‘Managing markets ‘as a governance tool is often criticized and described as a neo-liberal notion that ‘hollows out’ the state, effectively reducing legitimacy and handing the state to corporate elites.
Michael Keating in his book ‘Who Rules?: How Government Retains Control of a Privatised Economy (2004),contrastingly presents ‘managed markets’ as an adaptable, informative, controllable and reliable mechanisms to influence and manage a variety of situations. The notion of ‘managed markets’ as a governance mechanism is further supported by numerous theorists such as Bell, Hindmoor, Kirzner, Hayek, Osborne and Gaebler. Thus arguably ‘managed markets’ are both practically plausible and highly effective if supported and followed by meticulous metagovernance and a firm political will.
A government can govern through markets using four key methods, altering the price structure, direct intervention, choice of direct intervention and the quantity and quality of services the governments pays for. Altering the price structure via taxes and subsidies allows the government to control the prices of goods and services, thus potentially creating demand and employment in the taxed and subsidized industry or influencing how they operate, the obvious accompanying example here is the introduced ‘Carbon Tax’ in Australia which attempts to reduce environmental pollution through directly taxing industries which creates pollution, while also subsidizing certain losses to retain employment figures and retain capital investment in the industries, but still create a negative stigma associated with ‘damaging’ the environment.
Direct intervention by governments can create demand in areas through ‘exciting’ incentives. Government or State incentives, such as voluntary and recognition programs, permit and regulatory incentives, subsidies, deposit-refund systems, marketable permits, input or output taxes and charges, can be created for individual market participants to pursue government objectives (Keating, 2004:11)(PPRC, 2008).
Who the government pays from its direct intervention allows the government or state to directly influence markets to achieve objectives. As large capital holdings, states and governments are easily capable of achieving objectives by directly investing in certain areas or businesses. For example, by hiring an environmentally friendly company, other companies are likely to adopt more eco-friendly behaviour to attract government funding (Whitehead, 2003).
By controlling the quantity and quality of services that it pays for the government or state is able to set and monitor conditions regulating its supply (Keating, 2004:12). The government by participating in the market, creates quantity and quality norms as seen in the previous environmentally friendly adoption. Similarly, by adopting and handing previously state run companies across to private investment, the government is able to regulate and control the industry, without being directly liable, this can be seen with Queensland’s privatisation of electricity (Keating, 2004:13).
Keating, (2004:9-12) suggests that these control methods allow the positives of managed markets to flourish. Markets, according to Keating are flexible and adaptable. Market signals give governments the ability to respond more quickly and effectively to situations such as with the floatation of the Australian dollar and the private management of the exchange rate. Markets are able to coordinate and transmit large amounts of information to individual buyers and sellers, which can create freedom of choice and adaptability to contextual needs. Managed markets can be developed to create incentives or disincentives as opposed to using command and control or top down governance which is harder to enforce and more prone to opposition, incentives can be followed and are likely to be followed because they leave a reward as opposed to nothing. Finally, competitive markets are more likely to be efficient and less subject to capture by vested interest groups and can be guided by government to achieve desired results, for example, the United State’s lift of the prohibition saw organised crime deteriorate, and allowed the government to regulate and manage alcohol and the social implications surrounding it.
Critics such as Susan Strange (1996, 14) suggests when privatisation, deregulation, external markets, contracting out, public private partnerships and internal markets are used, legitimacy and authority is lost or reduced from national governance because government employment expertise and control is forfeited or reduced. This, however, arguably only occurs from incompetent metagovernance or from a lack of political will.
Effective governance through market mechanisms and contracts can only be reliably achieved through the use of metagovernance. Metagovernance can be broadly defined as the actions taken place explicitly on practices and procedures that secure governmental influence and control (Whitehead,2003:8). Bell and Hindmoor define these actions as steering (how, why who, where what?), effectiveness (the value of the steering?), resources (where from?), democractic-ness (fairness of this engagement?), accountability (who is held responsible?) and legitimacy (will this harm the legitimacy of the government and will it uphold the proper values?)(Bell, 2009). Without this proper metagovernance or political will to follow through there is the potential for governments to lose control of situations, notably the 1980s UK housing of vulnerable children catastrophe which saw private firms house vulnerable children in their care (Bell, 2009:127). Ian Kirkpatrick, Martin Kitcehner and Richard Whipp (2001) later found, in a review of this policy, that many children were moved into homes outside the boundaries of their local authority thus making it harder for social workers to monitor their progress and standards of their environment, some special needs children were allocated in unsuitable accommodation and finally authorities awarded contracts to the firms without soliciting alternative bids or associating payment to performance (2001). Thus a failure of active metagovernance, led to children being used by private firms for money. Contrastingly, when local authorities started to metagovern by creating Children’s Contact Units to monitor children and negotiate, working through an association to find appropriate suppliers and engage in long-term ‘relational’ contracts with reputable providers, the policy started to work much more effectively (Bell, 2009:127). Finally, like all forms of governance, ‘managed markets’ are not appropriate or superior in all situations and should be used contextually. Osborne and Gaebler (1992, 47) present this argument as those who, “…believe business is always superior to government are selling the American people snake oil.”
Market mechanisms can be governed with beneficial outcomes, while the negatives can mostly be nullified through effective metagovernance. Thus Keating’s proposal for enhancing governing capacity through ‘managed markets’ is both plausible and effective if it is contextually appropriate and followed by thorough metagovernance.
References
Barzelay, M. (1992) Breaking Through Bureaucracy. (University of California Press).
Bell, S & Hindmoor, A. (2009), Rethinking Governance: The Centrality of the State in Modern Society. (Cambridge University Press). 125-130.
Friedman, T. L. (1999), The Lexus and the Olive Tree (New York: Straus &Giroux).
Hayek, F. (1945), Individualism and Economic Order (Londson: Routledge).
Keating, M. (2004), Who Rules? How Government Retains Control of a Privatised Economy. (Sydney: Federation Press). 1-12.
Kirkpatrick I, Kitcehner, M & Whipp, R. (2001),
Kirzner, I. (1973), Competition and Entrepreneurship (University of Chicago Press).
Osborne, D. & Gaebler, T. (1992), Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. (Reading: Addison-Wesley). 47.
Pierson, C. (1996), The Modern State. (London: Routledge). 124.
Strange, S. (1996), The Retreat of the State: The Diffusion of Power in the World Economy. (Cambridge University Press). 14.
Whitehead, M. (2003), ‘In the Shadow of Hierarchy’: metagovernance, policy reform and urban
regeneration in the West Midlands’, Area, 35, 6-14.