When private vice hurts public virtue: of blind men, elephants and the politics of market failure

Abstract

The concept of market failure articulates what is recognized by most economists as a set of legitimate reasons for state intervention. Contrary to mainstream economic thought, however, the various types of market failure (notably externalities, public goods and information asymmetries) are not separate descriptions of distinct empirical phenomena, but simply offer different perspectives on the same problem, as I contend in this paper. Because these types of market failure do not stand in an orthogonal, equidistant relationship to one another, if, when and how a market failure occurs is by no means objectively clear. Using the cases of higher education and the global financial crisis, I argue that the conditions in which markets fail, like markets themselves, are socially embedded, context-specific, and the result of often unrecognized political decision-making. The elusiveness of defining market failure therefore does not just seriously question the concept’s usefulness, but can even render it counter-productive, as it turns an essentially political debate into a technical one, tending to privilege certain private interests over the public good.