Saturday, October 7, 2006

Eliminating choice impoverishes society

Published on www.onlineopinion.com.au July 10th 2006

The concepts of choice and freedom are inextricably linked and I will argue here that just as human freedom is an absolute good and should only be curtailed when it would limit the freedom of others, so choice is, in almost all cases, an absolute good and should be maximised in virtually every possible situation.

In order to avoid the evils of totalitarian rule, we must assume, unless presented with overwhelming evidence to the contrary, that adult citizens are the best directors of their own lives. We must acknowledge that the individual is the best judge of the direction of his or her life, which talents he or she should exercise and how and where individuals seek their fortunes. With this responsibility individuals flourish or flounder according to their own endeavours and learn from both successes and mistakes.

By placing the responsibly for choice at the feet of the individual, society acknowledges the inherent intelligence of every adult citizen, and with this acknowledgement the inherent intelligence is encouraged to grow and find its full expression.
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Consider a trivial and somewhat absurd example. Every weekend a small army of Australian citizens mobilises in pursuit of the perfect lawn. Citizens across the nation fire up their motor mowers and set out to mow their own lawns.

Suppose a benign, but misguided government, were to come to the conclusion that this onerous task was beyond the competency of the average Australian and established a Department of Domestic Lawn Management. Suppose further that it increased taxes and arranged for lawns across Australian to be mowed by Domestic Lawn Management engineers. Before long most Australians would have forgotten how to mow their own backyards. The fine art of mixing fuel, changing spark plugs and setting blade heights would be lost, and the community would be poorer for it.

Take away the responsibility and the ability disappears. Multiply this effect a hundred fold, once for every government service which could be performed by individuals and the degradation of the citizenry becomes evident.

In the same way, removing choice from citizens for important issues such as health, superannuation or schooling disengages the population from these issues. In his book, An Economic Theory of Democracy, Anthony Downs shows that voters are by and large ignorant of many important political issues, even at election time. Down argues that this disengagement from the political process is rational because voters know that their individual vote is unlikely to decide an election and that the direct result of casting a well-informed vote is almost nil. Since the voter has limited time and resources to devote to following political developments, it is rational that he or she invest these in following issues in which an individual has a direct means of influence.

Thus we see that dinner table discussion in Sydney are dominated by fluctuation in local house prices rather than the latest federal initiative to further centralise education by introducing a common leaving certificate for all states.

People take an interest in issues upon which they have some direct influence and which immediately affect them. It is for this reason that competition, choice and market forces make such a powerful engine for driving innovation and excellence. Take for example these comments (pdf file 1.45MB) on superannuation by Malcolm Brough in parliament in June this year.

Today we are here to talk about choice. … This side of the House actually believes [the Australian people] have the capability to choose for themselves, and they have done so ... It was interesting to read [in] the Financial Review today … the headline: “Everyone’s a winner in transition to choice era”. That is the Financial Review giving it the thumbs up. Why are they a winner? They are a winner because people have lower fees, better service, greater choice and a greater return on their savings ... As the Australian people head into Christmas time, they will know that this government will continue to provide choice.

I have argued elsewhere that similar reasoning holds for choice in education.

Individual freedom and individual choice is a powerful force for excellence, especially when there is a mechanism to pool the collective intelligence of a large number of people.

In his book The Wisdom of Crowds, James Surowiecki argues that complex problems should not be tackled by small homogenous committees, but by large crowds of people who have the means to pool their collective wisdom.

In the context of education say, this would mean that market forces which harness the choice of the entire parent body of the state would do a better job of developing a refining school curricula than a government appointed committee. Surowiecki argues that markets have a remarkable ability of making hard decisions quickly and accurately.

He retells how, on the day of the Challenger space disaster, the market wiped 12 per cent off the value of the stocks of Morton Thiokul, the company which built the solid fuel booster, thereby passing its judgment on which company was most responsible for the disaster. Six months later the presidential commission of inquiry into the disaster concurred with the market’s verdict.

Individual choice is also the most efficient way to transform cash into goods and services. Consider the following three methods of spending:
  • method one: X spends Y’s cash on goods and services which will be consumed by Z;
  • method two: X spends Y’s cash on good and services which will be consumed by Y; and
  • method three: X spends X’s cash on goods and services which will be consumed by X.
Methods one and two are obviously less efficient that method three. When X spends Y’s cash X is not motivated to be as frugal as when X spends own money. When X buys goods and services on behalf of Y, X may not make selection which exactly fits the needs of Y. In method three, X knows exactly what X needs and is motivated is find the most cost effective solution. Furthermore, all of X’s cash is used to procure the goods and service and none is wasted on paying Y’s salary.

Government spending is a mixture of methods one and two while individual choice and the free market closely resemble method three.

Choice is a powerful engine for excellence and innovation and an efficient means of expressing consumers’ needs. But with choice comes responsibility, the responsibility to be informed, to be wary and to choose wisely.

There is also a responsibility to have control over one’s desires and to resist the resentment or envy which can arise when confronted with choices beyond one’s means. Having the self-discipline to live within one’s means and to increase one’s income through legitimate avenues and appropriate risk taking rather than resorting to crime or foolhardy gambling is a responsibility citizens in a free market must discipline themselves to exercise.

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