One of the very first books I ever read on economics was Post-Capitalist Society by the Austrian Peter Drucker. This may seem odd for those who know Drucker, considering he was known as a management guru, and not an economist.
To this day, I am not sure what economic credentials he had to write that book. It certainly did not represent any application of economic theory; it was rather based on his understanding and experience through dealing with management problems in corporation.
What I am sure of is that this book somehow made an indelible impact on how I view economics. Despite the somewhat controversial title of the book, Drucker expressed deep confidence in the ability of markets to make things work.
Moreover, Drucker expounded on his belief that a post-capitalist society would no longer be divided into the government and private sectors. Rather, he suggested, it would be divided into three: the government, private, and non-profit sectors.
Drucker criticised the ability of government to provide goods and services. But at the same time, he recognised that the private sector was incapable of properly providing basic things ("merit goods" is the economic term for them) such as education and healthcare.
For this reason, he hypothesised that there would be a third sector — the non-profits. These charitable organisations would be the key provider of things such as healthcare and education.
Because they were driven by altruistic motives, rather than greed, Drucker thought that they would be better placed to provide such services. At the same time, they would not suffer from the government's Achilles heel of wastage and inefficiency — because they could not afford to waste anything (no taxpayers or budget deficits to fall back upon), they would have to be as efficient as possible.
This sort of thinking enthused me, especially because of its eminent logic and sensibility. After all, the hospital my family always goes to for any medical problem is a non-profit, originally set up by a Catholic nun. And the world's top universities (Harvard, Yale, Cambridge, Oxford) are all generally non-profits, run without the vast resources of a government to depend on, and run without the profit motive of a greedy corporation.
Although I have since rejected some of Drucker's more naive ideas, such as the apparent belief that non-profits could survive without any government intervention, their spirit has remained with me. The more I think about economics and economic issues, the more I realise how logical it is to think about the economy in the way Drucker outlined.
The prevalent thinking among most leftists at the moment is that government must be the sole provider (or at least the main provider) of, at the very least, crucial things like education and healthcare. Meanwhile, right-wingers believe that the market will be able to sort things out, even though this ignores the poverty cycle (also known as the poverty trap) that results when people have no opportunities to advance themselves, being broke.
Like Drucker, I think there is a third way. Government should not be providing goods and services which can at least partially be provided by the market, because it has a tendency to over-spend and unnecessarily waste resources. But neither should society ignore the poverty trap.
The solution is for the government to pay for goods and services provided by a third party. The consumer makes the choice, the government pays, the firm or non-profit provides. There are of course problems with this; for example, there has to be a cap on consumer spending to avoid people choosing unrealistically expensive goods and services.
But still, I think the spirit of the post-capitalist society holds up to rational scrutiny. We can internalise the externality of poverty without the attendant inefficiencies of a government monopoly, if only we look for a third way.