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August 14, 2010 / David Woodford

Charity and the public sector

I belive that the role of government should be only to provide public goods (that is those that cannot be provided by the private sector). However I still belive that the welfare state and the NHS should be maintained and here is why.

Firstly we must realise that the welfare state (which for the purposes of this includes the NHS) is really just charity. It is a group of people (taxpayers –  that is every one) giving money to another group of people without asking for anything in return. People get sentimental about charity and giving money to a good cause but really when you look at it charity is just a service that you can pay for. People don’t want to live in a society where people are left to die of starvation or are left homeless and they are willing to pay money in order that they don’t. People can want this for two reasons. Firstly that they want to help people, which is usually the case in private charity, but also because, particularly with the public sector, it is seen as insurance against becoming one of the disadvantaged people who need help.

So if charity is just like any other service and we belive that the role of government in the economy is just to provide public goods and services why should the welfare state exist? It is because it is a public good which means the private sector can’t provide it. A public good must have three qualities:

  • Non-exclusive: This means that if someone doesn’t pay there’s no way of stopping them enjoying the benefits of it. This is true of charity since if you don’t donate to charity but other people do you can enjoy the freedom from people dieing of starvation just as much as them.
  • Non-Rejectable: This is what it sounds like –  you can’t reject the service. If, for some strange reason, you don’t want to receive the effects of other giving to charity you can’t choose to continue to live in a society where people are deserted when they have no money. This part isn’t as important in the case of charity as most people don’t object to it but in other public goods such as defence it is, you may for example be a pacifist and would rather there wasn’t an army even if you didn’t have to pay for it.
  • Non-rival: This means that one persons use of the good doesn’t reduce another persons. We must remember that in the case of charity the service which is public is that of receiving the benefits of living in a society where there is charity, not being the person who receives the charity. Charity is non-rival because if I enjoy living in a society where we look after people who are disadvantaged it doesn’t stop you from enjoying it unlike if I enjoy eating an ice cream then there is less ice cream left for you to enjoy.

The most important of these is of course non-exclusive as it means charity suffers from the “free rider” problem where people who would be willing to give to charity, to enjoy the benefits of living in a society where charity exists, don’t because they can enjoy the benefits of other people’s charity. This means that relying on voluntary donations would result in a lower amount of money donated than people would be willing to give and therefore a lower level of charity than people actually want. To solve this problem we must rely on forcing people to pay for charity through taxes and allowing them to decide collectively through a democracy how much they want to pay.

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