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Limits of Market Organization, The

Limits of Market Organization, The

Richard R. Nelson Editor
Copyright Date: 2005
Published by: Russell Sage Foundation
Pages: 400
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  • Book Info
    Limits of Market Organization, The
    Book Description:

    The last quarter century has seen a broad, but qualified, belief in the efficacy of market organization slide into an unyielding dogma that the market, as unconstrained as possible, is the best way to govern virtually all economic activity. However, unrestricted markets can often lead to gross inequalities in access to important resources, the creation of monopolies, and other negative effects that require regulation or public subsidies to remedy. InThe Limits of Market Organization, editor Richard Nelson and a group of economic experts take a more sophisticated look at the public/private debate, noting where markets are useful, where they can be effective only if augmented by non-market mechanisms, and where they are simply inappropriate.

    The Limits of Market Organizationexamines the appropriateness of markets in four areas where support for privatization varies widely: human services, public utilities, science and technology, and activities where market involvement is altogether inappropriate. Richard Murnane makes the case that a social interest in providing equal access to high quality education means that for school voucher plans to be effective, substantial government oversight is necessary. Federal involvement in a transcontinental railroad system was initially applauded, but recent financial troubles at Amtrak have prompted many to call for privatization of the rails. Yet contributor Elliot Sclar argues that public subsidies are the only way to maintain this vital part of the American transportation infrastructure. While market principles can promote competition and foster innovation, applying them in certain areas can actually stifle progress. Nelson argues that aggressive patenting has hindered scientific research by restricting access to tools and processes that could be used to generate new findings. He suggests that some kind of exception to patent law should be made for scientists who seek to build off of patented findings and then put their research results into the public domain. In other spheres, market organization is altogether unsuitable. Legal expert Richard Briffault looks at one such example-the democratic political process-and profiles the successes and failures of campaign finance reform in preventing parties from buying political influence.

    This important volume shows that market organization has its virtues, but also its drawbacks. Just as regulation can be over-applied, so too can market principles.The Limits of Market Organizationencourages readers to think more discriminately about the march toward privatization, and to remember the importance of public institutions.

    eISBN: 978-1-61044-424-8
    Subjects: Political Science, Economics, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Contributors
    (pp. vii-viii)
    (pp. 1-24)
    Richard R. Nelson

    The close of the twentieth century saw a virtual canonization of market organization as the best, indeed the only effective, way to structure an economic system.¹ This phenomenon, though strongest in the United States and, to a somewhat lesser extent, the United Kingdom, was widespread. The conception of market organization being canonized was simple and pure, along the lines of the standard textbook model in economics. For-profit firms are the vehicles of production. They decide what to produce and how, on the basis of their assessments about what is most profitable. Given what suppliers offer, free choice by customers, who...


    • [Part I Introduction]
      (pp. 25-26)

      The chapters in part I are concerned with four “systems” activities: electric power, telephone service, passenger rail service, and bank funds clearing. Three different but overlapping attributes profoundly affect the ongoing arguments regarding the role that markets should play in their governance and needed regulation.

      First of all, all these activities are widely regarded as “infrastructure,” that is, as activities that need to be performed if the overall economy is to work well. The infrastructure category innately has blurry edges. However, most people would include these four systems as infrastructure. This means that, innately, there is going to be a...

      (pp. 27-47)
      Kira Fabrizio

      Since the mid-1980s, there has been a movement to restructure or privatize industries that were traditionally regulated or nationalized monopolies. The natural gas, telecommunications, and electricity industries involve several horizontal sectors, one or more of which is an integrated network and thus a natural monopoly. Historical development, previous regulation, and coordination benefits from vertical integration led to vertically integrated monopolies in these industries, governed by regulation or nationalization. In each of these industries, it was determined that one sector of the vertically integrated monopoly was not a natural monopoly on its own but had been subjected to regulation (or nationalization)...

      (pp. 48-76)
      Nicholas Economides

      The U.S. telecommunications sector is going through a significant change. A number of factors contribute and define this change. The first is the rapid technological change in key inputs of telecommunications and computer-based services and in complementary goods, which have dramatically reduced the costs of traditional telecommunications services and have made many new services available at reasonable prices. For example, telecommunications cost reductions have made access to the Internet affordable to the general public.

      The second reason for the revolutionary change has been the sweeping digitization of the telecommunications and the related sectors. Not only has the underlying telecommunications technology...

      (pp. 77-113)
      Elliott D. Sclar

      The strengths and limits of market governance in the production of intercity passenger railroad service is a topic worth considering, both for its relevance to an exploration of the limits of market governance, the focus of the present volume, and because the public policy precepts that presently govern this service are now up for review and revision. Passenger rail service is a quasi-public good, as are transportation services in general. It can be simultaneously a private market product, exhibiting the classic characteristics of excludability and rivalry in consumption while also creating larger positive and negative externalities.

      Because of its “boundary”...

      (pp. 114-156)
      John A. James and David F. Weiman

      Following its establishment in 1913, the Federal Reserve Bank (the Fed) assumed dual roles. In addition to the traditional central-bank functions of bank regulator and lender of last resort, it entered the market for the clearing and settlement of check transactions with the goal of forging a more efficient, integrated national payments system (Spahr 1926; Stevens 1996). Since this initial foray into the payments system, the Fed has extended its reach in both the clearing and settlement markets. Alongside its regional check clearinghouses, the Fed operates a national automated clearinghouse (ACH), providing an electronic alternative to retail check payments. Additionally,...


    • [Part II Introduction]
      (pp. 157-160)

      The three studies in part II examine markets in basic human services. One of them—primary and secondary education—has for a long time been regarded as a responsibility of the state. The other two—preschool child care and medical care—have been accepted as state responsibilities in many countries, but that issue is contested in the United States. Even for these, however, in recent years no high-income country has left the governing structures simply to unregulated market operation.

      Unlike the sectors considered in part I, none of the sectors considered here has ever been regarded as a natural monopoly....

      (pp. 161-184)
      Richard J. Murnane

      Since the publication in 1983 of “A Nation at Risk,” a government sponsored commission report noting “a rising tide of mediocrity” (National Commission on Excellence in Education 1983, 5), American kindergarten through twelfth-grade (K–12) education has come under intense scrutiny. One concern is that weaknesses in American education undermine the country’s position in the world. Another is that inequality in access to good education contributes to the growing earnings inequality that may threaten the nation’s democratic institutions. Some analysts and policy makers see greater use of markets in allocating educational services as the solution to these social problems. Others...

      (pp. 185-212)
      Sheila B. Kamerman and Jane Waldfogel

      Child care and child rearing may still be viewed as primarily the responsibility of families, but the conventional wisdom that emerged in the mid-nineteenth century regarding mothers’ exclusive responsibility for the care and education of their preschool-age children at home has largely disappeared. In effect, the middle- and late-nineteenth-century triangle of family, economy, and education that led to the growth of the public education system in the United States is now being played out in another series of role disputes. Just as the public schools expanded in large part in the nineteenth century by assuming tasks that the family no...

      (pp. 213-230)
      Dahlia K. Remler, Lawrence D. Brown and Sherry A. Glied

      Even a cursory glance around the developed world suggests that there are many ways to organize a health care system. The degree of institutional variation across developed countries is perhaps greater in this sector than in virtually any other domain of social policy. There are no purely market health care systems, and few remaining systems are purely governmental. In most countries, both sectors play a role. The tremendous importance of health insurance and the intertwining of health insurance and health care services make it hard even to describe what a pure market for health care would be. Would it be...


    • [Part III Introduction]
      (pp. 231-232)

      A wide variety of activities and institutions are involved in the advance of science and technology. Public funding plays an important role in parts of the system but a limited role in other parts. Market elements are important in various activities but seldom in the raw form depicted in the economics textbooks. Large parts of the system are regulated. The chapters in part III are concerned with various aspects of this “mixed” system. In all three of the sectors studied here, one sees increasing use of markets in the governing structures.

      The question is whether this is a positive or...

      (pp. 233-258)
      Richard R. Nelson

      Modern capitalism has proved a remarkably powerful engine of technological progress. Most of the attention to its workings has focused on the business firms and entrepreneurs operating in a market setting, who are the central actors in developing and introducing new products and processes. At the same time, it is widely recognized that the power of market-stimulated and market-guided invention and innovation are often dependent on the strength of the science base from which they draw (Nelson 1993; Mowery and Nelson 1999). This science base largely is the product of publicly funded research, and the knowledge produced by that research...

      (pp. 259-293)
      David C. Mowery and Timothy Simcoe

      The Internet is a vast “network of networks” that has enjoyed rapid growth in users and applications since the early 1990s, and its growth shows few signs of abating. Partly because of its fast growth, the expanding realm of Internet applications is not always easily accommodated by the technical and quasi-regulatory architectures that underpin the Internet, creating significant challenges to governance. This chapter discusses the roles of public and private sector institutions in the development, adoption, and governance of the Internet and examines some of the “hybrid” governance structures that have emerged to help manage its rapid growth

      The Internet’s...

      (pp. 294-318)
      Roberta Balstad

      When Congress passed the Commercial Space Act in 1998, it was reaffirming its interest and that of the U.S. government in a strong private sector role in remote sensing and earth observation satellites. Although the field had traditionally been dominated by government agencies and public priorities, there had been interest in commercial provision of remote sensing data and in the development of a robust private sector remote sensing industry as early as the Carter administration. Stimulated by the model of commercially successful communication satellites, U.S. government policy makers over several decades envisioned the growth of a private sector remote sensing...


    • [Part IV Introduction]
      (pp. 319-320)

      Part IV is concerned with two functions that are widely agreed to be the responsibility of government: protecting the public health and running elections and the legislative process. In contrast with the activities and sectors considered up to now, for which a case can be made (and, of course, argued against) that some form of market governance is appropriate, no one really disputes that these activities fall under the province of government. The issue in these two areas is how much marketlike activity to allow around the edges.

      An earlier chapter treats the current disputes about how to organize and...

      (pp. 321-334)
      Kristine M. Gebbie

      What is “public health”? Concern for the public’s health is longstanding in organized societies, but the term “public health” has multiple meanings, some of which contribute to a confusing debate on the application or impact of market forces. Public health has most recently been described by the Institute of Medicine as those organized activities undertaken by a community or society to create the conditions within which people can be healthy (Committee on Assuring the Health of the Public in the 21st Century 2003). Stated another way, public health consists of the steps taken to protect, preserve, and promote the physical...

      (pp. 335-370)
      Richard Briffault

      Our democratic political process is predicated on two norms that reject fundamental characteristics of markets. First, whereas markets rely on the private use of economic resources, so that actors are entitled to deploy their economic endowments—which may vary wildly—in pursuit of their goals, democratic politics is based on the equal status of the members of the political community. All adult resident citizens are presumptively entitled to vote; each person casts an equally weighted vote; and wealth, income, or property ownership criteria may not be used to determine eligibility to vote or hold office.

      Second, markets involve the voluntary...

      (pp. 371-376)
      Richard R. Nelson

      Market organization has shown itself to be a valuable and flexible component of the way we govern a wide range of human activities. Given broad agreement on this premise, this book develops three arguments. First, U.S. society is able to use market organization effectively in such a wide range of areas in large part because we have learned how to supplement basic market organization with a diverse structure of nonmarket forms of governance tailored to the specific characteristics of different fields of activity. Second, there are certain activities and sectors where market organization is problematic as a basic governing mode,...

  9. Index
    (pp. 377-386)