EPILOGUE: CHOICE, EFFICIENCY AND CONTROL IN THE PUBLIC SERVICES

Publication Date01 Feb 1963
AuthorUrsula K. Hicks
DOIhttp://doi.org/10.1111/j.1467-9485.1963.tb00920.x
EPILOGUE
:
CHOICE, EFFICIENCY AND CONTROL IN
THE PUBLIC SERVICES
URSULA
K.
HICKS
I
THE
reproach that they had neglected the theory of public expenditure
has long been thrown at economists in the field of public finance. Of
recent years this accusation has become entirely unjustified. To go no
further, the wide range of subjects covered in the preceding contribu-
tions is suflicient indication of the interest now taken in this side of the
subject. Indeed since the beginning of the last war there has been
a
spate of books, articles and discussions, concerned in some way with
the theory and practice of public expenditure. Among the most
important have been the studies made at RAND, stemming from
operational calculations during the war for the
U.S.A.F.,
in which
Dr. McKean, one of
our
contributors, played
a
leading part. Beyond
this there is the important theoretical
work
of
Prof. Samuelson (in the
'
Pure Theory of Public Expenditure
'I
and other works) and of Prof.
Musgrave's major contribution
'
On the Satisfaction
of
Public Wants
'
in his
Theory
of
Public
Finance.
All this activity could hardly have developed
so
rapidly and
effectively if many of the foundations had not already been laid, some
of
them right back in the nineteenth century. Although the terminology
was very different, many of the early propositions can be restated in
modern terms, and are then seen to have
a
much greater generality
than appears at first sight. The early analysis was essentially
a
micro
approach, and was stated in terms of the tax side, hence considerations
of expenditure would have been out
of
place at that stage of analysis.
Nevertheless the welfare aspect was at least
as
important
as
the produc-
tional aspect in the analysis of the comparison
of
loss
of
consumers'
surplus from different taxes, depending on the elasticity of demand for
the taxed goods. The Marshallian model was drastically simplified:
but it can easily be extended
(for
instance
so
as
to allow
for
income
as
well
as
for substitution effects), or it can be restated in cost/benefit
terms.
An implicit allocational criterion may
also
be claimed to have been
present in nineteenth century reasoning, concerning the optimal transfer
of resources from the private to the public sector by means of taxes.
This discussion was also implicitly concerned with matters of time
R.
E.
and
Stats,
195415.
146
EPILOGUE
147
preference, since public outlay had no investment content, and personal
income taxes could be expected to impinge directly on the volume of
investment, which was then almost exclusively concentrated in the
private family firm.
The renaissance of the allocative element came with the extension
of consumers’ surplus analysis in the ‘new welfare economics’ (an
unfortunate name derived from Pigou), of
N.
Kaldor,
J.
R.
Hicks and
T.
Scitovsky2 (to mention only the pioneers). This analysis came in
with the tide of macro interest deriving from Wicksell, and other
continental writers,
as
well as from Keynes. The ‘new welfare
economics’ was taken up all to enthusiastically,
as
purporting to give
an explicit answer to allocative problems. But
as
has been remarked
by Prof. Eckstein,3
economic policy is rarely concerned with the
attainment of the best of
all
possible worlds’. This type of analysis
(including the definition of the production and exchange-or utility
optimum-by Samuelson
and
myself’) is
I
believe much more appro-
priately viewed as
a
frame
of
reference within which individual policies
can be judged and ‘ordered’, rather than
as
leading
to
practical
answers, in the macro framework.
Much of the criticism of welfare economics (for instance by Little
in the
Critique,
and by Graaff)” was thus beside the point. In applica-
tion, however, even when correctly understood, there were some dark
places in the exposition of welfare theory that needed clearing up. One
of these was concerned with the case where a reallocation which in itself
would be
a
step in the right direction, might turn out not
to
be
so
(or
even be a step in the wrong direction) due to imperfections of various
sorts in markets in the private sector. Another was concerned with
distributional aspects, which were indeed largely neglected in the
original statements.
Dr.
Eckstein has shown however that there are
ways round both these difficulties: for the first by being content with
a suboptimal solution, which at its own level can be evaluated; for the
second by writing in
a
distributional constraint, such
as
Little’s proviso
that
a
reallocation which would make the distribution of income less
acceptable than before should not be adopted. With these qualifica-
tions it can now be claimed that the welfare economics analysis can be
the foundation of
a
most useful theory of choice in the public services.
For instance.
N.
Knldor. ‘Welfare Propositions and Iperpersonal Corn-
parisons
of
Utility’,
(Economic
Journal
1939),
J.
R.
Hicks, The Valuation
of
the Social Income
,
Economica
1940 and
‘A
Rehabilitation
of
Consumers’
Surplus
,
R.E.S.
1941.
T.
de Scitovsky,
‘A
Note on Welfare Propositions in
Economics
’,
R.E.S.
1942.
N.B.E.R..
Pirhlic
Finances,
Needr, Sorrrces
arid
Utilisntion.
Sarnuelson. Foundations, pp. 230, 238/9.
Hicks,
U.
K.,
Public Finance,
ch.
vii.
Theory
of
Welfrire
Econoniics.

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