The Analysis of Welfare State Reform: Why the "Quasi-Markets" Narrative Is Descriptively Inadequate and Misleading

By McMaster, Robert | Journal of Economic Issues, September 2002 | Go to article overview

The Analysis of Welfare State Reform: Why the "Quasi-Markets" Narrative Is Descriptively Inadequate and Misleading


McMaster, Robert, Journal of Economic Issues


My basic objection to the theory of general equilibrium is not that it is abstract, but that it starts from the wrong kind of abstraction, and therefore gives a misleading "paradigm"... of the world as it is: it gives a misleading impression of the nature and the manner of the operation of economic forces.

Kaldor

The "Great Capitalist Restoration" (Stanfield and Stanfield 1996) of the 1980s and 1990s has generated a profusion of comment--not least from institutionalists. Yet there is one aspect of the literature that remains undeveloped in social policy dialogues: the importance of conceptual framing effects of the narratives employed. This paper proposes to investigate one aspect of these framing effects in the economic and social policy literature, mainly in the United Kingdom but also in other parts of Europe. Here the term quasi-markets (hereafter QM) has been popularized by a new institutionalist-oriented investigation of recent reforms to the welfare state.

Oliver Williamson (1975) originally coined the QM term in Markets and Hierarchies. However, as with much of his terminology, Williamson offered no definition, and the term is notable by its absence from his subsequent output. (1) Consequently, this paper contends that the QM narrative is, at best, no more than an example of sloppy terminology and descriptive paucity, and its grounding in transaction costs economics can present the potential for misleading, or even insidious, prescriptions.

Analytical clarity is aided by clarity of terminology: without the latter there is confusion, which can ultimately engender misleading claims and advice. No less a figure than Paul Samuelson stressed the importance of description in his Foundations of Economic Analysis,

Most economic treatises are concerned with either the description of some part of the world of reality or with elaboration of particular elements abstracted from reality. (Samuelson 1983, 7, emphasis added)

Nevertheless, the terra now has the status of an "accepted" definition of, particularly but not exclusively, UK reforms dating from the 1980s (see, for example, Chalkley and Malcolmson 1996a, 89; Deakin and Michie 1997, 23; and Kitchener 1998, 74, and the volumes of papers edited by Will Bartlett et at. (1998) and Rob Flynn and Gareth Williams (1997)). The QM narrative is evident not only in economics but also in works in social and public policy, politics, education, health, and so on. Given this, throughout this paper the terms QM approach, QM authors, QM literature, QM narrative, and QM rhetoric will primarily, although not exclusively or exhaustively, refer to the principal contributions in the economics field, namely (but by no means exhaustively) Le Grand 1991 and Le Grand and Bartlett 1993, Flynn and Williams 1997, Deakin and Michie 1997, Propper 1993a, b, 1996, and 1998, and Chalkley and Malcolmson 1996a, b.

Le Grand 1991 and Le Grand and Bartlett 1993 provide the most cited definition. For them QM captures the sine qua non of welfare state reform since,

[the reforms create] "markets" because they replace monopolistic state providers with competitive independent ones. They are "quasi" because they differ from conventional markets in a number of ways. (Le Grand 1991, 1259-60, emphasis added)

These distinctions include market structure, property rights patterns, non-profit maximization, and the pricing of outputs. There is no explicit account provided as to what precisely constitutes a "conventional" market. Yet QM authors appear sanguine that the term represents an adequate description and classification of the reforms.

This paper asserts that there is evidence that the QM literature equates "conventional" commercial markets with basic neoclassical notions of steady-state atomistic "competition." As opposed to clarity of definitions being sought, the literature appears more concerned and pre-occupied with issues of market structure. …

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