08 November 2009

The private sector and social goals

A correspondent asks: According to the laws of economics if there was a potential gain for private enterprise in targeting social goals, they would have addressed it by now. If the opportunity exists, what was holding back the development of such a concept until now?

A first answer of course is that the private sector does help solve social problems, largely by employing people and paying them salaries, but only as a by-product of more financially profitable activities. A more relevant answer is that most of the funds available for directly achieving social and environmental goals are appropriated from the private sector and channelled through government agencies, which have their own goals (primarily self-perpetuation), and enriching the private sector is not one of them. If government relinquished control over the allocation of some of taxpayer funds, via for instance Social Policy Bonds, then that would animate the private sector much more than the relatively paltry after-tax sums ordinary people have for solving other people's problems. In fact, these sums go to charities and NGOs, and it's generally thought they are much more efficient at solving social problems than government. Mainly, though, the private sector would have to compete with government agencies, which apart from being big, entrenched monopolies are extremely reluctant to relinquish even control of funds, let alone funds themselves, to the private sector. Once a government did start to allow the private sector access to tax revenues, by for example issuing Social Policy Bonds, then we'd see entrepreneurs take a serious interest in solving social problems.

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