The word “public”

by Shihang

There lies a subtle distinction between two kinds of market failure: the market failing to operate properly, or reach competitive equilibrium (due to monopoly etc.) and the market failing to deliver desirable goals, desirable being defined in the context of society (merit and demerit goods). Public goods, it seems to me, belongs in both these groups. The version taught in schools points to the inability of the market to provide these goods, being non-rivalrous and non-excludable.
I recently came across a passage in Tony Judt’s Ill Fares the Land (a text for any card-carrying liberal, for better or for worse) that reads: ” But you cannot run trains competitively. Railways…are at one and the same time an economic activity and an essential public good. Moreover, you cannot render a railway system more efficient by placing two trains on a track and waiting to see which performs better, like two brands of butter on a supermarket shelf. Passengers do not choose which of two simultaneous trains to board, based on appearance, comfort or price. They take the train that comes. Railways are a natural monopoly.”
Instinctively, we immediately see problems. Trains are not public goods etc. But this seems to me an unsatisfactory criticism: definitions are arbitrary and can become irrelevant. There is a difference between the sort of public goods that are in the textbook, and goods that are best provided by the public sector, due to natural monopoly (unprofitable competition) and fundamental goals of that activity being more social than profitable in nature.
As the economist Ronald Coase is fond of pointing out, many of the goods and services defined as public goods, famously lighthouses, are being provided profitably by the private sector. Perhaps this is more an obfuscation due to equivocation of the word “public”, and greater clarity can be achieved if we take a more normative view of what constitutes goods and services that should be provided by a public sector.
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