The limits and perils of the dichotomous private-public taxonomy

Summary of JOIE article (First View, 7 August 2020) by Veeshan Rayamajhee, Assistant Professor of economics at North Dakota State University, USA and Pablo Paniagua, PhD candidate at King’s College London and Senior Researcher at Fundación Para el Progreso, Santiago, Chile. The complete article is available on the JOIE website.

In her 2009 Nobel lecture, Elinor Ostrom underscored the following point: if we continue to presuppose two optimal organizational forms (markets or states), two types of goods (private or public), and one model of the individual (self-interested/utility maximizing), then our efforts will be devoted not towards understanding the complexity of the world as it exists, but towards criticizing complex institutional arrangements because they do not fit nicely into our models. As a result, we become conceptually trapped in the dichotomous worldview, unable to understand and appreciate a wide diversity of institutional settings that interact with and influence both markets and/or states. Once we internalize this false dilemma, we are conditioned, by logic, to engage in biased and counterproductive debates over which of the two institutional arrangements is optimal. On the other hand, policymakers thus insist that because one arrangement fails or underperforms, the other arrangement must prevail. 

Elinor and Vincent Ostrom rejected this dichotomy-borne dogma throughout their scholarly works. Instead, the Ostroms emphasized contestation, both intellectually and institutionally. They maintained that the seemingly innocuous dichotomous worldview built on the assumed binary classification of goods as either private or public does not reflect the reality of the complex world. In many cases, they lead to non-neutral, even counterproductive, policy implications. In particular, Elinor Ostrom and her Bloomington collaborators conducted a wide range of field studies, where they were regularly confronted with a wide diversity of complex institutional arrangements that humans devised to manage their resources and solve collective challenges. Cases after cases revealed to them that what economists had assumed as a “self-evident truth,” that the failure of markets to provide certain goods and services meant that the state must intervene, was neither self-evident nor (necessarily) true. 

Rather than concocting broad theories about markets or the state, they adopted a configural and practical approach that allowed them to systematically analyze the specific class of goods they were studying – namely, common pool resources (CPRs). CPR goods, just like Buchanan’s club goods, did not fit neatly within the binary taxonomy. That is, they are neither private nor public: CPR (club) goods are subtractable (non-subtractable) but non-excludable (excludable). The Ostroms contended that the two defining attributes of the typology of goods – excludability and subtractability (or rivalrousness) – are not static features intrinsic to the good itself. They are matters of degrees rather than all-or-none categories. Moreover, whether or not a good is non-excludable (excludable) and/or non-subtractable (subtractable), i.e. public (private), is contingent upon existing technology and institutions. 

In our forthcoming article in the Journal of Institutional Economics, titled “The Ostroms and the Contestable Nature of Goods: Beyond Taxonomies and Towards Institutional Polycentricity”, we extend the Ostroms’ proposition regarding the institutional contingency of goods’ typology to its logical end. Building on the Ostroms’ insights on co-production, institutional diversity, and polycentricity, we show that the nature and taxonomy of goods and services are not static and definitive concepts but are instead contestable and dynamic features that are constantly evolving. Most goods that are ex-antedetermined to be ‘permanently public’, because they are non-excludable and non-subtractable, can suddenly become private, club, or common pool resource type of goods in different contexts. On the other hand, a typical private good loses its ‘privateness’ if the institutional conditions characterized by private property rights, rule of law, and low exchange costs are not in place. Thus, if technological and institutional changes alter the degrees of attributes that define a good’s nature (excludability and subtractability), the typology cannot remain static. In our forthcoming article, we provide a novel schematic to analytically codify and conceptualize these ideas about the contestable nature of goods.

Specifically, we explore four mechanisms and/or contexts throughout which the nature of goods and services changes over time – namely: 1) technological and geographical factors, 2) coproduction and entrepreneurial ingenuity, 3) bundling and unbundling of goods/services, and 4) ideologies, regime shifts, and systemic changes. We show, using cases and illustrations, how these four mechanisms independently or jointly contribute to the malleability of the goods’ typology. To do so, we revisit paradigmatic cases from the Lobster Fishery in Maine, Dhurmus-Suntali in post-earthquake Nepal, Mary Queen of Vietnam (MQVN) church in New Orleans, and Chicago Fire of 1871, to the Guthi system in Nepal, where various goods and services shift in their nature. Based on both theory and evidence, we conclude that any attempts to ex-ante classify or taxonomize goods and services are futile, and that such static classifications are not consistent with the empirical reality of the dynamic economy. Moreover, correctly identifying a good’s nature at a specific time and place does not mean that the classification can be generalized for other times and places. Thus, we argue that there is nothing ‘inherent’ in the nature of goods and services, and that they are constantly evolving institutionally contingent features.  

Hence, even though the Samuelsonian private-public dichotomy is a valid theoretical starting point, it falls short of being a reliable and practical guide for public policy because it fails to account for the dynamic and malleable nature of goods in the real economy. The dichotomy presents a false dilemma: if markets fail to provide specific goods or services, then the state must intervene, and vice versa. Such simple solutions not only do not account for the intertwinement of market and government failures, but they also ignore a wide permutation of institutional arrangements suited to provide a broad range of goods and services. Instead, we suggest that the polycentric framework advanced by the Ostroms is a more useful analytical framework because it provides space for diverse and malleable sets of institutions – private, public, or otherwise – with overlapping jurisdictions and wide-ranging relationships experimenting with different solutions.  This can encompass other forms of neither-market-nor-state heterogenous institutions such as clubs, cooperatives, local institutions, and civil society that provide various tangible and non-tangible goods and services. Only such adaptive framework is consistent with the inherently dynamic nature of goods and services identified in our study. 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.