Public Interest and Private
Interest
What motivates elected representatives and others in
government? The public-interest view of government
sees government as composed of individuals who are motivated
by a desire to serve the public by doing what is "right."
The government emerges as an instrument that will (or can)
improve society. Unintended and unexpected consequences of
government actions do not seem to arise in this view of
government.
A public-interest view of government is probably most
often a normative theory of government rather than a
positive theory. It appeals to those who want to discuss how
the government ought to act, and appears often in political
rhetoric and on editorial pages. When one wants a positive
theory that explains why governments do the things that they
do, the public-interest theory becomes nebulous. No
proponent of this view has ever written a scholarly summary
of the view. To some extent, its opponents have invented the
public-interest view as a way of making sense of a variety
of often-stated positions. For example, without this
invented view, it is difficult to explain the thinking of
those who reason that the mere finding of a problem in the
private sector establishes a case for government
intervention. Even the exact meaning of the term "the public
interest" is not clear. Economists often assume it means
economic efficiency, but other definitions are possible.
The contrasting view is the private-interest of
economic theory. In this theory, those who are involved in
government have the same motivations that those in the
private sector have; that is, they are motivated by a narrow
concept of self interest: wealth, fame, and power. If what
is in the public's interest is also in the private interest
of government decision-makers, the public interest will be
served. If there is a conflict between the public's interest
and the private interest of governmental decision-makers,
the public's interest will lose. It is the incentive
structure that determines behavior, with bad performance by
government indicating a bad incentive structure, not a
problem with motives.
In democracies, the private-interest view of government
assumes that politicians want to be elected (or re-elected).
This is the public sector equivalent to the private sector
assumption that businessmen try to maximize profit. Further,
just as businessmen must respond to customers, and thus
often are forced to do those things that the customers want,
so politicians must respond to voters. This need to respond
to voters can force politicians to enact those socially
beneficial programs.
However, decisions of elected politicians need not be
economically efficient. Consider what happens if the
politician must vote for the three policies shown in the
table below. The table shows the percentage of the
population that supports and opposes each policy, and these
positions can represent the percentages of the population
that are helped and harmed by the policies. Initially, one
would suspect that a politician would vote against all three
policies. However, if those who favor each policy have
strong opinions and will base their votes in the next
election solely on how the politician votes on that one
issue, it may be in the interests of the politician to vote
for all three policies.
Three
Policies
|
Policy
|
% in Favor
|
% Opposed
|
A
|
20%
|
80%
|
B
|
25%
|
75%
|
C
|
15%
|
85%
|
One cannot say whether or not voting for these minority
positions is economically efficient. It may be that the
gains to those who favor them are large and the losses to
those who oppose them are small. Then, this voting through
elected representatives is a way of taking into account
intensity of preferences. On the other hand, recall that
voters are rationally ignorant. They may not strongly oppose
the policies because they do not take the time necessary for
them to understand that the policies harm them.
Thus, there is no guarantee that policies made by
representatives pursuing their own interests will be in the
interests of the society. Rather, the theory of public
choice leads one to expect that there will be a bias toward
those programs that have visible benefits and hidden costs
and against those that have hidden benefits and visible
costs. In the economic view, government can fail just as
markets can fail. Just as there is no guarantee that the
market will make self-interest serve the public interest,
there is no guarantee that the institutions of government
will force self-interest to serve the public good.
The economic theory of government may seem extreme
because it eliminates any role for ideology or decisions
based on selfless motives. Though is difficult to believe
that these factors play no role in any government decisions,
the economic theory is an attempt to build a scientific
theory, one that makes risky predictions. If one does not
restrict the motives that the actors can have, all outcomes
are possible and the theory is unscientific. The economic
theory is an exploration of how much of government activity
can be explained on the basis of particular incentives,
given narrow self-interest. Although it is still not clear
how successful the economic hypothesis is in explaining
government behavior, it has had an effect on what people
expect the government to be able to accomplish.
Next we take a look at how this theory
of government applies to taxation.
Copyright
Robert Schenk
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