July 14, 2013

Public and Private and Other Simplifications

In a society, to a certain extent, our institutions and organizations are created out of thin air: out of our beliefs about how our society works. This means the way we understand things can change their existence, and hopefully better understanding of our institutions and organizations can help them work better. I think one of our fundamental dichotomies today misses the point.

We constantly juxtapose public and private actors: Socialism and capitalism. Government and industry. Bureaucracy and markets. Citizens and customers. They form a dichotomy that we see as inherently different, if not opposed.

But is the difference more than skin deep? Both public agencies and private corporations are organizations--entities coordinating human action. Both are established as a means to an end, to serve a purpose. We have government, and we have private corporations, because they do useful things.* They are tools. Useful technologies.

This broad similarity gets lost in the convolution of various arguments and disciplines. In legal terms, public agencies are established to fulfil a number of different purposes--whatever the laws say that established them, or the government wants, or their board members agree upon. Private corporations are simply a very specific type of organization, with established ownerhip rules and purpose (make profit and minimize risk).

But these legal definitions are just ways of facilitating and motivating organization, they say nothing about what role an organization plays in the actual lives of actual people. Private corporations can provide drinking water and voting booths and go to war with your enemies. Public agencies can make money by providing value in the marketplace.

Now before you get all flustered, I'm not saying they are equally good at any of these things. But that is exactly the point: we have to have reasons for saying that public organizations should do some things and private ones should do others. And we tend to skip those. Frequently.

There are a lot of valid reasons, and they are interesting to think about. But we get so wrapped up in either political affiliations or theoretical crutches (markets are always good! corporations are always bad!) that we forget to think about what the actual differences are.

In terms of structure, hierarchy, and functionality, public and private organizations can be basically the same. They may attract different people, they may have different management styles, but these are variations on types, not fundamental differences.

Obviously the management of organizations is one key locus of difference, and one way to think about this is through the idea of accountability. Public organizations in democracies are ultimately accountable to voters while private organizations are accountable to shareholders (which are often synonymous with "the market"). However, the chains of accountability mean that the buck may in fact stop elsewhere, or simply get passed around ad infinitum.

Accountability is why we give more legal power to public organizations--we would rather have legislatures or judiciaries that we voted for than ones we paid for. Not that there is always a difference, but there most certainly is some sometimes.

Thinking this way puts an interesting twist on common debates about the merits of public versus private organizations, which are typically boiled down to things like efficiency versus greed. For example, the extent of public versus private organizations in a country can be understood simply as whether we want our organizations to be democratically accountable or accountable to the market. Or we can think of the issue in terms of to what degree we want our organizations to act with the force of law.

If we want to design an efficacious society--one that helps us get rich, reduce poverty, fulfill our less materialistic dreams, whatever else have you--we need to understand which organizations are needed, and we need to make sure they fulfill their intended role. If we get too stuck in simplistic ideas of which kinds of organizations should do what (what the state can or cannot organize; what the market should or should not allocate), without delving into the "why", we will not achieve our potential.


*You can dispute individual cases, of course, and you can dispute entire typological existences with arguments like path dependency or new institutionalism or simply power , but I think in the end we have these institutions because they are able to convince us (or at least a sufficient subset of us) that they serve a useful purpose.