When You Can't Trust the Market

...Burton Weisbrod has written a provocative and valuable book...

...We may want a firm to use handicapped workers, or to continue operating in a high-unemployment area in order to ease an industrial transition...

...On some important proposals that smack of departures from the profit principle in allocating capital—notably industrial policy—the consensus among economists is so resoundingly negative that the media, to fulfill their function of reporting "both sides" of an issue, must present as economists a passel of allpurpose thinkers who would not be accepted by those trained in the discipline...

...Thatwould explain why the role of nonprofits and the government is comparatively greater in health care than in other services with similar informational characteristics, e.g...

...A school's test scores can be inspected...

...Although members of the profession are prepared to recognize a few special circumstances where profit-hungry individuals do not get things right for society (by causing too much pollution, for instance), they often see virtues in practices that lay circles consider extremely controversial (corporate raiding) or condemn with near unanimity (insider trading...

...Moreover, as Weisbrod points out, with some types of services "there is no way of ever learning for certain what would have happened if the service had not been performed or if it had been purchased from another seller...

...it works well enough in practice to bringjoy to any social scientist...

...Economists are trained to discern the benefits to the public that come from placing the production of goods and services in private, profit-seeking hands —benefits in terms of innovation, cost, satisfying the consumer, and overall economic growth...

...I might be happy to pay taxes to see to it that all the hungry are fed, yet regard whatever voluntary contribution I could make as a mere offering of crumbs and hence not worth it...

...From some readers this observation will doubtless elicit a yawn...

...But if a firm can ring up repeat sales regardless of the quality of its product, that discipline evaporates...

...There might be little reason for citizens to care about the opinions of economists were it not for two facts...

...Both these findings are in line with the expectation that for-profit nursing homes take advantage of ill-informed consumers...

...Some of Weisbrod's arguments will be familiar to those with a modicum of training in economic theory, but he comes up with a number of original twists...

...Weisbrod takes the economist's mode of reasoning very seriously...

...Why shouldn't a card-carrying economist have some good words to say about nonprofits...

...legal counseling...

...Weisbrod also cites another interesting area not really suited to private, profit-seeking businesses...

...There are various benefits, he notes, that can be secured only from the production process itself...

...If one of the benefits of nonprofits is to provide a blanket of trust for poorly informed consumers, then it might be a good idea, he submits, to have a division of labor whereby for-profit firms supply well-informed consumers and nonprofits or government supply poorly informed ones...

...The first is that their views have come to exert a significant influence on the wider intellectual and political climate of the country...

...The problem with the latter is that they are often dependent for their revenues on donations, and there will always be people who will fail to participate simply because not everybody can be obliged to do so...

...In the penultimate chapter of The Nonprofit Economy, Weisbrod presents some empirical evidence he has collected about differences in the performance of for-profit and nonprofit concerns in areas where they compete, such as nursing homes...

...Where it suggests that the government and the nonprofits should be prominent—such as in health care and in nursing homes—they are in fact...

...Weisbrod tries to distinguish the characteristic strengths and weaknesses of production by profit-seeking private firms, bynonprofits and by government...

...Nonprofit nursinghomes, it develops, ply their charges with fewer sedatives than for-profits do, and they conduct more frequent reviews of the patient's continued suitability for nursing home care...

...A second novel—and rather nice— point Weisbrod makes is that if one of the reasons goods or services like education get assigned to the nonprofit or government sector in the first place is that it is hard to assess their quality, thenit is a mistake to be too enthusiastic about using simple performance measures as a tool to improve the management of the organizations providing these services...

...Thus where information is not readily available consumers may prefer to cover themselves with the blanket of trust—that is, to obtain the product or service in question from people who, not being moved by the prospect of profit, will not simply seek to exploit them whenever they can...

...Weisbrod'stheoryisnot only cogent...

...Normally, the loss of sales is the whip that disciplines producers, motivating even the most self-seeking among them to satisfy thecustomer's desires...

...And at a time when our dominant cultural trends still exalt the private, profit-making production of goods and services over different approaches, The Nonprofit Economy is important because it opens up a less onesided public discussion of the subject...

...the level of medical care is hard to determine...

...Anyone familiar with the orthodoxy of professional economists, though, will turn his head, at least a bit...

...Intriguing though this idea is, I have two qualms about it: Many consumers may not know enough to decide which category they belong to...

...It is not always possible, however, for consumers to signal their preferences...

...Would an elderly, infirm resident of a nursing home have been better off at another home...

...and should the public or nonprofit entities become financially starved, the division between them and the for-profits could become a class dividing line...

...After explaining the limitations of the private, profit-making sector, Weisbrod goes on to distinguish between situations best handled by government and those most appropriate for nonprofits...

...indeed, he casts his thesis in terms his colleagues will find congenial...

...Then, too, while one feature of a product or service may be apparent, other more important ones may be extremely difficult to discern...

...But in situations where the values of citizens are highly diverse, the case for turning to nonprofits becomes stronger, because that prevents forcing many to pay taxes for something they have no desire to support...

...Consumers cannot be expected to reward profitseeking firms for contributing in this fashion to the public good...

...If, in the case of health care, the patient improved, was it because of, or in spite of, the care received...

...Yet there is reason to suspect this is partly due to a factor that his economic approach fails to take into account— namely, an aversion to profit-making in matters directly involving the preservation of human life and health...

...It may, for example, be too costly for them to sample competing brands of an item...

...accordingly, unless subsidy or regulation is resorted to, society must look to the nonprofits or to government under these conditions...

...The second is that the analysis supporting their pronouncements is such that anyone who claims to be thinking deeply about the organization of social institutions has to take it seriously...

...author, "Making Public Policy" Burton Weisbrod is a card-carrying economist with some good words to say about the nonprofit sector of the American economy...

...Private companies in competition with each other are better than any alternative arrangement at responding to consumer demands...

...In situations of this kind a profit-oriented operation can take advantage of most consumers with relative impunity...

...how it handles character training is tough to measure...

...It gives new dimension to the debate over the relative roles of the private and public sectors in the American economy...

...When this logic applies, government provision is socially preferable, since the government can require all to contribute through their taxes...

...Potted plants in the hallways of a hospital can be seen by everyone...

...As somebody who has written in the past on the importance of developing evaluative methods in public management, I take Weisbrod's chastening to heart...