Private Production of Public Goods?

A very common misperception about the nature of goods and services limits our intellectual horizons on the good that can come from free market capitalism.

I refer to sustainable development and the current global discussion as to how best to implement the 17 U.N. Sustainable Development Goals (SDGs). Most of the goals in their objectives contemplate provision of a public good or service or the reduction of a public “bad,” such as disease, pollution or discrimination.

What is overlooked is how to scale the production of such “public” goods to have a global impact.

When many of us hear the term “public,” we immediately default to a vision of something provided by the government and not by private markets. “Public” goods traditionally have been paid for by taxpayers and delivered by government.

But that does not have to be the case. Many so-called public goods, such as health and education, are also simultaneously private goods. Health is good for individuals, just as is more education.

Where the use and benefit of goods has a private, personal ownership character, why not use markets and business for production and delivery? After all, both health and education have long been provided by doctors and teachers offering services for a fee.

We might also do well to think of the capacity of private transactions to reach huge scale. Consider the internet and the digital economy. Private businesses like Google and Apple have provided more access to more people more quickly and more efficiently than governments could.

I have just read of several sectors where private business could make a dramatic impact on implementing the SDGs. One is the production of air conditioners. One billion air conditioners will be installed in the next 10 years. Heat waves kill people. It also reduces hours at work in many countries. Lack of refrigeration causes loss of food crops to rats and insects in many developing countries. If HFCs were phased out of the air conditioners made by companies and the energy use by all were as low as in the best of today’s models, millions of consumers buying such machines would make the world better. Replacing refrigerant would reduce greenhouse gas emission by 90 billion tons by 2050.

Large cities are complaining about road congestion and point a finger of blame at ride hailing vehicles. But what about road pricing? Using price to drive consumption levels of a private good – transportation?

In the mid-pacific, somewhere between 45,000 and 129,000 tons of plastic debris floats on the surface of an area roughly the size of Alaska. How to remove such non-biodegradable garbage? What about a private enterprise which would sweep the plastic up and sell it to recyclers?

This is being attempted by Boyan Slat. He designed a boom to float on the surface of the ocean and hold a mesh net under it. As the wind and waves sweep the boom over the water, plastic debris is collected by the mesh net. Occasionally, the net is retrieved and its haul of plastic picked up, taken to land and sold. An investment of 5 million Euros is needed to put into the collection business a similar boom of 1 kilometer or more in length.

Thirdly, in The Netherlands, two Dutch firms have created a road bed made from recycled plastic instead of bitumen. Sections of road are prefabricated in a factory and then installed as a road bed. These plastic road beds will last two-to-three times longer than conventional roads and cost less. They would eliminate the need to use bitumen made from hydrocarbons and provide a use for plastic which needs to be recycled.

These examples point us to a best practice: private enterprise generates new technology, works out the problems and deploys the product to whatever scale society wants to pay for.

Moral capitalism, anyone?