Posts tagged with: government failure

Blog author: jballor
posted by on Tuesday, April 14, 2009

An essay of mine appears today over at the First Things website as part of their “On the Square: Observations & Contentions” feature. In “Between Market and State,” I explore the dialectic logic of market and government “failure,” which functions in part to provide us with a false dilemma: our solution to social problems must lie with either “market” or “state.”

I work out this logic in the context of the sub-prime mortgage crisis, and conclude that non-profits play a critical role as mediating institutions that are not driven in the first place by profit motives. A great deal of the economic woe of the last year or so has been the result of seeing the poor as objects of material gain rather than partners in charitable compassion. Read the piece over at the First Things site and discuss it here.

I should note that PowerBlog contributor Dr. William Luckey has provided a brief and challenging analysis of the role of non-profits. His survey of the treatment of non-profits in the literature includes the observation, “Many sources see the purposes of non-profits as taking up the slack from either market failure or government failure, thus revealing a pro-statist, anti-market bias.” The argument in my First Things essay takes the position that one purpose of non-profits is to “take up the slack,” so to speak. But I don’t see how this by definition reveals a “pro-statist, anti-market bias.”

As I say in the essay,

Advocates for government intervention abound nowadays. But apologists for the market economy do themselves and their cause no favors when they ignore the fact that there are limits to what the market can and ought to be asked to do. Indeed, much of what has been called “market failure” is actually the result of applying market-based solutions to problems for which profit considerations ought to be considered secondarily—if at all.

Within a market framework people tend to maximize efficiency and increase material well-being. But the market is not the answer for everything. It cannot tell us, for instance, how to arrange our familial or spiritual lives.

I was influenced in this line of thinking by a brief reflection from Arnold Kling, who writes about two propositions in the context of the sub-prime lending disaster: 1) Market failure is inevitable; and 2) Government failure is inevitable. He says, “In talking about the financial crisis, I believe that to speak the truth one has to accept both propositions. Most people prefer narrative, which either explicitly or implicitly denies one or the other.”

To be sure, I do think Luckey is right to call for “a completely new study of non-profit organizations,” an early attempt at which was made in the context of Acton’s own Samaritan Guide program. (With Marvin Olasky’s comment that the finalists tended to be either “rescue missions for the homeless or rehab centers for alcoholics and addicts” in view as well, see the conclusions of the promising paper, “Faith Makes a Difference: A Study of the Influence of Faith in Human Service Programs,” by Beryl Hugen, Fred De Jong, and Karen Woods.)

One non-profit ministry that I highlight in the First Things essay that is neither a homeless shelter nor a rehab center is the Inner City Christian Federation. This is a worthy organization that merits a great deal of attention in the debate about home ownership, the mortgage industry, and Christian charity.

As I also note in the First Things essay, this discussion about the credit crisis must go to our core assumptions about home ownership. A fascinating interview with Edmund Phelps, director of Columbia University’s Center on Capitalism and Society, picks up on some of these issues. Phelps has a lot of great things to say, and here’s one of them:

I’m hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life. That’s what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a home owner.

A handy chart showing the movement in trust in social institutions over the last thirty years according to the General Social Survey is available here.

Non-profits are increasingly being squeezed out between market and state, and the solutions they offer are either marginalized or subsumed under the logic of profit or coercion. As many others have noted, some recent policy initiatives, most notably lowering the limit on qualifying charitable donations, will only serve to exacerbate this problem.