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What kinds of goods and services should be provided by government employees as opposed to private firms? Should government workers make steel and cars in government-owned factories? Should teachers and doctors be publicly employed or should they work for private schools and practices? Should garbage be picked up by civil servants or employees of private garbage haulers? Should the whole economy be "socialized"? Although these are age-old questions in economics, the answers economists give to them, as well as the reasons for arriving at these answers, have been changing. In this paper, I describe some recent ways of thinking about government ownership.
Half a century ago, economists were quick to favor government ownership of firms as soon as any market inequities or imperfections, such as monopoly power or externalities, were even suspected. Thus Arthur Lewis (1949, p.101), concerned with monopoly power, advocated the nationalization of land, mineral deposits, telephone service, insurance, and the motor car industry. For similar reasons, James Meade (1948, p. 67) favored "socialization" of the iron and steel, as well as the chemical, industries. Maurice Allais (1947, p. 66), always a step ahead of his Englishspeaking peers, argued for nationalization of a few firms in each (!) industry to facilitate the comparison of public and private ownership. At that time, privatization of such services as incarceration and education was evidently not even discussed by serious scholars.
These comments by future Nobel laureates were part of a broader debate over capitalism, socialism and the role of planning in a market economy, which raged in the 1930s and 1940s. The views of serious economists ranged from advocacy of socialism (Lange, 1936; Lerner, 1944), to fierce opposition to socialism (Hayek, 1944; Jewkes, 1948), to a reluctant concession that socialism is bad but inevitable because capitalism was running out of steam (Schumpeter, 1942). A remarkable aspect of this debate is that even many of the laissez-faire economists focused overwhelmingly on the goal of achieving competitive prices, even at the cost of accepting government ownership in non-competitive industries. Thus Henry Simons (1934, p. 51), in "A Positive Program for Laissez Faire," writes: "The state should face the necessity of actually taking over, owning, and managing directly, both the railroads and the utilities, and all other industries in...