To return to Julian Le Grand's approach, it seems to me that one
approach would be to say that the third way encourages free market as
much as possible (since it is by far the best systtem for conveying
information about consumer preferences), but not to let it rip
entirely because of the proble of externalities and market failures.
Surely the key role of government is to deal with these problems of
market failure and to intervene where there are basically goods
issues at stake. The classic case of an externality is of course
pollution, which it is not in the interests of individual producers
or consumers to limit. Hence some kind of regulation is essential
(which could of course be in the form of green taxes rather than of
direct controls).
The exact form of that the intervention should take then becomes the
really important intellectual puzzle. I would be very interested in
hearing what an economist like John Vickers has to say on this.
Incidentally, what I have in mind is very different from the kind of
regulation that Oflot and so on engage in. I think there is a
fundamental differnece between regulating a monopoly and trying to
control monopoly rents from dealing with market failure and
externalities (but again consult John Vickers on this). My own view
(based on no relevant expertise) is to say that monopolies should be
split up and forced to compete, rather than regulated. The problem
with a lot of Thatcher's privatisation was that crucial role of
competition was neglected. Equally, we shoud not try to regulate
where we simply do not like the outcome of the market - Nozick's
argument that Wilt Chamberlain should be allowed to keep his massive
earnings because they are what the public freely chose to give him
seems to be persuasive, and public opinion also favours it. What
public opinion does not like are 'fat cats' who earn monopoly rents.
Anthony Heath
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