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Clifford Winston on Markets Helping Government: Two Think Minimum

Clifford Winston on Markets Helping Government: Two Think Minimum

Bob Hahn:

Hello, and welcome to the Technology Policy Institute’s podcast, Two Think Minimum. I’m your host, Bob Hahn. Today is October 22nd, 2021, and I will be speaking with Dr. Clifford Winston, who is a Senior Fellow in the Brookings Institution’s Economic Studies Program. We will be talking about his book, Gaining Ground: Markets Helping Government, which was published earlier this year by Brookings. This podcast is part of our special series on evidence-based policy. Cliff, welcome to Two Think Minimum.

Clifford Winston:

Thank you. Good to be here. Look forward to talking.

Bob Hahn:

This is a very wide-ranging and ambitious book on the role of markets and government. You address this subject in your excellent book, Government Failure vs. Market Failure, which I’m sure was a best seller. My question to you is, what motivated you to take a second bite at the apple?

Clifford Winston:

I think the main motivation is that Government Failure, despite its… or notwithstanding its exposure, was largely received well by people who were mainly critics of government, and it did not quite reach the middle ground, which I was hoping to reach. And I thought that this book would be better received, hopefully, better received, by the middle, if I really took a more constructive angle and focused less on the problems with government and much more on the positive aspects of markets and how they could help government. That was really the goal of trying to broaden the discussion.

Bob Hahn:

So, some of our tribe, notably economists and others, have suggested that far from being the source of solutions to problems, markets are often the cause of the problems. What’s your response to that?

Clifford Winston:

Well again, it’s important to speak specifically. Arguably, markets are certainly the cause of pollution. It’s private firms that are dumping waste into water and polluting the air. The question then becomes, okay, one, what are markets going to do about it? 

And two, to the extent these are market failures, what is government doing to try to turn the situation around given that this is one of government’s responsibilities, to correct market failures? 

So, I think it’s important to approach the problems from two angles. You see something out there, you can blame it on whoever initiates it, but then you’ve got to say, “Okay, who’s working in a constructive way to try to deal with these problems?” 

And so that’s really sort of the dividing line, with obviously my focus more on what markets are trying to do since really the main thesis is often, they’re much more robust in correcting their own failure than government is in correcting those failures, even though that is one of the responsibilities of government.

Bob Hahn:

So, is that the main thesis or idea in your book, that markets are very agile and good at correcting some of these failures?

Clifford Winston:

Yeah, well, I think that’s certainly one of the strengths of markets. I mean the overall thesis of the book is, you know, one needs to look at the constructive role of markets in correcting their own failures, in correcting failures of government and having the potential to do even more if given the chance. And so, it tries to take a long-run view, saying, “Look, markets evolve, and they can accomplish these important objectives.” 

And these are not just limited to what I call in the book, “economic goals,” which tend to be the goals that try to maximize efficiency. Normally, what we tend to think about in economics, but also carry over to what I call “social goals,” which involve things involving some sort of redistribution or a social goal, like preventing discrimination, that kind of thing. And markets have an important role to play there that’s sometimes overlooked. So, it’s, you know, the various ways that markets can help, but also the breadth of ways that markets can help in terms of accomplishing society’s goals. 

Bob Hahn:

So, you used a big word there, efficiency, which economists are familiar with. Could you elaborate or perhaps give an example for our listening audience who may not have taken advanced economics? 

Clifford Winston:

Sure. I mean, the idea is you want to make the best use of your resources. So, that’s efficiency, in an economic sense means basically that. A lot of what economics is about is trying to say, “What is the best way that we can make use of our resources?” Now, the thing that is important for generalists to understand is that there’s an opportunity cost to misuse of resources. So, if someone says, “Well, right, so you overpay somebody or suppose you pay more for a product, what’s the big deal?” Well, the big deal is that money could go elsewhere, and oftentimes that money goes elsewhere toward things that people care about. 

You know, you have these other objectives, especially with like what we’re dealing with now in terms of Biden’s, you know, broad social debt. Well, he needs funds. Well, a lot of those funds could come from, you know, inefficiencies that have been occurring in certain settings, and that money could be transferred for other social purposes. That is the broad sense of what we mean by efficiency. 

And then there are very specific cases that we look at as to when efficiency occurs and importantly, when it does not occur, that is there’s inefficiencies and that then gets into the issue of what we call market failure, that markets are responsible for these inefficiencies, but then from a policy perspective, then government’s role in correcting those inefficiencies. And when they failed to do that, that’s what we call government failure.

Bob Hahn:

All right. So, let’s pretend there’s going to be a big meeting. I think it’s going to be in Glasgow, Scotland, about what the world’s leaders are going to say they’re going to do, or actually do, about climate change. From your point of view, based on your experience, what would be an ideal response to the climate change problem for the US legislators or Mr. Biden?

Clifford Winston:

Okay. So, in any type of policy question, like what you mentioned, climate change, the most important thing is to first step back and ask, “What are you trying to accomplish?” The problem oftentimes is policymakers have policies without a well-defined problem. So, they say, “Let’s do this, let’s do that.” And then you start to say, “What are you actually trying to accomplish with this policy?” Right? So, that’s a very common problem, and people have all sorts of views of what they ought to do, and they sit back and say, “So, what do you accomplish by doing this?” So, when I hear of climate change, I think of it as a classic externality, that there are activities that firms and consumers and so on and so forth are partaking in that are having adverse effects on our climate. Okay. And so, then the question is, “What policy tools and instruments do we have to try to mitigate those adverse effects?”

And then there are a couple… again on the government side, their role is to efficiently, and I emphasize efficiently again, incentivize market participants to not behave in that way, not pollute as much and so on and so forth. So, there a well-known instrument is an efficient climate change tax, or more specifically what people have been talking about, a carbon tax. Think of a variety of efficient pollution charges that tax people and give them an incentive not to engage in that kind of behavior. That’s certainly a critical starting point. You’ve got to set the right signals to people. You know, you do this, you’re going to pay a cost. Don’t do it, okay. 

But then there’s the other side of it in what the private sector can do. And those are technological advances, alright? So, these are things like carbon capture or alternative energy sources, solar, wind, and what have you, okay?

There, you want to look at government’s role, first of all, identify, “Here’s what the private sector is up to.” Then you want to look at government’s role, and more often than not, you want to be sure that government is not getting in the way of what the private sector can accomplish. Too often, government jumps in and says, “Okay, we’re going to micromanage this. We’re going to require all new homes in California have solar heating, right?” Well, look, what is that going to do? It’s going to raise the price of those homes. It might turn people off to solar energy, and they might not get homes there, so on and so forth. 

So, you want to get an understanding of what market forces are at work, and as policymakers say, “Look, we don’t want to disincentivize people.” At the same time, remember, there’s opportunity costs for our money. We don’t want to also load up with subsidies. And again, a lot of people are talking about that, for example, with electric vehicle chargers. No, let the market sort that out, right? They’re going to be earning the profits, let them do it, but just don’t get in the way. So, I think it’s the two-prong thing, look at efficient pricing on climate change, but also look at where we’re getting technological advances and allow the private sector to evolve, and most importantly, don’t get in its way. 

Bob Hahn:

We were talking about efficiency earlier, and when I look at it, a really fast changing economy, you mentioned the idea of innovation in the context of climate change. But when I look at our economy, I see that it’s very fast changing. How does efficiency relate to these ideas of innovation?

Clifford Winston:

Well, in many ways, that’s sort of the punchline of the whole thing, and in the sense that efficiencies are, when you think of efficiencies over time, better ways of doing things, right? That comes about from innovation and technological change. So, you can think of innovations as the dynamic aspect of efficiency, better ways of doing things, new ways of doing things, different things to do, so on and so forth. So, that’s really why innovation and technological change are so important. In many ways, they provide super efficiency, because it occurs over time.

Bob Hahn:

So, you’re saying that innovation is part of that efficiency equation?

Clifford Winston:

Oh, absolutely. In many ways, it’s probably the most important part because you keep on getting benefits from it over time. It’s not just at one point in time, it repeats itself and you get new things oftentimes that you didn’t anticipate. That was really the main lesson from deregulations. It opened up the box, and we kept on seeing innovations we never anticipated, you know, leading to new things one after the other that turned out to be so important. So, that’s the idea of this.

Bob Hahn:

So, you’re a guru in the area of studying regulation and deregulation, or I’ve dubbed you a guru based on our work together over the years. Do you want to talk a little bit about the kinds of innovations that emerged after the governments say deregulated airlines and what it means to deregulate airlines? 

Clifford Winston:

Sure. So, this I think is really one of the more important lessons about government interactions with markets and private sector participants is that the costs of that interaction were for the most part thought of in static terms. If government gets involved, they regulate, prices may be higher than they would in competitive circumstances, service maybe less. Okay, and that’s pretty much what people thought, but then once we deregulated, and we saw the responses by the private sector, we realized, wait a minute, there are much, much bigger costs. Government is suppressing innovative activity that we can’t anticipate that the private sector could accomplish. 

So, certainly with airlines, we saw in network design. Now let us, again, with the objective of efficiency, we want to fill up our planes. There’s no point in buying very expensive planes, only having them half full, which is the way it was under regulation. We want to fill them up, and we can do this by changing our network in such a way that on certain long-haul routes, we can go point to point, but in other shorter routes, with smaller numbers of passengers, we could run what is known as hub and spoke. 

We could put them in the small plane, bring them to the hub, consolidate them, put them on the bigger plane, and keep on going. So, the acceleration of hub and spoke operations was certainly something that helped increase load factor. On the pricing side, people realize, look, people want different kinds of amenities on an airline, and they’re willing to pay for it. And so, let’s have what we call revenue management, offer different prices, service types of packages that people got. Now we have coach premium instead of just coach, you know, business, so on and so forth. Even people on the other end, you show up and you hope for the best, you know, you get that kind of lower fair. So, that was just with airlines. Obviously the more technologically advanced an industry, the greater you see innovations. 

Certainly, in the energy area, we’re aware it really was important for firms to take advantage of fracking and use that technology and increase production and supply of natural gas. Or that certainly came out, was an outgrowth of deregulation, and pretty much across the board, boats, trucks, rail banks, so on and so forth, did things both more efficiently, but also then improve the variety and quality of the services they offered. And most importantly, they were engaged with their customers. I think that’s something that’s often overlooked when your markets have government involvement, if you will, is that you have the firms thinking more about what the government cares about rather than what their customers think about. You know, they’re worried about, well, you know, are they going to say that this practice is illegal or challenge me on this price, as opposed to asking how best can I serve my customers? 

So, we saw this not only with deregulation, but this is also an issue with occupational licensing, where again, you have this sort of blockade between firms and suppliers and customers, where they work together to try to figure out what it is that is of mutual interest, and again, enhance both profits and welfare. So, that really is sort of the overview of what deregulation is about, but just pointing out that it extends not just to industries, but areas where there’s also occupational licensing.

Bob Hahn:

So, one of the great things about your book and the body of work that you’ve developed over the last three or four decades is you take a look at what’s actually happening in the real world, and you get your hands dirty with data. And as long as you mentioned occupational licensing, I’d like to ask you to elaborate on that a little bit. I know you’ve done some work on the legal profession, but just more generally, what do we know about occupational licensing? Are there areas where you’re fairly certain that customers would benefit or consumers would benefit if we got rid of it? Are there areas where we should keep it? Are there areas that we’re not so sure? Just tell me what we know.

Clifford Winston:

Okay. So, let’s again, step back. It’s always important to think of these issues in terms of, first of all, what are we trying to accomplish? Just to go back with regulation, I mean, there was a supposed objective. There was a concern that your markets could not operate well because of scale economies, and either you get a natural monopoly or bankruptcies everywhere. So, that’s where government was involved. And again, this is an advantage of technological change. We realized as there was technological change, these industries could be competitive, and any so-called natural monopoly was not something that was going to be a fixture of an industry. And so, we could move industry competition. 

Okay, turning now to occupational licensing. In theory, again, the idea there is that consumers are not well informed about the quality of a supplier, whether it’s a doctor, it’s a lawyer, it’s an electrician, it’s a beautician. I mean, it’s amazing how far the range of occupational licensing goes. I think in some places, even sports announcers, there’s occupational licensing there. So, the concern is one of information. So, this is the alleged market failure there, perfect information. You don’t know how good this guy is, and so the supplier needs to get some credential to signal that they have a minimum degree of competence. 

This could be achieved by first going to a school. Like in lawyers, you go to law school and then pass an examination or state bar examination and get your licensing. Other forms of licensing are not as demanding. My sense is, as a beautician, if you need a license, you don’t have to necessarily go to a four-year university. There’s probably some licensing requirements. It’s much less, so on and so forth. So, that’s the idea. All right, the good intentions are to overcome and imperfect information by credentialing people and saying they’ve achieved a minimum level of competence.

All right. Now, how does this work in practice? Well, one immediate observation is, why do we really need government involved in something like this these days? What benefits really could occupational licensing provide in a world of an information technology revolution. I mean, you can’t do anything bad without the world knowing about it in two seconds. If somebody gives you a bad haircut, you’ll be on Twitter saying, “Never go to this guy again.” If some doctor doesn’t patch you up well, they’ll say, “This guy’s a quack.” The list goes on, and obviously, suppliers know about this too. They encourage you to read good reviews about them. So, it’s pretty difficult to be incompetent and hide this for very long. 

Amazing, though, with occupational licensing, it is possible to be incompetent, but still be kept in business and not lose your license. I was actually just reading today about a lawyer who was finally disbarred, but after several, several warnings and just absurd cases of outrageous behavior, of keeping money from clients and not doing anything, and there would be protests to the bar and she’d get a slap on the wrist and keep at it. So, you get a false sense of confidence that these guys are good when in fact, actually, some of them could be really awful. So, that’s on the justification for it. 

Then what then are the costs? Well, the costs are like any other entry barrier. You do not then get the competition that you would get in a free market. Prices are higher and service quality often is less. However, it goes beyond this when we start talking about the legal profession, at least in my view. So as I said, the normal story is you’re just putting up entry requirements. And like in regulated industries, when you have entry requirements, you see a reduction in competition, higher prices, less variety, and so on and so forth. Okay. What is possibly different about the legal profession? So, let me go into this now. This’ll be extended a bit, but it could be interesting.

Occupational licensing in the legal profession really is entry barriers and in a much broader sense than most other professions. As a matter of fact, probably all professions. You certainly have the entry requirement to actually practice as a lawyer. You have to go to law school; you have to pass the bar. However, it goes beyond that. There are entry requirements for firms. That is, to be a firm in the legal industry, you have to be owned and run by lawyers, meaning that you do not have corporations that are providing legal services, but you have law firms. That’s it. There are a few places where they’re experimenting, and they have alternative business structures in Washington, DC, but that is it. For the most part, you do not have some financial corporation in New York saying, “We not only provide financial services, but we also provide legal services, and we’re going to challenge the leading New York law firms.” Nope. That does not occur. Hence the leading New York law firms, in terms of their size, that is the number of lawyers today, are the same ones that existed in the 1950s, and so it is very rare that you will find an industry with that kind of stability at the top, and it’s clear why. They don’t face the kind of competition that you would normally expect with industry competition. Okay. So, that’s the second part of it. 

As just as an adjunct to that, foreign law firms are not allowed to compete in the United States. So, if you have any foreign business, you know, you can’t be some British law firm and say, “Okay, come to us, we’ll deal with you in England.” No, you’re not able to practice law explicitly in America. You could be hooked up with an American law firm, but there’s no point in you advertising yourself as the British law firm in New York and thinking you’re going to get business. It’s not going to work. You can’t do that. 

So, you have people that are prevented from getting in, in terms of their education. You have firms that are prevented from getting in, and there’s one last thing which is critical. Educational institutions are prevented from “getting in.” In other words, the American Bar Association sets the standards of the legal education programs that they accredit. So, you have to go, for the most part, to an American Bar Association accredited law firm to become a lawyer. Now, you have some options very few people take advantage of, like Kim Kardashian. Kim Kardashian is not going to an ABA-accredited law school. She’s trying to learn law by herself and apprentice, and in California, you don’t have to go to a law school. You just have to pass their bar exam. That just happens to be the toughest bar exam in the country.

And thus far, things have not gone well for Kim, and it’s probably going to be a long shot that she’ll get in, but who knows. Anything’s possible if she works hard enough and whatever, but for the most part, you pretty much have one route. Now, what that means is there are a lot of other options that are foreclosed, that are very viable, and that could help reduce the costs and increase the supply of lawyers who would provide heterogeneous products. Okay, in other words, they wouldn’t be the people who are just trying to work for big law firms, make a lot of money. They’d be people who say, “Look, I’m not going to get a very expensive education, but I want to specialize, and I want to help people with marital problems, or real estate problems, or something like that.” 

So, in other words, first of all, you cannot go to an undergraduate education program. There are no undergraduate law degrees in America, and there’s no reason why you can’t major in law. This is not physics or even economics. It’s not that the subject matter is so sophisticated an undergraduate couldn’t handle it, far from it. I think undergraduates could handle it fine. Now, the immediate advantage of that is they wouldn’t need three years of law school. Probably they’d get out to maybe even faster than that. And more importantly, they’d understand whether they actually are interested in law. A lot of the complaints now about people finishing law school and they don’t want to practice, and they spend all this money. Well, you have a better idea of whether you’re really a good match for this profession if you could have an undergraduate degree in law. Okay. So that’s one thing, but then there are even more specialized programs like vocational law schools. You know, there’s one specific thing you want to do, go to a vocational law school, online law school. Spend, you know, in your spare time, learning what you needed to learn about a particular subject, and then you could practice based on your online education. Again, it would be specialized. You’re probably not going to get clients asking you to go before the Supreme Court, but that’s the kind of work you’d be doing. 

But then on the upper end, and this is very important, how about more sophisticated multi-disciplinary courses of law with university? In other words, a lot of people in government almost get law degrees for finishing degrees. If you think about it, Presidents Clinton, Obama, and Biden, they went to law school, but they really never practiced. It was pretty much a pre-government degree, and there are many who go that route. Well, if that’s the case, why don’t we change the curriculum to make it not so much a pure law program, but a much broader public policy program where you have people who are interested in going into government, but they have, let’s say a social science multi-disciplinary legal program where you get law, economics, politics, that kind of thing.

Or you have others who want to go into government, let’s say, and provide help on science policy. And so, you have a combination of law and medicine, policy, so on and so forth, the science area, you can imagine all these things. Why don’t we see them now? Well, the ABA has not said they’re going to accredit this. So, if Harvard or Yale said, “We’re going to offer this.” Well, the ABA said, “Well, you can do it, but we’re not going to sign off on this. And so, you’ll get some degree, but we’re not accrediting it.” And who’s going to take that kind of risk. Right? So, the vision that I have about education completely opens the playing field. All right, now let me turn to, what’s the payoff from this. All right. And I think with these building blocks, I realized this was long, but now you’ll see where it all comes together.

Certainly, with a much richer supply of legal services, right, you will see not just competition with corporations and lower prices at the “high end,” but then you’ll see services at the low end that you probably never even saw before. It’s been estimated something like 86% of people really have no access to the legal profession. They’re not served. Prices are too high for them, but here, in this world that I’m talking about, you have people who don’t get a very expensive education. They’re specialized. They’re not under pressure to pay back $60,000 a year loans, and they’ll provide this service and they help that kind of individual. So, you see improvements throughout the board on prices. 

How about though, the efficiency of law firms? Now, you’re not just restricted to being owned and managed by lawyers, but you realize, look, we need to get with modern times. We need people with expertise, let’s say in information technology, computers, so on and forth. We want these guys in our firm, and we want them to guide us into using the latest technologies to be, let’s say, much more efficient in document search or strategizing about cases, all sorts of things, where technology could be helpful, but it’s limited in the sense that these guys could be part of the firm, but they’re not owners and they’re not going to get in on the big money. So, now you can get people who are part of the profits, and they’ll join the firms and help them become more efficient. That’s on the technology end. 

What about the management end? Who is it that manages law firms? Lawyers. These are not MBAs, and there’s no reason to expect that these guys are great managers. In fact, there’s evidence that suggests they’re not good managers. So here again, law firms could be more open to recruiting MBAs as the people who are actually managing and running these firms. Again, you get efficiency there. So, that’s now, we’ve covered two parts of it. And there’s the final part. We’ve covered the consumer side, benefits from lower prices, more services. 

Bob Hahn:

Let me stop you here for a second. 

Clifford Winston:

The punchline will be coming.

Bob Hahn:

Yeah, so I don’t want to spend the whole podcast on the legal profession.

Clifford Winston:

Well, this’ll tie back to the book. This will tie back to the book.

Bob Hahn:

Okay. That’s cool. I guess what I want to know is what are the policies you’re advocating? Are you saying no longer government or the American Bar Association should require a legal degree to practice law? Or what are you saying?

Clifford Winston:

Okay, let me, let me get to my punchline, and I’ll give you my policy. 

Bob Hahn:

Thank You.

Clifford Winston:

All right. The final part is what about government? Lawyers have an incredibly important role in government. They are the most important profession in government. They’re presidents. They’re obviously the leading occupation in Congress. They have their own branch of government with the courts. Here is the problem with them. They are intellectually siloed. I mentioned before a broader multidisciplinary education. Because of regulations, lawyers, “grow up together in law school.” That’s it. They don’t go to law school with economists. They don’t go to law school with scientists. They go to law school with lawyers, and they get law degrees. They work with lawyers. They go into government and work with lawyers. They are not exposed to broad public policy perspectives involving economics, statistics, math, and so on and so forth. At any time, you’ll confront even a judge with a technical argument. And they’ll say, look, I went to law school because I was told there’d be no math, and now you’re giving me math, right? This is not the foundation that we need for public policy, which is exactly what law is. 

So, my point is you open everything up. This also could have a potentially big impact on the quality of public policymaking in this country, simply because lawyers now will have a much richer, broader exposure to policymaking from a multidisciplinary perspective, especially economics, of course, but that will be true with judges. All right. 

So, to get to your question, how was this accomplished? Open it up. We end all required regulations. That is, the American Bar Association could still exist and accredit law schools, but some other bar association could all of a sudden exist and say, we’re going to do this, right? Let the market take care of this. Both in terms of accreditation, in terms of types of education people get, we have all the information we’re going to know about these people. So, I see no reason for regulations, but I see the potential benefits may be bigger than any industry that we’ve ever deregulated because the effects of the legal profession cut across virtually all aspects of our society. 

And that is a big point then of my book, is that when you do these kinds of things, you know, they have much broader effects than you often anticipate.

Bob Hahn:

Right. Let’s talk about it. And that was very helpful. Let’s talk about another big sector, which you spend a lot of time on, on different social issues that are very important, like education, but I want to turn to healthcare. And I guess you talked a good bit in your book about healthcare and some of the amazing advances that have been made in the private sector, but I didn’t see that you spent much time on actually redesigning the healthcare system. Though, you did talk about your personal experience, which I thought was interesting. 

When I go to the doctor, one of the salient features for me is that I either have a very small copay or no copay. I’m on Medicare now. So, I don’t have a direct incentive to worry about the cost of the services that my doctor is providing. Stated another way, I don’t have a lot of skin in the game. Do you think that’s a really important element of the system that needs to be changed in some way? Also related to that, and you talked about this a little bit with your own personal experience, you or one, doesn’t always know what the price is and opportunities are elsewhere in the medical system when you have an operation. Is that a problem in terms of getting better price transparency for what we’re actually purchasing?

Clifford Winston:

Okay. So, in many ways, the point of the book for non-specialists or the general audience is to help sharpen your intuition, because in many ways, pretty much everything I talk about in the book repeats itself in some basic principles. Okay. So, let’s just try to apply that template with this question. And remember the most important thing is first step back, what’s the problem we’re trying to solve with healthcare? What exactly is that problem? That’s a little tricky because oftentimes we can identify certain problems was your pure efficiency issues, right, and say, okay, we want to provide these goods with maximum efficiency, how do we do it? Or even social issues, we want to prevent discrimination against people based on anything. Okay. Healthcare covers everything. And in a sense that it’s sort of hard to say, there’s one particular thing we’re trying to accomplish because we are simultaneously trying to improve the quality of healthcare that people receive, but also improve the extent of health care that’s provided. That is, it is important for distribution to more people to get it, and we want to minimize the cost of doing all this. 

So, you have these formidable objectives, if you will, subject to a pretty big constraint in terms of costs. All right. So, that’s broadly really what we’re trying to do. And again, I think heuristically, as far as we know, the best way to accomplish this is through competition. That is as many areas as possible, we want to try to have parts of the healthcare system, whether it be hospitals, whether it’d be doctors, subject to competition and try to reduce cases which are preventing competition. But then at the same time, we are certainly aware that we want to make healthcare as accessible as possible to people. And so, we have to realize, yes, there probably will be some role for government subsidies unless we can work within the private sector to provide this kind of service.

So, this one is obviously one of the more challenging problems of our time, but simply because of the breadth of the objectives, the constraints, and the difficulty sometimes, because it’s such a hybrid system, but you know, more broadly to the extent that we can think of ways to keep things competitive, that’s going to be helpful. Now, I would also say again, this is another area that extends into so many other areas, education. It is just startling how little people know about their own health. And if they knew certain things, I mean, myself speaking, and you mentioned a personal anecdote that I have in the book, if I really had to do it over again, I would have learned something about taking care of my spine as a runner. Because of all the wonderful things that running does, it does have a cost, or can have a cost and really smash you up in your spine. And that’s a nasty thing to have to try to treat.

So, I think that’s another important part of it, is that we have to have much greater health knowledge, because oftentimes, not only do people not realize things they need to do to take better care of themselves, but they don’t realize they need to be their own advocates when they deal with health matters. It probably has been my case that everyone I’ve dealt with is competent. There’s no question about it, but health problems are tricky, and it’s not always the case that your’s is a very simple thing to diagnose. Everyone’s different, and you’re the one that’s going to have to think about how was this procedure going? How is treatment going, and sort of say, “I need to seek out other people,” as opposed to being in pain for 10 years, so on and so forth.

So, this is really an area where I think we could get enormous strides. Both in terms of reducing the costs of healthcare services, because people would take better care of themselves, but also have a better understanding of what to expect from healthcare workers if we had much better education in this area. So, you know, unfortunately, I can give you broad templates. This is really one of our perennial problems, but I think they do apply. And these are the kinds of things that we want to go to. At the very least, I’m sure we do want to avoid things that do not go in this direction. So, that’s my take on this.

Bob Hahn:

I want to segue into another issue that you brought up. So, you mentioned that markets, if left to their own devices, where government sets the broad ground rules, and I’m using my words here, can do good things for people and often do good things for people. But you also raise this issue that markets may be good at dealing with issues of inequities or inequality in addition to what they’re traditionally known for, which is helping seek out through trial and error, the most efficient solution. So, do you want to just share your thoughts on the equity side and what role markets might play there?

Clifford Winston:

There are two aspects where markets have a potentially important role on equity. One of them is, I think, well known. The other is sort of less considered at this point. The first is just a realization that there is money to be made in serving low-income people. People seem to think you really do not have a sustainable business model in many areas, just serving rich people. So, your markets can be very helpful because they have an incentive to serve low-income people. 

So, what’s an example of what I’m talking about? Well, let’s consider transportation. Now, one major concern is our public transit system, despite the heavy subsidies, does not provide particularly good service in low-income areas. But markets where they’re allowed have come in with private van service, and in other countries, minivans, private minivans are a big source of “urban transportation” throughout the world, except for America.

And so here, they’re called dollar vans. They come in, and where they’re allowed to do it, they respond to the low-income neighborhoods’ need for good service and they provide it, and these are the kinds of examples where here we have something that public transit is supposed to do, and they don’t do it. And this has occurred. Actually, other cities, some are getting frustrated and saying, look, “We’re going to have our own private transit system because the public system is not adequate.” So, just the basic principle is yes, there is an incentive to provide service for all people because you can make money doing that and markets should be allowed. And when they are allowed to do it, they can be very successful. 

Now, the other area though, is the broader area of equity in terms of the social net, whether this includes poverty, an anti-poverty policy, anything involving that package of quality of life. And this is a new area. And you know, we’re hearing some discussion of this by corporate executives who say, “Look, we want to play a bigger role, or we think we can play a bigger role.” And some firms on their own have come out and said, “Look, if you work for us, our minimum wage will be $12 an hour.” Things of that sort, all right. Now, people are cynical and say, “Well, they’re just doing that because there’s tight labor markets or for whatever reason.” And that’s an open question, but it is suggestive. I mean the best anti-poverty policy is a job. And who is the best provider of jobs, but the private sector? And so, it is not unreasonable really to start thinking, well, maybe the private sector could play a much bigger role in dealing with our anti-poverty policies, or also merit good policies as goods that we think everybody should have and see what we can do to incentivize private firms to play that kind of role. 

So, I just briefly outline that idea in the book, and you probably don’t have the time now to go through it, but it’s just a thing that’s worth thinking about, that markets and private sector incentives should not just be limited to the standard efficiency issues about income wealth and whatever, but that there are creative ways to deal with our social problems that firms can potentially address, and I think we need to be open more to that possibility, and as appropriate, incentivize that kind of activity. 

Bob Hahn:

Great. I wanted to ask you about two other ideas in the book before we close. One relates to your proposal about experimentation. I was wondering if you could just tell us a little bit about what you had in mind there and maybe provide an example about the need for experimentation.

Clifford Winston:

Okay. Well, experiments are something that we all do as human beings, whenever we try a job, we try a restaurant, whatever. There’s a lot of learning that comes about from experimentation, often as much from failure as success, that we realize that what we like, what we don’t like, so on and so forth. Well, that’s the same kind of thing that can carry over into market settings, that we can experiment. Are there ways that we can get competition and innovation where we didn’t think we could get that? Now, the most obvious place of that is privatization. That is, we’ve already started to lock things down and said, “Look, the public sector has to provide this service.” And again, stepping back you know as to the rationale, oftentimes it could be well because the private sector would degenerate either into a natural monopoly or destructive competition, but you know, times change, and maybe that’s not true anymore.

And so, an obvious experiment to me would be privatizing airports. A number of airports exist in several metropolitan areas. We have Washington Dulles, BWI Baltimore-Washington, Reagan National. There are three airports. Three could be plenty, and these airports already are competing. Why not privatize them with separate owners and let them try to become much more efficient in terms of their pricing and investment policies and so on and so forth and work themselves in attracting airlines? You rarely see, in the same metropolitan area, the same airline at more than one airport. Oftentimes, they split up. Well, maybe this should be different. Maybe it should be the airport trying to attract the same airline to serve all their airlines, doing different things or providing competition to different people. But that would be an experiment. That’s an example of pick a city like DC, New York, whatever, and privatize it. So that’s certainly where… 

Bob Hahn:

That’s great. I’m going to take the liberty of truncating you here because I want to talk about one other big idea that you had in the book. But I think what you were saying was through trial and error, the government can learn what works out there in the real world and should be open to these kinds of experiments. So, let me turn now to what I will call your final recommendation, which relates to your idea of a commission, setting up a commission. So, do you want to talk about what you had in mind there and why you think that might work or might not work as a way of getting markets to work better?

Clifford Winston:

So, yeah, I mean, obviously we’re academics and our job is to sort of put these ideas out there, but you know, most academic ideas, and this is probably for the good, you know, die on the vine. But I think it is important to at least try to be semi-proactive about this and think, how can these ideas get out there, that in my view, policymakers need to have a greater appreciation for what markets have done and what markets could do, and it would be good to get a group together of people who are in the corporate world, academic world, and the policy world, on some organized basis, form a commission to start thinking about these things, with the goal of asking, where can we have greater market participation to the benefit of the public? 

And with the idea of experiments, I’m quickly struck by a Nobel Prize being given to people for natural experiments. And these were mentioned in the 1990s, but people seem to have forgotten that in the 1960s, economists were thinking about natural experiments involving regulated interstate airlines, charging fares between Washington and Boston that were considerably higher than unregulated airlines charging fares between Los Angeles and San Francisco. That to me was one of the early natural experiments that set the stage for airline deregulation. And my point is, these things are out there if policymakers want to see them. If policymakers want to pursue them, they can get a sense of what markets have done and more things that markets could do. But I think it’s important to get everybody on board with something like this. And I think a commission would be a good way to start, and so that’s what I outlined in the book.

Bob Hahn:

So, I’m happy to nominate you to be Chair of the Commission, but I want to tee up one more thing for you. And that is you now have a minute with President Biden related to his Build Back Better initiative. What do you advise him to do?

Clifford Winston:

Deregulate the legal industry. It cuts across so many things. People just do not realize that it is probably the most important industry of them all because it not only affects its own industry, but it affects government policy, and that affects the world. That’s what he’s got to do.

Bob Hahn:

The world is good. We’ve been talking with Clifford Winston of Brookings. Cliff, thanks for joining Two Think Minimum

Clifford Winston:

Thank you. Good to talk with you as always.

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