REPRODUCTION OF PUBLIC
GOODS: CHARACTERISTICS OF STATE REGULATION
Romashchenko
TatyanaTatyana
Dmitrievna, Dr. Sc. (Econ.), Prof.
Ivleva Margarita Gennadievna, graduate student
Voronezh
State University, University sq., 1, Voronezh, Russia, 394006; å-mail: 1otr.mchs@mail.ru
Abstract
The paper focuses
on the reproduction of public goods and its states submitting. The authors
investigate the need for state intervention in the process of reproduction of
public goods as a balanced regulation of the economy by market and state together. Methods of state
intervention in the reproduction of
public goods for market correction are
revealed. They are different for pure and mixed public goods (depends on the externalities
scale). Additionally, the authors have identified methods of
economy state regulation in production, distribution, exchange
and consumption phases.
Keywords: public
goods, pure public goods, mixed
public goods, state regulation of public goods, government intervention.
Paul
Samuelson was an American economist who founded the theory of public goods. In 1954 he published his germinal article The Pure Theory of Public Expenditure, which formalized the concept of public
goods that are non-rival and non-excludable. We consider public goods not only from the material aspect, but
also from the social side, that is, the economic relations that appear in the
process of reproduction of public goods. We define the nature of public goods
as a category of reproduction that is expressed through the system of
socio-economic and economic relations as well as organizational economics which
take place in the process of production, distribution, exchange and
consumption. In all varieties we distinguish pure public goods and mixed public
goods (overloaded goods, limited gifts of
nature, goods and services of natural monopolies, club goods, services of public order institutions and merit
goods).
In his great work
"Economics", Paul Samuelson criticized the government non-interference in
the economy and stressed the adverse effects of the principle laissez-faire for
America such as the stealing of natural resources, polarization of society, cyclicality of the economy, monopoly
victory over the competition. As a supporter of increasing role of the
government in the economy, Samuelson believed that many activities should be
controlled and regulated by the state.
Due to the fact that exclusion
is not possible, some person (“free rider”) can consume public goods without
paying for them. Samuelson focused on the standard syndrome of free riding and
he wrote: "It is in the selfish interest of each person to give false
signals, to pretend to have less interest in a given collective consumption
activity than he really has". Consequently, the market will never supply
pure public goods as well as many
types of impure public goods, hence government interference is necessary.
Similarly,
we support balanced regulation of the economy by the market and the state together
and believe that the government should get involved in the reproduction of
public goods to complement the market and provide to economic progress.
Speaking
about the subjects of socio-economic relations over the reproduction of public
goods we distinguish state, firms and households. State enterprises
produce public goods on their own or purchase them in the private sector to supply
the people in exchange for taxes, control the quality of public goods provision
in the private sector, and set benefits for consumers. The state also forms
demand for public goods to ensure that the society is prosperous. It inhibits
the production of undesirable goods. Hence, the
state institutions using and the tax system applying are distinctive features of
the public goods reproduction.
All public
goods could be provided by the market, that is being excludable and rival. However,
at first, the welfare state wishes to ensure a high standard of living for all
citizens; secondly, low household incomes and irregular distribution of them making
impossible the payment of public goods for all members of society; thirdly, the
consumption of these goods directly linked to social stability and social
justice. This creates contradictions between individual current interests and
the long-term public interest about the reproduction of public goods, and
necessitates government intervention. Ruslan Grinberg and Alexander Rubinstein
in their famous work “Economic Sociodynamics” focused upon the public goods
states provide and wrote: “We certainly
understand that the fundamental characteristics of a state – proceeding from
the unique character of demand (irreducibility), the specific composition of
income (collection of taxes) and concluding with the motivation for the expenditure
of budget funds (in exchange for social utility) - demand the elaboration of an
adequate mechanism for its market behavior. It should be kept in mind that the
contemporary state is neither outside the boundaries of the market economy, nor
above the market economy, but is built-in organically within its structures”.
From this
position, we assessed the possibility of the state intervention in the reproduction of public goods for market correction. Take a look at Table 1,
including the analysis the possibility of state participation in the pure and
mixed public goods provision.
Table 1 The possibility
(advisability) of state intervention into the public goods reproduction.
|
Type of public goods |
Methods of state intervention |
|
1.
Pure public goods (examples: public defense, street lights) |
state enterprises produce pure public goods by collection of taxes. |
|
2.
Mixed public goods: |
|
|
2.1.
overloaded goods (examples: bridges,
gateways, highway) |
self-regulatory organization or |
|
2.2.
limited gifts of
nature (examples: clean
air, sea fish, trees, shrubs) |
the state ensures the production, reproduction, protection and
rational use of resources; it shall issue a license for subsoil use;
determine the form of payments for resources, sets fines for violation of
rules; |
|
2.3.
goods and services of natural monopolies (examples: electricity
supply, communication services) |
the state intervenes for the price and rates control, regulates the
volume of natural resources exploitation (natural gas, water), issues a license to act; |
|
2.4.
club goods (examples: pools,
public transport, cable television) |
state intervention to the creation of this type of goods is not
required. But on the consumption phase, it is possible to establishment of quality
standards and social prices on medicines, tickets for theaters, museums; |
|
2.5.
services of public
order institutions (examples: police, fire service) |
the state finances the production of these services and forces
citizens to pay taxes to meet the interest of the whole society; |
|
2.6.
merit goods (examples: education, public
health) |
the state produces these goods due to the taxation and seeks influence
on `the individual demand by creating
conditions when the consumer finances a goods consumption alone in the
required amount for the society; the state sets standards of quality, grants
tax deductions, provides vouchers of essential commodities for miserable
people; setting norms of obligatory insurance. |
Given the
above, the main task of the government is to fight the "free-rider"
problem, i.e. the possible exception of free use of goods to ensure the
efficient functioning of the market mechanism.
Exclusion methods depend on the nature of the main characteristics of
public goods - externality.
For a small
externality the self-regulatory organization or the subjects of economic transactions
intervene directly. So the externality of
overloaded goods can be controlled by charging a fee for transportation. Organizations
that produce club goods (because of their relatively small sizes) do not
require government intervention, due to the individual contributions of each
member of the club. The non-payers are easily filtered out in these types of
organizations.
But in case of the natural
monopolies the state has to intervene for
the price and rates control, as well as the
operation of the volume of regulation of natural resources due to the large
externality
The objective nature of joint consumption and indivisibility of pure
public goods, limited gifts of nature, merit goods and services of public order institutions makes it
impossible to produce them in private sector by setting prices. In this case,
the government forces citizens to pay taxes to meet the interest of the whole
society. Therefore the state forces citizens to pay taxes to comply interests
of the whole society.
Thus, despite the fact that mixed public goods can be provided not only
in public, but also in private sector, in many cases, the state realizes the
reproduction of public goods and generates its optimal demand.
Intervention in production is ensured through the following
administrative and economic methods: financing from the federal budget, provision
of subsidies, tax benefits, establishment of quality standards, licensing,
granting of privileges to good the production, grants for non-profit
organizations.
In distribution
phase the state stimulates demand; public goods can be provided with the
observance of the consumption standards or coupons.
The exchange
phase is characterized by the establishment of the maximum and minimum fixed
prices and tariffs for certain types of public goods.
In
the consumption phase, the state establishes mandatory consumption
(vaccination), provides address subsidies, sets social prices for medicines,
cultural goods, provides tax deductions on educational and health services.
Reference
1.Grinberg R., Rubinstein A. Economic
Sociodynamics. Springer1Verlag. Berlin, Heidelberg, New York, 2005.
3.Samuelson
P. A. The Pure Theory of Public Expenditure. Review of Economics and Statistics, 1954, No
4(36), 387 p.
4.Kotel'nikov A. A..
Problemy vosproizvodstva opekaemykh blag [Problems of merit goods reproduction]. Vestnik Saratovskogo
gosudarstvennogo sotsial'no-ekonomicheskogo universiteta, 2011. No. 11. Pp. 36.
(In Russ.)