled a larger role for government in setting rules for an essential public good. a19). government is not a benighted alternative to market forces but rather their indispensable complement. and other unsavory measures at least as often as the sainted synthesis of high-quality service at low cost. for example—can be blamed for market malfunctions. Familiar adaptations to competitive markets include market segmentation.
p. fraud and mismanagement by operators of charter schools and lax supervision by their sponsors disturbed legislators whose constituents wanted to know where to place children whose schools closed. The NCLB also requires states to ensure that all suppliers of supplementary educational or tutorial services have a demonstrated record of e∏ectiveness in improving achievement. Proposals in Michigan to raise the legislated limit on the number of charter schools (which now encompass about 5 percent of public school students in the state) generate demands for stronger government oversight to hold schools accountable.” . While promoting markets. for-proﬁt education management organizations has spurred state policy makers to contemplate new regulations on the ﬁnancing of charters (Mintrom and Plank 2001). Growth in vouchers following the Supreme Court decision on Cleveland’s program will likely trigger more state and federal regulatory intervention. p.” which narrows the options of students.INSTITUTIONAL REALIT Y 87 from choice while minimizing the potential harms” (Mintrom and Plank 2001. 40). the U. The growth of private. As it implements NCLB. How far does choice presuppose transportation.S. acknowledged that moving students around within big cities was “very. Cities—with the acquiescence of states and the feds— conﬁne publicly funded transportation to designated “zones. That government and markets are not mutually exclusive is belatedly dawning on erstwhile partisans of the market “alternative. a serious assault on “skimming” would mean a major expansion of government management of competition among schools. very expensive” and otherwise impractical (Robelen 2002. p. a demand that may be as hard to deﬁne as to meet (Robelen 2002). As in health care. In Minnesota. state governments have insisted on regulating vouchers and other school choice programs by mandating admission standards and imposing requirements on record keeping and provision of services (Hess 2002. California. 49). former deputy secretary of education. and other states. 46). for example? Eugene Hickok. Department of Education and its state counterparts must address statutory challenges that lack o∏-the-shelf solutions.
granted states exceptions and loopholes that substantially reduced the pressure on suburban schools to eliminate the achievement gap (Petrilli 2005). there is the raw politics of public oΩcials who applaud markets but beat a quick retreat when faced with irate voters. members of Congress. In the suburbs. President Bush and other supporters of NCLB argued that school choice options and testing would reduce racial disparities in achievement.88 CHAPTER FOUR The Congressional Research Service recognizes. who work hard to get and stay in oΩce and know that keeping “on the right side of the issues with voters is critical to electoral success. The world of school choice has changed greatly since 1990. that “substantial new forms of governmental regulation will inevitably accompany new forms of governmental ﬁnancial assistance” (Smole 2002. D. In a startling rebellion. where the 2000 census found a third of African American children and almost half of Hispanic children living. 10). the reading and math performance of African American twelfth graders is comparable to what white students achieve in eighth grade. The reauthorization of NCLB will likely lock in these concessions and insert new ones.) “most Americans do not support [vouchers]” and do not endorse a shift of federal funds from public schools to voucher schemes. as critics of school vouchers have stressed. 122) explained. Nor is it surprising that the NCLB coalition crumbled in the presence of proposed national legislation to support school vouchers. Federal decisions to encourage private markets bump into state laws that limit class size and promote desegregation by preventing choice programs from further isolating students of color.” understood that (except in the case of voteless Washington. But lawmakers were unnerved when their base of support among aΔuent suburban parents and homeowners opposed the implementation of school choice programs that would supposedly narrow the gap. as noted above. pp.C. In response. Margaret Spellings.119–122. Many state governments. p. the Republican-dominated legislature in Utah passed a law demanding that oΩcials disregard key sections of the law. have resisted implementing NCLB. And then. Issues of federalism and race further encumber NCLB. the president’s secretary of education. but . quotation at p. As Thad Hall (2003.
2) predicts for charter schools: “a laissez faire reform that will die of its own weight some time early in the 21st century. however. p. weakly supported by evidence” (Buckley and Schneider 2007. become ever less amenable to succinct answers. 267). but now. 268) argue that expecting the “magic of the marketplace” to improve educational outcomes ignores the “extensive infrastructure necessary to make markets work. for one.which is bound to prove that their allegiance to choice. urges reformers to “get beyond deceptive rhetoric about replacing government monopoly with markets” and to address the real challenge: “building capacity [which] takes time and resources.” Buckley and Schneider (2007. 173). and policy implications are hard to decipher. pp. If so. and the debate itself risks becoming impenetrable to all but specialists in educational research. “massive amounts” of which show that the vision of market reform (in this case by means of charter schools) has not been realized (Wells 2002. as before. results are “extremely sensitive to methodological choices” (Murnane 2005. 179). 12–13). p. that the fate of choice depends much less on incentives per se than on the institutions in which they play out. p. Murnane (2005. 181. as in 1995. research ﬁndings are now much more abundant than in the 1990s. important data are often elusive. pp.” That Henig’s mid. the rocky ride that school choice has endured over .1990s counsel to retire market metaphors and focus on institutional capacity has still not been “adequately addressed” (Buckley and Schneider 2007. questions about what choice per se can achieve. advocates of school choice insist vindicatory ﬁndings will surely emerge from more and better research. advocates go on making promises that are “at best.INSTITUTIONAL REALIT Y 89 many troubling continuities persist. The byways of scientiﬁc method and policy analysis increasingly diverge. Today. and correct incentives is as potent in practice as they think it is in theory. market-based school reform in general may su∏er the fate that Amy Stuart Wells (2002. as then. for whom and in what circumstances. p. As caveats qualify assertions. 275) suggests that the incentive-centered persuasion may have (as Thorsten Veblen said) a trained incapacity to face institutional realities. p. To be sure.” Perhaps. Another cadre of careful scholars continues to caution. however. competition. In 2008.
” Because losses—over a large number of small cases or a small number of big ones—could be costly.90 CHAPTER FOUR the last two decades will dispel visions of panaceas and persuade reformers to revisit the interplay between economic incentives and educational institutions on some as yet uncharted “pragmatic middle ground” (Buckley and Schneider 2007. who demanded that government curb alleged abuses. Most MCOs allow internal review of treatment decisions that patients opt to protest. but the key words everywhere are “outside” and “independent. (This and the next section on health policy draw on Brown and Eagan. Responding to complaints that plans used gatekeeping or lists of covered beneﬁts to deny subscribers access to needed care. business purchasers and the managed care industry itself. and . 285). emergency room visits that meet a prudent layperson standard. forty-eight-hour hospital stays for mothers and newborns. Such services include screening for diabetes and obesity. p. MAN DATED B EN EFITS . states have mandated a series of beneﬁts the plans must cover and supply. plans appear to be more hesitant to enforce utilization management decisions that might trigger external reviews. mental health care. elected not to expend heavy capital in ﬁghts to forestall new regulations. hemming in stitch by legislative stitch the free play of markets. See Brown and Eagan 2004). In recent years. services rendered in the course of clinical trials. E X TERNAL RE VI EW. Details vary. most states have adopted “patient protection” or “patient bill of rights” measures that limit the autonomy of MCOs in many ways. Health Care Having reinvigorated market forces in the health care system. managed care met growing “backlash” by providers and consumers. Lest the health plans play judge and jury in their own cases. state governments have mandated external review procedures when the internal variant fails to resolve a dispute. The proregulatory contingent has won some impressive victories—especially when its formidable opponents.
but disruptions when market-oriented policies are implemented get blamed on government and its current oΩcials. or are being. let it happen. developed acute ﬁnancial trouble. a major presence in and around Boston. But losing brings change and uncertainty that consumers. disrupting treatment patterns and relationships. and businesses prefer to avoid. the state put it in receivership and then endured an angry public debate about how to nurse it back to health. Such “scandals” are the stu∏ of scathing stories by investigative reporters. claims ﬁled by health care providers may go unpaid. indignant legislative inquiries. greater bargaining power for health plans remaining in the market. Politicians have learned that market reforms can advance by glorifying the private sector and demonizing government. The message to the public is clear: MCOs.INSTITUTIONAL REALIT Y 91 direct access to various specialists unencumbered by primary care physicians who serve as gatekeepers. In New Jersey. Elected oΩcials and agency sta∏s hasten to reassure the citizenry that public safeguards have been. Financial ﬁascos may be attributed to failures of political will and skill. ran themselves into the ground. When large MCOs become ﬁnancially insolvent. wedded to sloppy management and bad business practices. Moreover. asleep at the switch. Fewer plans may mean less competition. and thus diminished leverage for private purchasers. while public regulators. . the demise of a health insurance plan obliged the state to ﬁnd new plans for nearly two hundred thousand members and arrange settlement of the plan’s debts to providers. Plans predictably protest that these government mandates curb their ability to manage care. citizens. Fearing electoral FINAN CIAL SO LVEN CY. When the Harvard-Pilgrim Health Plan. the purchasers of health insurance (usually businesses) like competition in principle but deplore big disruptions in employee coverage when a plan tanks. Competition works only if market forces yield losers as well as winners. and abashed bureaucratic rationalizations. put in place. Customers (aka subscribers) are also a∏ected: members of defunct MCOs may end up in health plans that o∏er a di∏erent set of providers. The failure of big HMOs makes big political waves.
The steps to assess the ﬁnancial solvency of health plans and to intervene to protect them against insolvency transcend traditional state regulation of health insurance. Should they do what they can to keep MCOs running in order to preserve competition and prevent disruptions in services? Should they accept failures as a normal feature of markets? Should they facilitate an orderly exit for faltering plans? Complaints by providers that MCOs lined their own pockets by delaying payments to physicians and hospitals persuaded policy makers to enact laws requiring that plans pay “promptly” or face ﬁnancial penalties. larger obligatory reserves. however. Selective contracting by MCOs with health care providers moved doctors and other providers to lobby lawmakers to debate laws enabling “any willing provider” to join the health plans of his or her choice. Markets again confronted government oΩcials with hard political choices. Lawmakers recognized that telling plans they must screen subscribers for (say) obesity is one thing and denying them A N Y W I L L I N G P R OV I D E R . lawmakers devised protections: requirements for more frequent and detailed ﬁnancial reporting by plans to state auditors. limits on plans’ leeway to enter into risk-bearing relationships with providers. fought back hard against so palpable a hit to market prerogatives and control over costs. Regulators in what had been relatively obscure departments of insurance have been pushed beyond their customary administrative and familiar accounting tools into complex policy questions with new political overtones.92 CHAPTER FOUR punishment should markets fail. MCOs and the purchasers of health insurance. Plans rejoined that delays mainly arose not from their avaricious practices but from the mistakes of providers who ﬁled late or incomplete claims. set about explicating in regulations the essential attributes of a “clean” claim and the obligations of the disputants in ambiguous cases. P R O M P T PAY M E N T. State regulators. and creation of state reserve funds to cover the debts of failed plans with monies extracted from surviving ones. caught in the middle. .
and businesses would perceive new costs and unsettling uncertainties and would take action to o∏set them. Three decades of market experiments disclose a disconnect between economic theory and institutional practice. providers. and regulators. policy makers adopted laws and rules that embody important elements of the reformers’ agenda.INSTITUTIONAL REALIT Y 93 the right to exclude ineΩcient providers from their panels is quite another. albeit at the price of higher cost sharing. The piecemeal accumulation of government rules has both weakened the powers of MCOs to contain costs and encouraged further organizational adaptations that make MCOs more acceptable to consumers. 2622). Belated installation of competition. education. Living with the Consequences of Market Utopianism The history of revitalized market forces in transportation. citizens.” and superior value for money proves elusive. Disturbed by governmental actions and omissions that empower the providers of services to shape demand and costs. policy entrepreneurs persistently invoked economic theory over the past three decades as a rationale for reducing government’s roles and expanding market forces. “correct” incentives. A mere decade after its full ﬂowering. and consumer choice would restore to normalcy markets that should never have been allowed to deviate in the ﬁrst place. p. In some states. while others highlighted new permutations of market-oriented models (Health A∏airs 2005). providers got the “any willing provider” laws they sought. and health care showcases several crosscutting political and institutional themes. Others simply required plans to o∏er “point of service” options that allow members to go out of network for care. Economic theories that promised rich rewards from an unsentimental squeezing out of the weak and ineΩcient failed to consider that consumers. some analysts proclaimed “the end of managed care” (Robinson 2001. Abashed at the perceived failings of “big government” and eager to rationalize services by harnessing private interests to public ends. Market reforms proved to be problematic for achiev- . Consumers often do not like the trade-o∏s presented by their new choices. competitors decline to compete “correctly.
As the unanticipated costs of market reforms began to sink in. Far from withering away.94 CHAPTER FOUR ing social goals. Although the resources and administrative capacities of these agencies were diminished in the expectation that market forces would prevail at the expense of government and that private actors would supplant and improve upon the performance of public administrators. In time. . Expansion of public agendas to contain and correct market experiments fuels a lengthening list of complex tasks assumed by federal and state administrators in a range of agencies (aka bureaucracies). the agenda of government grows with each political settlement. it has become clear that managing markets requires a steady and sophisticated governmental partner. and businesses fretted about disruptions even as they clung to the rhetoric of free markets. Consumers (aka voters) protested to political leaders. private complaints became increasingly public. delivering public goods. and managing negative externalities. corrective laws and rules emerged from negotiation and compromise among contesting parties. providers (aka special interests) pressured those leaders to change the rules of the game.
Bush came into oΩce—accompanied by a House and Senate dominated by Republicans and a number of philosophically conservative Democrats—cloning Reagan’s rhetoric. The magic of the marketplace was the all-purpose answer to America’s sundry ills. not a solution. In 2000. and praising markets. which he portrayed starkly as the problem. Bill Clinton. Nixon pledged to end overpromising and to return government to its proper business (Nathan 1975). spending. In 1980. not anachronisms such as taxing. A Martian monitoring these political developments from afar and privy only to what the nation’s leaders said about the relative merits and roles of the private and public sectors would conclude that market forces had indeed put government out to pasture. Ronald Reagan took power with slashing attacks on government. and regulating) and in 1996 duly proclaimed that the era of big government was over. gentler nation. Richard Nixon successfully campaigned for the presidency with pot shots at the excesses of Lyndon Johnson’s Great Society and War on Poverty.5 The Democratic Disconnect and the Growth of Government The last three and a half decades o∏er a political tale of government unceremoniously ushered out the front door of the nation’s collective abode only to be quietly readmitted via the back door. but rather less successfully. blasting government. mouthed this antigovernmental script. advertised himself as a New Democrat (which in health care translated into “third way” innovations like managed competition. Bush. The man to whom he surrendered the White House. Once president. Po95 . W. In 1968. who could not conceal a wistful longing for a kinder. George H. George W.
Government Grows: Regulation. What may surprise American readers is that the same applies to the United States—home of Ronald Reagan and the crusade for smaller government. pp. agriculture. insurance. education. The number of pages of the Federal Register tripled between . environment.96 CHAPTER FIVE litical practice bears little relation to this small government rhetoric. state. by many measures. p. and local) and. One analyst warned that a decline in government expenditures as a proportion of the gross domestic product (GDP) masked a sizable increase in “nonﬁscal governance” (Congleton 1999. however. Budgets. and personnel. safety. to protect citizens from the damage of market breakdowns. The last chapter showed that reforms to shrink government and expand markets in health care. education. This pattern highlights a striking puzzle to which we return in the conclusion: conservative politicians and their allies reaped considerable political gain from assaulting government. and yet government continued to grow even in venues that were speciﬁcally targeted for deregulation and market expansion. Personnel That European governments grew since World War II is not surprising (Steurle and Kawai 1996). and health services” (Higgs 2005. Republicans and Democrats have promulgated waves of new rules to control “international trade and ﬁnance. 4). and to supply critical public goods. and transportation mirror a broader expansion of government rule making in the United States (Melnick 2005). 5–6). government itself have steadily grown bigger during three decades of market-oriented reform. Rules and More Rules The pragmatic steps policy makers took to strengthen rules for monitoring and regulating health care. This chapter shows that this trend was not conﬁned to these three arenas but rather appeared across a range of policy spheres and brought about substantial growth in government rule making. Demands on government (federal. aerospace. spending. and transportation ended up producing an expansion of government rules to sustain the new reliance on market allocations of resources.
n. Nonetheless. Regulatory costs also increased under George W. Reagan began his term by reducing the regulatory burden but ended by imposing over $15 billion of new costs during his ﬁnal two years in oΩce. Bush. OMB 2005). The size of government as a proportion of the country’s economy (GDP) has substantially increased. p. Dudley 2004. 1). total government spend- . The costs of government regulation also grow.500 pages in 2001. In all advanced industrialized countries. and other social regulations rose from about $1 billion in 1960 to over $20 billion after 2000. 35. OMB also calculated the beneﬁts of regulations and reached a heretical conclusion: for the 1992–2002 decade. the “monetized health and social beneﬁts of 107 rules and unfunded mandates outweighed their costs by three to ﬁve times” (Goodsell 2004. the Federal Register weighed in at a record breaking 75. and the spending level in 2004 exceeded that in four of Clinton’s years. Pierson 2007. Spending Is Bipartisan The growth of government shows up not only in regulation but also in measures of spending and government workers. Real spending on economic regulations rose from about $1 billion in 1960 to nearly $5 billion after 2000 (Pierson 2007. Real spending on consumer protection. and agencies di∏er in both what they publish and how many pages they devote to reporting new rules. workplace safety. ﬁg. environmental protection. In 2003. p. 4).GROW TH OF GOVERNMENT 97 1970 and 1975 and grew by a quarter between 1975 and 2000 (it did decline during Reagan’s terms in oΩce before rising again after 1988. it captures a central truth about government rule making—it steadily grows.2). Counting the number of pages in the Federal Register is a simple and arresting illustration of the growth of government regulation but caution is advised—much of the Federal Register is unrelated to regulation. By the OMB’s estimates.795 pages (up from 65. The Bush White House’s OΩce of Management and Budget (OMB) estimates that the costs of major regulations to the economy rose during each of the administration’s ﬁrst four years in oΩce.
10). rising from about 6 percent of GDP in 1955 to nearly 18 percent in 1992. In consequence. Government spending in countries within the Organization for Economic Cooperation and Development (OECD) averaged 48 percent of the GDP by the late 1990s. The Libertarian Cato Institute reported that federal spending rose twice as fast under Bush as under Bill Clinton. health. government spending resumed its upward trend after these administrations. Government spending under George W. Eckl. the 1960s (Snell. elect’” . Governors. and Senate— adopted “that old Democratic slogan. In the United States. ﬁg. a4). p. The National Conference of State Legislatures reports that per capita state spending increased by nearly one-third in the 1990s. A columnist for the Wall Street Journal lamented that Republicans—in control of the White House. elect. a4). federal nondefense spending showed even sharper upward trends. Conservatives groused that Bush’s talk about spending restraint was “so much hot air” and that his expansion of the social welfare state was “making America more like France” (Hamburger 2003. Bush has provoked outrage in promarket quarters. building on a base that had already been elevated by faster expansions during the 1980s and. Some ﬂuctuations appear within the general upward trend. pp. and infrastructure costs” that resulted from federal cuts (Calmes 2004. 1). state and local governments also boosted their budgets. and military budgets. Both Reagan and Clinton squeezed entitlements. and Holcombe 1998. discretionary spending. House. 6. Although defense spending is unusually high in the United States. Nonetheless. federal nondefense spending fell below 16 percent during parts of their terms. Lawson. p. public spending lagged behind its counterparts but still hit substantial levels and grew impressively— from 30 percent of GDP in 1960 to 35 percent in the 1990s (Gwartney. pushing their share of spending from under 6 percent of GDP in 1955 to over 10 percent after the 1980s (Pierson 2007. and Williams 2003). spend. especially. In addition to increased federal spending since the 1990s. ‘spend. state legislators. and local oΩcials—many of them Republican—have enacted “big tax and fee increases” in order to meet “growing education.98 CHAPTER FIVE ing has grown dramatically since World War II.
table 2). employer payments for health insurance premiums. Indeed. The number of federal employees engaged in social regulation increased from under 60.028.GROW TH OF GOVERNMENT 99 (Melloan 2004. and widening educational opportunity are all high priorities of the American public and government oΩcials in both parties. esp. A Swelling Civil Service Preventing the next terrorist attack.3 million workers in 1980 to 16.000 by the early 2000s (Pierson 2007. and national security programs drove federal employment up to 12. Hacker 2002).000 in 1970 to nearly 140. a1). Bush’s ﬁrst term Paul Light (2004) reported that the government’s workforce had grown by 1.000 in 1999. 5). and Treasury. The end of the cold war and the personnel reductions in the Defense Department and other defense-related federal units led to a decline in the size of the national government work force from 12.S. Nearly three years into President George W.” Republicans and Democrats alike need civil servants to accomplish their policy goals. the federal government’s tax subsidies for employer insurance premiums amount to its third largest expenditure on health care. The sharp increases in public spending are not conﬁned to such explicit allocations as government checks to Social Security beneﬁciaries or defense contractors. p. But expanding responsibilities of the departments of Transportation.S. government subsidizes mortgage interest payments. p.000 in 2002 (Light 2004. ﬁg. Public employment at the state and local levels rose steadily from 13. IRAs) (Titmuss 1969. Through so-called tax expenditures. the U. One Democrat gleefully quipped that “the era of big government being over is over” (Stolberg 2005.. The U. Governments also aid individuals and groups by favorable treatment in the tax code. Department of Labor estimates that . p. and individual contributions to retirement funds (e.1 million since October 1999. Howard 1997. Although candidates never cease to rail against “unelected bureaucrats.g.571. 6).115.6 million in 1999 (Zimmerman 1999. extending health insurance. a15). Justice. The number of personnel has grown under both parties and under conservative and liberal government.000 in 1990 to 11.
the conservative orthodoxy dodges a puzzle: government also grows . Much growth in federal employment is hidden from the public because it comes from government grants and contracts to carry out public responsibilities. Two in ﬁve American households (according to a 1999 poll by Princeton Survey Research) contain someone who works for the federal government either directly or indirectly through contracts.8 percent (from 21. p. These are increases in the national workforce and therefore do not include the more than ﬁve million workers hired in the early twenty-ﬁrst century by state and local governments (Light 2004. the cumulative size and impressive growth o∏er no consolation to partisans of small government. In the fall of 2003. Department of Labor 2003). However the issue is framed. Light (2004) reports that the federal workforce created through contracts and grants recently reached its highest level since the beginning of the cold war. or mandates (cited in Light 2004). U. p.100 CHAPTER FIVE between 2002 and 2012 government jobs at all levels will grow by 11. grants. p. 550. 3).S. Most of them were added during the Bush presidency in such seemingly mundane venues as the General Services Administration. takes a pragmatic perspective on the growth of the government’s workforce as “neither good nor bad in an objective sense”—it is merely the total workforce required to deliver the promises the federal government has made (Light 2004. Why Government Grows Conservatives who blast bigger government for displacing market competition often blame the excesses of liberals in the 1960s and the reign of self-serving bureaucrats. a4). and in Health and Human Services. by contrast.000 were outside national defense. which is responsible for information technology. Although liberal policies and bureaucratic expansion have helped to swell government. 2).5 million to 24 million positions. conservative guru Stephen Moore decried the “across-the-board mushrooming of government” that had occurred under the Bush administration and Republican-controlled Congress (quoted in Hamburger 2003. Of an increase of one million federal jobs between 1999 and 2002. Light.
in fact demand varies with circumstances. and containing the damage of breakdowns and negative side e∏ects of markets. design. for instance) can be no more than a small private frog in a large public pond. Likewise. Although collective goods like national defense are sometimes portrayed as placing a constant demand on government. hire more air traΩc controllers. government decisions on the infrastructure for aviation—for example. National defense is a classic public good that must be organized and delivered by governments: protection against foreign attack is imperative. such goods are “nonexcludable” and “nonrival. and it cannot be conﬁned to citizens who choose to purchase it. Adam Smith also declared that a legal system to protect private property and adjudicate contracts and a system of public education must be government-supplied public goods. Public Goods Virtually no one at any point along the ideological spectrum denies that government must supply certain goods and services that are essential for society.GROW TH OF GOVERNMENT 101 under the watch of Republicans and market advocates. The solution to the puzzle lies largely in government’s enduring responsibilities for supplying public goods. as when the . access to which cannot (with the exception of toll roads) be rationed only to travelers prepared to pay. it shrinks. Another case in point is public roads and highways. and maintenance of highways and bridges should be performed (anyway overseen) by government. and that are infeasible for market exchanges because their distribution cannot be limited to those who pay for them. At times. 11–12). In the jargon of policy analysis. whether to build new runways and airports.” (On nuances in the notion of public goods see Nelson 2005. that are too expensive and complex for any one individual or group to provide. pp. In transportation there is little dispute that the planning. sustaining market allocations. or that market forces (competitive bidding. or deploy new technologies to route air traΩc—are important in easing the congestion generated when proﬁt-maximizing carriers compete for limited times and spaces.
2000. and increased troop deployments into areas of active combat. Kolstad. Crowded highways pique interest in alternatives such as mass transit systems and bicycle-friendly designs. personnel. but it is eminently excludable. bioterrorism. innovations in military strategy and technology. There are also. Demands for public goods may expand incrementally in response to changes in the economy and society (including demographic shifts). and Millar 1996.S. Roads must be maintained and expanded to accommodate growth in the population and in the volume of vehicles that use it.102 CHAPTER FIVE U. Collapsing bridges prompt the public to wonder why government engineers and regulators were not on the case in time to avert damage and disaster. Government’s duties can also increase (sometimes suddenly) when triggered by. government reduced the military at the end of the cold war. Smith. Sometimes government must increase its role in building infra- . health care properly joins transportation and education in the pantheon of public functions that carry (as Adam Smith said) the “highest value” to society. Unforeseen events and analytic expostulations both spur reconsideration of the nature and boundaries of public goods. for instance. Bird ﬂu. Still. Likewise. broader arguments for viewing health care and the general health of the population as preconditions for individuals to exercise their opportunities in a market society. Scott. and services. or. the federal government’s obligations as supplier and manager of a public transportation system did not end with completion of the interstate highway system. antibiotic-resistant tuberculosis. which enter and ascend the public agenda. and McGowan 2001). still broader and more contested. For example. From this perspective. the widespread threat of untreated or mistreated contagious illness persuades some that government should build and fortify an infrastructure of “public health” for communities by means of basic medical facilities. for treating health care as a basic right of citizenship. Solomon. of course. new threats to homeland security. and other risks to the health of Americans have generated bipartisan support for larger government budgets and responsibilities. perhaps a “common property resource” (Coast. the health of the population is a variant of public good.
which market reformers would challenge by introducing vouchers. The public sector’s role in the provision of public goods grows steadily because both circumstances and citizen voices insist that government follow policy arguments where they lead. the education of students from kindergarten through high school is a government responsibility. even were it far more institutionally-attuned and adroit than it has been to date. Some thoughtful analysts doubt. of course. Framing Market Functions Few deny that civil societies and markets operating within them require a framework of minimum government rules. and competition. James Heckman. however. the perils of bioterrorism and climate change. that school choice. and more—pragmatism fuels wider agreement that voluntary exchange in private markets neither excludes nor rivals government’s growing agenda. can be more than a side show in improving the academic performance of underachieving schools and students unless fundamental gaps in human capital are addressed ﬁrst. among others. delivered by public or (largely) nonproﬁt institutions with commanding positions. a Nobel Prize– winning economist at the University of Chicago) urges a sizable expansion of high-quality preschool programs.” Over the past three decades.GROW TH OF GOVERNMENT 103 structure for public goods before it can plausibly engage market forces in delivering them. As Americans wrestle with challenges both old and new—the adequacy of transportation and education. Yet the (admittedly contingent) case for new public experiments and demonstrations in service of this crucial public good is surely no less compelling than conﬁdent calls for choice-based panaceas. For instance. A promising approach (which has won support from. public goods evolve in response to new demands and disputes about what the public interest requires. . Debates over the deﬁnitions of essential goods and services and how to supply them never cease. There is of course no certainty that governmental grappling with the complexities of early human and social development will bear measurable fruit. choice. is the meaning of “minimum. The question. bounded minimum package of government responsibilities that market promoters have imagined. Far from comprising the neat.
and accountants of publicly traded companies. Tyco International. p. 16). Labator 2004. c13. For instance. Abuses in the insurance industry were an especially fertile ﬁeld for investigation and regulation by state attorneys general such as New York’s Eliot Spitzer. Bush signed the Sarbanes-Oxley Act of 2002. p.104 CHAPTER FIVE government’s role in setting rules and serving as a referee have extended well beyond the tidy package that conservative icon Milton Friedman envisioned. boards. In addition to the federal government’s changes in the rules of the game. which strengthened accounting and reporting standards for the managers. Corporate scandals at Enron. One of the government’s central tasks in fulﬁlling its allocative function is to protect against fraud and malfeasance. p. Congress passed and President George W. the states (including such conservative paragons as Oklahoma) made their own regulatory contributions to the checking of corporate crime. Renouncing rhetoric. Another stimulus to state intervention was Enron’s exploitation DETERRING FRAU D. conservatives endorsed another substantial expansion of government by creating a new quasi-public agency (the Public Company Accounting Oversight Board) to inspect and discipline accounting ﬁrms that audit public companies (DeMuth 2004. Trading improprieties in the mutual fund industry convinced the Securities and Exchange Commission to issue a “blizzard of new rules” in 2004 (Atlas 2004. As investor conﬁdence eroded. c13). and Worldcom persuaded conservative political leaders who controlled Washington to protect the integrity of markets by expanding government rules to deter and punish corporate fraud and malfeasance. Adam Smith and other worldly economists emphasized that diminished conﬁdence in the reliability of voluntary exchanges by sellers or buyers may lead them to refrain from such transactions in the market place or to distort their calculations in sizing up a good deal. a consumer of health coverage may decide to purchase expensive insurance from a traditional indemnity plan if she fears that an HMO might not o∏er necessary medical treatment or might collapse ﬁnancially. .
.” warned a former health care CEO. they often underestimate their complexity and scope (Polanyi 1957. a2). Society— working through the agency of government—must decide the up- MANAGING COMPETITION . Bigger market share is not “automatically good. p. have increased prices.GROW TH OF GOVERNMENT 105 of California’s deregulated energy markets to gouge billions of dollars. “Only a state can create a vibrant market. free from the oversight of state regulators. 473). “Sometimes ﬁrms focus so hard on building share that they build way beyond the true market for their products” (quoted in Anders 2007. As Holmes and Sunstein (1999) remark. .” Although market enthusiasts from Adam Smith to Milton Friedman have acknowledged these governmental roles. According to one consumer advocate. Business ﬁrms (not unlike government bureaucracies) do not automatically perform well on their own. Several states that deregulated electric energy responded by considering outright re-regulation or new government rules. “It’s easy to get blind sided when you’re growing fast. . But we were growing so fast we often hired people six months after we needed them” (quoted in Anders 2007. where industrial consumers su∏ered a fourfold hike in prices. power companies. and Northeast and New England states that witnessed a doubling of prices (Slocum 2001. p. But making competition work requires management to create the conditions for voluntary exchanges in which consumers have conﬁdence. Government not only protects against fraud. “In every state that has chosen deregulation . Trial and error is inseparable from economic innovation. Market reforms seek to introduce new competitive dynamics into policy settings. a2). Rosenberg 1960). “You have to build better legal and internal audit capabilities [and] deal with regulatory issues. Market enthusiasts who reﬂexively portray government as an alien invading force that obstructs business fail to understand the indispensable roles of government in establishing and sustaining private markets. but also sets the rules of fair competition and maintains the conﬁdence of consumers and investors.” Glaring cases included Montana. p.” a professor of management at MIT recently remarked.
congestion ensues and the resulting service becomes undependable. The market alone cannot staunch the decline in consumer conﬁdence in air travel. deﬁne a set of standard beneﬁts to level the playing ﬁeld. the plans decided to ease earlier limits on the subscriber’s free choice of providers in order to gain market share and prominence in the health care system. a13). Health care also illustrates the consequences of inadequate government rules for market competition. however. and more—all involve more government.106 CHAPTER FIVE per limits of the destruction. airlines are proﬁt-making (or. easing antitrust rules. Some promoters of markets called on government to monitor access to and quality of medical care. and by taking other suspect steps to contain costs. creative and otherwise. initially failed to win the conﬁdence of consumers. by denying requests to see specialists. require open enrollment of all applicants. it will accept in the name of entrepreneurship and when possible damage to the conﬁdence of consumers and business poses serious risks. p. Carriers ﬁnd it proﬁtable to ﬂy full planes at peak times. more precisely. When all carriers follow market signals. imposing a stronger regulatory hand in determining routes and times. Consumers and providers alike. Since deregulation. and a backlash against managed care set in. In time. Expansion of health maintenance organizations and other forms of managed care. This “crowding-in problem” is “one of the ugly anomalies of a freemarket system” and results “when there is no direct owner of a given resource—the air-transportation infrastructure in this case” (Ketcham 2007. doubted that the competitive dynamics of the thriving MCO industry gave suΩcient weight to the quality of care. Solutions—adding runways and new airports. proﬁt-seeking) ﬁrms with broad discretion over where and when they ﬂy. prospective subscribers worried that the health plans would achieve savings and compete by o∏ering ﬁnancial incentives to providers to use fewer resources. which was ﬁrst promoted by Richard Nixon in the 1970s to incorporate competition into the organization of medical care. and forbid plans to tailor premiums according to health status—to manage . for instance. Assuming (not unreasonably) that managing care meant delivering less of it.
should not mean “complete reliance on the market” but . a school that seeks to attract only bright students with active and skilled parents in order to boost its scores and look like a winner. but “a governing agency will still be needed to establish and monitor minimal standards. bar discrimination. p. and central administration might shrink. e∏orts to expand competition cannot succeed without “a regulated market. and see to it that the right to enroll in the school of one’s choice is recognized in practice. . A system that brims with competitive incentives but lacks strict oversight invites strategic gaming—for instance..GROW TH OF GOVERNMENT 107 competition. these measures require plans to make direct referrals to specialists. restrain arbitrary discipline and expulsion. Proposals to rationalize the health care system by market means foundered.” Individual schools might gain autonomy. Enthoven 1988). heavily dependent on governmental protection and support. mandate speciﬁc medical services. As noted in chapter 4. The price hikes and breakdown of markets in electrical power in California and other states that experimented with market reforms led one study to conclude that institutional structures and rules make a “tremendous di∏erence” to the prospects for successful competition in this sector. and monitor and regulate plans’ ﬁnancial practices. set procedures for resolving disputes between plans and their enrollees. 517). Republicans joined Democrats to establish a list of reforms designed not to be procompetitive but rather to curb MCOs run amok. This agenda advanced politically because insuΩcient attention to regulatory infrastructure as managed care became mainstream helped to fuel a political backlash that altered (some say arrested) this market experiment in midcourse.g. In education too.” (Selznick 1992. because the prescribed dose of procompetitive regulation that would set the rules of the game proved politically unpalatable to virtually all stakeholders. Kira Fabrizio (2005) observes. regulate rates. . Restructuring. secure timely payment of providers’ bills. In the absence of sound regulatory infrastructure for managed care. study and report on success and failure. however. in short (e. provide for special educational needs. .
New technologies have repeatedly driven enthusiasts of small government and free choice to reject the market’s invisible hand in order to safeguard their moral and ethical values. for instance.” Pharmaceutical ﬁrms worked at “segmenting their customers. and devising clever ways to extend their patent protections. tried by “making copying more complicated and . Alan Murray predicts that as businesses dependent on intellectual property loom larger in the U. the federal government was soon monitoring and regulating parental decisions on whether to accept these heroic interventions (Journal of Health Politics. Policy and Law 1986).S. . economy. their determination to lobby for greater government protection (i. When pediatric surgeons developed new procedures to extend the lives of severely disabled newborns.e. its competitors. intervention) will grow (Murray 2003b. . recording.108 CHAPTER FIVE rather “replacement of the old regulation with a new regulatory framework” (p. p.. a4). Because their costs are heavily concentrated on the front end and the marginal costs of the products themselves are often at or close to zero. 43). squeezing out. The rise of a service economy based on information technology and scientiﬁc innovation has triggered new roles for government in supporting and protecting innovation as well as setting rules and providing oversight. Policy makers of neither political party are willing to toss breakthroughs in cloning and genetic engineering into the marketplace and then let sovereign consumers and utility-maximizing businesses decide whether and how to use them.” But market logic inevitably guides such ﬁrms to “the doorstep of government” as they seek to protect their intellectual property rights. The innovations in intellectual property on which pharmaceutical. Kenneth Arrow argued years ago that the market cannot produce enough “fundamental new knowledge” and that government would “regularly have to take a hand” in its generation (Warsh 2006. p. Microsoft. or buying out. 153). and software ﬁrms depend cannot be secured by free market orthodoxy. . Congressional intervention in 2005 STEERING INNOVATION . these industries craft creative strategies to protect their investments.
GROW TH OF GOVERNMENT 109 to pressure the courts to keep Terry Schiavo alive may foreshadow more government activism in regulating the decisions of guardians. Consumers may beneﬁt handsomely from choice if they are suΩciently informed. and therefore little to choose. There is little di∏erence. The aviation industry is an instructive case in point. c3). among carriers. The good news is that travelers can generally buy cheap seats on ﬂights in many (though not all) venues since deregulation enabled lower-cost carriers to enter and compete in many local markets. for instance. p. and legislative interventions. to regulate pornography. the di∏usion of wireless phone service “creates debate over whether to regulate” and “the possibility of rewriting 70 years of rules” governing the telephone industry (New York Times 2004. a4. executive orders.” the law had “already become outdated by new technology and industry trends. p. and the ﬁrms that develop medical devices and equipment. Similarly. . and more. and trust is diΩcult and costly. p. Less than ten years after the national Telecommunications Act of 1996 was expected to “get government out of the telecom business. The extension of the Internet into a vast public system has triggered new government interventions. uncomfortable seating in coach class. but establishing institutions and procedures to gather accurate information and then disseminating it in ways that consumers can ﬁnd. patients. use. Consumers so inclined can exhaust themselves on the Internet learning the likelihood that ﬂight x or y may arrive late. delays. and overbookings that result in denied boarding. The bad news is the diminished quality of airline performance—canceled ﬂights. subordinating free markets to social norms. but the “triumph” of market forces in this arena derives SU PPLYI N G I N FO RMATI O N . health care providers. especially when users lack training in technical or otherwise complicated issues. marathon sojourns on the tarmac. practice guidelines. Choice is indispensable to consumer empowerment and information is indispensable to choice. In the wake of technological progress come bioethics commissions. c13). lost baggage.” and pressure was mounting for new government intervention (Murray 2003b. Labator 2004.
Consumers who are determined to use objective data to choose among schools. and family backgrounds of pupils? Beyond these methodological disputes lurks a vexing immediate issue: How well do the ratings speak to the conditions of “someone like me” (or my family)? Answers may not come easily. MCOs. Heated debates abound over what to control for. in principle. data do not speak for themselves. referrals by trusted . it is not surprising that consumers turn to government for more reliable information on the misadventures their travel plans may encounter. Analytical data mavens may enjoy the intellectual thrill of the chase (not to mention the ﬁnancial thrill of selling their wares to or winning grants from government reformers). cultural.) And their production functions contain considerable mystery. anecdotes of friends and neighbors.110 CHAPTER FIVE mainly from competition (in many markets. curing and caring. Much of what their providers do cannot be successfully standardized. Education and health care are markets very di∏erent from transportation. Information (“data”) is abundant. for example). Below-average consumers (those. Moreover. Do ratings of hospitals take due account of the mix of cases and their varying degree of severity? Do school ratings adequately factor in the socioeconomic. get their discomfort over with much faster) and very little from information or choice. for instance. In these circumstances. and hospitals have serious work cut out for them. But schools and health providers are slow to make it public without a government mandate to do so. the accuracy and comparability of what gets reported are sometimes suspect. but “average” consumers may be enervated by navigating cascades of information in hopes of sorting out proliferating choices in multiple markets (Schwartz 2004). customers who once could a∏ord only to travel by bus can now. (How much can be is of course in hot dispute. and / or Internet skills) may be unable to get in the game at all. and uncertainty as to whether statistical di∏erences in outcomes reliably reﬂect substantive di∏erences eternally looms. Their desired outcomes are diverse (achievement and socialization. with limited literacy. leisure. Diligent consumers may choose to rely on such “satisfycing” expedients as word of mouth within the community.
and ensure that consumers get the information they need and want. an airline ticket. and a prima facie preference for schools and hospitals close to home. Policy analysts attuned to institutional realities should not be surprised that information is not consistently easy to collect and use (Barr 1987). for that matter.GROW TH OF GOVERNMENT 111 family physicians. President Bush promised as he signed No Child Left Behind into law on January 8. But decision making in complex and technical spheres such as health care imposes more stringent information requirements and costs on individuals. a dangerous thing. government intervention would be ineΩcient and fail to satisfy their demands. A little knowledge is. or a charter school. E∏orts to rely on market methods may be more or less successful but they generally leave government bigger. .” All of this would be achieved. the president predicted. When all the evidence-based enlightenment has been sifted. [parents] will have these options—a better public school. in a new system in which the “federal government will not micromanage how schools are run. to be sure.. 2002. As noted in chapter 2. analyze the results.” Implementation soon led to questions and then steps to “rationalize” (i. buying good health care or a good education for one’s children does not much resemble purchasing a refrigerator or. a tutor. consumers can eΩciently and accurately inform themselves in relatively simple markets such as those for food and consumer goods. “Rationalizing” Policies Government also grows because time and trial and error show that policies need repair.e. . correct past policies) on several . government must labor not only to ensure the availability and accuracy of information but also to explain its practical limits and to protect “emptors” who for whatever reason cannot or will not honor the relevant caveats. Market promoters’ high hopes for consumer choice rest increasingly on government’s capacity to design and monitor sophisticated reporting requirements for providers. that “in the face of failure. but if a surfeit of knowledge is not to become an overwhelming and frustrating thing. not smaller (Brown 1983b). .
p.112 CHAPTER FIVE fronts including the deﬁnition of “failure. 7). Even before the new beneﬁts were implemented. and the race was on to identify economizing improvisations.” which would be aided by a new federally funded independent agency to ﬁnance and analyze research on the cost-e∏ectiveness of new drugs (Murray 2003a. a16). Democratic presidents John Kennedy and Lyndon Johnson rejected the recommendation of civil servants for “direct federal administration” of costs and chose instead to interpose private intermediaries between providers and the government (Jacobs 1993. which asked seniors to choose prescription drug coverage from among competing private health plans and insurers. as well as new commissions to run these systems. just as the existing program led inexorably to price controls on hospitals and physician services” (DeMuth 2004. . a4). Improvement. and Modernization Act. Even as new government interventions were proposed to foster more robust and durable markets in Medicare’s drug program. Alan Murray. This turn to government “ﬁxes” for Medicare’s rising costs has a counterintuitive (bi)partisan history. In December 2003. and how students would be transported to them. recommended that Congress “create an e∏ective marketplace for prescription drugs. Market enthusiasts sought to introduce choice and competition into the Medicaid program for the indigent and other covered groups by encouraging or requiring enrollment in managed care. p. These corrective endeavors turned up the volume of complaints about both federal government interference and the lack of “real” options. for example. the president of the American Enterprise Institute predicted that the new Medicare beneﬁt would “almost certainly lead to price controls on pharmaceuticals. President Bush and a Republican Congress enacted the Medicare Prescription Drug.” what types of “options” were available. the Act’s ten-year estimated cost jumped from $350 billion to $724 billion. chap. Republicans Reagan and Bush addressed Medicare costs head on by establishing a government-directed Prospective Payment System for hospitals in 1983 and a Resource Based Relative Value Scale fee schedule for physicians in 1989.
the engine of market transactions is voluntary exchange. As we have shown in earlier chapters. Repairing Market Damage In theory. complications develop as markets falter and fail. States augmented their capacities to monitor the new managed care arrangements. as did federal oΩcials who stepped in to review and negotiate over state waiver requests and then keep tabs on those they approved. Then injured. policy makers invested in a lengthening list of rationalizing measures to adjust to realities on the ground and to keep (or make) programs ﬁt and functional. . and interest groups demand redress. ironically. The progression of government reﬁnements of market-friendly policies leads.GROW TH OF GOVERNMENT 113 Implementation of market theory soon revealed risks that led to government tinkering. or aggrieved parties turn to government for protection or redress. threatened. but that does not diminish their importance in keeping market forces in decent working order. government steps in with new rules and standards that are far from minimal. incremental. and amendatory character and mind-numbing administrative detail of these government “ﬁxes” may elude public notice or defy philosophical pigeonholing. the ﬁghts are mainly SAFEGUARDING CONSUMER PRODUCTS. not less. Beyond the promise of new legislation. or both. Government programs—whether of Republican or Democratic origin—are not self-implementing and self-repairing. but in practice those transactions sometimes have consequences that violate the volitions of participants. these “reforms” display a consistent life cycle: advocates proclaim the virtues of market forces and smaller government. The technical. The paradox is plain: strategies designed to unleash free markets by downsizing and containing governments end up seeking rescue from governments whose capacities have been denigrated and damaged. bystanders. they succeed in establishing new policies. providers. to more government. voters. Few dispute that the federal Food and Drug Administration (FDA) should be vigilant in determining that drugs are safe and e∏ective.
and surgical procedures. When consumers chose to spend many billions of dollars on complementary and alternative medicine. Washington created a new unit within the National Institutes of Health to scrutinize its safety and merits (Ruggie 2004). and consumers also look to government to collect and analyze evidence on the merits of medical practices. and more. d1). d4). transpor- . p. driver and passenger air bags. the reach of government intervention in automobile manufacturing grows in order to improve the safety of consumers. As Americans exhibit a seemingly inexhaustible tendency to medicalize every conceivable health issue and as health care costs continue to rise faster than the general rate of inﬂation. side air bags. Even as commercial transportation is deregulated. it ought to do so. p. lawmakers insisted that government weigh the safety and eΩcacy of a burgeoning supply of new drugs. The safety of consumer products has now reached the elevated status of a “right” that both political parties compete to secure by adding new government protections product by product. and how fast. When the diet drug ephedra appeared to be dangerous and the death of a professional athlete drew critical media attention. Evidence that indoor tanning may cause skin cancer prompted at least twenty-nine states to craft laws and rules that limit or ban it for young teens (Saranow 2005. Even when Republicans controlled the federal government. Washington now dictates to automakers that their products contain seat belts. systems that prevent SUVs from rolling over. devices. 319–320). Revelations in the summer of 2000 that unsafe Firestone tires may have caused many fatal accidents led policy makers of diverse ideological persuasion to suspend “traditional antistatist sentiments” and demand new regulations and liability provisions (Moss 2002. crash-resistant bumpers. In health care. the Bush administration’s FDA moved quickly to ban it. pp. Rising rates of obesity thrust government at all levels into debates about regulating and informing the public about the caloric and fat content of food. Policy makers. leading the federal Agency for Healthcare Research and Quality to develop “state of the art information” for the National Guidelines Clearinghouse (Landro 2005.114 CHAPTER FIVE about how. vaccines. government’s role steadily grows. businesses.
Although government activism is readily apparent in the big developments that rivet public attention—No Child Left Behind and Medicare’s expansion to cover prescription drugs.GROW TH OF GOVERNMENT 115 tation. Market reforms may implicate uninvolved third parties. As policy makers watched scathing media reports and weathered angry constituencies. Neither political party lacked compassion for families who lost children to su∏ocation inside appliances and vehicles. In 1956. . as are the ways and means by which government seeks to protect the third parties they threaten. In short order magnetic door seals largely solved that problem. but other vehicles on America’s highways face greater risk from exhausted truckers and unsafe machinery. which required all units to open in response to ﬁfteen pounds of pressure from within. Philosophy and partisanship typically takes a backseat in such cases. Government expands but without a public philosophy or clear set of principles as ADDRESSING NEGATIVE EXTERNALITIES . Improperly maintained railroad crossings increase the threats of moving trains to vehicular traΩc. lower trucking costs have reaped savings for buyers and sellers. a4). and other arenas. the federal government enacted the Refrigerator Safety Act. since deregulation. Negative externalities are many and various. Research and news reports on the health dangers of mercury emissions from coal-burning power plants set o∏ bipartisan alarms. 69). Then the deaths of eleven children in car trunks in 1998 prompted calls for investigations and safety rules (Adams 2005. For example. talk of reregulating trucking and railroads revived. p. p. government bolsters consumer conﬁdence in the products and services private markets o∏er. The Bush administration’s Environmental Protection Agency and members of both parties contemplated expanding government’s role by developing a tighter regulatory structure or establishing a “trading scheme” that would use market incentives (Lee 2003. for example—much of it escapes wider public debate because it emerges from the piecemeal accretion of discrete responses to concrete breakdowns or shortfalls in private markets.
EΩcient suppliers do what they must to stay aﬂoat. Erosion in the quality of air travel fuelled a chorus of outrage . Governments then respond to irate voters who lose “their” school or health provider and need help to ﬁnd alternatives. ensued when managed care ﬁrms evaluated proﬁtability and investors weighed alternative options and decided that insuring the aged no longer looked like good business. adjudicate among creditors. Likewise. but markets “worked” as they balanced the costs and returns of goods and services. airlines and carriers chose to curtail or end services to some cities and towns. and encode lessons learned in rules promulgated for the beneﬁt of other health plans. wrote Charles Schultze (1977). When better (or shrewder or luckier) performers put competitors on the ropes. indignant journalists (insuΩciently schooled in market logic) warn of disruptions and risks to the innocent when government falls down on the job. assess the ﬁscal (and other) health of the remaining competitors. The decisions of many MCOs in Medicare’s Advantage option to drop hundred of thousands of seniors during the late 199 . Republicans and Democrats alike hear the pleas of average citizens and wellorganized supporters who paint themselves as aggrieved buyers and sellers. Compensating “Losers” One way in which private interests advance those of the public. or carriers. The unfolding of promarket reforms often spurs e∏orts to insulate well-organized interests and groups from the costs of loss in the marketplace. creditors and investors. which generated disruption and anger. Society does not have inﬁnite tolerance for remorseless market dynamics. however. is by avoiding the need to indemnify individuals and groups that lose public resources or other advantages in fair market competition.116 CHAPTER FIVE debates over individual self-reliance and government intervention yield to nuts-and-bolts pragmatism. after deregulation. Government regularly steps in to negotiate with providers on behalf of consumers. Consumers and businessmen in these unhappy sites were inconvenienced and occasionally driven out of business. ineΩcient ones can expect to go out of business. schools.
Managed care creates losers of its own. The workings of this deregulated market have put the protection and indemniﬁcation of passengers on the policy agenda for the foreseeable future and have sharply challenged the premise that markets can be left to their own devices. insurers may deny coverage to consumers with preexisting medical conditions or other misfortunes that signal likely high use of care in the future. Teaching hospitals that MCOs think too expensive to include in their networks may fold or merge in order to command a market share large enough to let them bargain from strength. not because providers dominate and capture the policy process (though they are far from powerless within it). Sometimes these are left to sink or swim. or might become sick. but rather because anxieties about access and quality span a wide swath of constituents who do not think that the public interest is well served by their individual and collective losses. which proscribes some o∏ensive practices and creates a limited legal and regulatory framework for monitoring and correction. The halting introduction and spread of market forces sets the ed- . Health insurers in the individual and small group markets are adept at identifying “losers” who were. Beneﬁciaries dropped by MCOs that left the Medicare Plus Choice market because costs within it proved higher than expected may think twice before signing on with MCOs in today’s Medicare Advantage option.GROW TH OF GOVERNMENT 117 and demands for government intervention. enrollees. George W. hence costly. In hot pursuit of proﬁts. For instance. Bush deplored the industry’s “egregious” abuses and summoned federal transportation oΩcials to work with airline executives to craft solutions. Government often acquiesces. the media broadcast horror stories of lost luggage and passengers “trapped” for long hours on planes sitting on runways. consumers—perhaps spurred or joined by providers— seek laws that regulate the practices of managed care plans. are. Some aggrieved parties turn to the policy process for insulation. and corrective legislation climbed the policy agenda. Political indignation led to the 1996 Health Insurance Portability and Accountability Act. Consumer groups lobbied congressional representatives and protested in Washington.
In sum. do not get into schools dubbed most desirable. Honoring Exceptions Promoters of markets and individual autonomy often insist that government interventions. however. Small government devotees stand squarely on principle—except when they happen to dislike the outcomes free markets produce and feel duty-bound to recruit government into repairing these “breakdowns. these activists push for government controls . and with solicitous regard for the insulation of potential losers. The issue is not how to reduce government’s role but rather how to build the sophisticated capacities these expanding tasks demand. race. Visiting the full force of these risks on ambivalent communities might jeopardize choice severely. and ethnicity. Contrary to the conventional wisdom of market advocates. The advent of markets in education is often disquieting not only because teachers and other providers of schooling fear displacement or replacement but also (indeed mainly) because a fairly broad and di∏use range of potential losers insist on pondering possible side e∏ects of the “panacea. responding to both normal operations and breakdowns in markets expands the responsibilities of government and deepens the complexity of its tasks. government may be doing choice a favor by introducing it incrementally. Calls for exceptions to this rule and for improvements in government performance often render this counsel vacuous. when absolutely necessary. or are at sea as to how and what to choose. cautiously. and community groups worried that poorly managed choice may aggravate separation by class.118 CHAPTER FIVE ucation arena apart from transportation and health care.” These supposedly rare departures from orthodoxy in fact constitute a long parade of “exceptional” cases. The incremental and cautious expansion of choice may have prevented the backlash that beset MCOs. Under the banner of civic virtue. Self-styled moral reformers have opened a large and growing breach in free market and antigovernment orthodoxy.” The aΔicted may include parents and children who cannot a∏ord the best. should and can be kept to a minimum.
and the not so occasional public bailout when the weak ones fade.” such as national defense and “infrastructure. Conservative legislators deplore government intrusions except when they entail job-creating and constituency-pleasing beneﬁts such as loans for college. Today’s moralists often ally politically with market utopians to press government to limit or outlaw alleged moral transgressions such as euthanasia and stem cell research. politically mobilized evangelicals ﬁght to implant their favorite scriptural imperatives in public policy while dismissing the case for tighter public regulation of big business.). contraception. tax breaks for health insurance premiums and mortgage payments. Consumers tremble at the prospect that government might ration their medical care. of course. The right deplores big government and the growth of Medicaid but calls for . Philosophical exceptionalism ranges far beyond this buzzing moral sphere. but seek government protection against alleged rationing by MCOs. Conservative politicians rarely reconcile the contradiction between the small government theorizing they espouse and the big government realism they practice. selective tax breaks.GROW TH OF GOVERNMENT 119 on pornography. consumption of alcohol and drugs. and other o∏ending practices (Morone 2003. For instance. prostitution. Some conservatives who denigrate government and laud individual liberty in other contexts ﬁnd it expedient to make an exception for a key coalition partner. Physicians insist that government keep its paws o∏ the private practice of medicine once it has ﬁnished raising fees in Medicare and Medicaid and regulating MCOs into impotence. a16). abortion. “I believe in spending more in certain areas. Social conservatives and their Republican allies practice a kind of philosophical exceptionalism.” “Are these roads magically going to ﬁx themselves?” wondered former Republican Senator Jim Talent (Mo. p.” says Republican Senator James Inhofe (Okla. and an array of initiatives that create jobs and stimulate local business—from opening military bases to highway improvements.) (Hulse 2004. but seldom objects to grabbing advantages through tari∏s. 1990). Business believes in marketplace competition. “As a ﬁscal conservative.
p. and boasts at fund-raisers that he will lock up executives who abuse the public trust in their companies.120 CHAPTER FIVE commissions and other delaying tactics to avoid cutting budgets that bring their states seventy-plus cents of federal funds on each Medicaid dollar. according to a conservative analyst. the Clintons. . which he abhorred. and the Children’s Defense Fund to promote the State Children’s Health Insurance Program. In the 2000 election. but. Utah Senate Republican Orrin Hatch staunchly supports tax cuts and smaller government but also considers children exceptionally deserving of government largesse. Former Congressman Henry Hyde (Republican from Illinois) was a bona ﬁde conservative who supported the expansion of Medicaid eligibility because better care for poor pregnant women seemingly strengthened the case against Medicaid-funded abortions. He therefore joined such unlikely allies as Edward Kennedy. a15).” A researcher at the conservative Heritage Foundation grumbled that Bush had “not uttered the word ‘deregulation’ since 2001” and dismissed “this stu∏ about the deregulation president” as “a Howard Dean myth” (Sanger 2003. he has “gladly signed legislation to restrict telemarketing and email spam. Bush promised to cut back government intervention. George W.
identify with worthy cases. This political pattern might be called (with apologies to Mancur Olson) the illogic of disconnected action. conservatives can better brandish their philosophical bona ﬁdes while seeking beneﬁts for their prized exceptions. but the public sector lacks the workers. interest groups. An endless caravan of liberal rules and conservative exceptions fuels a steady growth of government. money. pundits. issue-by-issue decisions to expand government’s roles and functions has rendered conservative public philosophy incoherent. Government expands pragmatically under pressure from constituents and political interests. and information to fulﬁll its enlarging duties. A cynical spin might attribute to this illogic a calculated logic all its own: insofar as talking up small government discredits and discourages (other) claimants and reduces competition for scarce resources. while those fueling it reassure the public that the era of big government is over.” This Jekyll and Hyde performance may yield short-term political gains: small government promoters boast of their political virtue. and contributors denounce big government but promote government activism on behalf of worthy exceptions to their “principle. which encourages 121 .6 Pragmatic Policy in the Marketplace of Ideas The collision of appeals to expand markets and shrink government with disjointed. and express outrage at “big government” for misserving the public. Conservative political leaders. All too often government disappoints expectations. The result is a democratic disconnect between a national narrative trumpeting small government and steadily increasing expectations of government.
but more the former than the latter) under which collaboration between state and market stands some reasonable chance of enhancing the quality of public policy (Barber 2002). Pursuing that project entails a larger role for government in policy design. choice. and to do so more e∏ectively and eΩciently than the blunt instruments of government authority to tax. A New Pragmatism In American policy debates of the last three decades. the strategic question is . The big ideas of market-led transformations have given way to pragmatic reconsideration of the conditions (both practical and theoretical. The performance of markets depends crucially on the institutional framework that surrounds and shapes them. but its simplistic critique (government as “the” problem) and solution (markets as “the” answer) has in several policy spheres served more to confuse than to enlighten democratic deliberations. Even—perhaps especially—when markets are expected to do a better job than does government in delivering the beneﬁts and reducing the costs of policy. and regulate. education. and transportation has obscured several important propositions. spend. Institutional design is inevitably a political project. One such highly touted virtue is the power of private interest (incentives. and competition) to serve public ends. This book demonstrates that this marketist project has powerfully shaped discussions of public policy through its critique (government is “the” problem) and its solution (markets are “the” answer). The promarket project has by no means conquered policy making (as our preceding chapters have shown). inﬂuential analysts and practitioners of policy have elevated markets from one social mechanism among others for making collective decisions to a “simple truth” somehow naturally endowed with awesome problem-solving properties and powers. The success of policy analysts in persuading policy makers to embrace market forces as the solution to the faltering of the public sector in such arenas as health care.122 CHAPTER SIX the rhetorical attack of the state bashers and deepens the democratic disconnect.
or” (how to get more market forces and fewer government rules in the policy equation) but rather “both . . Although education. deregulation becomes reregulation—“the reformulation of old rules and the creation of new ones.PRAGMATIC POLICY 123 not “either . . and. personnel adept at data analysis and timely intervention. the roles and duties of government have grown precisely in the course. therefore. market enthusiasts insisted that provider dominance was the problem. p. unanticipated problems arose as competitive theory collided with institutional reality. health. Paradoxically. . and transportation are highly distinct policy arenas. critics accused market forces of harming both public and special interests. and other arenas presupposes that government regulators have extensive data. proposals proliferated for igniting the magic of market forces. of the unexpectedly complex quest to use markets to make public policies more e∏ective and eΩcient. budgets adequate to support these resources. value for money was suspect. recognition among political leaders that decently functioning market forces in public services require a formidable array of government tools.” The brute fact behind marketist visions is that the introduction of market forces into public policies will achieve desirable social outcomes only if they are managed by governments with capacity suΩcient to perform a widening range of complex tasks. policy makers warmed to these prescriptions and wrote them into law. education. management information systems to make sense of them. 3) observes. Creating. As Steven Vogel (1996. and correcting market “solutions” in health. Such realism seems to be in short supply: the managerial means noted here (for instance. canvassing. and political leaders responded by expanding government regulation of the private initiatives that had been advertised as alternatives to public commands and controls. . heavy investment in management information systems that enable state oΩcials to monitor the per- . and as a consequence. then. these spheres show striking parallels across the ﬁve stages of the policy reform cycle we explored in preceding chapters. In all three. and” (how to craft a public framework that will elicit the beneﬁts of markets without permitting them to run amok).
“management by objection”: market forces unfurl. achievable only by enfolding market mechanisms within cogent public rules and serviceable managerial structures. heads roll. band-aids adhere. The policy cycle thus degenerates into a vicious circle of crossed messages. To market enthusiasts. competitors collapse. We have shown. implicitly tolerated as a price worth paying for the best and only alternative to leadership by a discredited and distrusted state. however. Indeed the idea of investing in government to keep market reforms on track deﬁes the vision that policy makers embraced precisely in hopes of shrinking government and reducing its costs. notes Donald Kettl (1993. that policy makers (including conservatives) selectively retained certain government roles or reintroduced them in pragmatic response to promarket reforms that persistently failed to meet expectations and disappointed citizens. headlines scream. The real challenge. government should aim to discern the right balance for the policy arenas in question. namely. Markets both empower citizens and subject them to risk. New public management geared to the objectives of market forces yields to something newer. Adam Smith understood that markets valiantly serve important public purposes but that they are means. p. and are best deployed by a public philosophy that is curious and candid about the connections between public purposes and institutional capacities. the steady enlargement of governmental roles as corrector and rationalizer of market reforms gone wrong proves only that the right (government-free) stratagem has not been tested (doubtless because power-grabbing public oΩcials and provider monopolies refuse to run the risk) and that they therefore ought to redouble their e∏orts.124 CHAPTER SIX formance of health plans and schools) have few powerful supporters and little if any constituency among the public. crises and scandals ensue. not ends in themselves. . a balance between protecting citizens and encouraging market forces. Markets sometimes nudge public policies toward the common good and sometimes add new frustrations to troubled policies. complexities. and the cycle resumes. In good American pragmatic fashion. 38) is not to choose between market and government but rather “how to strike the best balance between them” and then to manage the ensuing tensions. and rules.
In arena after arena— education. federal disaster relief. federally insured mortgages. 298. . Institutional realism should be . and more—market reforms have fallen short of the improved performance and eΩciency initially promised. however. health care. Our investigation of promarket reforms leaves us with three overarching conclusions and several more narrowly focused lessons. In routine and simple cases such as laundry and food services. policy tradition. and respond to the complaints of concerned constituents. Political leaders thereby demonstrate “a remarkable willingness to suspend their free-market principles . This disappointing legacy suggests that the key reform challenge is not how to bifurcate government from market but rather how to commingle and manage them. pragmatism has emerged de facto as policy makers learn that launching and steering market forces is harder than supposed and that e∏ective public policy means viewing government and markets as complementary. transportation. which we elaborate below. Perhaps the most dramatic achievement of promarket reforms is the sharp decline in airline ticket prices following deregulation. . Such pragmatism is a venerable U. Because market failures suggest that “Adam Smith’s invisible hand is missing a ﬁnger or two. as if certain risks simply fell outside the boundaries of laissez-faire philosophy” (Moss 2002. pp.PRAGMATIC POLICY 125 The Mixed Legacy of Market Reforms Market reforms have delivered good results when government had ill advisedly raised barriers to entry and the basic good or service o∏ered to consumers is relatively easy to evaluate in terms of price.S. In practice. repair the breakdown of services that the public expects. Market reforms have often sent political leaders and civil servants in obscure agencies scrambling to forestall market failures. The public ends and means that markets have been asked to serve are seldom so routine and simple. 319). the government has used competitive contracts to vendors who run large operations and has generated savings. and many more. not exclusive sectors. 10. The ﬁrst broad conclusion is that a return to the realism of Adam Smith and of other economic and social pragmatists is long overdue.” policymakers have enacted a long list of “public risk management” programs—deposit insurance. energy.
Business associations insist that small government is hardwired into the national creed but lobby hard for public “incentives” (such as the generous payments extended to managed care organizations [MCOs] and suppliers of pharmaceuticals in Medicare’s new Part D). and transportation discloses the central importance of negotiation and compromise among competing values and interests. The development of policy in health care.g. education. conservative groups regularly championed political messages that aΩrmed the virtue of smaller government but also routinely claimed exceptions to the general rule in order to use government resources and authority to win elections and reward contributors. Farm groups tout their conservative convictions while clinging to public subsidies. the reactions against managed care in health care and choice in education—sent policy makers ﬂeeing to safer political ground. public sentiment. Commercial insurers denounce big government but expect government to help them cover the costs they incurred from terror- .. Because politics and markets are intimately connected (Lindblom 1977). not an extraneous distraction that should be pushed beyond the pale of sound policy logic. the uncritical promotion of markets as vehicles of e∏ectiveness and eΩciency served the conservative agenda well. but also carried a considerable cost: a growing disconnect between public rhetoric and political practice that blocked a balanced assessment of market forces in public policy.126 CHAPTER SIX introduced earlier and more prominently in discussions of policy reforms. Market proposals that triggered backlashes among voters and stakeholders—for instance. elected oΩceholders and government oΩcials do and should respond to strong and sustained messages from voters and strategically important supporters. and loyal party activists. the disengagement of market reforms from institutional dynamics. lobbyists. As we and others have shown (e. Hacker and Pierson 2005). In an open society with democratic institutions. Our second general conclusion is that pressure from voters and stakeholders is an unavoidable ingredient in sustainable and e∏ective policy. and political responsiveness has produced a public philosophy that lacks coherence. Third.
and transportation conﬁrm that the performance of markets depends crucially on the institutional framework that surrounds and shapes them. the public’s trust in government ebbs farther. Managerial capital in such boilerplate categories as personnel. an economic system cannot be understood apart from “the social system of which it is a part”—including cultural forces and complex formal organizations within which market players and government oΩcials pursue their projects (p. lags behind policy needs because ideology forbids their e∏ective translation into political demand. government grows without vision. When politics is premised on a principled denial of the obvious. Our investigations of education. sustaining market allocations of resources. and o∏setting damages and risks to individuals. Analysts as di∏erent as economist Alain Enthoven (1988) and political scientist James Morone (1993) have long argued that the larger the role of market forces in public policies. As Robert Lane (1991) remarked. leaving oΩcial ideology undisturbed all the while. and fuel more growth of government. purpose. not to mention the development of specialized. and the era’s reigning non sequiter—if government is so bad. As government thus loses ground. 599). win a program or appropriation. Pragmatism Regained Promarket reforms have provoked a pragmatic reaction that expanded government roles in generating public goods. or a due concern for its capacities to serve the public. OΩcials manage crises on the ﬂy and tackle new. Nor do organizations defending disfavored groups pause to ponder government’s larger roles and purposes when they can hit speciﬁc targets. tricky tasks for which they are often unprepared and ill equipped.PRAGMATIC POLICY 127 ist attacks. More groups cite more exceptions. health care. markets must be better— begins to look axiomatic. welltrained managers and oΩcials equipped with thoughtfully articulated operating procures and advanced information technologies. the larger and more sophisticated the role of government must be. and move on. A lingering question is whether this pragmatism stands . win more public commitments.
Antagonism over the state’s tendency to thrust itself into too many issues coexists with “growing expectations of what government should be doing. Bennett and Bennett (1990. After all. for example. Page and Jacobs 2008). 1. Even as Americans remain uneasy about government in the abstract. safeguard the environment. Jacobs and Shapiro 1999. Page and Jacobs 2008). ﬁnd substantial ambiguity.128 CHAPTER SIX at odds with basic American values of individualism and antistatism. also see Page and Shapiro 1992. conﬁscate wealth.” Indeed the citizenry’s attachment to public programs is “so elemental” that in the Reagan years (a hard test case) “even an immensely popular president [who] pledged to trim the size of the national establishment was forced to concede to a nation that had come to terms with big government” (Bennett and Bennett 1990. and continue . 1) ﬁnd “a history of ambivalence” in America’s quest to come to terms with big government. and ensure the safety of consumer products (Page and Shapiro 1992). Public opinion surveys show. 134. In the early twenty-first century. chap. Generations of public opinion research have shown that Americans consistently oppose government measures to limit business proﬁts. chap. polls reveal that they favor speciﬁc government programs to protect individuals from threats. Surveys of public sentiment that probe beneath the surface. America’s unique history has long been associated with a culture that embraces minimal government and maximal individual liberty (Hartz 1955). pp. asking not merely how government and its activities are broadly perceived. however. Majorities favor cuts in government spending in the abstract but want government to spend more in. and implement extensive redistribution. but also what respondents want it to do concretely. 108. Abstract questions about raising taxes and expanding government regularly produce majorities of opponents. that most Americans welcome government programs that o∏er minimum protections against low income and illness in old age. American political culture continues to constitute a complex amalgam of philosophical conservatism and pragmatic liberalism (Free and Cantril 1967.
education and transportation arenas. Just over half of all Americans—52. Suleiman 2002. Ronald Reagan imposed central governmental cost . Fiorina 2005). and many other policy arenas have abated. and housing) (Page and Shapiro 1992. . Reagan. pp. sought to deregulate environmental policy but ceased when the push generated “a strong. created the Environmental Protection Agency. and proposed both national health insurance and a negative income tax.3 percent in 1950 (Trumbull 2007). The discombobulation persists until the antistatist agenda bears fruit sour enough to disappoint the electorate’s expectations and trigger a shift back toward pragmatic middle ground. highly visible backlash brought about by clashes with organized environmental groups and may even have precipitated the resurgence of support for the environment among the public” (Prasad 2006. and astute media strategies can draw American politics sharply o∏ center (Hacker and Pierson 2005. The evolution of American culture is inseparable from the growing connection of individuals to government (Campbell 2003). p. A tiny nervous fragment that exploits highly intense preferences. however. this is not the whole story. 144). he locked in recurrent increases in Social Security to o∏set the rising cost of living.PRAGMATIC POLICY 129 to take responsibility for. As the years of the Bush presidency show. 67–71). . Even as Richard Nixon introduced HMOs into health care. 80). a sharp increase from 28. avidly mobilized and well-organized supporters.6 percent—now receive signiﬁcant income from government programs. education. big bankrolls. Storms over whether the federal government should be involved in health care. housing. protection for consumers. makes only a tiny fragment nervous all of the time” (Bennett and Bennett 1990. employment assistance. the environment. This of course is pretty much the pattern we have sketched in this book in the health. Successor Republican presidents followed in his expansionary footsteps. Scope-of-government disputes now generally center more on methods than on principles. a long list of policy sectors (for instance. Although nowadays big government “may make all Americans queasy some of the time. for example. it . health care. p. retirement. Jacobs and Shapiro 1999.
When airlines suddenly go out of business. citizens expect government to look into the matter. When acts of nature such as hurricanes ravage coastal regions. The public may support in principle the general goals of promarket reformers. Under the spell of the magic of the marketplace. most Americans—as demonstrated in countless polls—expect government to intervene even if they remain uneasy in the abstract about the e∏ectiveness and trustworthiness of government. reformers too often forgot that in public a∏airs “the most sublime speculation of . face strikes. As the proportion of Americans covered by employer-based health insurance declines and many seniors are increasingly hard pressed to meet the rising cost of the (many) prescription drugs they take. When faced with concrete threats (Hacker 2004).” The philosophical tradition of minimal government endures. Bush proposed and won enactment of a long-sought addition of prescription drug coverage to Medicare and gave the federal government new powers to set and enforce performance standards in K–12 education in the No Child Left Behind law. and doubled the federal government’s ﬁnancial support. When MCOs limit the powers of subscribers to choose their providers (and thus perhaps their treatment). expanding Medicaid coverage. Bush revised and tightened federal controls on Medicare payments to physicians. and George H. but it expects policy makers to take corrective action if valued services are disrupted and its expectations are not satisﬁed. not simply defer to a self-regulating competitive marketplace. Across an array of arenas. W. Americans expect government to sustain and (if necessary) restore “normalcy.130 CHAPTER SIX controls on hospital payments for Medicare. and adding drug beneﬁts to Medicare. both political parties see the case for insuring more children by means of the State Children’s Health Insurance Program (SCHIP). the public wants government to respond quickly and well and is outraged if it dithers. George W. or otherwise inconvenience travelers. the public rallies for patient bills of rights that have found favor in red and blue states alike. but it has become a subordinate chord in the realities of American public life.
pp. thus rendering democratic deliberations more befuddled and disconnected than before (Jacobs and Skocpol 2005). . One can look at the fruits of these experiments.PRAGMATIC POLICY 131 the contemplative philosopher can scarce compensate the neglect of the smallest active duty” (Adam Smith quoted in Buchan 2006. learn from them. Had these reforms been less bent on deifying markets and vilifying government. But American policy is forever a maddening mix of continuity and change. and try again as events conspire to clear new space for pragmatism in public policy. By substituting invisible hands for hearts and heads— the more-vital organs of sound public policy—marketists temporarily assuaged one species of public malaise by replacing it with another. 39–40). they might have charted creative collaborations and partnerships between state and market.
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S. Steurle. “Tomorrow’s Jobs. An Inquiry into the Nature and Causes of the Wealth of Nations. Ronald K. Freer Markets.” Christian Science Monitor. . London: Methuen.J. Smole. and Graham Williams. Steven K.gov/oc02003. D.S. 1969. Ithaca.” Bulletin of Science. Starr.htm. Mark. School Choice and the Question of Accountability: The Milwaukee Experience.” Prepared by Bureau of Labor Statistics.: Cornell University Press. Washington. The Citizen and the State: Essays on Regulation. “Economic Enforcement Policy Regarding Unfair Exclusionary Conduct in the Air Transportation Industry. 2005.S. Trumball. Stigler. George J.: Princeton University Press. February 13.: Government Printing OΩce. April 16.: Yale University Press.org / programs / ﬁscal / stspend90s . Britain.Y. July 14.” New York Times. New York: W. www. 2007. Policy Paradox: The Art of Political Decision Making. 34–55.. More Rules: Regulatory Reform in Advanced Industrial Countries. Boston: Beacon Press. Book IV.REFERENCES 143 Energy Crisis.C. Smith. School Choice: Current Legislation.htm (accessed June 13. Government’s Reach Grows.C. Suleiman. ed. “The Social Division of Welfare.: Congressional Research Service. 2003. Carolyn. 2005). 2002.” In his Essays on the Welfare State. W. The New World Fiscal Order. http: // www. New York: Basic Books. Norton. N. 1982. Technology. 2001. The Condition of Education. Emily. Washington. Deborah. Tuohy. Richard. 1975. Department of Labor. and Society 21 (December): 473–481. U. Sheryl Gay. 2003. and Anneliese M. 2nd ed. 1920. Stone. The Social Transformation of American Medicine. Princeton. Adam. Eugene. “As US Tax Rates Drop.C.” Docket ost-983713. 1999. 2003.: Urban Institute Press. Stolberg. D. pp. 2002. U. 1996.bls. Conn. a1. Dickman. D. 1996. Dismantling Democratic States. 1997. Ezra. Vogel. N. Washington. 2003. Chicago: University of Chicago Press. David. 1969. “Dynamics of a Changing Health Sphere: The United States. a1. and Canada. Paul. p. “State Spending in the 1990s. and Masahiro Kawai.ncsl.” Report for the National Conference of State Legislatures. Department of Transportation (DOT). Corina Eckl. Snell. Department of Education.” Health A∏airs 18 (May/June): 114–134. U. New Haven. eds. 2002. Titmuss. p. “The Revolution That Wasn’t. Edwin Cannan. Van Dunk.
“Not So Big. 118–137. The Politics of Regulation. Zimmerman. a27. Knowledge and the Wealth of Nations: A Story of Economic Discovery. Institutions. and Why. James Q. Michael. D. p. 6. ed. John. pp. Wells. New York: W. 1996.144 REFERENCES Warsh. 1999.govexec. . Winerip. www. New York: Basic Books. 2003. “What a Voucher Study Truly Showed. Wilson. W. and the Unequal E∏ects of School Choice. p. Alternate Route: Toward EΩcient Urban Transportation. 2006. Washington.” Government Executive. Bruce Fuller and Richard Elmore. and Chad Shirley.: Brookings Institution Press. 2002. Cli∏ord. New York: Teachers College Press. Peter. Norton.C. Where Charter School Policy Fails: The Problems of Accountability and Equity. Winston. 2005). David.” New York Times. May 7. March 1. ed. ed. 1980.. New York: Teachers College Press.htm (accessed June 13.com / features / 0399 / 0399s2. Amy Stuart. 1998. Witte. “Who Beneﬁts from the Milwaukee Choice Program?” In Who Choses? Who Loses? Culture.
54 airlines: anti-competitive behavior. environment. 114. 54–55. 85 antistatists. George W. 112. 34. 59 Agency for Healthcare Research and Quality. 85–86 Alum Rock Voucher. 35. 41. 71. health care. Jeremy. in education. 125. in transportation. 45. 32. Kenneth. regulation. safety. James. 106. 68. 85. corporate oversight. 34. 109–10. consumer safety.: government regulation. 36 Bentham. industry reg- 145 . Civil Aeronautics Board (CAB). 70. 32. 117. 101–3. 71. 68–69. travelers’ bill of rights. 70. 36. 41–42. 40 African Americans: NCLB disparities in achievement. 104–5. 22–23 Barr. 70. 6. 128–31. Walt. 6.Index Page numbers for deﬁnitions are in italics. See also Medicare. Medicare. W. 114 Airline Deregulation Act of 1978. Richard K. environmental impact. 38. 35–36. 85. adverse selection. 128–29 Armey. 112 American Medical Association. 47. 85 allocation function. in health care.: airline regulation. George H. 5. 120. deﬁning demand. distributive politics. school choice. 90–95. Kenneth. 117. Nicholas. 69 Boulding. 130. 1 Arrow’s impossibility theorem. 86–90. 41. 85. 98–99. 130. 130. deterring fraud. 88. government growth. 106. 115. 109. wage decline. 61–62. 47. poor performance. 18 Boyer. 53. 39–40. 52 Bogdanich. 3. 47. 46. 71.. 5–8. 130. 68. 15 Blue Cross. 21. 116–17. 47 Buchanan. 115. 72 Breyer. 60–61 American Airlines. 1. government spending. 21. Stephen. managed care organizations (MCOs) / health maintenance organizations (HMOs) anti-competitive behavior. 69–70. 18 American Enterprise Institute. 130 Bush. 4. 69. 29 Bush. 70 American Association for Labor Legislation. 54. 130. 68. 68. consumer access.
21. 1–2. 16. 54. 38. 19. 47. 115. bankruptcy. 28. 41 charter schools: and achievement. 49. 87. 73–74. 77. 21 Educational Testing Service. 73–74. 118–20. school choice. 121. 14. 43. 49. 6. 3–5. 120 defense spending. schools. 82. 54 Council on Wage and Price Stability. 20. 71. 32. 101–2. 80 Children’s Defense Fund. 13–14. 10. 48 Civil Aeronautics Board (CAB). 11–16. 30 carbon dioxide. 97. 47. 18. 45. New Economists. 36 dogmatic utopianism. swelling of government. 98–100. 87. John R. 80–81. 82. 100. U. 20. 63 Catholics: school choice. 111. 6 Carter. 120 INDEX Cold War. 100–118. 21. 74–75. 35. health care reform. 29–30. 64. 120. 11. John. 111–12. 59. 57–58. regulation. 111–12... 78 distribution function. 98 Chamber of Commerce. school choice. 20. 74 collectivist. 12. 11–12. neoclassical. 95. 4. 35. 18 communism. 21–34. 97. 32.S. 96–97. 118–20. Medicare Modernization Act. 95. George W. 22 Council of Economic Advisors (CEA). Howard. 24 economists: academic. Anthony. 129 Business Week. 104–5. 124. 56 Dean. 26 Congressional Research Service. 55. 87. federal spending. 8. 130. 87. 107–8 Cannon. 25–26. 29–30. 73–74. 80 Dickman. 81–82. 4–9. 46. 23. 16–17. 130. managed care. 16 corn laws. 22. 87 Clinton. Keynesian. 57. 101–2 Coleman Report. growth. 61. 21. and Adam Smith. 125 Cleveland Public School District. 98. 89. 99–100. 47. 65–66. 88. 60–61. 119 Downs. 95. government role.: government growth under. 96–100. 119 Delta Air Lines. 75 . 26. 7 California: charter schools. 64. 41. 80–81. 95. 20. 35. 51. racial disparities. 120. 121. 55–58. 88. 77. 24. Howard. 57. No Child Left Behind (NCLB). 126–27. classical political. philosophical exceptionalism. 17–18. 47. Jimmy. 47. Anneliese M. 58–59. 4. 64. 19. Michigan. 48. 55 capture theory. market dogma. 85 Detroit. 46–47. energy market. 32. 112. emissions limits. 120 Chubb.146 Bush. 26 conservatives. 79. pragmatic realist. 55–58. as niche market. 42. (continued) ulations. 120. 75. 64. 88 conservatives: European. 79 Cato Institute. 43. State Children’s Health Insurance Program (SCHIP). Simmons-Harris. Scholarship and Tutoring Program. 57. 5. 17. 99. 54 Coverdell Education Savings Accounts. 10–11. 112. 10. 21–34. 119 (see also dogmatic utopianism). Bill: cost of regulation. 56. 54 civil servants. 10–11. 5. 121. 7. 59. Zelman v. 25 Commons. market utopian (free market school).
84. 54. Walter. 119 Executive OΩce of the President. 100–118. 120 Hess. John. 29. 38. 95 Greenspan. 70 Johnson. James. regulation. 60. 23. 102. 86 Jencks. 12. 7 Gordon. 8. 7. Henry. 105 Hoover. 5. 119 evangelicals. 127 Environmental Protection Agency (EPA). 41 Enron. Orrin. 112 . 43. 23. 27. Milton: failure of government. as common property resource. Richard. 20 Federal Aviation Administration (FAA). 38. 58. ﬁve pathologies. 71–72. Alan: smaller government. 105. 100 Gingrich. 120 Hayek. 86 Federal Register. 105. 104. 82 General Services Administration (GSA). 98 free market school. on ICC. 4–9. Newt. Fredrick. Bruce. 117 health maintenance organizations. 89 Heritage Foundation. 20 Engler. 87 HMOs. 130 Hyde. precondition for individual in market society. 54 Ford. 6. 21–24. 104–5 Enthoven. Stephen. 18 Hume. market devotee. 14–15 Hurricane Katrina. 51. 79 Great Society. 2. 45. 91 Hatch. 119 Individual Retirement Accounts (IRAs). 82 Employment Act of 1946. Herbert. 20 health: as basic right. David. 48 Fuller. Friedrich von. James. 21. 4. 115. 103 Heller. 5 Federal Trade Commission. government role in setting rules of the game. 49. 51–52 Elmore. 38. 22. 81. 6. Christopher. Lyndon. 7 Harvard-Pilgrim Health Plan. Je∏. 4. 48 Jet Blue. 16. rate hikes. 107 Ellwood. 41. 95. 20 government growth. 102 Health Insurance Plan of New Jersey. 83. See also under economists Friedman. 49–50. 54. 96–100. 22–24. See managed care organizations (MCOs) / health maintenance organizations (HMOs) Holmes. 35–36. 99 Interstate Commerce Commission (ICC). 3. Gerald. vouchers. 120 Inhofe. 114 euthanasia. 20 Henig. 118–20.147 INDEX electric utilities: impact of regulatory commissions. 96–97 Federal Reserve. 55 France. 113–14 Federal Highway Administration. Kermit. 4. See managed care organizations (MCOs) / health maintenance organizations (HMOs) Heckman. 40. 80 Hickok. 71. 129 ephedra. 7. Eugene. 86 Federal Drug Administration (FDA). Paul. 84 Health Insurance Portability and Accountability Act (HIPAA). 53. 47. 40. 54 Federal Railroad Administration. 121 Great Britain. Alain.
120 Keynes. 52. 63–64. 40. Edward: airline deregulation. rising prices. and Medicaid. 61–62. See managed care organizations (MCOs) / health maintenance organizations (HMOs) Medicaid: ﬁlling market gaps. 43. religious schools. 26 Mathematica. 41–42. 8. under serving subscribers. 53. Simon. 64–65. 83 March. 119–20. 62. 56. 59 Kaufman. 112. 117 Merton. 4. 28. 7. 45. 112. 115. 61. 20. 108 Mill. 48 Montana. 33. 64–65. 61–62. 6 managed care organizations (MCOs) / health maintenance organizations (HMOs): and American Medical Association (AMA). 84. American Medical Association. 76. 62. ﬁnancial solvency. ﬁlling market gaps. David. 10–11. 55. 6. 130. 18. 91–92. preferred provider organization (PPO). 31. See also Medicare: prescription drug beneﬁt Medicare Part D. market malfunction. 126 Medicare Plus Choice. racial tensions. 96–97. HMOs. social organization. professional autonomy. 17. 58. 65.148 Kahn. 63–64. Robert. Herbert. 8. 86–87 Microsoft. philosophical exceptionalism. 28 Kennedy. Stephen. 74 Kuznets. 33. 74 Michigan: charter schools. 19 Lane. 100 Lowi. 61–62. 99. 77 Meyers. independent practice associations (IPA). 6 Moe. 11–14. and MCOs. 51–53. 41 Maine. 63–64 Medicare: Advantage Option. 127 law of exceptions. John Stuart. regulation. 61–62. 126. 19 Krueger. 55–56. 117. 41–42. 41. 65. 40. Alan. State Children’s Health Insurance Program. 119. 58. 15 Milwaukee Parental Choice Program: achievement. 62. 51. 112. 33. prescription drug beneﬁt. 60 Minnesota. 75. 119. 61–62. 19. 100 moral hazard. Theodore: distributive politics. school choice. 33. Terry. 126. 115. 82. 112. 51–52. Paul. 10–37 market utopianism. Tjalling. 54 Kaiser Permanente Health Plan. 21. 29. 5. and Medicare. 112. 40. 59. 5. 2. 33. 61–66. 119. 115. 112 Medicare Modernization Act. 112. 118–20 Light. 42. 41. 52. 36 Koopmans. Alfred. 51. See also dogmatic utopianism INDEX Marxism. 90–94. Robert. 40. 28 markets: generation of private wealth. 63. 130. 43–44. 61. 51–52. 87 Missouri. 61–62. 59. growth. 52 . prospective payment system (PPS). 63. 83–84. 74 MCOs. coalitions. 105 Moore. James. philosophical exceptionalism. 52–53. 51–53. 5. 10. 86–87. 119. 64–65. 116. 18 Keynesianism. John Maynard. 63. and MCOs. 21–34. 130. 35–36.
35. 35 Nader. 61–62. tutorial services. 21. 31. 105 New Jersey. 84. 97. 55. 13 Saﬁre. vouchers. 127 Motor Carrier Act. Ralph. 86. 129. 35 Polanyi. 129. 88. 82 Musgrave. public policy shift. 4. 131 patient bill of rights. 60 Sarbanes-Oxley Act. 16 pornography. 81. transportation. 101–2. 130. William. 96. 130. 121–22. 29 Murray. 74 Samuelson. 57. 115 Rosenberg. 73. 14. Richard. implementation challenges. 64. 74. 10–15. political economists. 84. 123–24. 108. 73. HMOs. 21. 19 New Deal. 88. 102. 86. health. government as problem. 45 Peterson. 112 public choice theory. 32. 47 Nathan. 31. 98. education. public-private partnership. 40. 31. 112. 65 New England. Adam Smith. 121 Organization for Economic Cooperation and Development (OECD). 19 National Conference of State Legislatures. 118–120 Pigou. Robert. 112 Murray. 79 Nixon. 9. Mancur. 33. 98 National Guidelines Clearinghouse. 97 Oklahoma. 61 Refrigerator Safety Act. James. 54 Moynihan. Nathan. 35. 114 National Taxpayers Union. 128. 21. Arthur. 125. 94. 40. 95. 34–37. 85. 74 philosophical exceptionalism. 104 public goods: allocation. national defense. 80 San Jose. Alan. 5. 88. 30–31. War on Poverty. 76. 90 Penn Central. 27 Public Company Accounting Oversight Board. 119 Portugal. 127. 19 San Antonio. 125–26. 98 partnerships: state and market. 57. 51–53. class size. 5 neoclassical theory. 10. 74. 73–74. 95. 19–20. 16 prospective payment system (PPS): resource based relative value scale (RBRVS). 87 OΩce of Management and Budget (OMB). 69. 111–12. 86. Paul. 10–12. Ronald. 35. 103. 95. desegregation.149 INDEX Morone. 124 New York Times. 32. 81–82. Medicare. 106. Paul. 101–3. 7. markets. 13 pragmatic realism: dissenting minority opinion. 19. Daniel Patrick. federalism. 104 Olson. Karl. 91 new public management. HMOs. 68. government growth. 17–19. 18 New Democrats. 109. 27–28. Richard: conservative realism. 11–13. 109 New Zealand. 11. deregulation. 102 Reagan. 13–14. 35–36. 114 National Institutes of Health (NIH). 102. 104 . Charles. 101. 95 No Child Left Behind (NCLB): adequate yearly progress (AYP).
54. 43. 48.S. as panacea. Gordon. 58. enforcement of safety rules. 55 Telecommunications Act of 1996. political battles. Adam: conservatism. Department of Education. 23. 100 U. 28 Securities and Exchange Commission (SEC). laissez faire principles. 16. 57. 36 Staggers Rail Act. 31 Scott. 54. 55–56. 87 Surface Transportation Board. 27. 50. racial disparities. Phillip. 70. 35. religious schools. 57. 42. 24. 26 Tuohy.S. 43. 99. 99. 22. 70 Spain. 6 U. 14. limited availability. 75. 99. Richard. 18. 58. 13–14.S. 57. 35. James. 55–56. 59. 25. Herbert. 11–12. vouchers: capped enrollment.S. Department of Justice.S. 25. Department of Treasury. 27 Smith. 12–13. 81. 6. 28 Simon. Department of Defense. 88. 33. 21. 39 Tyco International. 11–13. Catholic Conference. 99 U. 28 . 87 school choice. 42. James. 46. Charles: indemnify losers. Forest Service. 116. 109 school choice: African Americans. 87. 47. Hawthorn e∏ects.S. 86 Talent. government role. 56. 48–49. See also Wealth of Nations Social Security. 61. Simmons-Harris). 119 Stigler. public goods. 64. 71 State Children’s Health Insurance Program (SCHIP). 79 Southwest Airlines. 41. 87.S. 70. 99 U. 104 stabilization function. 20 totalitarianism. Cass R. 59 Tobin. Eliot. 57. segregated schools. charter schools: achievement. 42–43. Carolyn. 99 U. 59–61. Supreme Court (Zelman v. 104 UnitedHealth. 21. 47–48. 105 Supreme Court: CAB.. Simmons-Harris. racial tensions. 87 Schultze. 10. 28 Thompson. public use of private interest.150 Schiavo. 13 Spellings. 41. 77 U. 12. Zelman v Simmons-Harris. 16. pragmatism. 59–60. bankruptcy. as niche market.S. 104 Selznick. See also airlines Tullock. George. 42–43. Department of Labor. 38. 80 school choice. 26 Transportation Quarterly. 109 Tennessee Valley Authority. 84 U. 57–58. 10. racial disparities in achievement. W. 47. Alum Rock Voucher. coalitions. 88. 129 South Wales. 57. 20. 31. 71 travelers’ bill of rights. 89. 74–75. Department of Transportation. 53. 59. Milton Friedman. 82. 111. 49 Sunstein. 58–61. growth. 86. 119 Teamsters. Zelman v. 130 stem cell research. 87 U. vouchers. 58. religion. overselling impact. 47–48. 71. Terry. rules of the game. 57. 49–51. 54. 54. 120. Tommy. 88 INDEX Spitzer. 60–61. 58–59. Margaret. 87.
Emily. 88. 42. Polly. 100 U. religious schools. 87 Wall Street Journal. Zelman v. 12–14 West Germany. Health and Human Services (HHS). 21 Williams. Microsoft settlement. 76 Worldcom. 58. 120 Van Dunk. 57. 98 War on Poverty. 87. 59–61. as panacea. 58. 42–43. 48. James Q. 73. 104 . 29. Milton Friedman. 59. 28.S. 55–56.S. 59 Wilson. 95 Wealth of Nations. Simmons-Harris. political battles. Justice Department. 48–49. 57.151 INDEX U. 29 Wisconsin. 82.. 78 vouchers: capped enrollment. 6 Utah.
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