The most powerful political idea of our time

"The European imperial powers withdrew from their colonies after World War II not because their armies were militarily defeated but because their armies could not secure the political objectives of maintaining imperial rule and legitimacy.
At play is a fundamental issue of politics. In the post-World War II era, after generations or centuries of colonial rule, the forces of nationalism and self-determination became irresistible in the developing countries. The idea that human dignity requires freedom from foreign occupation has become the most powerful political idea of our time. All of this was immeasurably strengthened by the spread of literacy, mass communications, and a modicum of economic development. Yet even as the United States has proclaimed its fundamental commitment to human freedom, it has disregarded its own anticolonial history and the basic facts of modern history. Thus, the United States substituted for France in Vietnam's struggle for independence, and could not understand that the Vietnamese were fighting a war of national liberation. The United States replaced Britain as the chief outside meddler in the Middle East oil states - Iran, Iraq, Saudi Arabia - but could not understand that every U.S. manipulation of local Middle East politics ignited powerful anticolonial antibodies.
President Bush imagines that the United States has liberated Iraq, but to the Iraqis the United States is yet one more occupying power, indeed one that has partnered with Britain, Iraq's original imperial power. Moreover, the United States has not tried to understand the roots of Arab views of Israel as a colonial imposition. While compromise is the only productive approach for both parties to the conflict, the Arab view reflects Arab nationalism and anticolonialism. For these reasons, military adventures such as the Iraq War are bound to fail [...]."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Rethinking foreign policy".

Too much meat

"As societies become more prosperous and more urban, they tend to consume more meat. This dietary transformation has been explored in detail by Vaclav Smil*, among others. The basic issue is that meat is a roundabout and energy-inefficient way to get nutrients to the human population. To fatten a cow by one kilogram, around eight kilograms of feed grains must be fed to the cow, but if we take into account the fact that much of the cow is bone and fat, each kilo of edible meat product has used around thirteen kilograms of feed grains. The huge burden of meat consumption on land use should be apparent. To raise that many kilos of feed, we require massive pasturelands if the animals graze or vast croplands if the feed grain is obtained by the production of cereals, soybeans, and other farm products.
Currently, meat consumers do not face pricing that reflects the environmental consequences of their actions, in terms of the loss of biodiversity implicit in land use, in the costs of providing the freshwater, and in the environmental losses associated with the industrial production of feed grains and livestock (for example, the eutrophication of the waterways, with the consequent destruction of marine life). Meat is dramatically underpriced relative to plant products if we take into account the environmental costs of producting it. With more accurate environmentally based pricing (for example, charging appropriate prices for water use and grazing on pasturelands) and more accurate consumer information, it is likely that today's meat consumption would decline markedly, and would not rise as rapidly as it is in China, India, and other fast-growing markets. Given the adverse health consequences of a diet rich in red meats, the public health would also benefit markedly from such a policy."

* Vaclav Smil, Feeding the World: A Challenge for the Twenty-First Century (Boston, Mass.: MIT Press, 2000).

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "A home for all species".

This is an example where I fail to live up to my set of values ! I like meat too much and cannot restrict my consumption volontarily, even if I know that if everybody on Earth ate as much meat as myself, there would not be enough pasturelands to raise the cattle. And even if I was determined enough to restrict my meat consumption, I am sure the majority of people like me would not follow me, so the problem would persist. The solution is therefore to put an economic incentive, like Jeffrey Sachs advocates, i.e. to reflect the true environmental costs in the price of meat. I am always amazed that a hamburger costs less than a salad in a fastfood ! Such abberation should change...

Water stress and conflict in Africa

A plausible deep root for Africa's problems (see also this post):

"A notable scientific contribution in establishing [the] link [between rising water stress and conflict] was made by Edward Miguel and his colleagues, who found that "drops in rainfall [in Africa] are associated with significantly more conflict...
There is strong evidence that better rainfall makes conflict much less likely in Africa."* The key link seems to be that a decline in rainfall causes the economy to shrink, presumably through the adverse effects on harvests and food supply, and this in turn triggers conflict. What is important is that when the authors compared the explanatory power of rainfall with political variables (such as democracy, ethnic cleavages, religious divisions, colonial heritage) in accounting for the location, and timing of conflicts in Africa, the rainfall variable was more important than the political variables. The research team concluded as follows: "The most obvious reading of these findings is that economic factors trump all others in causing African civil conflicts, and that institutional and political characteristics have much less of an impact."**"

* Edward Miguel, Shanker Satyanath, and Ernest Sergent, "Economic Shocks and Civil Conflict: An Instrumental Variables Approach", Journal of Political Economy 112, no. 4 (2004), pp. 725-753.
** Edward Miguel, "Poverty and Violence", in Lael Brainard and Derek Chollet, eds., Too Poor for Peace? Global Poverty, Conflict and Security in the 21st Century (Washington, D.C.: Brookings Institute Press, 2007), p. 55.

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Securing our water needs".

This is a very worrying relationship, as water stress is forecasted to increase in many places on Earth, as global warming intensifies ! As Jeffrey Sachs adds:

"Water scarcity is, so far, mainly responsible for conflicts within countries rather than between them, yet cross-border confrontations will also become more likely to arise as water stress becomes more extreme."

On the U.S. not signing the Kyoto Protocol

"The Kyoto commitments were very modest (a 5 percent reduction) and short term (till 2012). At best, the treaty formed a very early step to set the world on a carbon management trajectory. Even so, the protocol generated a political firestorm in the United States. The so-called Byrd-Hagel Senate Resolution, passed 95-0 in 1997 in the lead-up to the final round of negociations on the Kyoto Protocol, held that "... the disparity of treatment between Annex I Parties* and Developing Countries and the level of required emission reductions, could result in serious harm to the United States economy." The resolution thereby made it the sense of the Senate that the United States should reject any new commitments that did not also limit the developing countries. The resolution exemplifies the declining sense of global responsibility felt by U.S. politicians, because it conveniently and even self-righteously puts aside the small detail that the United States, with just 5 percent of the world's population, accounts for one quarter of the world's emissions ! Here is the United States, far and away the biggest contributor to greenhouse gas emissions, indignantly telling poor countries bearing the consequences in famines, droughts, increased malaria transmission, and more that the United States will not even start on emissions control because the developing countries are not yet bound to do so."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Global solutions to climate change".

* high-income signatory countries.

I really hope that things are going to change with Obama as the next U.S. President, for the follow-on to the Kyoto Protocol, to be negociated next year...

Sustainability has to be a choice

"We must keep remembering that complex global problems can be solved by collective global goal setting, reliance on scientific evidence, mobilization of technology, and most crucially, thinking ahead. We will have to appreciate, with urgency, that the ecological challenges will not solve themselves in a "self-organizing" manner. Markets, we have emphasized, won't do the job by themselves. Social norms do not suffice. Governments are often cruelly short-sighted. Sustainability has to be a choice, a choice of a global society that thinks ahead and acts in unaccustomed harmony."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "The anthropocene".

Neither doomed, nor saved by the "invisible hand"

"The world is facing enormous ecological and environmental problems, but running out of natural resources is not the right way to describe the threat. Earth has the energy, land, biodiversity, and water resources needed to feed humanity and support long-term economic prosperity for all. The problem is that markets might not lead to their wise and sustainable use. There is no economic imperative that will condemn us to deplete our vital resource base, but neither is there an invisible hand that will prevent us from doing so. The choice will be ours to make through public policy and global cooperation."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Our crowded planet".

R & D financing

"When R & D* is aimed mainly for general scientific knowledge, the needs of the poor, the global commons, or rapid social uptake, public financing is advantageous compared with reliance on patents. When R & D is targeted mainly for the rich or private use or gradual uptake, the patent-based incentives are relatively advantageous. In general, a healthy innovation system will use a mix of public financing and patents. For global sustainable development, the mix of public financing and private incentives should be harmonized globally to ensure that the needs of the poor and the global commons are properly addressed and financed by shared contributions of the world's governments."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Our crowded planet".

* Research and Development

Peace is the way of solving problems

A beautiful speech by John F. Kennedy, still vividly of actuality today :

"Too many of us think [that peace] is impossible. Too many think it is unreal. But that is a dangerous, defeatist belief. It leads to the conclusion that war is inevitable, that mankind is doomed, that we are gripped by forces we cannot control. We need not accept that view. Our problems are manmade ; therefore, they can be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings. Man's reason and spirit have often solved the seemingly unsolvable, and we believe they can do it again. I am not referring to the absolute, infinite concept of universal peace and goodwill of which some fantasies and fanatics dream. I do not deny the value of hopes and dreams, but we merely invite discouragement and incredulity by making that our only and immediate goal.
Let us focus instead on a more pratical, more attainable peace, based not on a sudden revolution in human nature but on a gradual evolution in human institutions - on a series of concrete actions and effective agreements which are in the interest of all concerned. There is no single, simple key to this peace ; no grand or magic formula to be adopted by one or two powers. Genuine peace must be the product of many nations, the sum of many acts. It must be dynamic, not static, changing to meet the challenge of each new generation. For peace is a process - a way of solving problems.
So, let us not be blind of our differences - but let us also direct attention to our common interests and to means by which those differences can be resolved. And if we cannot end now our differences, at least we can help make the world safe for diversity. For, in the final analysis, our most basic common link is that we all inhabit this planet. We all breathe the same air. We all cherish our children's future. And we are all mortal."

John F. Kennedy, Peace Address at American University, June 1963, when nuclear war was threatening to explode after the failed CIA-led invasion of Cuba in 1961, and the subsequent positioning of nuclear weapons in Cuba by the Soviet Union in October 1962 (cited by Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Common challenges, common wealth").

The threat of fanaticism

After talking about the surprise that World War I was to the European people that believed war was passé because of the intricate economic relationships between European countries, Jeffrey Sachs continues with:

"It may seem impossible to conceive of such a cataclysm today, yet the widening arc of war and vituperation, often pitting U.S. foreign policy against global public opinion, reminds us daily of a growing threat to global peace. Today's worry is not only the violence itself but also the messianic fervor with which various combatants are waging their battles. President George W. Bush, Osama bin Laden, and the suicide bombers all claim God's guidance as they launch their attacks against their foes. The world edges closer to catastrophe. In future years the rising power of China and India could further wound U.S. pride and self-confidence, and further ratchet up global tensions."

Jeffrey Sachs, Common Wealth, Economics for a crowded planet, chapter "Common challenges, common wealth".

La rareté, la croissance et la pauvreté

Arrivant à la fin du livre de Bernard Maris, je crois avoir enfin compris d'où nous vient cette idéologie de la croissance économique. Tentative d'explication.

"L'absence de valeur de l'air, (autrefois) de l'eau et des résultats de la cueillette dans les sociétés très anciennes, tient à l'abondance des biens. Dans la mesure où l'homme ne lutte pas contre la nature mais se contente de tendre la main et de récolter ses fruits, les besoins sont satisfaits et les biens n'ont pas de valeur. Losque la nature se fait hostile et les biens rares, seul le travail humain permet de satisfaire les besoins: Smith, puis Ricardo, Malthus, Mill, et surtout Marx, firent du travail le fondement de la valeur des marchandises. La valeur des biens croît à peu près en proportion du travail destiné à les acquérir ou les produire."

Le thème central est donc celui de la rareté:
"il n'y a d'économie que parce qu'il y a des raretés, donc des prix. Et la croissance est d'abord une lutte contre la rareté par la mobilisation de facteurs de production que sont le travail, le capital, la terre (la nature), la technologie."

Cela explique pourquoi les économistes comme Jeffrey Sachs prônent la croissance économique, garantie par des économies libérales, pour lutter contre la pauvreté, qui elle-même découle de la rareté !
La question est donc de savoir si les économies libérales sont les plus efficaces pour promouvoir la croissance économique.

"Qui fait la croissance ? Réponse des économistes: le travail, le capital et le progrès technique. Le temps de labeur, les machines et l'organisation du labeur et des machines. [...] Les économistes sont très mal à l'aise avec le progrès technique. D'où vient-il ? Du ciel, comme on le disait dans les modèles de croissance des années 60, en l'assimilant à la « manne » céleste ? Récemment, on a tenté de l'imputer à la croissance elle-même, par un phénomène de « bouclage »: la croissance produit le progrès qui produit la croissance."

Comment ?
"par le biais des rendements croissants. Les « rendements croissants », forme d'externalité positive, c'est-à-dire de relation économique ne passant pas par le marché et engendrant du bien pour l'économie, sont des progrès d'organisation. [...]
Les rendements croissants [...] sont des effets de réseau, des effets externes positifs d'une entreprise à l'autre. [...]
Il est essentiel de comprendre que les rendements croissants, autrement dit, le progrès technique endogène, se réalisent hors marché. Ils sont donc des phénomènes gratuits et collectifs. Insistons sur la double qualité de gratuité et de collectivité. Ce qui ne veut pas dire charitables ! Les entreprises de la Silicon Valley, qui font profiter de leur « réseau » les nouvelles entreprises qui s'installent, n'ont rien de charitable, mais c'est ainsi, le réseau des chercheurs, des cadres, des innovateurs, des clients profite à toutes. [...]
La croissance endogène nous offre une réflexion d'une rare profondeur sur le fonctionnement économique. L'idée est qu'il ne peut y avoir croissance marchande forte sans quelque chose qui échappe, socialement, au marché. [...] Pour comprendre la croissance endogène, il faut penser à la recherche. Un chercheur travaille, seul ou en équipe, et propose ses résultats dans des congrès à d'autres chercheurs. Le principe de la recherche est la gratuité. Offrant ses résultats, il sait deux choses: 1) il ne perdra rien de ce qu'il sait, car contrairement au litre d'essence, qui appartient à Pierre et non à Paul, le théorème de Pythagore peut appartenir à plusieurs personnes; 2) il apprendra des autres, autrement dit, il recevra d'eux. Phénomène de rendements croissants: de l'échange gratuit, tout le monde ressortira enrichi, sans rien avoir payé.
La croissance des pays s'explique donc par des phénomènes gratuits qui compensent les tendances funestes de la compétition à tirer en général les économies vers le bas. Ils introduisent des éléments qui permettent de lutter contre la rareté liée à la compétition pour les places, les biens, l'espace..."

On voit bien que la compétition, un pilier fondateur des économies libérales, tend à augmenter la rareté des biens qui deviennent accaparés par les plus forts, et n'est donc certainement pas un bon moyen pour lutter contre la pauvreté. En revanche, la coopération et la gratuité offrent des mécanismes de bouclages positifs qui permettraient une croissance encore plus rapides (tout en faisant bien attention que cette croissance soit compatible avec le fonctionnement de la nature, si on ne veut pas finir avec des phénomènes de bouclages négatifs qui ruineraient tout) !

Extraits cités de Bernard Maris, dans l'Antimanuel d'économie. 1. Les fourmis, chapitres "Le partage de la richesse" et "La croissance".

Où sont les morts provoqués par les économistes ?

Tiens, voilà une critique de Jeffrey Sachs, notamment, par Jacques Chavagneux, interviewé par Jacques Sapir, dans Alternatives économiques, cité par Bernard Maris, dans l'antimanuel d'économie. 1: les fourmis, chapitre "Le langage du pouvoir" (je savais bien qu'il fallait que je lise ce livre juste après celui de Jeffrey Sachs, qui m'avait paru assez convainquant, pour avoir des contrepoints !):

"En Russie, la surmortalité actuelle provient en partie de la destruction des systèmes sociaux et d'hygiène, résultat des coupes budgétaires imposées par les économistes qui ont conseillé les gouvernements, de Jeffrey Sachs à Stanley Fischer. Ces économistes ont également sur la conscience la situation de désespoir, de voie sans issue qu'ils ont contribué à créer par leurs conseils erronés: le taux de suicide a explosé chez les jeunes, ainsi que des comportements facilitant la montée de la prostitution ou de la criminalité. On a maints exemples d'une détérioration dramatique des cadres de vie liée aux politiques prescrites par ces experts en Amérique latine, par exemple aujourd'hui en Argentine. Les recettes du FMI ont conduit l'Indonésie au marasme et au bord de l'éclatement interethnique et de la guerre civile, alors que, à l'opposé, la Malaisie traversait la crise de 1997 sans trop de mal en suivant une politique opposée (incluant en particulier le contrôle des changes). Il est clair que les économistes responsables des divers désastres que l'on a connus ne les ont pas voulus. Une bonne partie d'entre eux ont donné leurs conseils avec les meilleures intentions du monde. Rappelons-nous le mot de Guillaume II devant les charniers de la Première Guerre mondiale: «Je n'avais pas voulu cela.» Et rapprochons cette phrase de l'aveu de Michel Camdessus, l'ancien directeur général du FMI, reconnaissant que l'action du FMI avait créé en Russie «un désert institutionnel dans une culture du mensonge». Il n'en reste pas moins que l'on n'est pas jugé sur ses intentions, on l'est sur ses résultats."

Alors, qui a raison ??

Hope

"Let no one be discouraged by the belief there is nothing one man or one woman can do against the enormous array of the world's ills - against misery and ignorance, injustice and violence... Few will have the greatness to bend history itself; but each of us can work to change a small portion of events, and in the total of all those acts will be written the history of this generation...
It is from the numberless diverse acts of courage and belief that human history is shaped. Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends a tiny ripple of hope, and crossing each other from a million different centers of energy and daring, those ripples build a current which can sweep down the mightiest walls of oppression and resistance."

Robert Kennedy, cited by Jeffrey Sachs in "The end of poverty, economic possibilities for our time", chapter "Our generation's challenge".
Jeffrey Sachs then concludes his book:

"Let the future say of our generation that we sent forth mighty currents of hope, and that we worked together to heal the world."

Sustainable development or extreme poverty: do we have to choose?

A friend of mine tells me that sustainable development should not be our priority, since it would impede economic growth, therefore perpetuating extreme poverty.
On the contrary, Jeffrey Sachs argues that both fights should be taken together and will benefit from being solved together:

"While targeted investments in health, education, and infrastructure can unlock the trap of extreme poverty, the continuing environmental degradation at local, regional, and planetary scales threatens the long-term sustainability of all our social gains. Ending extreme poverty can relieve many of the pressures on the environment. When impoverished households are more productive on their farms, they face less pressure to cut down neighboring forests in search of new farmland. When their children survive with high probability, they have less incentive to maintain very high fertility rates with the attendant downside of rapid population growth. Still, even as extreme poverty ends, the environmental degradation related to industrial pollution and the long-term climate change associated with massive use of fossil fuels will have to be addressed. There are ways to confront these environmental challenges without destroying prosperity (for example, by building smarter power plants that capture and dispose of their carbon emissions and by increasing use of renewable energy sources). As we invest in ending extreme poverty, we must face the ongoing challenge of investing in the global sustainability of the world's ecosystems."

(Jeffrey Sachs, "The end of poverty, economic possibilities for our time", chapter "Our generation's challenge").

Reason vs Passion

"The critics of progress should therefore be met partway. Progress is possible, but not inevitable. Reason can be mobilized to promote social well-being, but can also be overtaken by destructive passions. Human institutions, indeed, should be designed in the light of reason precisely to control or harness the irrational side of human behavior. In this sense, the Enlightenment commitment to reason is not a denial of the unreasonable side of human nature, but rather a belief that despite human irrationality and passions, human reason can still be harnessed - through science, nonviolent action, and historical reflection - to solve basic problems of social organization and to improve human welfare."

(Jeffrey Sachs, "The end of poverty, economic possibilities for our time", chapter "Our generation's challenge").

Killing another myth

This could also be the sixth and last episode of "Public vs private", where the conclusion is drawn that to achieve an efficient economy turned toward people needs, one has to combine public and private sectors:

"The last myth worthy of mention is the social Darwinist myth, often the modern economist's myth, which warns against soft-hearted liberalism on the grounds that "real life" is competition and struggle, of "nature red in tooth and claw" in Tennyson's evocative phrase. Social Darwinism holds that economic progress is the story of competition and survival of the fittest. Some groups dominate; other groups fall behind. In the end, life is a struggle, and the world today reflects the outcome of that struggle.

Despite the fact that much free-market economic theory has championed this vision, economists from Adam Smith onward have recognized that competition and struggle are but one side of economic life, and that trust, cooperation, and collective action in the provision of public goods are the obverse side. Just as the communist attempt to banish competition from the economic scene via state ownership failed miserably, so too would an attempt to manage a modern economy on the basis of market forces alone. All successful economies are mixed economies, relying on both the public sector and the private sector for economic development. I have explained the underlying theoretical reasons why markets and competition alone will not provide efficient levels of infrastructure, knowledge, environmental management, and goods. Just as that is true at the national level, it is also true internationally. Without cooperation, a collection of national economies will not provide efficient levels of investment in cross-border infrastructure, knowledge, environmental management, or merit goods among the world's poor."

(Jeffrey Sachs, "The end of poverty, economic possibilities for our time", chapter "Myths and magic bullets")

Public vs private (5)

"Fifth, governments will want to help the poorest of the poor not only by providing infrastructure and social investments, but also by providing productive inputs into private business if that, too, is required to help impoverished households get started in market-based activities. Thus government might want to provide subsidized fertilizers to subsistence farmers so that they can produce enough to eat or microcredits to rural women so that they can start microbusinesses. Once these households successfully raise their incomes above subsistence, and begin to accumulate savings on their own, the government subsidies can be gradually withdrawn.
At the same time, except in the case of the poorest households, governments generally should not provide the capital for private businesses. Experience has shown that private entrepreneurs do a much better job of running businesses than governments. When governments run businesses, they tend to do so for political rather than economic reasons. State enterprises tend to overstaff their operations, since jobs equal votes for politicians, and layoffs can cost a politician the next election. State-owned banks tend to make loans for political reasons, rather than on the basis of expected returns. Factories are likely to be built in the districts of powerful politicians, not where they can best serve the broader population. Moreover, governments rarely have the in-house expertise to manage complex technologies, and they shouldn't, aside from sectors where the government's role is central, such as in defense, infrastructure, health, and education."

Public vs private (4)

"Fourth, societies around the world want to ensure that everybody has an adequate level of access to key goods and services (health care, education, safe drinking water) as a matter of right and justice. Goods that should be available to everybody because of their vital importance to human well-being are called merit goods. The rights to these merit goods are not only an informal commitment of the world's governments, they are also enshrined in international law, most importantly in the Universal Declaration of Human Rights, as follows:

• Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
• Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

Moreover, according to Article 28 of the Universal Declaration, «Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.» A follow-through on the Millennium Development Goals would mark a major practical application of that article."

When I read these articles from the Universal Declaration of Human Rights, I am amazed on how little they are actually applied even in the rich countries, especially the United States! If you don't have a work, you don't have a health insurance and therefore adequate medical care. One time I was at the hospital in Honolulu, I saw a cartoon on the front desk, where an old poor guy that looked very sick was arriving in a hospital, the receptionist was asking him if he had a health insurance, the guy was replying «no», and the receptionist was pointing to the door while telling him «the exit is this way». I was litterally shocked! You don't have equal access to higher education neither, since the selection is made on money, not on merit!
The situation is less bleak in France, and Europe in general, but I don't think we are heading in the good direction with the new government's reforms...

Public vs private (3)

"Third, many social sectors exhibit strong spillovers (or externalities) in their effects. I want you to sleep under an antimalarial bed net so that a mosquito does not bite you and then transmit the disease to me!
For a similar reason, I want you to be well educated so that you do not easily fall under the sway of a demagogue who would be harmful for me as well as for you. When such spillovers exist, private markets tend to undersupply the goods and services in question. For just this reason, Adam Smith called for the public provision of education: «An instructed and intelligent people ... are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition...» Smith argued, therefore, that the whole society is at risk when any segment of society is poorly educated. Natural capital is another area where externalities loom large. Private actions - pollution, logging, overfishing, and the like - can lead to species extinction, deforestation, or other kinds of environmental degradation with serious adverse consequence for the whole society, or even the whole world. Governments therefore have a crucial role to play in conserving natural capital."

Public vs private (2)

"A second category of publicly provided capital goods includes those that are nonrival, when the use of the capital by one citizen does not diminish its availability for use by others. A scientific discovery is a classic nonrival good. Once the structure of DNA has been discovered, the use of that wonderful knowledge by any individual in society does not limit the use of the same knowledge by others in society. Economic efficiency requires that the knowledge should be available for all, to maximize the social benefits of the knowledge. There should not be a fee for scientists, businesses, households, researchers, and others who want to utilize the scientific knowledge of the structure of DNA! But if there is no fee, who will invest in the discoveries in the first place? The best answer is the public, through publicly financed institutions like the National Institutes of Health (NIH) in the United States. Even the free-market United States invests $27 billion in publicly financed knowledge capital through the NIH."

Public vs private (1)

The following are good arguments for what should be taken care of by the public sector instead of the private sector. And they are from a capitalist economist who has militanted his whole life to spread liberal market mechanisms worldwide, as an efficient way to fight against poverty (Jeffrey Sachs, "The end of poverty, economic possibilities for our time", chapter "Making the investments needed to end poverty"). It is quite long so I will split it into 5 parts, following the 5 points argumentation of the author.

"Why should government finance schools, clinics, and roads, rather than leave those to the private sector ? There are five kinds of reasons, all compelling in the proper context. First, there are many kinds of infrastructure, especially networks like power grids, roads, and other transport facilities - airports and seaports - which are characterized by increasing returns to scale. If left to private markets, these sectors would tend to be monopolized, so they are called natural monopolies. If such capital investments are left to the private sector, the privately owned monopolies would overcharge for their use, and the result would be too little utilization of this kind of capital. Potential users would be rationed out of the market. It is more efficient, therefore, for a public monopoly to provide network infrastructure and set an efficient price below the one that would be set by a private monopolist."