Waylaid Dialectic

July 3, 2012

The Fantasy Private Sector

Filed under: Aid — terence @ 3:25 pm
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Were I English I would be rioting in the streets about this. The sheer magnitude of the injustice and the way the burden is being borne by the poor and vulnerable while the culprits make off like bandits, barely even pausing to murmur token words of remorse.

Not being English though I just thought I’d point out the obvious ramification of all this corporate malfeasance for the latest bright idea over at CGD, Development Impact Bonds. Owen’s very measured in his appraisal so I don’t mean this post as an attack on him but the whole idea seems to me to be predicated on something that doesn’t exist — the Fantasy Private Sector. This creature is often conjured by theorists of economics and members of think tanks. It is a beast born of brave Ayn Rand ideal type entrepreneurs who add value, innovate, and add more value. They ride the tides of perfect competition and make the world a better place by allocating capital where it’s going to be most effectively used. They are wonderful. And also a complete fantasy. Importantly, they shouldn’t be confused with the real private sector, who aren’t necessarily evil, and who do add value at times, and who are sometimes the least worst means of aggregating decisions and allocating resources.

I’m not against the real private sector (I just want it well constrained by rules, and padded by a safety net) but I don’t by into the belief that the private sector has any real role to play, other than its natural role, in tackling the challenges of aid and development.

The fantasy private sector might, with its miraculous powers of innovation and allocation, but seeing as it doesn’t exist we’re left with the real private sector, that spends much of its time trying to grasp hold of monopolies, exploiting information asymmetries, and manipulating consumer wants. It’s also into dodging rules and influencing the law making process to get the rules shaped to suit its need.

In the complicated world of aid I really doubt that this beast, as opposed to its non-existent cousin, has much to offer.

And in the particular case of development impact bonds, where the main problem to be solved seems to be a shortage of capital to fund aid work, I have an easy alternative solution: tax the wealthy and allocate the money through the usual means.

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